- --------------------------------------------------------------------------------
A MESSAGE TO SHAREHOLDERS
- --------------------------------------------------------------------------------
Dear Fellow Shareholders,
We are very pleased to report that the six months ended February 2000 was a
period of continued recovery for the real economies of Asia. In spite of this
improvement in real economic activity, investment performance during the period
has been mixed. The performance of the six funds in the Matthews International
Funds series ranged from (6.1%) in the case of the Matthews Korea Fund to 23.4%
in the case of the Matthews Pacific Tiger Fund. These returns must be seen in
the context of the generally strong performance from the market lows of two
years ago, and, in our opinion, reflect a reasonable consolidation following a
period of rapid gains.
Asia (ex-Japan's) rapid recovery from the depths of economic crisis has
confounded many skeptics who believed that it would be many years before growth
could be restored to anything like pre-crisis levels. While there is still much
room for improvement in the region's financial structures, regulatory bodies,
corporate governance, disclosure and transparency issues in general, we believe
that the recovery is very real and a result of genuine reform. Prior to the
crisis, the region's economies were characterized by strong central government
influence in capital investment decisions, a propensity to invest in
capital-intensive industries with large fixed assets, a highly bureaucratic
capital allocation process, and a general disdain for free market economic
principals.
Many measures have been enacted post-crisis at the behest of the International
Monetary Fund (the "IMF"), the World Bank, and international investors aimed at
changing this model. There are already many signs that these fundamental changes
are working. The development of secondary markets in Asia such as the KOSDAQ in
Korea, the Mother Market in Japan, the SESDAQ in Singapore, and the GEM in Hong
Kong, all now growing rapidly, exemplify the opening of financial markets in
Asia as a whole.
We are very pleased to have added a new fund to our series in late December last
year. The "New Economy" has arrived in Asia with a vengeance. In our opinion,
the combination of Asia's new free market spirit, the much-improved regulatory
environment and the rapid deployment of new technologies is the region's best
hope for the achievement of its long-term growth potential.
The Matthews Asian Technology Fund is designed to participate in a sector that
we believe will be at the forefront of this growth. From Japan to China, Asians
are adopting new technologies and new business models at a staggering rate. For
Asia's overall recovery to continue, significant improvements in productivity
will have to occur, and the best hope for that is the application of new
technologies. Asian corporations have historically invested proportionally less
than their U.S. counterparts in information technology, and we believe that most
now recognize this must change. As long as the trend towards more
market-oriented economies remains intact, we believe a profound shift will
continue for many years.
While reform continues in the region, improvements are by no means uniform. In
South Korea, for example, the pace of asset sales, corporate downsizing and
restructuring has slowed following the initial flurry of activity between
January 1998 and mid-1999. Additionally, tensions continue between Taiwan and
China despite the promising embracing of democracy by Taiwan in its recent
election.
Overall however, we are extremely confident in the prospects for both the
region's economic prospects and the outlook for its financial markets. While
these markets will be sensitive to any setback in the U.S. market, they are
still in the early stages of a new expansionary cycle, which we expect to last
well beyond this year.
Sincerely,
/s/ signature omitted /s/ signature omitted
G. Paul Matthews Mark W. Headley
Chairman, President,
Chief Executive Officer, Portfolio Manager
Chief Investment Officer
1
<PAGE>
- --------------------------------------------------------------------------------
MATTHEWS INTERNATIONAL CAPITAL MANAGEMENT, LLC INVESTMENT MANAGEMENT TEAM
- --------------------------------------------------------------------------------
[photo of G. Paul Matthews and Mark W. Headley omitted]
G. Paul Matthews Mark W. Headley
Chairman, President,
Chief Executive Officer, Portfolio Manager
Chief Investment Officer
[photo of James M. Bogin omitted]
James M. Bogin
Portfolio Manager
[photo of Richard H. Gao omitted]
Richard H. Gao
Portfolio Manager
[photo of Andrew T. Foster omitted]
Andrew T. Foster
Assistant
Portfolio Manager
2
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER'S COMMENTS
- --------------------------------------------------------------------------------
MATTHEWS ASIAN GROWTH AND INCOME FUND
Portfolio Manager: G. Paul Matthews
Q: HOW DID THE FUND PERFORM IN THE SIX MONTHS ENDED FEBRUARY 29, 2000?
A: In a period characterized by rising equity prices, the Matthews Asian Growth
& Income Fund did well in view of the lower risk level and the defensive nature
of its holdings. With 72% of assets invested in convertible securities, the Fund
still returned 10.1% for the six months ended February 29, 2000, beating the
MSCI Far East ex-Japan Free Index(2) and performed in line with the MSCI Far
East ex-Japan Index.(1) For the same period, the indices returned 5.4% and
10.3%, respectively.
Q: WHAT FACTORS CONTRIBUTED TO PERFORMANCE?
A: One of the strongest factors was that one of the convertible bonds ("CBs") in
the Fund, Samsung Electronics CB, has more than doubled in price since the
Fund's purchase, contributing positively to the return. The price of the CB,
which provided downside protection during the Asian Crisis, performed in line
with the underlying equity which performed very well during the market rally.
Q: IS THE FUND POSITIONED TO TAKE ADVANTAGE OF A STRONG EQUITY MARKET?
IF SO, HOW?
A: Yes, we believe that with the recovery of the Asian economies, equities may
be looking more attractive than fixed-income-like products. In view of this, we
have increased the weighting of the portfolio to 27% equities. We are interested
in under-valued companies with above average dividend yields. We have added a
position in Vitasoy, a soy-drink manufacturer and retailer with sound
fundamentals yielding over 8% dividend when purchased. We are also buying new CB
issuances poised to take advantage of a rally in the underlying equities. One
example is the purchase of Taiwan's Mosel Vitelik CB, whose stock had a rally
and along with it, the price of our CB holding. We are also considering
increasing our weighting in the Korean market as new issues emerge. Many Korean
companies are expressing interest in issuing convertible securities as an
alternative to straight bonds to raise money. We plan to continue to look for
convertible bonds which will perform in line with the underlying equities in a
rally.
Q: WHAT IS THE OUTLOOK FOR THE CONVERTIBLE SECURITIES MARKET IN ASIA
IN GENERAL?
A: We are beginning to see renewed interest in the issuances of
dollar-denominated convertible securities and we find increased corporate
activity as a positive sign for the overall market. In Taiwan, Acer Inc.
recently issued a new convertible bond and Haansoft Inc. (a recent addition to
our Korea Fund) is also planning a CB issuance. Some of Japan's emerging
companies are also opting to issue CBs rather than rights issues to raise
further equity, thus presenting the Fund with interesting opportunities in the
Japanese market. We intend to actively participate in the issues in which we see
attractive risk/return characteristics. We believe that activity in the
convertible securities market is definitely picking up again.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
ANNUALIZED PERFORMANCE INFORMATION (AS OF FEBRUARY 29, 2000)
- ----------------------------------------------------------------------------------------------------------
ONE YEAR 3 YEARS 5 YEARS SINCE INCEPTION
(9/12/94)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MATTHEWS ASIAN GROWTH AND INCOME FUND ........... 52.15% 4.67% 7.36% 6.17%
MSCI ALL COUNTRY FAR EAST EX-JAPAN INDEX(1) ..... 68.44% (3.43%) 0.93% (1.32%)
MSCI ALL COUNTRY FAR EAST FREE EX-JAPAN INDEX(2) 58.15% (7.85%) (0.40%) (2.87%)
- ----------------------------------------------------------------------------------------------------------
</TABLE>
1 The MSCI All Country Far East ex-Japan Index is an unmanaged
capitalization-weighted index of stock markets of Hong Kong, Taiwan,
Malaysia, Singapore, Korea, Indonesia, Philippines, Thailand, and China.
2 The MSCI All Country Far ex-Japan Free Index is an unmanaged
capitalization-weighted index of stock markets of Hong Kong, Taiwan,
Singapore, Korea, Indonesia, Philippines, Thailand, and China that excludes
securities not available to foreign investors. Malaysia is not represented in
the Index, and Taiwan is only represented at 50% of its total market cap.
3
<PAGE>
- --------------------------------------------------------------------------------
MATTHEWS ASIAN GROWTH AND INCOME FUND
SCHEDULE OF INVESTMENTS FEBRUARY 29, 2000 (UNAUDITED)
- --------------------------------------------------------------------------------
SHARES VALUE
------ -----
EQUITIES - 26.54%****
CHINA/HONG KONG - 15.91%
Cable & Wireless HKT,
Ltd. ADR 6,600 $ 205,012
Cable & Wireless HKT, Ltd. 44,000 146,708
Chen Hsong Holdings, Ltd. 1,060,000 236,984
China Hong Kong Photo
Products Holdings, Ltd. 1,186,003 138,673
Dairy Farm International
Holdings, Ltd. 192,600 108,819
Hong Kong Aircraft
Engineering Co., Ltd. 72,400 99,072
Peregrine Investments
Holdings, Ltd.** 64,000 0
Shadong Huaneng Power Co.,
Ltd. ADR 48,000 168,000
South China Morning Post
(Holdings), Ltd. 334,000 332,592
The Wharf (Holdings), Ltd. 100,000 171,532
Tungtex Holdings 834,000 102,873
Vitasoy International
Holdings, Ltd. 464,000 97,775
-----------
TOTAL CHINA/HONG KONG 1,808,040
-----------
MALAYSIA - 0.04%
Renong Berhad Warrants** 40,000 4,211
-----------
SOUTH KOREA - 5.71%
Sindo Ricoh Co. 9,100 257,447
SK Corp. GDR 42,286 322,431
Ssangyong Oil Refining Co.,
Ltd. Pfd. Shares 5,600 68,818
-----------
TOTAL SOUTH KOREA 648,696
-----------
TAIWAN - 4.31%
Compal Electronics, Inc. 117,320 408,900
Ton Yi Industrial Corp.** 77,920 32,742
Winbond Electronics
Corp. GDR** 2,000 48,750
-----------
TOTAL TAIWAN 490,392
-----------
THAILAND - 0.57%
Srithai Superware
Public Co., Ltd.** 78,000 29,162
Thai Reinsurance
Public Co., Ltd. 45,000 36,009
-----------
TOTAL THAILAND 65,171
-----------
TOTAL EQUITIES
(Cost $2,863,161) 3,016,510
-----------
FACE AMOUNT VALUE
----------- -----
INTERNATIONAL DOLLAR BONDS - 72.46%****
CHINA/HONG KONG - 32.87%
Shangri-La Asia Capital, Ltd.
2.875%, 12/16/00 $ 500,000 $ 480,000
HSH Overseas Finance, Ltd.
5.000%, 01/06/01 250,000 243,125
Hong Kong Land Co.
4.000%, 02/23/01 450,000 436,500
New World Infrastructure, Ltd.
5.000%, 07/15/01 350,000 338,625
Qingling Motors, Ltd.***
3.500%, 01/22/02 1,000,000 277,500
First Pacific Capital, Ltd.
2.000%, 03/27/02 250,000 271,250
Shanghai Industrial
Investment Co.
1.000%, 02/24/03 200,000 206,000
Cosco Treasury Co., Ltd.
1.000%, 03/13/03 300,000 297,750
Guangdong Investment, Ltd.***
3.250%, 04/07/03 170,000 73,950
Zhenhai Refining &
Chemical Co., Ltd.
3.000%, 12/19/03 250,000 261,250
Huaneng Power International
Public Co., Ltd.
1.750%, 05/21/04 400,000 421,000
Regal Hotels International
Holdings, Ltd.
5.250%, 12/13/08 95,000 47,500
Amoy Properties, Ltd.
5.500%, 12/29/49 650,000 381,875
-----------
TOTAL CHINA/HONG KONG 3,736,325
-----------
INDONESIA - 3.46%
Asia Pulp & Paper Global
Finance V, Ltd.
2.000%, 07/25/00 150,000 168,375
Polymax***
2.000%, 02/27/06 260,000 224,900
-----------
TOTAL INDONESIA 393,275
-----------
PHILIPPINES - 4.26%
Metro Pacific Capital, Ltd.
2.500%, 04/11/03 60,000 66,600
JG Summit (Cayman), Ltd.
3.500%, 12/23/03 80,000 65,000
International Container
Terminal Services, Inc.
1.750%, 03/13/04 250,000 254,375
FDC Capital Cayman
2.500%, 05/15/06 90,000 98,775
-----------
TOTAL PHILIPPINES 484,750
-----------
4
<PAGE>
- --------------------------------------------------------------------------------
MATTHEWS ASIAN GROWTH AND INCOME FUND
SCHEDULE OF INVESTMENTS FEBRUARY 29, 2000 (UNAUDITED)
- --------------------------------------------------------------------------------
FACE AMOUNT VALUE
----------- -----
SINGAPORE - 7.11%
Fullerton Global Corp.
0.000%, 04/02/03 $400,000 $ 413,500
Finlayson Global Corp.***
0.000%, 02/19/04 200,000 394,500
-----------
TOTAL SINGAPORE 808,000
-----------
SOUTH KOREA - 7.20%
Samsung Display Devices Co.
0.250%, 03/12/06 250,000 285,000
Samsung Electronics Co.
0.250%, 12/31/06 100,000 329,000
Samsung Electronics Co.
0.000%, 12/31/07 100,000 204,000
-----------
TOTAL SOUTH KOREA 818,000
-----------
TAIWAN - 9.82%
Winbond Electronics Corp.
1.000%, 11/04/02 300,000 565,500
Yageo Corp.
1.250%, 07/24/03 80,000 116,000
Walsin Lihwa Corp.
3.250%, 06/16/04 120,000 136,200
Mosel Vitelic, Inc.***
1.000%, 02/02/05 300,000 298,500
-----------
TOTAL TAIWAN 1,116,200
-----------
THAILAND - 7.74%
Bank of Asia Public Co., Ltd.
3.750%, 02/09/04 300,000 216,000
Bangkok Bank Public Co.
4.589%, 03/03/04 625,000 334,375
Robinson Department Store
Public Co., Ltd.
4.250%, 04/07/04 50,000 9,750
Tipco Asphalt Co.
2.750%, 09/19/06 300,000 319,500
-----------
TOTAL THAILAND 879,625
-----------
TOTAL INTERNATIONAL
DOLLAR BONDS
(Cost $7,810,197) 8,236,175
-----------
TOTAL INVESTMENTS - 99.00%****
(Cost $10,673,358*) $11,252,685
CASH AND OTHER ASSETS,
LESS LIABILITIES - 1.00% 114,167
-----------
NET ASSETS - 100% $11,366,852
===========
VALUE
-----
* Cost for Federal income tax purposes is $10,673,358
and net unrealized appreciation consists of:
Gross unrealized appreciation $ 1,811,728
Gross unrealized depreciation (1,232,401)
-----------
Net unrealized appreciation $ 579,327
===========
** Non-income producing security
*** Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At February 29,
2000, the value of these securities amounted to $1,269,350 or 11.17% of
net assets.
**** As a percentage of net assets as of February 29, 2000.
MARKET SECTOR DIVERSIFICATION
AS A PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
Consumer Discretionary:
Consumer Durables & Apparel............. 1.17%
Hotels, Restaurants, & Leisure.......... 4.69
Media................................... 2.96
Retailing............................... 0.09
Consumer Staples:
Beverages............................... 0.87
Food & Drug Retailing................... 0.97
Food Products........................... 2.00
Energy:
Energy.................................. 2.93
Oil & Gas............................... 2.87
Financials:
Banks................................... 4.89
Diversified Financial................... 5.83
Insurance............................... 0.32
Real Estate............................. 9.66
Industrials:
Capital Goods........................... 12.90
Commercial Services & Supplies.......... 2.29
Diversified Industrials................. 2.41
Transportation.......................... 9.45
Information Technology:
Technology Hardware & Equipment......... 20.04
Materials:
Materials............................... 1.79
Telecommunication Services:
Telecommunication Services.............. 6.64
Utilities:
Utilities............................... 5.23
------
TOTAL INVESTMENTS ........................ 100.00%
======
See accompanying notes to financial statements.
5
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS' COMMENTS
- --------------------------------------------------------------------------------
MATTHEWS ASIAN TECHNOLOGY FUND
Portfolio Managers: G. Paul Matthews, Mark W. Headley and
Andrew T. Foster (Assistant)
Q: HOW HAS THE FUND PERFORMED FROM INCEPTION TO FEBRUARY 29, 2000?
A: From inception on December 27, 1999 to February 29, 2000, the Matthews Asian
Technology Fund returned 13.7%. Since the Fund's December launch, performance of
technology shares on a global basis has been volatile. The NASDAQ Index, up
15.4% year-to-date, has already seen two 8% corrections in the first two months
of the year. Since the beginning of the year, Japan's JASDAQ(1) Index has been
equally volatile - falling around 10%, only to rise around 35% in the following
month. The JASDAQ Index is up 20.5% for the first two months of the year. In
Korea, the KOSDAQ(2) Index has followed a similar pattern - falling around 30%,
then rising 49% to finish the first two months up 5.1%.
To date, it has been a struggle to find a benchmark Pacific Basin region index
that satisfactorily measures the performance of technology shares across the
region. As such, Matthews International has collaborated with Morgan Stanley
Capital International (MSCI) to develop a more appropriate and objective sector
benchmark. The new MSCI/Matthews Asian Technology Index(3) tracks technology
companies in both Japan and Asia ex-Japan, and includes weightings in IT firms,
telecoms and Internet companies. The MSCI/Matthews Asian Technology Index is
down 5.1% for the first two months of this year ending February 29.
Q: WHAT CONTRIBUTED TO THE FUND'S OUTPERFORMANCE DURING THE PERIOD?
A: Our holdings in software companies specializing in business applications and
Internet security have made significant contributions to the Fund's performance.
Our positions in a telecommunications company and a computer-maker company in
Mainland China have also seen strong appreciation. Lastly, the Fund's
underweight position in several prominent Japanese Internet stocks has helped
the Fund's performance during the recent correction in the technology sector.
Q: CAN YOU COMMENT ON SOME OF THE STOCK IDEAS THAT HAVE CONTRIBUTED TO THE
FUND'S PERFORMANCE THIS QUARTER?
A: Two of the Fund's best-performing stocks are from Korea, despite overall
weakness in the Korean market. One company, Cybertek Holdings, develops Internet
security solutions for the private sector and has over 40% share of the domestic
market. The other company, Samsung Electronics, is a world-class maker of DRAM
memory chips, TFT-LCD screens, and wireless phone handsets.
Q: DO YOU HAVE ANY FAVORITE SUB-SECTORS AND WHY ARE THEY FAVORABLE?
A: Despite the fact that we continue to find promising Internet investments, we
are concerned about the sustainability of many Asian Internet ventures. As such,
apart from a few strong Internet plays, the Fund favors technology manufacturers
and telecommunications companies with robust businesses and strong competitive
advantages.
Q: HOW IS THE FUND POSITIONED TO TAKE ADVANTAGE OF THIS VIEW?
A: The Fund has been aggressively adding to positions in the manufacturing and
telecommunications sub-sectors. We recently raised weightings in several
world-class Taiwanese chip and hardware makers. We have also been adding to the
Fund's positions in Samsung Electronics and Asia Satellite Telecommunications, a
pan-Asia satellite operator.
- ------------------------------
1 JASDAQ: Japan's equivalent of the U.S. NASDAQ market
2 KOSDAQ: Korea's equivalent of the U.S. NASDAQ market
3 The MSCI/Matthews Asian Technology Index covers Japan and the Asia ex-Japan
region. The Index tracks a broad range of technology stocks including:
semiconductor equipment and products, communications equipment, computers and
peripherals, electronic equipment and instruments, office electronics,
software, IT consulting and services, Internet software and services,
diversified telecommunications services, and wireless telecommunications
services.
6
<PAGE>
- --------------------------------------------------------------------------------
MATTHEWS ASIAN TECHNOLOGY FUND
SCHEDULE OF INVESTMENTS FEBRUARY 29, 2000 (UNAUDITED)
- --------------------------------------------------------------------------------
SHARES VALUE
------ -----
EQUITIES - 93.91%***
CHINA/HONG KONG - 19.62%
Asia Satellite Telecommunications
Holdings, Ltd. ADR 3,000 $ 111,750
Asia Satellite Telecommunications
Holdings, Ltd. 84,000 303,824
Automated Systems
Holdings, Ltd. 102,000 85,188
Cheung Wah Development
Co., Ltd.** 126,000 194,275
China Telecom
(Hong Kong), Ltd.** 27,000 248,047
e-Kong Group, Ltd.** 540,000 201,213
e-New Media Co., Ltd.** 980,000 346,276
Fortune Tele.com
Holdings, Ltd.** 100,000 50,753
Legend Holdings, Ltd. 104,000 481,061
Pacific Century
CyberWorks, Ltd.** 85,000 241,912
Television Broadcasts, Ltd. 28,000 230,251
-----------
TOTAL CHINA/HONG KONG 2,494,550
-----------
JAPAN - 26.36%
Canon, Inc. 7,000 291,242
Fujitsu, Ltd. 10,000 332,301
Honda Tsushin Kogyo Co., Ltd. 4,000 227,604
Kyowa Hakko Kogyo Co., Ltd. 19,000 247,360
Liquid Audio Japan, Inc.** 2 133,467
Mitsubishi Electric Corp. 42,000 372,050
Nintendo Co., Ltd. 2,100 458,658
Sharp Corp. 16,000 335,033
Sony Corp. 2,200 650,947
Woodland Corp. 5,000 302,713
-----------
TOTAL JAPAN 3,351,375
-----------
SINGAPORE - 9.90%
Avimo Group, Ltd. 116,000 205,953
CSE Systems &
Engineering, Ltd.** 269,000 229,434
Datacraft Asia, Ltd. 23,000 194,350
Informatics Holdings, Ltd. 455,000 244,198
St Assembly Test Services,
Ltd. ADR** 3,000 144,000
Venture Manufacturing
(Singapore), Ltd. 16,000 240,441
-----------
TOTAL SINGAPORE 1,258,376
-----------
SHARES VALUE
------ -----
SOUTH KOREA - 27.63%
Comtec System Co., Ltd. 14,430 $ 174,777
Cybertek Holdings, Inc.** 4,090 750,306
Dacom Corp. 660 190,805
Daou Technology, Inc.** 8,930 232,901
Daum Communications Corp.** 600 97,604
Haansoft Inc. 5,710 204,955
Hansol M.com Co., Ltd.** 3,755 130,633
Korea Next Education
Service, Inc.** 1,950 589,600
Korea Telecom Corp. ADR** 3,000 130,500
Korea Telecom Freetel** 1,040 95,623
Locus Corp.** 726 153,723
Samsung Electronics Co. 2,200 497,920
SEROME Technology, Inc.** 2,080 262,964
-----------
TOTAL SOUTH KOREA 3,512,311
-----------
TAIWAN - 8.41%
Acer, Inc.** 69,000 187,671
Polaris Securities Co., Ltd. 59,000 77,642
RF-Link System, Inc.** 131,000 202,687
Taiwan Semiconductor
Manufacturing Co., Ltd. ADR** 500 29,906
Taiwan Semiconductor
Manufacturing Co., Ltd.** 17,000 111,303
Via Technologies, Inc.** 20,000 230,619
WYSE Technology Taiwan, Ltd. 87,000 229,544
-----------
TOTAL TAIWAN 1,069,372
-----------
THAILAND - 1.99%
Advanced Info Service
Public Co., Ltd.** 9,500 147,553
Shinawatra Satellite
Public Co., Ltd.** 118,800 105,974
-----------
TOTAL THAILAND 253,527
-----------
TOTAL INVESTMENTS - 93.91%***
(Cost $10,320,141*) 11,939,511
CASH AND OTHER ASSETS,
LESS LIABILITIES - 6.09% 774,897
-----------
NET ASSETS - 100% $12,714,408
===========
* Cost for Federal income tax purposes is $10,320,141
and net unrealized appreciation consists of:
Gross unrealized appreciation $ 2,045,586
Gross unrealized depreciation (426,216)
-----------
Net unrealized appreciation $ 1,619,370
===========
** Non-income producing security
*** As a percentage of net assets as of February 29, 2000.
7
<PAGE>
- --------------------------------------------------------------------------------
MATTHEWS ASIAN TECHNOLOGY FUND
SCHEDULE OF INVESTMENTS FEBRUARY 29, 2000 (UNAUDITED)
- --------------------------------------------------------------------------------
MARKET SECTOR DIVERSIFICATION
AS A PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
Consumer Discretionary:
Household Durables...................... 8.26%
Internet & Catalog Retail............... 0.43
Leisure Equipment & Products............ 3.84
Media................................... 5.41
Textiles & Apparel...................... 1.63
Financials:
Diversified Financials.................. 0.65
Health Care:
Pharmaceuticals......................... 2.07
Industrials:
Electrical Equipment ................... 3.12
Information Technology:
Communications Equipment................ 7.98
Computers & Peripherals................. 12.84
Electronic Equipment & Instruments ..... 3.74
Internet Software & Services............ 21.97
IT Consulting & Services................ 3.97
Office Electronics...................... 2.44
Semiconductor Equipment & Products...... 8.49
Software................................ 4.38
Telecommunication Services:
Diversified Telecommunication Services.. 4.38
Wireless Telecommunication Services..... 4.40
------
TOTAL INVESTMENTS ........................ 100.00%
======
See accompanying notes to financial statements.
8
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS' COMMENTS
- --------------------------------------------------------------------------------
MATTHEWS DRAGON CENTURY CHINA FUND
Co-Portfolio Managers: G. Paul Matthews, Mark W. Headley and Richard H. Gao
Q: HOW DID THE FUND PERFORM DURING THE SIX MONTHS ENDED FEBRUARY 29, 2000?
A: The Matthews Dragon Century China Fund was basically flat (0.44%) during the
period while our benchmark CL China World Index(1) returned (0.16%), and the
MSCI China Free Index(2) returned (37.49%). What contributed to our relatively
strong performance was our decision to overweight the Red Chip(3) sector, and
within the sector, the telecommunications and technology stocks which performed
strongly. Also, our decision to underweight the state-owned H-Share(4) market
paid off as the sector underwent a massive correction as the companies continue
their reform and restructuring programs.
Q: ACCORDING TO LIPPER ANALYTICAL SERVICES, THE FUND RANKED BELOW AVERAGE
RELATIVE TO ITS PEERS IN THE SIX MONTHS ENDED FEBRUARY 29, 2000. IS THERE A
SPECIFIC REASON AS TO WHY THAT WAS THE CASE?
A: Yes, our Fund is a pure China play. By that, we mean the Fund invests
strictly in Mainland China-related companies. We do not invest in, for example,
the Blue Chip sector in Hong Kong, or companies based in Singapore or Malaysia,
as some of our competitors do. Because China's economy was still in a recovery
stage during the six month period, there was a drift overall among fund managers
towards picking companies loosely defined as China-related. We did not drift
from the Fund's objective and were rewarded later when Mainland China companies
had a strong run-up in March.
Q: WHAT TRENDS DO YOU SEE DEVELOPING IN THE CHINESE ECONOMY?
A: We see economic recovery in progress. Export growth was up strongly at 48% in
February year-on-year. After 22 months of shrinking CPI figures (deflation), the
CPI is growing again. Coupled with strong foreign exchange reserves of over $154
bn. and a high export growth figure, the fear of currency devaluation has
subsided. With the currency (RMB) stable, GDP growth is projected to be at 7.4%
for this year, reversing an eight-year trend of declining GDP growth. We are
bullish on China's economic recovery.
Q: WHAT ARE YOUR FAVORITE SECTORS IN CHINA?
A: Telecommunications and technology without a doubt. Cellular phone owners are
projected to increase by 79% this year and one of our core holdings, China
Telecom, is a dominant operator of mobile services in China. PC ownership is
growing rapidly; Internet users grew by 450% to 8.9 million in 1999 alone and
are projected to grow even faster this year. Recently NASDAQ listed Asia Info, a
network solutions and internet infrastructure company with an established niche
in China, is one of our recent additions to the portfolio. Legend Holdings, the
dominant PC maker and distributor with 27% market share in China, is another of
our core holdings and has done extremely well for the Fund. The Fund is
currently overweight in fast growing sectors and well positioned to take
advantage of China's technological boom and economic recovery.
- --------------------------------------------------------------------------------
ANNUALIZED PERFORMANCE INFORMATION (AS OF FEBRUARY 29, 2000)
- --------------------------------------------------------------------------------
ONE YEAR SINCE INCEPTION
(2/19/98)
- --------------------------------------------------------------------------------
MATTHEWS DRAGON CENTURY CHINA FUND .......... 66.72% (7.25%)
CREDIT LYONNAIS CHINA WORLD INDEX(1)......... 74.50% (4.67%)
MSCI CHINA FREE INDEX2 ...................... 13.50% (28.61%)
- --------------------------------------------------------------------------------
1 The Credit Lyonnais China World Index is an unmanaged capitalization-weighted
index of Chinese equities which are listed on the Hong Kong, Shanghai, and
Shenzhen stock exchanges.
2 The MSCI China Free Index is an unmanaged capitalization-weighted index of
Chinese equities that includes only H-shares listed on the Hong Kong
exchange, B-shares listed on the Shanghai and Shenzhen exchanges, and
N-shares listed on the New York Stock Exchange.
3 Red Chips: Chinese companies listed on the Hong Kong Stock Exchange that have
at least 35% of their share holdings held directly or indirectly by
state-owned organizations or provincial or municipal authorities in China
4 H-Shares: state-owned Chinese companies listed on the Hong Kong stock
exchange
9
<PAGE>
- --------------------------------------------------------------------------------
MATTHEWS DRAGON CENTURY CHINA FUND
SCHEDULE OF INVESTMENTS FEBRUARY 29, 2000 (UNAUDITED)
- --------------------------------------------------------------------------------
SHARES VALUE
------ -----
EQUITIES - CHINA/HONG KONG - 107.87%***
CONSUMER DISCRETIONARY - 17.71%
DISTRIBUTORS - 3.32%
Beijing Enterprises Holdings, Ltd. 210,000 $ 237,447
-----------
HOTELS, RESTAURANTS & LEISURE - 1.14%
China Travel International
Investment Hong Kong, Ltd. 318,000 81,719
-----------
HOUSEHOLD DURABLES - 7.16%
Guangdong Kelon Electrical
Holdings Co., Ltd. H Shares 226,500 110,590
TCL International
Holdings, Ltd.** 528,000 278,152
Wuxi Little Swan Co.,
Ltd. B Shares 257,400 122,701
-----------
511,443
-----------
SPECIALTY RETAIL - 2.99%
China Merchants Holdings
International Co., Ltd. 344,000 213,265
-----------
TEXTILES & APPAREL - 3.10%
Glorious Sun Enterprises, Ltd. 822,000 221,797
-----------
TOTAL CONSUMER DISCRETIONARY 1,265,671
-----------
CONSUMER STAPLES - 4.71%
FOOD & DRUG RETAILING - 3.38%
Ng Fung Hong, Ltd. 602,000 237,851
Want Want Holdings, Ltd. 3,500 3,675
-----------
241,526
-----------
PERSONAL PRODUCTS - 1.33%
Hengan International
Group Co., Ltd.** 370,000 95,081
-----------
TOTAL CONSUMER STAPLES 336,607
-----------
ENERGY - 1.49%
OIL & GAS - 1.49%
Zhenhai Refining and
Chemical Co., Ltd. H Shares 938,000 106,060
-----------
FINANCIALS - 5.85%
REAL ESTATE - 5.85%
China Resources
Enterprises, Ltd. 204,000 263,427
China Vanke Co., Ltd. B Shares 313,909 154,881
-----------
TOTAL FINANCIALS 418,308
-----------
SHARES VALUE
------ -----
HEALTH CARE - 4.05%
PHARMACEUTICALS - 4.05%
China Pharmaceutical
Enterprise and
Investment Corp., Ltd. 1,802,000 $ 194,490
Guangzhou Pharmaceutical Co.,
Ltd. H Shares 1,056,000 94,979
-----------
TOTAL HEALTH CARE 289,469
-----------
INDUSTRIALS - 26.60%
AIRLINES - 1.01%
China Southern Airlines Co.
Ltd. ADR** 9,500 72,437
-----------
CONSTRUCTION MATERIALS - 1.40%
Cheung Kong Infrastructure
Holdings, Ltd. 73,000 99,893
-----------
INDUSTRIAL CONGLOMERATES - 7.26%
Citic Pacific, Ltd. 103,000 518,785
-----------
MACHINERY - 0.95%
Qingling Motors Co.,
Ltd. H Shares 634,000 67,613
-----------
ROAD & RAIL - 0.34%
Dazhong Transportation Co.
B Shares** 66,000 24,024
-----------
TRADING COMPANIES & DISTRIBUTORS - 2.82%
China Hong Kong Photo
Products Holdings, Ltd. 1,724,000 201,578
-----------
TRANSPORTATION INFRASTRUCTURE - 12.82%
Cosco Pacific, Ltd. 364,000 208,126
New World China Land, Ltd.** 645,600 190,790
New World Infrastructure, Ltd.** 204,000 228,041
Shanghai Zhenhua Port
Machinery Co., Ltd. B Shares 360,000 92,160
Zhejiang Expressway Co.,
Ltd. H Shares 1,582,000 197,171
-----------
916,288
-----------
TOTAL INDUSTRIALS 1,900,618
-----------
INFORMATION TECHNOLOGY - 23.50%
COMMUNICATIONS EQUIPMENT - 2.40%
Eastern Communications Co.,
Ltd. B Shares 202,000 171,700
-----------
COMPUTERS & PERIPHERALS - 14.50%
Legend Holdings, Ltd. 224,000 1,036,131
-----------
10
<PAGE>
- --------------------------------------------------------------------------------
MATTHEWS DRAGON CENTURY CHINA FUND
SCHEDULE OF INVESTMENTS FEBRUARY 29, 2000 (UNAUDITED)
- --------------------------------------------------------------------------------
SHARES VALUE
------ -----
ELECTRONIC EQUIPMENT & INSTRUMENTS - 1.25%
Stone Electronic
Technology, Ltd.** 194,000 $ 89,113
-----------
INTERNET SOFTWARE & SERVICES - 0.52%
China.com Corp. A Shares** 300 36,862
-----------
SOFTWARE - 4.83%
Founder Hong Kong, Ltd.** 290,000 232,885
Yuxing Infotech Holdings, Ltd.** 124,000 112,325
-----------
345,210
-----------
TOTAL INFORMATION TECHNOLOGY 1,679,016
-----------
MATERIALS - 4.79%
CHEMICALS - 2.00%
Beijing Yanhua Petrochemical
Co., Ltd. H Shares 1,390,000 142,879
-----------
PAPER & FOREST PRODUCTS - 2.79%
China Everbright, Ltd.** 282,000 199,286
-----------
TOTAL MATERIALS 342,165
-----------
TELECOMMUNICATION SERVICES - 12.86%
WIRELESS TELECOMMUNICATION
SERVICES - 12.86%
China Teleco
(Hong Kong), Ltd.** 100,000 918,693
-----------
UTILITIES - 6.31%
Shandong International Power
Development Co.,
Ltd. H Shares** 2,138,000 222,514
Guangdong Electric Power
Development Co.,
Ltd. B Shares 376,896 169,978
Zhejiang Southeast Electric
Power Co., Ltd. B Shares 281,000 58,448
-----------
TOTAL UTILITIES 450,940
-----------
VALUE
-----
TOTAL INVESTMENTS - 107.87%***
(Cost $7,863,222*) $7,707,547
LIABILITIES, LESS CASH AND
OTHER ASSETS - (7.87%) (562,066)
-----------
NET ASSETS - 100% $7,145,481
===========
* Cost for Federal income tax purposes is $7,863,222 and net unrealized
depreciation consists of:
Gross unrealized appreciation $1,993,791
Gross unrealized depreciation (2,149,466)
-----------
Net unrealized depreciation ($155,675)
===========
** Non-income producing security
*** As a percentage of net assets as of February 29, 2000.
See accompanying notes to financial statements.
11
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS' COMMENTS
- --------------------------------------------------------------------------------
MATTHEWS JAPAN FUND
Co-Portfolio Managers: James M. Bogin and Mark W. Headley
Q: HOW DID THE FUND PERFORM IN THE SIX-MONTH PERIOD ENDING FEBRUARY 29, 2000?
A: The Matthews Japan Fund experienced underperformance in the first 4 months
but has rebounded strongly in the last two months. During the six-month period,
the Fund returned 7.5% while the TOPIX Index(1) returned 17.7% and the Blue Chip
Nikkei Index returned 14.2%. Year-to-date ending February 29, the Fund is
catching up quickly with a 12.5% return while TOPIX was down (6.4%) and the
Nikkei index was down (1.7%). The Fund has benefited from its holdings in
Ichiyoshi Securities, Woodland Corp., Chugai Pharmaceuticals, and Tokyo
Broadcasting - all strong performers from individual stock picks across a
variety of different sectors. Ichiyoshi Securities specializes in underwriting
and brokering small cap stocks, one of the main themes in the recent market. As
Japan recovers, its businesses should improve further. Chugai Pharmaceuticals
has exposure to biotech, as well as a strong core drug business. Woodland Corp.
is a small-cap stock specializing in Enterprise Resource Planning software
(ERP), in which Japan lags the US and we believe will start catching up. Tokyo
Broadcasting will benefit from rising advertising revenue as the Japanese
economy recovers. The company is also making inroads into digital broadcasting
and has been put into the spotlight by the recent focus on content-plays a la
Time Warner/AOL in the US.
Q: HOW IS THE FUND POSITIONED CURRENTLY?
A: Most of the Fund's current holdings would be classified in the finance,
consumption, and technology/ communication sectors. Brokerages and stocks
associated with technology have been strong and have contributed positively to
performance recently. Because consumption is still recovering in Japan, our
holdings of the various retail chain stores have not performed well yet. These
stocks are fundamentally inexpensive and we believe that their potential will be
realized as the Japanese economic recovery becomes more apparent.
Q: DO YOU HAVE ANY FAVORITE SECTORS OR INDIVIDUAL STOCKS?
A: We continue to favor the brokerage industry. Japanese individuals remain very
underweight in equities and mutual funds. Even though the bear market appears to
have ended in October 1998, many individuals are not completely convinced of
Japan's economic recovery and have most of their assets in a cash-equivalent
form. Beginning in 1999, mutual fund assets began to have in-flows, albeit from
a low base, and the fact that new mutual funds are being established this year
bodes well for the industry. Mergers and acquisitions ("M&A") have only begun to
recover and the era of takeovers appears to be almost at hand. M&A, new mutual
funds, and the many new listings and other investment banking activities will
benefit the brokerage sector directly and we continue to have an overweight
position in this category.
- --------------------------------------------------------------------------------
ANNUALIZED PERFORMANCE INFORMATION (AS OF FEBRUARY 29, 2000)
- --------------------------------------------------------------------------------
ONE YEAR SINCE INCEPTION
(12/31/98)
- --------------------------------------------------------------------------------
MATTHEWS JAPAN FUND ..................... 106.21% 106.95%
TOPIX (TOKYO STOCK EXCHANGE INDEX)(1) ... 67.48% 55.01%
- --------------------------------------------------------------------------------
1 TOPIX: The Tokyo Price Index is a capitalization-weighted index of all
companies of the Tokyo Stock Exchange.
12
<PAGE>
- --------------------------------------------------------------------------------
MATTHEWS JAPAN FUND
SCHEDULE OF INVESTMENTS FEBRUARY 29, 2000 (UNAUDITED)
- --------------------------------------------------------------------------------
SHARES VALUE
------ -----
EQUITIES-JAPAN - 98.43%***
CONSUMER DISCRETIONARY - 37.37%
HOTELS, RESTAURANTS & LEISURE - 1.65%
Marche Corp. 33,000 $ 402,586
-----------
INTERNET & CATALOG RETAIL - 6.08%
Belluna Co., Ltd. 48,000 1,481,428
-----------
LEISURE EQUIPMENT & PRODUCTS - 2.51%
Nintendo Co., Ltd. 2,800 611,544
-----------
MEDIA - 11.30%
Aoi Advertising Promotion, Inc. 42,000 994,173
Shochiku Co., Ltd.** 100,000 577,203
Tokyo Broadcasting System, Inc. 26,000 1,185,907
-----------
2,757,283
-----------
RETAIL - 14.02%
Arc Land Sakamoto Co., Ltd. 60,000 682,811
Don Quijote Co., Ltd. 6,000 873,999
Himiko Co., Ltd. 80,000 673,707
Kyoto Kimono Yuzen Co., Ltd. 93 702,749
Thanks Japan Corp. 36,000 485,069
-----------
3,418,335
-----------
TEXTILES & APPAREL - 1.81%
Renown, Inc. 300,000 442,462
-----------
TOTAL CONSUMER DISCRETIONARY 9,113,638
-----------
CONSUMER STAPLES - 2.31%
FOOD & DRUG RETAILING - 2.31%
Eco's Co., Ltd. 48,000 563,729
-----------
FINANCIALS - 30.56%
DIVERSIFIED FINANCIALS - 27.45%
Daiwa Securities Group, Inc. 35,000 556,036
Ichiyoshi Securities Co., Ltd. 226,000 1,687,181
Japan Securities Finance Co., Ltd. 230,000 1,348,507
Kokusai Securities Co., Ltd. 54,000 840,677
Life Co., Ltd.** 200,000 575,382
Nichiei Co., Ltd. 30,000 606,337
Universal Securities Co., Ltd. 193,000 1,080,617
-----------
6,694,737
-----------
REAL ESTATE - 3.11%
Sumitomo Realty &
Development Co., Ltd. 250,000 757,921
-----------
TOTAL FINANCIALS 7,452,658
-----------
HEALTH CARE - 5.81%
PHARMACEUTICALS - 5.81%
Chugai Pharmaceutical Co., Ltd. 65,000 994,173
Nippon Shinyaku Co., Ltd. 75,000 422,660
-----------
TOTAL HEALTH CARE 1,416,833
-----------
SHARES VALUE
------ -----
INDUSTRIALS - 3.25%
MACHINERY - 3.25%
Nitto Kohki Co., Ltd. 36,000 $ 793,154
-----------
INFORMATION TECHNOLOGY - 13.77%
COMPUTERS & PERIPHERALS - 11.16%
Fujitsu, Ltd. 20,000 664,603
Woodland Corp. 34,000 2,058,449
-----------
2,723,052
-----------
SOFTWARE - 2.61%
Miroku Jyoho Service Co., Ltd. 40,000 635,834
-----------
TOTAL INFORMATION TECHNOLOGY 3,358,886
-----------
MATERIALS - 2.66%
CONTAINERS & PACKAGING - 2.66%
FP Corp. 16,000 648,216
-----------
TELECOMMUNICATION SERVICES - 2.70%
DIVERSIFIED TELECOMMUNICATION SERVICES - 2.70%
Nippon Telegraph & Telephone
Corp. ADR 9,700 659,600
-----------
TOTAL INVESTMENTS - 98.43%***
(Cost $22,060,405*) $24,006,714
CASH AND OTHER ASSETS,
LESS LIABILITIES - 1.57% 383,830
-----------
NET ASSETS - 100% $24,390,544
===========
SCHEDULE OF FORWARD FOREIGN EXCHANGE CONTRACTS
EXPIRATION UNREALIZED
DATE APPRECIATION
---------- ------------
Forward Foreign Exchange
Contracts to Deliver
1,028,392,000****
Japanese Yen in exchange for
USD, $10,114,150...... 05/31/00-09/29/00 $394,449
* Cost for Federal income tax purposes is $22,060,405 and net unrealized
appreciation consists of:
Gross unrealized appreciation $ 4,215,344
Gross unrealized depreciation (2,269,035)
-----------
Net unrealized appreciation $ 1,946,309
===========
** Non-income producing security
*** As a percentage of net assets as of February 29, 2000.
**** Principal amount denoted in Japanese Yen.
USD United States Dollars See accompanying notes to financial statements.
13
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS' COMMENTS
- --------------------------------------------------------------------------------
MATTHEWS KOREA FUND
Co-Portfolio Managers: G. Paul Matthews and Mark W. Headley
Q: HOW DID THE FUND PERFORM IN THE HALF-YEAR PERIOD ENDING FEBRUARY 29, 2000?
A: While the Korean market had a great run-up from the lows of 1998 to mid-1999
with a stunning return of over 240%, the market began to experience
consolidation in the second half of 1999. The KOSPI Index(1) was down (7.8%)
for the six-months ending February while the Fund performed better and was
down slightly less at (6.1%) (Class I shares). Minimal exposure to Daewoo and
higher weighting in the telecommunications sector helped the Fund outperform
the market. In general, profit-taking by investors coupled with the Daewoo
Crisis in August created a weakness in investors' confidence toward the
government's determination for reform. The suggestion of the Central Bank
towards possibly slowing down recovery by raising interest rates did not help
matters and the weakness has continued through the first quarter of 2000.
Q: WHAT DO YOU SEE AS THE MAIN CONCERNS FOR INVESTORS IN THE KOREA MARKET?
A: The possibility of rising interest rates is never a positive for equity
markets. The upcoming parliamentary election in April creates another
uncertainty towards reform. For example, the much-needed privatization of KEPCO
(a state-operated utility company) is further delayed until we know the final
outcome of the new Parliament majority party and leaders. It is clear to us,
however, that the momentum towards restructuring is unstoppable, as is evident
by the rise of the recently created KOSDAQ (a new secondary market much like the
NASDAQ in the US), which seems to have a momentum of its own. It is the
uncertainty in the near-term that is creating nervousness towards the Korea
market.
Q: WHAT DO YOU SEE AS POSITIVE FACTORS FOR THE KOREA MARKET AND ECONOMY
GOING FORWARD?
A: Emerging companies of the 'New Economy' with strong growth are the most
exciting aspect near-term. More new capital was raised in 1999 than the total
market capitalization of 1998 and the market absorbed all of it. Many 'New
Economy' emerging companies are slated to enter the KOSDAQ in year 2000. Also,
prior to restructuring, corporate bonds used to be more attractive than equity
since the high returns on bonds were virtually backed by the sovereign. Going
forward, however, corporate bonds will be priced competitively, making equity
more attractive. Fundamentally, valuations on Blue Chip stocks are looking
attractive after the consolidation - trading on 0.7x revenue - much cheaper than
their counterparts in the region and with improving balance sheets. The KOSPI
Index has doubled in each of last two years and yet it is still below the levels
of the 1980s. We see further potential upside in the Korean market.
Q: HOW IS THE FUND POSITIONED TO TAKE ADVANTAGE OF THESE OPPORTUNITIES?
A: We continue to overweight the telecommunications sector as it undergoes
deregulation. Dacom Corp., a long-distance telephone and Internet service
provider which has done well in 1999, is a core holding of the Fund. In the 'New
Economy' companies, we have added Haansoft Inc. to the Fund, a Korean word
processing software company branching as an Internet chat play, and Serome
Tech., an Internet telephony company with a video-email application. We continue
to look for niche players in the KOSDAQ. We plan to actively participate in the
many upcoming IPOs of the emerging companies of the 'New Economy' this year.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
ANNUALIZED PERFORMANCE INFORMATION (AS OF FEBRUARY 29, 2000)
- -----------------------------------------------------------------------------------------------------------
ONE YEAR 3 YEARS 5 YEARS SINCE INCEPTION
(1/3/95)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MATTHEWS KOREA FUND (CLASS I) 88.77% 6.43% (4.62%) (6.41%)
KOSPI (SOUTH KOREAN STOCK MARKET INDEX)(1) 72.69% (1.59%) (8.32%) (10.37%)
- -----------------------------------------------------------------------------------------------------------
</TABLE>
1 KOSPI: The Korea Stock Price Index is a capitalization-weighted index of all
common stocks listed on the Korea Stock Exchange.
14
<PAGE>
- --------------------------------------------------------------------------------
MATTHEWS KOREA FUND
SCHEDULE OF INVESTMENTS FEBRUARY 29, 2000 (UNAUDITED)
- --------------------------------------------------------------------------------
SHARES VALUE
------ -----
EQUITIES - SOUTH KOREA - 98.19%***
CONSUMER DISCRETIONARY - 7.27%
AUTO COMPONENTS - 0.29%
Global & Yuasa Battery Co. 22,480 $ 506,796
------------
AUTOMOBILES - 1.69%
Hyundai Motor Co., Ltd.** 276,931 2,950,229
------------
HOUSEHOLD DURABLES - 1.27%
LG Electronics, Inc. 107,750 2,214,814
------------
INTERNET & CATALOG RETAIL - 0.01%
Hansol CSN 3,215 28,310
------------
RETAIL - 4.01%
Shinsegae Department Store Co. 170,604 7,013,572
------------
TOTAL CONSUMER DISCRETIONARY 12,713,721
------------
CONSUMER STAPLES - 8.10%
BEVERAGES - 3.68%
Hite Brewery Co., Ltd.** 180,211 4,461,043
Lotte Chilsung Beverage Co. 34,260 1,968,783
------------
6,429,826
------------
FOOD PRODUCTS - 3.32%
Lotte Confectionery Co. 23,990 2,863,262
Nong Shim Co., Ltd. 77,110 2,931,408
------------
5,794,670
------------
PERSONAL PRODUCTS - 1.10%
Pacific Corp. 121,710 1,926,089
------------
TOTAL CONSUMER STAPLES 14,150,585
------------
ENERGY - 3.84%
OIL & GAS - 3.84%
SK Corp. GDR 458,938 3,499,402
SK Corp. 32,306 728,317
Ssangyong Oil Refining Co., Ltd. 149,100 2,491,360
------------
TOTAL ENERGY 6,719,079
------------
FINANCIALS - 19.46%
BANKS - 9.00%
Hana Bank 1,133,510 8,217,435
Housing & Commercial
Bank, Korea** 24,653 439,174
Kookmin Bank 264,975 2,951,702
Shinhan Bank 431,472 4,119,775
------------
15,728,086
------------
DIVERSIFIED FINANCIALS - 5.06%
Dongwon Securities Co. 84,030 1,716,103
Samsung Securities Co., Ltd. 233,041 7,128,621
------------
8,844,724
------------
SHARES VALUE
------ -----
INSURANCE - 5.40%
Dongbu Insurance Co., Ltd. 89,200 $ 261,818
LG Insurance Co., Ltd. 145,950 554,842
Oriental Fire & Marine Insurance 72,640 616,516
Samsung Fire & Marine Insurance 282,075 8,017,568
------------
9,450,744
------------
TOTAL FINANCIALS 34,023,554
------------
HEALTH CARE - 1.76%
HEALTH CARE EQUIPMENT & SUPPLIES - 1.20%
Shinhung Co. 342,700 1,693,647
Suheung Capsule 35,050 409,034
------------
2,102,681
------------
PHARMACEUTICALS - 0.56%
Hanmi Pharmaceutical
Industrial Co. 71,921 972,843
------------
TOTAL HEALTH CARE 3,075,524
------------
INDUSTRIALS - 5.16%
COMMERCIAL SERVICES & SUPPLIES - 3.02%
S1 Corp. 135,936 2,692,026
Sindo Ricoh Co. 91,246 2,581,433
------------
5,273,459
------------
ELECTRICAL EQUIPMENT - 1.92%
LG Cable, Ltd. 203,571 3,365,539
------------
MACHINERY - 0.04%
Hanjin Heavy Industries 26,140 69,561
------------
MARINE - 0.18%
Hyundai Heavy Industries** 11,354 316,196
------------
TOTAL INDUSTRIALS 9,024,755
------------
INFORMATION TECHNOLOGY - 29.76%
COMMUNICATIONS EQUIPMENT - 6.78%
Comtec Systems Co., Ltd. 245,450 2,972,903
LG Information &
Communication, Ltd. 63,030 6,993,396
Locus Corp.** 4,800 1,016,351
Telson Electronics Co., Ltd. 64,079 866,771
------------
11,849,421
------------
ELECTRONIC EQUIPMENT &
INSTRUMENTS - 3.52%
Dae Duck Electronics Co.** 221,233 2,347,085
Dae Duck Industrial Co., Ltd. 162,664 1,360,438
Samsung SDI Co., Ltd. 84,093 2,445,980
------------
6,153,503
------------
15
<PAGE>
- --------------------------------------------------------------------------------
MATTHEWS KOREA FUND
SCHEDULE OF INVESTMENTS FEBRUARY 29, 2000 (UNAUDITED)
- --------------------------------------------------------------------------------
SHARES VALUE
------ -----
INTERNET SOFTWARE & SERVICES - 5.08%
Korea Next Education
Service, Inc.** 13,870 $ 4,193,722
SEROME Technology, Inc.** 37,160 4,697,955
------------
8,891,677
------------
SEMICONDUCTOR EQUIPMENT
& PRODUCTS - 8.61%
Samsung Electronics Co. 66,494 15,049,411
------------
SOFTWARE - 5.77%
Daou Technology, Inc.** 174,783 4,558,461
Haansoft, Inc.** 153,870 5,523,026
------------
10,081,487
------------
TOTAL INFORMATION TECHNOLOGY 52,025,499
------------
MATERIALS - 2.86%
CHEMICALS - 2.27%
Han Kuk Carbon Co., Ltd. 121,188 696,418
Honam Petrochemical Corp. 50,790 695,996
Korea Fine Chemical Co. 374 5,886
LG Chemical, Ltd. 96,858 2,564,658
------------
3,962,958
------------
PAPER & FOREST PRODUCTS - 0.59%
Han Kuk Paper
Manufacturing Co. 78,680 644,824
Hankook Tire Co., Ltd. 164,568 387,012
------------
1,031,836
------------
TOTAL MATERIALS 4,994,794
------------
TELECOMMUNICATION SERVICES - 13.54%
TELECOMMUNICATION SERVICES - 7.05%
Dacom Corp.** 19,288 5,576,119
Korea Telecom Corp. ADR** 31,317 1,362,289
Korea Telecom Corp. 63,800 5,386,679
------------
12,325,087
------------
WIRELESS TELECOMMUNICATION
SERVICES - 6.49%
Hansol M.com Co., Ltd.** 59,475 2,069,075
SK Telecom Co., Ltd. 2,496 9,268,105
------------
11,337,180
------------
TOTAL TELECOMMUNICATION SERVICES 23,662,267
------------
SHARES VALUE
------ -----
UTILITIES - 6.44%
Daehan City Gas Co. 57,492 $ 609,938
Korea Electric Power
Corp. ADR 199,700 2,745,875
Korea Electric Power Corp. 260,880 6,527,161
Pusan City Gas Co., Ltd. 81,338 769,439
Seoul City Gas Co., Ltd. 43,860 601,032
------------
TOTAL UTILITIES 11,253,445
------------
TOTAL EQUITIES
(Cost $119,047,663) 171,643,223
------------
FACE AMOUNT
-----------
INTERNATIONAL DOLLAR BONDS -
SOUTH KOREA - 1.56%***
INFORMATION TECHNOLOGY - 1.56%
SEMICONDUCTOR EQUIPMENT & PRODUCTS - 1.56%
Samsung Electronics Co.
0.250%, 12/31/06
(Cost $905,273) $830,000 2,730,700
------------
TOTAL INVESTMENTS - 99.75%***
(Cost $119,952,936*) 174,373,923
CASH AND OTHER ASSETS,
LESS LIABILITIES - 0.25% 431,343
------------
NET ASSETS - 100% $174,805,266
============
* Cost for Federal income tax purposes is $119,952,936 and net unrealized
appreciation consists of:
Gross unrealized appreciation $ 68,699,545
Gross unrealized depreciation (14,278,558)
------------
Net unrealized appreciation $ 54,420,987
============
** Non-income producing security
*** As a percentage of net assets as of February 29, 2000.
See accompanying notes to financial statements.
16
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS' COMMENTS
- --------------------------------------------------------------------------------
MATTHEWS PACIFIC TIGER FUND
Co-Portfolio Managers: G. Paul Matthews and Mark W. Headley
Q: HOW DID THE FUND PERFORM IN THE SIX-MONTH PERIOD ENDING FEBRUARY 29, 2000?
A: The Matthews Pacific Tiger Fund achieved a total return of 23.42% over the
last six months with very strong performance in the last two months of 1999. The
Fund outperformed the MSCI Far East ex-Japan Index(1) by a wide margin, which
returned 10.3% for the same period. The most notable feature of this period was
the tremendous interest in technology and telecommunications companies. Such
interest is relatively new to Asia and a significant departure from the past
focus on large conglomerates and banks. The Pacific Tiger Fund's
well-diversified portfolio had good exposure to companies such as China Telecom
and Samsung Electronics. Other sectors such as financials and consumer/retail
stocks tended to lag the market, but we remain enthusiastic about their
long-term potential.
Q: HOW IS THE FUND POSITIONED CURRENTLY?
A: The Fund has had three primary areas of focus since its inception over five
years ago: financials, consumer and technology related companies. As an
investment team, we spend the majority of our time researching in these three
areas focusing on companies of all sizes. As of this date, technology and
telecommunications make up slightly over 40% of the portfolio. This is due to
the tremendous performance of many of these companies' stock prices. We have
been actively reallocating to our favorite stocks in the other industries to
balance out the portfolio. We remain very enthusiastic about the technology
related companies but we are equally attracted to the positive developments in
many other business areas. From a country weighting position, we remain
primarily invested in China/Hong Kong, Singapore and South Korea. We have been
actively increasing our participation in Taiwan.
Q: WHAT ARE THE AFTEREFFECTS OF THE ASIAN FINANCIAL CRISIS FOR THE FUND?
A: The Asian Crisis continues to reverberate throughout the region in countless
ways, most of which, we believe, are very positive. Politically, there has been
progress in many countries with major enhancements to democracy in Korea,
Thailand, Indonesia, and most recently, Taiwan. Companies have generally
improved their communications to investors and made strong efforts to convince
global investors that excellent corporate management does exist in Asia. With
more open economies, greater participation by multinationals has forced many
companies to improve operations and merge with competitors. In general, while
the Crisis was very painful, we believe it was very good for the long-term
investment environment in Asia.
Q: WHAT DO YOU BELIEVE WILL BE THE DRIVING FACTORS FOR THE COMING YEAR?
A: Growth returned to Asia in 1999 but it will be the restructuring of older
business, combined with the birth of many new companies, that we think will
energize the markets in 2000. Competition in Asia today is intense and we find
that very encouraging. Excellent companies are gaining market share and forming
strategic alliances. Companies that are not successful are being forced to
change or be faced with a very grim future. This is an exciting time to invest
in Asia, provided one is comfortable with the sharp moves that accompany a
period of transformation.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
ANNUALIZED PERFORMANCE INFORMATION (AS OF FEBRUARY 29, 2000)
- ----------------------------------------------------------------------------------------------------------
ONE YEAR 3 YEARS 5 YEARS SINCE INCEPTION
(9/12/94)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MATTHEWS PACIFIC TIGER FUND (CLASS I) 101.46% 1.81% 7.27% 5.10%
MSCI ALL COUNTRY FAR EAST EX-JAPAN INDEX(1) 68.44% (3.43%) 0.93% (1.32%)
MSCI ALL COUNTRY FAR EAST FREE EX-JAPAN INDEX(2) 58.15% (7.85%) (0.40%) (2.87%)
- ----------------------------------------------------------------------------------------------------------
</TABLE>
1 The MSCI All Country Far East ex-Japan Index is an unmanaged
capitalization-weighted index of stock markets of Hong Kong, Taiwan,
Malaysia, Singapore, Korea, Indonesia, Philippines, Thailand, and China.
2 The MSCI All Country Far ex-Japan Free Index is an unmanaged
capitalization-weighted index of stock markets of Hong Kong, Taiwan,
Singapore, Korea, Indonesia, Philippines, Thailand, and China that excludes
securities not available to foreign investors. Malaysia is not represented in
the Index, and Taiwan is only represented at 50% of its total market cap.
17
<PAGE>
- --------------------------------------------------------------------------------
MATTHEWS PACIFIC TIGER FUND
SCHEDULE OF INVESTMENTS FEBRUARY 29, 2000 (UNAUDITED)
- --------------------------------------------------------------------------------
SHARES VALUE
------ -----
EQUITIES - 98.54%***
CHINA/HONG KONG - 50.94%
Asia Satellite Telecommunications
Holdings, Ltd. ADR 128,500 $ 4,786,625
China Hong Kong Photo
Products Holdings, Ltd. 18,488,000 2,161,700
China Telecom (Hong Kong),
Ltd. ADR** 15,500 2,881,063
China Telecom
(Hong Kong), Ltd.** 305,800 2,809,362
Dah Sing Financial Group 808,400 2,627,913
Dickson Concepts
International, Ltd. 2,439,000 2,663,759
e-New Media Co., Ltd.** 4,064,000 1,435,987
Giordano International, Ltd. 3,741,000 4,181,875
Guangdong Electric Power
Development Co.,
Ltd. B Shares 3,540,294 1,596,653
Guangdong Kelon Electrical
Holdings Co., Ltd. H Shares 2,402,000 1,172,791
Huaneng Power International,
Inc. ADR 122,900 883,344
Hutchison Whampoa, Ltd. 280,200 4,392,301
Legend Holdings, Ltd. 2,353,000 10,884,001
Li & Fung, Ltd. 2,504,000 9,748,574
New World Infrastructure, Ltd.** 1,100,600 1,230,305
Peregrine Investments
Holdings, Ltd.** 1,097,000 0
Quality Healthcare Asia, Ltd.** 5,448,500 1,925,191
Shangri-La Asia, Ltd. 2,498,000 2,006,026
Vitasoy International
Holdings, Ltd. 10,780,500 2,271,679
Wuxi Little Swan Co.,
Ltd. B Shares 2,687,483 1,281,102
------------
TOTAL CHINA/HONG KONG 60,940,251
------------
INDONESIA - 1.22%
Pt Hero Supermarket** 5,564,500 1,460,400
Pt Steady Safe
Transportation Service** 6 0
------------
TOTAL INDONESIA 1,460,400
------------
SHARES VALUE
------ -----
MALAYSIA - 0.00%
Public Bank Berhad 3 $ 4
------------
PHILIPPINES - 2.85%
Benpres Holdings Corp.** 11,869,000 2,143,255
Manila Electric Co. B Shares 691,000 1,264,641
------------
TOTAL PHILIPPINES 3,407,896
------------
SINGAPORE - 12.71%
Avimo Group, Ltd. 1,289,600 2,289,629
CSE Systems &
Engineering, Ltd.** 3,101,000 2,644,891
Parkway Holdings, Ltd. 1,311,000 3,620,748
Venture Manufacturing
(Singapore), Ltd. 268,800 4,039,408
Vickers Ballas Holdings, Ltd. 4,550,000 2,613,577
------------
TOTAL SINGAPORE 15,208,253
------------
SOUTH KOREA - 18.83%
Comtec Systems Co., Ltd. 172,970 2,095,021
Dae Duck Electronics Co.** 2,840 30,125
Daou Technology, Inc.** 59,881 1,561,735
Hana Bank 430,919 3,123,968
Hansol M.com Co., Ltd.** 31,530 1,096,897
Hite Brewery Co., Ltd.** 83,477 2,066,436
Samsung Electronics Co. 19,778 4,476,302
Samsung Fire &
Marine Insurance 82,105 2,333,714
Samsung Securities Co., Ltd. 86,394 2,642,754
Shinsegae Department Store Co. 71,540 2,941,027
SK Telecom Co., Ltd. 44 163,380
------------
TOTAL SOUTH KOREA 22,531,359
------------
TAIWAN - 5.27%
Bank Sinopac 4,379,000 3,009,671
Via Technologies, Inc.** 285,547 3,292,627
------------
TOTAL TAIWAN 6,302,298
------------
18
<PAGE>
- --------------------------------------------------------------------------------
MATTHEWS PACIFIC TIGER FUND
SCHEDULE OF INVESTMENTS FEBRUARY 29, 2000 (UNAUDITED)
- --------------------------------------------------------------------------------
SHARES VALUE
------ -----
THAILAND - 6.72%
Advanced Info Service
Public Co., Ltd.** 201,600 $ 3,131,240
Bangkok Bank
Public Co., Ltd.** 943,100 1,521,728
Shinawatra Satellite
Public Co.,Ltd.** 3,102,500 2,767,546
Srithai Superware
Public Co., Ltd.** 1,665,700 622,753
------------
TOTAL THAILAND 8,043,267
------------
TOTAL EQUITIES
(Cost $87,562,137) 117,893,728
------------
FACE AMOUNT
-----------
INTERNATIONAL DOLLAR BONDS - 2.36%***
SINGAPORE - 2.36%
Finlayson Global Corp.
0.000%, 02/19/04
(Cost $2,049,906) $1,430,000 2,820,675
------------
TOTAL INVESTMENTS - 100.90%***
(Cost $89,612,043*) 120,714,403
LIABILITIES, LESS CASH AND
OTHER ASSETS - (0.90%) (1,076,989)
------------
NET ASSETS - 100% $119,637,414
============
* Cost for Federal income tax purposes is $89,612,043 and net unrealized
appreciation consists of:
Gross unrealized appreciation $ 46,910,408
Gross unrealized depreciation (15,808,048)
------------
Net unrealized appreciation $ 31,102,360
============
** Non-income producing security
*** As a percentage of net assets as of February 29, 2000.
MARKET SECTOR DIVERSIFICATION
AS A PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
Consumer Discretionary:
Distributors............................ 2.21%
Hotels, Restaurants & Leisure........... 1.66
Household Durables...................... 2.55
Internet & Catalog Retail............... 0.91
Media................................... 5.74
Retail.................................. 5.90
Consumer Staples:
Beverages............................... 3.59
Food & Drug Retailing................... 1.21
Financials:
Banks................................... 8.52
Diversified Financials.................. 7.99
Insurance............................... 1.93
Health Care:
Health Care Providers & Services........ 4.59
Industrials:
Trading Companies & Distributors........ 9.87
Transportation Infrastructure........... 1.02
Information Technology:
Communications Equipment................ 1.74
Computers & Peripherals................. 9.02
Electronic Equipment & Instruments ..... 5.27
Internet Software & Services............ 1.19
Information Technology: (continued)
IT Consulting & Services................ 2.19
Semiconductor Equipment & Products...... 6.43
Software................................ 1.29
Telecommunication Services:
Diversified Telecommunication Services.. 7.01
Telecommunication Services:............. 2.34
Wireless Telecommunication Services..... 2.73
Utilities:
Electric Utilities...................... 3.10
------
TOTAL INVESTMENTS ........................ 100.00%
======
See accompanying notes to financial statements.
19
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES FEBRUARY 29, 2000 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATTHEWS MATTHEWS MATTHEWS MATTHEWS
ASIAN GROWTH ASIAN DRAGON MATTHEWS MATTHEWS PACIFIC
AND INCOME TECHNOLOGY CENTURY JAPAN KOREA TIGER
FUND FUND CHINA FUND FUND FUND FUND
----------- ----------- ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments, at value (Cost $10,673,358,
$10,320,141, $7,863,222, $22,060,405,
$119,952,936 and $89,612,043,
respectively).................. $11,252,685 $11,939,511 $7,707,547 $24,006,714 $174,373,923 $120,714,403
Cash............................. 477,806 1,704,264 - - - -
Foreign currency, at value (Cost $0,
$124,475, $505, $0, $0, and
$8,774, respectively).......... 60 124,455 453 - - 9,145
Dividends and interest receivable 68,783 2,984 1,091 15,869 171,082 22,324
Receivable for securities sold... 3,027 - 167,301 288,264 4,488,334 895,103
Receivable for capital shares sold 14,769 315,787 - 100,950 1,168,972 214,368
Unrealized appreciation on forward
foreign exchange contracts..... - - - 394,449 - -
Deferred organization costs (Note 1-F) - - 9,184 - - -
Other assets .................... 928 15,314 1,246 5,213 73,924 14,890
----------- ----------- ---------- ----------- ------------ ------------
Total assets................... 11,818,058 14,102,315 7,886,822 24,811,459 180,276,235 121,870,233
----------- ----------- ---------- ----------- ------------ ------------
LIABILITIES:
Payable for securities purchased. 388,908 1,350,646 121,878 - 2,503,440 -
Payable for capital shares redeemed 31,961 - 24,330 284,096 2,000,597 1,471,087
Cash overdraft................... - - 542,324 75,367 608,170 560,391
Due to Advisor (Note 2) ......... 9,875 1,102 8,082 25,644 156,168 101,011
Accrued expenses................. 20,462 36,159 36,427 28,025 199,387 97,724
Accrued distribution expense..... - - - - 3,199 402
Other liabilities................ - - 8,300 7,783 8 2,204
----------- ----------- ---------- ----------- ------------ ------------
Total liabilities.............. 451,206 1,387,907 741,341 420,915 5,470,969 2,232,819
----------- ----------- ---------- ----------- ------------ ------------
NET ASSETS:......................... $11,366,852 $12,714,408 $7,145,481 $24,390,544 $174,805,266 $119,637,414
=========== =========== ========== =========== ============ ============
CLASS I SHARES:
Net assets (Applicable to 1,137,618,
1,118,471, 856,295, 1,074,154,
25,285,219 and 9,285,745 shares
of beneficial interest issued and
outstanding, respectively, unlimited
number of shares authorized
with a $0.001 par value) ...... $11,366,852 $12,714,408 $7,145,481 $24,390,544 $159,929,916 $117,679,471
=========== =========== ========== =========== ============ ============
Net asset value, offering price and
redemption price per Class I share $9.99 $11.37 $8.34 $22.71 $6.33 $12.67
=========== =========== ========== =========== ============ ============
CLASS A SHARES:*
Net assets (Applicable to 0, 0, 0, 0,
2,374,260, and 154,496 shares of
beneficial interest issued and
outstanding, respectively, unlimited
number of shares authorized with
a $0.001 par value) N/A N/A N/A N/A $ 14,875,350 $ 1,957,943
=========== =========== ========== =========== ============ ============
Net asset value and redemption price
per Class A share.............. N/A N/A N/A N/A $6.27 $12.67
=========== =========== ========== =========== ============ ============
Offering price per Class A share
(Net asset value / 0.9505)..... N/A N/A N/A N/A $6.60 $13.33
=========== =========== ========== =========== ============ ============
NET ASSETS CONSIST OF:
Capital paid-in.................. $10,546,547 $11,090,851 $7,905,281 $19,721,570 $56,266,364 $ 87,256,548
Accumulated undistributed net
investment income (loss)....... 63,295 (11,791) (15,639) (132,669) (1,762,027) (416,349)
Accumulated net realized gain (loss)
on investments................. 176,902 16,090 (588,475) 2,460,876 65,870,043 1,694,689
Net unrealized appreciation (depreciation)
on investments and foreign currency
related transactions........... 580,108 1,619,258 (155,686) 2,340,767 54,430,886 31,102,526
----------- ----------- ---------- ----------- ------------ ------------
$11,366,852 $12,714,408 $7,145,481 $24,390,544 $174,805,266 $119,637,414
=========== =========== ========== =========== ============ ============
</TABLE>
* At February 29, 2000, the Matthews Asian Growth and Income Fund , Matthews
Asian Technology Fund, Matthews Dragon Century China Fund and Matthews Japan
Fund did not offer Class A shares.
N/A - Not Applicable
See accompanying notes to financial statements.
20
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
FOR THE PERIOD ENDED FEBRUARY 29, 2000 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATTHEWS MATTHEWS MATTHEWS MATTHEWS
ASIAN GROWTH ASIAN DRAGON MATTHEWS MATTHEWS PACIFIC
AND INCOME TECHNOLOGY CENTURY JAPAN KOREA TIGER
FUND FUND* CHINA FUND FUND FUND FUND
----------- ----------- ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign tax
withheld of $0, $0, $27,
$8,642, $31,881, and
$8,779, respectively).......... $ 102,938 - $ 50,136 $ 48,973 $ 212,042 $ 451,434
Interest......................... 336,473 $ 4,415 6,336 11,042 (16,081) (19,935)
Other income..................... 7,960 256 13,806 48,567 465,494 148,319
----------- ----------- ---------- ----------- ------------ ------------
Total investment income ....... 447,371 4,671 70,278 108,582 661,455 579,818
----------- ----------- ---------- ----------- ------------ ------------
EXPENSES:
Investment advisory fees (Note 2) 55,831 8,231 36,718 120,762 1,062,793 559,013
Recovery of reimbursed
expenses (Note 2).............. 8,466 - 6,483 48,641 - 144,744
Distribution expenses ........... - - - - 19,001 2,068
Transfer agent fees.............. 4,681 6,887 4,430 16,787 49,299 48,695
Administration fees ............. 3,966 4,677 2,107 12,855 63,114 40,144
Accounting fees.................. 9,568 4,676 2,002 14,527 89,721 42,091
Professional fees................ 2,726 1,276 815 2,618 45,027 19,512
Custodian fees................... 10,199 2,693 5,515 11,339 201,432 96,205
Directors fees (Note 2).......... 585 510 495 666 5,355 2,159
Insurance expense................ 276 7 162 7 6,578 2,854
Amortization of organization
costs (Note 1-F)............... 240 - 1,540 198 - 223
Printing expense................. 1,874 1,087 1,365 2,252 25,900 17,738
Registration expenses............ 7,550 4,336 11,775 10,523 43,116 20,355
Servicing fees (Note 3).......... - - - - 167,535 -
Other expenses................... 83 127 - 76 1,297 941
----------- ----------- ---------- ----------- ------------ ------------
Total expenses................. 106,045 34,507 73,407 241,251 1,780,168 996,742
Expenses reimbursed and
waived (Note 2)................ - (18,045) - - - (2,068)
----------- ----------- ---------- ----------- ------------ ------------
Net expenses................... 106,045 16,462 73,407 241,251 1,780,168 994,674
----------- ----------- ---------- ----------- ------------ ------------
NET INVESTMENT INCOME (LOSS) ....... 341,326 (11,791) (3,129) (132,669) (1,118,713) (414,856)
----------- ----------- ---------- ----------- ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY
RELATED TRANSACTIONS:
Net realized gain on investments 974,986 18,480 185,801 3,910,728 65,995,035 11,831,129
Net realized gain (loss) on foreign
currency related transactions.. (52) (2,390) 435 (1,251,889) (293,329) (9,132)
Net change in unrealized appreciation
(depreciation) on investments
and foreign currency related
transactions .................. (226,436) 1,619,258 (297,577) (1,509,232) (75,297,603) 12,164,502
----------- ----------- ---------- ----------- ------------ ------------
Net realized and unrealized gain (loss)
on investments and foreign currency
related transactions........... 748,498 1,635,348 (111,341) 1,149,607 (9,595,897) 23,986,499
----------- ----------- ---------- ----------- ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS.................. $1,089,824 $1,623,557 ($114,470) $1,016,938 ($10,714,610) $23,571,643
----------- ----------- ---------- ----------- ------------ ------------
</TABLE>
* The Fund commenced operations on December 27, 1999.
See accompanying notes to financial statements.
21
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATTHEWS ASIAN MATTHEWS ASIAN
GROWTH AND INCOME FUND TECHNOLOGY FUND
---------------------- ----------------
SIX MONTHS PERIOD
ENDED YEAR ENDED
FEBRUARY 29, ENDED FEBRUARY 29,
2000 AUGUST 31, 2000*
(UNAUDITED) 1999 (UNAUDITED)
----------- ----------- -----------
<S> <C> <C> <C>
OPERATIONS:
Net investment income (loss).................... $ 341,326 $ 530,190 ($11,791)
Net realized gain (loss) on investments and
foreign currency related transactions ........ 974,934 (13,355) 16,090
Net change in unrealized appreciation
(depreciation) on investments and foreign
currency related transactions................. (226,436) 2,441,914 1,619,258
----------- ----------- -----------
Net increase in net assets
from operations............................... 1,089,824 2,958,749 1,623,557
----------- ----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Class I ...................................... (372,958) (436,230) -
Class A....................................... N/A N/A -
----------- ----------- -----------
Net decrease in net assets resulting
from distributions............................ (372,958) (436,230) -
----------- ----------- -----------
CAPITAL SHARE TRANSACTIONS (NET):
Class I....................................... 6,205 4,058,565 11,090,851
Class A....................................... N/A N/A N/A
----------- ----------- -----------
Increase in net assets derived from
capital share transactions.................... 6,205 4,058,565 11,090,851
----------- ----------- -----------
Total increase in net assets.................... 723,071 6,581,084 12,714,408
NET ASSETS:
Beginning of period ............................ 10,643,781 4,062,697 -
----------- ----------- -----------
End of period (including undistributed net investment
income (loss) of $63,925, $94,927, and
($11,791), respectively) ..................... $11,366,852 $10,643,781 $12,714,408
=========== =========== ===========
</TABLE>
* The Asian Technology Fund commenced operations on December 27, 1999.
N/A - Not Applicable
See accompanying notes to financial statements.
22
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATTHEWS DRAGON MATTHEWS
CENTURY CHINA FUND JAPAN FUND
-------------------- ---------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED YEAR
FEBRUARY 29, ENDED FEBRUARY 29, ENDED
2000 AUGUST 31, 2000 AUGUST 31,
(UNAUDITED) 1999 (UNAUDITED) 1999*
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss).................... ($3,129) $ 88,561 ($132,669) ($45,727)
Net realized gain (loss) on investments and
foreign currency related transactions ........ 186,236 (513,007) 2,658,839 448,510
Net change in unrealized appreciation
(depreciation) on investments and
foreign currency related transactions......... (297,577) 2,028,439 (1,509,232) 3,849,999
---------- ---------- ----------- -----------
Net increase (decrease) in
net assets from operations.................... (114,470) 1,603,993 1,016,938 4,252,782
---------- ---------- ----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Class I....................................... (100,689) (40,925) - -
Class A ...................................... N/A N/A - -
Realized gains on investments:
Class I....................................... - - (600,746) -
Class A....................................... N/A N/A N/A N/A
---------- ---------- ----------- -----------
Net decrease in net assets resulting
from distributions............................ (100,689) (40,925) (600,746) -
---------- ---------- ----------- -----------
CAPITAL SHARE TRANSACTIONS (NET):
Class I ...................................... 1,115,367 3,106,211 (511,521) 20,233,091
Class A....................................... N/A N/A N/A N/A
---------- ---------- ----------- -----------
Increase (decrease) in net assets derived from
capital share transactions.................... 1,115,367 3,106,211 (511,521) 20,233,091
---------- ---------- ----------- -----------
Total increase (decrease) in net assets ........ 900,208 4,669,279 (95,329) 24,485,873
NET ASSETS:
Beginning of period ............................ 6,245,273 1,575,994 24,485,873 -
---------- ---------- ----------- -----------
End of period (including undistributed
net investment income (loss) of ($15,639),
$88,179, ($132,669) and $0, respectively)..... $7,145,481 $6,245,273 $24,390,544 $24,485,873
========== ========== =========== ===========
</TABLE>
* The Japan Fund commenced operations on December 31, 1998.
N/A - Not Applicable
See accompanying notes to financial statements.
23
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATTHEWS KOREA MATTHEW PACIFIC
FUND TIGER FUND
------------------------ --------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED YEAR
FEBRUARY 29, ENDED FEBRUARY 29, ENDED
2000 AUGUST 31, 2000 AUGUST 31,
(UNAUDITED) 1999 (UNAUDITED) 1999*
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss).................... ($1,118,713) $ 837,323 ($414,856) $ 2,241,628
Net realized gain (loss) on investments and
foreign currency related transactions......... 65,701,706 37,190,472 11,821,997 (25,438)
Net change in unrealized appreciation
(depreciation) on investments and foreign
currency related transactions................. (75,297,603) 143,518,288 12,164,502 47,488,287
------------ ------------ ------------ ------------
Net increase (decrease) in
net assets from operations.................... (10,714,610) 181,546,083 23,571,643 49,704,477
------------ ------------ ------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Class I ...................................... - - (1,613,167) (233,408)
Class A....................................... - - (23,128) (1,392)
Realized gains on investments:
Class I....................................... (22,919,026) - - -
Class A....................................... (1,790,122) - - -
------------ ------------ ------------ ------------
Net decrease in net assets resulting
from distributions............................ (24,709,148) - (1,636,295) (234,800)
------------ ------------ ------------ ------------
CAPITAL SHARE TRANSACTIONS (NET):
Class I ...................................... (38,342,348) (6,709,788) (13,855,139) 29,385,046
Class A....................................... 2,444,199 560,219 400,278 837,725
------------ ------------ ------------ ------------
Increase (decrease) in net assets derived from
capital share transactions.................... (35,898,149) (6,149,569) (13,454,861) 30,222,771
------------ ------------ ------------ ------------
Total increase (decrease) in net assets ........ (71,321,907) 175,396,514 8,480,487 79,692,448
NET ASSETS:
Beginning of period............................. 246,127,173 70,730,659 111,156,927 31,464,479
------------ ------------ ------------ ------------
End of period (including undistributed
net investment income (loss) of
($1,762,027), ($643,314), ($416,349)
and $1,634,802, respectively.................. $174,805,266 $246,127,173 $119,637,414 $111,156,927
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
24
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The table below sets forth financial data for a share of beneficial interest
outstanding throughout each period presented.
<TABLE>
<CAPTION>
MATTHEWS ASIAN
GROWTH AND INCOME FUND
------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR YEAR YEAR YEAR PERIOD
FEBRUARY 29, ENDED ENDED ENDED ENDED ENDED
2000 AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
(UNAUDITED) 1999 1998 1997 1996 1995(3)
--------- --------- --------- --------- --------- ----------
<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 (LOSS) FROM
INVESTMENT OPERATIONS
Net investment income .... 0.29 0.59 0.13 0.10 0.25 0.23
Net realized gain (loss) and
unrealized appreciation
(depreciation) on investments
and foreign currency.... 0.65 2.75 (4.15) 1.42 0.75 (0.14)
------ ------ ------ ------ ------ ------
Total from investment operations 0.94 3.34 (4.02) 1.52 1.00 0.09
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS FROM:
Net investment income..... (0.32) (0.51) (0.10) (0.10) (0.26) (0.21)
Net realized gains on investments - - (1.05) (0.24) (0.09) -
------ ------ ------ ------ ------ ------
Total distributions..... (0.32) (0.51) (1.15) (0.34) (0.35) (0.21)
------ ------ ------ ------ ------ ------
Net Asset Value, end of period $ 9.99 $ 9.37 $ 6.54 $11.71 $10.53 $ 9.88
====== ====== ====== ====== ====== ======
TOTAL RETURN................. 10.07%(2) 52.65% (35.27%) 14.67% 10.24% 0.89%(2)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in 000's).............. $11,367 $10,644 $4,063 $6,166 $3,272 $863
Ratio of expenses to average net
assets before reimbursement
and waiver of expenses by
Advisor and Administrator 1.90%(1) 2.05% 3.76% 4.45% 8.73% 23.11%(1)
Ratio of expenses to average net
assets after reimbursement and
waiver of expenses by Advisor
and Administrator (Note 2) 1.90%(1) 1.90% 1.90% 1.90% 1.85% 2.26%(1)
Ratio of net investment income
(loss) to average net assets
before reimbursement and
waiver of expenses by Advisor
and Administrator....... 6.12%(1) 7.98% (0.36%) (1.55%) (4.13%) (18.68%)(1)
Ratio of net investment income
to average net assets after
reimbursement and waiver
of expenses by Advisor and
Administrator........... 6.12%(1) 8.13% 1.50% 1.00% 2.75% 2.17%(1)
Portfolio turnover........ 19.81%(2) 34.82% 54.67% 50.20% 88.16% 121.63%(2)
</TABLE>
1 Annualized
2 Not annualized
3 The Fund commenced operations on September 12, 1994.
See accompanying notes to financial statements.
25
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The table below sets forth financial data for a share of beneficial interest
outstanding throughout each period presented.
<TABLE>
<CAPTION>
MATTHEWS ASIAN MATTHEWS DRAGON MATTHEWS
TECHNOLOGY FUND CENTURY CHINA FUND JAPAN FUND
--------------- ----------------------------------- ----------------------
PERIOD SIX MONTHS SIX MONTHS
ENDED ENDED YEAR PERIOD ENDED PERIOD
FEBRUARY 29, FEBRUARY 29, ENDED ENDED FEBRUARY 29, ENDED
2000(4) 2000 AUGUST 31, AUGUST 31, 2000 AUGUST 31,
(UNAUDITED) (UNAUDITED) 1999 1998(5) (UNAUDITED) 1999(6)
----------- ----------- ---------- --------- ------------ ---------
CLASS I CLASS I CLASS I CLASS I CLASS I CLASS I
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period $10.00 $ 8.48 $ 4.36 $10.00 $21.70 $10.00
------ ------ ------ ------ ------ ------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
Net investment income (loss) (0.01) (0.03) 0.12 0.10 (0.12) (0.04)
Net realized gain (loss) and unrealized
appreciation (depreciation) on
investments and foreign currency 1.38 (0.00)# 4.11 (5.74) 1.67 11.74
------ ------ ------ ------ ------ ------
Total from investment operations 1.37 (0.03) 4.23 (5.64) 1.55 11.70
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS FROM:
Net investment income....... - (0.11) (0.11) - - -
Net realized gains on investments - - - - (0.54) -
------ ------ ------ ------ ------ ------
Total distributions ...... - (0.11) (0.11) - (0.54) -
------ ------ ------ ------ ------ ------
Net Asset Value, end of period $11.37 $ 8.34 $ 8.48 $ 4.36 $22.71 $21.70
====== ====== ====== ====== ====== ======
TOTAL RETURN................... 13.70%(2,3) (0.44%)(2) 97.79% (56.40%)(2) 7.48%(2) 117.00%(2)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in 000's) ............... $12,714 $7,145 $6,245 $1,576 $24,391 $24,486
Ratio of expenses to average
net assets before reimbursement
and waiver of expenses by Advisor
and Administrator......... 4.19%(1) 2.00%(1) 2.09% 7.84%(1) 2.00%(1) 3.45%(1)
Ratio of expenses to average net
assets after reimbursement and
waiver of expenses by Advisor and
Administrator (Note 2).... 2.00%(1) 2.00%(1) 2.00% 2.00%(1) 2.00%(1) 2.00%(1)
Ratio of net investment income
(loss) to average net assets
before reimbursement and
waiver of expenses by Advisor
and Administrator........ (3.62%)(1) (0.09%)(1) 2.93% (3.45%)(1) (1.10%)(1) (2.54%)(1)
Ratio of net investment income
(loss) to average net assets
after reimbursement and
waiver of expenses by Advisor
and Administrator......... (1.43%)(1) (0.09%)(1) 3.02% 2.38%(1) (1.10%)(1) (1.09%)(1)
Portfolio turnover.......... 10.87%(2) 35.77%(2) 40.27% 11.84%(2) 140.93%(2) 28.92%(2)
</TABLE>
1 Annualized
2 Not annualized
3 Total return calculation does not reflect redemption fees.
4 The Asian Technology Fund commenced operations on December 27, 1999.
5 The Dragon Century China Fund Class I commenced operations on
February 19, 1998.
6 The Japan Fund commenced operations on December 31, 1998.
# Amount represents less than $0.01 per share.
See accompanying notes to financial statements.
26
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The table below sets forth financial data for a share of beneficial interest
outstanding throughout each period presented.
<TABLE>
<CAPTION>
MATTHEWS KOREA
FUND
---------------------------------------------------------------------------------------------------------
SIX MONTHS SIX MONTHS
ENDED ENDED YEAR YEAR PERIOD YEAR YEAR YEAR PERIOD
FEBRUARY 29, FEBRUARY 29, ENDED ENDED ENDED ENDED ENDED ENDED ENDED
2000 2000 AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
(UNAUDITED) (UNAUDITED) 1999 1999 1998(6) 1998 1997 1996 1995(5)
------ ------ ------ ------ ------ ------ ------ ------ ------
CLASS A CLASS I CLASS A CLASS I CLASS A CLASS I CLASS I CLASS I CLASS I
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning
of period............... $ 7.44 $ 7.49 $ 2.01 $ 2.03 $ 5.32 $ 6.19 $ 7.23 $ 9.13 $10.00
------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
Net investment income (loss) (0.05) (0.04) 0.01 0.03 (0.04) (0.03) (0.04)(4) (0.07) 0.08
Net realized gain (loss) and
unrealized appreciation
(depreciation) on
investments
and foreign currency.. (0.24) (0.24) 5.42 5.43 (3.27) (4.13) (1.00)(4) (1.75) (0.95)
------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations.......... (0.29) (0.28) 5.43 5.46 (3.31) (4.16) (1.04) (1.82) (0.87)
------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS FROM:
Net realized gains
on investments (0.88) (0.88) - - - - - (0.08) -
------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, end of period $ 6.27 $ 6.33 $ 7.44 $ 7.49 $ 2.01 $ 2.03 $ 6.19 $ 7.23 $ 9.13
====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN............... (6.30%) (6.12%) 270.15% 268.97% (62.03%) (67.21%) (14.38%) (20.11%) (8.70%)
(2,3) (2) (3) (2,3) (2)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (in 000's)....... $14,875 $159,930 $15,281 $230,846 $4,123 $66,607 $19,356 $2,721 $504
Ratio of expenses to average net
assets before reimbursement
and waiver of expenses by
Advisor and Administrator 1.91%(1) 1.66%(1) 2.02% 1.77% 2.97%(1) 2.07% 2.90% 11.36% 42.87%(1)
Ratio of expenses to average
net assets after reimbursement
and waiver of expenses by
Advisor and Administrator
(Note 2)................ 1.66%(1) 1.66%(1) 2.02% 1.77% 2.68%(1) 2.06% 2.50% 2.23% 0.24%(1)
Ratio of net investment loss to
average net assets before
reimbursement and waiver
of expenses by Advisor and
Administrator........... (1.30%)(1) (1.05%)(1) (0.62%) (0.37%) (2.03%)(1) (1.13%) (1.81%) (10.44%) (41.79%)(1)
Ratio of net investment income
(loss) to average net assets after
reimbursement and waiver of
expenses by Advisor and
Administrator........... (1.05%)(1) (1.05%)(1) (0.62%) (0.37%) (1.74%)(1) (1.12%) (1.41%) (1.31%) 0.84%(1)
Portfolio turnover......... 25.14%(2) 25.14%(2) 57.06% 57.06% 94.01% 94.01% 112.68% 139.71% 42.16%(2)
</TABLE>
1 Annualized
2 Not annualized
3 Total return calculation does not reflect sales load.
4 Calculated using the average shares method.
5 The Korea Fund Class I commenced operations on January 3, 1995.
6 The Korea Fund Class A commenced operations on October 9, 1997.
See accompanying notes to financial statements.
27
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The table below sets forth financial data for a share of beneficial interest
outstanding throughout each period presented.
<TABLE>
<CAPTION>
MATTHEWS PACIFIC
TIGER FUND
-------------------------------------------------------------------------------------------------------
SIX MONTHS SIX MONTHS
ENDED ENDED YEAR YEAR PERIOD YEAR YEAR YEAR PERIOD
FEBRUARY 29, FEBRUARY 29, ENDED ENDED ENDED ENDED ENDED ENDED ENDED
2000 2000 AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
(UNAUDITED) (UNAUDITED) 1999 1999 1998(5) 1998 1997 1996 1995(4)
------ ------ ------ ------ ------ ------ ------ ------ ------
CLASS A CLASS I CLASS A CLASS I CLASS A CLASS I CLASS I CLASS I CLASS I
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning
of period ............... $10.41 $10.41 $ 4.07 $ 4.07 $10.84 $11.30 $10.81 $ 9.77 $10.00
------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
Net investment income (loss) (0.02) (0.03) 0.21 0.21 0.03(6) 0.02(6) 0.02 0.01 0.02
Net realized gain (loss) and
unrealized appreciation
(depreciation) on investments
and foreign currency .. 2.44 2.46 6.15 6.15 (6.73) (7.18) 0.50 1.03 (0.23)
------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations .......... 2.42 2.43 6.36 6.36 (6.70) (7.16) 0.52 1.04 (0.21)
------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS FROM:
Net investment income ... (0.16) (0.17) (0.02) (0.02) (0.01) (0.01) (0.01) - (0.02)
Net realized gains
on investments ........ - - - - (0.06) (0.06) (0.02) - -
------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions ... (0.16) (0.17) (0.02) (0.02) (0.07) (0.07) (0.03) - (0.02)
------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, end of period $12.67 $12.67 $10.41 $10.41 $ 4.07 $ 4.07 $11.30 $10.81 $ 9.77
====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN ............... 23.42% 23.42% 156.28% 156.28% (61.87%) (63.43%) 4.75% 10.64% (2.07%)
(2,3) (2) (3) (2,3) (2)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in 000's)............. $1,958 $117,679 $1,221 $109,936 $ 146 $31,319 $43,647 $17,148 $1,082
Ratio of expenses to average
net assets before reimbursement
and waiver of expenses by
Advisor and Administrator 2.03%(1) 1.78%(1) 2.15% 1.90% 11.99%(1) 2.06% 1.97% 4.35% 25.95%(1)
Ratio of expenses to average net
assets after reimbursement and
waiver of expenses by Advisor
and Administrator (Note 2) 1.78%(1) 1.78%(1) 1.90% 1.90% 1.91%(1) 1.90% 1.90% 1.90% 2.17%(1)
Ratio of net investment income
(loss) to average net assets
before reimbursement and
waiver of expenses by Advisor
and Administrator ..... (1.00%)(1) (0.75%)(1) 3.10% 3.35% (9.61%)(1) 0.14% 0.20% (2.13%) (23.41%)(1)
Ratio of net investment income
(loss) to average net assets
after reimbursement and
waiver of expenses by Advisor
and Administrator ..... (0.75%)(1) (0.75%)(1) 3.35% 3.35% 0.47%(1) 0.30% 0.27% 0.32% 0.36%(1)
Portfolio turnover ...... 26.32%(2) 26.32%(2) 98.74% 98.74% 73.09% 73.09% 70.73% 124.69% 92.53%(2)
</TABLE>
1 Annualized
2 Not annualized
3 Total return calculation does not reflect sales load.
4 Class I commenced operations on September 12, 1994.
5 Class A commenced operations on October 9, 1997.
6 Calculated using the average shares method.
See accompanying notes to financial statements.
28
<PAGE>
- --------------------------------------------------------------------------------
MATTHEWS INTERNATIONAL FUNDS
NOTES TO FINANCIAL STATEMENTS FEBRUARY 29, 2000 (UNAUDITED)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Matthews International Funds (the "Company") is an open-end investment
management company registered under the Investment Company Act of 1940, as
amended (the "Act"). The Company currently issues six separate series of
shares (each a "Fund" and collectively, the "Funds"): Matthews Asian Growth
and Income Fund (formerly, the Matthews Asian Convertible Securities Fund),
Matthews Asian Technology Fund, Matthews Dragon Century China Fund, Matthews
Japan Fund, Matthews Korea Fund and Matthews Pacific Tiger Fund. The Matthews
Dragon Century China Fund, Matthews Korea Fund and Matthews Pacific Tiger
Fund are authorized to offer two classes of shares: Class I shares and Class
A shares. Although authorized, on September 1, 1998, the Matthews Dragon
Century China Fund suspended issuing Class A shares. The classes offered have
different sales charges and other expenses which may affect performance. The
Matthews Asian Technology Fund, Matthews Dragon Century China Fund, Matthews
Japan Fund, Matthews Korea Fund and Matthews Pacific Tiger Fund seek to
maximize capital appreciation by investing, under normal circumstances, at
least 65% of their total assets in equity securities of Pacific Tiger
economies, South Korean companies, Chinese companies and Japanese companies,
respectively. Pacific Tiger economies include Hong Kong, Singapore, South
Korea, Taiwan, Indonesia, Malaysia, Philippines, Thailand and China. Matthews
Asian Growth and Income Fund seeks capital appreciation and current income by
investing, under normal circumstances, at least 65% of its total assets in
the convertible securities of Asian economies. Asian economies include Hong
Kong, Japan, Singapore, South Korea, Taiwan, Indonesia, Malaysia,
Philippines, Thailand, China and India. The following is a summary of
significant accounting policies consistently followed by the Funds in the
preparation of their financial statements.
A. SECURITY VALUATION: Securities listed on any national securities exchange
are valued at their last sale price on the exchange where the securities are
principally traded or, if there has been no sale on that date, at the mean
between the last reported bid and asked prices. Securities traded
over-the-counter are priced at the mean of the last bid and asked prices. All
other securities are valued through valuations obtained from a commercial
pricing service or at the most recent mean of the bid and asked prices
provided by investment dealers in accordance with procedures established by
the Board of Trustees.
The books and records of the Funds are maintained in U.S. dollars.
Transactions denominated in foreign currencies are recorded at the current
prevailing exchange rates. All assets and liabilities denominated in foreign
currencies are translated into U.S. dollars at the current exchange rate.
Translation gains or losses resulting from changes in the exchange rate
during the reporting period and realized gains and losses on the settlement
of foreign currency transactions are reported in the results of operations
for the current period. The Funds do not isolate that portion of gains and
losses on investments in equity securities which is due to changes in the
foreign exchange rate from that which is due to changes in market prices of
equity securities. International dollar bonds are issued offshore, pay
interest and principal in U.S. dollars, and are denominated in U.S. dollars.
Portfolio securities traded on a foreign exchange are generally valued at the
respective current prevailing exchange rates. The securities' values are
translated into U.S. dollars using these rates. If subsequent to the time a
rate has been established and it has been determined to have materially
changed, the fair value of those securities, (considering the changing
conditions) will be determined by (or under the direction of) the Funds'
Board of Trustees.
B. FORWARD FOREIGN EXCHANGE CONTRACTS: The Funds may engage in forward
foreign exchange contracts for hedging a specific transaction in which the
currency is denominated as deemed appropriate by Matthews International
Capital Management, LLC (the "Advisor"). Forward foreign exchange contracts
are valued at the forward rate and are marked-to-market daily. The change in
market value is recorded by the Funds as an unrealized gain or loss. When the
contract is closed, the Funds record a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and
the value at the time it was closed.
The use of forward foreign exchange contracts does not eliminate fluctuations
in the underlying prices of the Funds' portfolio securities, but it does
establish a rate of exchange that can be achieved in the future. Although
forward foreign exchange contracts limit the risk of loss due to a decline in
the value of the hedged currency, they also limit any potential gain that
might result should the value of the currency increase. In addition, the
Funds could be exposed to risks if the counterparties to the contracts are
unable to meet the terms of their contracts.
C. RISKS ASSOCIATED WITH FOREIGN SECURITIES: Investments by the Funds in the
securities of foreign issuers may involve investment risks different from
those of U.S. issuers including possible political or economic instability of
the country of the issuer, the difficulty of predicting international trade
patterns, the possibility of currency exchange controls, the possible
imposition of foreign withholding tax on the interest income payable on such
instruments, the possible establishment of foreign controls, the possible
seizure or nationalization of foreign deposits or assets, or the adoption of
other foreign government restrictions that might adversely affect the foreign
securities held by the Funds. Foreign securities may also be subject to
greater fluctuations in price than securities of domestic corporations or the
U.S. Government.
29
<PAGE>
- --------------------------------------------------------------------------------
MATTHEWS INTERNATIONAL FUNDS
NOTES TO FINANCIAL STATEMENTS FEBRUARY 29, 2000 (UNAUDITED)
- --------------------------------------------------------------------------------
D. FEDERAL INCOME TAXES: It is the policy of the Funds to comply with all
requirements of the Internal Revenue Code (the "Code") applicable to
regulated investment companies and to distribute substantially all of its
taxable income to its shareholders. The Funds have met the requirements of
the Code applicable to regulated investment companies for the period ended
February 29, 2000. Therefore, no Federal income tax provision is required.
E. DETERMINATION OF GAINS OR LOSSES ON SALES OF SECURITIES: Gains or losses
on the sale of securities are determined on the identified cost basis.
F. ORGANIZATION COSTS: Organization costs are being amortized on a
straight-line basis over five years from each Fund's respective commencement
of operations with the exception of the Matthews Japan Fund, was amortized on
a straight-line basis over one year from the Fund's commencement of
operations. In the event that any of the initial shares are redeemed during
the period of amortization of the Funds' organization costs, the redemption
proceeds will be reduced by any such unamortized organization costs in the
same proportion as the number of initial shares being redeemed bears to the
number of those shares outstanding at the time of redemption.
G. DISTRIBUTIONS TO SHAREHOLDERS: It is the policy of Matthews Asian Growth
and Income Fund to distribute net investment income on a semi-annual basis
and capital gains, if any, annually. Matthews Asian Technology Fund, Matthews
Dragon Century China Fund, Matthews Japan Fund, Matthews Korea Fund and
Matthews Pacific Tiger Fund distribute net investment income and capital
gains, if any, annually. Distributions to shareholders are recorded on the
ex-dividend date. Income and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Net investment losses may not be utilized to
offset net investment income in future periods for tax purposes.
H. FUND AND CLASS ALLOCATIONS: The Funds account separately for the assets,
liabilities and operations of each Fund. Direct expenses of each Fund are
charged to the Fund while general expenses are allocated pro-rata among the
Funds based on net asset value. Income, expenses (other than class specific
expenses), and realized and unrealized gains (losses) are calculated at the
Fund level and allocated daily to each class of shares based on the relative
proportion of net assets of each class.
I. USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results may differ from those
estimates.
J. OTHER: Securities transactions are accounted for on the date the
securities are purchased or sold. Interest income is recorded on the accrual
basis and dividend income on the ex-dividend date.
K. CAPITAL SHARE TRANSACTIONS: Each Fund is authorized to issue an unlimited
number of shares of beneficial interest with a par value of $0.001 per share.
Class A Shares are sold with a front-end sales charge of 4.95%. Transactions
in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
MATTHEWS MATTHEWS
ASIAN GROWTH AND INCOME FUND ASIAN TECHNOLOGY FUND
------------------------------------------ --------------------------
CLASS I CLASS I
------------------------------------------ --------------------------
SIX MONTHS ENDED YEAR ENDED PERIOD ENDED
FEBRUARY 29, 2000 AUGUST 31, 1999 FEBRUARY 29, 2000
------------------------------------------ --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Shares sold ....................... 315,952 $3,064,645 1,019,797 $8,107,270 1,229,952 $12,279,052
Shares issued through
reinvestment of dividends....... 36,726 367,997 49,419 406,448 - -
Shares redeemed ................... (351,215) (3,426,437) (554,197) (4,455,153) (111,481) (1,188,201)
-------- ---------- --------- ---------- --------- -----------
Net increase....................... 1,463 $ 6,205 515,019 $4,058,565 1,118,471 $11,090,851
======== ========== ========= ========== ========= ===========
</TABLE>
30
<PAGE>
- --------------------------------------------------------------------------------
MATTHEWS INTERNATIONAL FUNDS
NOTES TO FINANCIAL STATEMENTS FEBRUARY 29, 2000 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATTHEWS MATTHEWS
DRAGON CENTURY CHINA FUND JAPAN FUND
------------------------------------------- ------------------------------------------------
CLASS I CLASS I
------------------------------------------- ------------------------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED PERIOD ENDED
FEBRUARY 29, 2000 AUGUST 31, 1999 FEBRUARY 29, 2000 AUGUST 31, 1999
------------------- ------------------- ----------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold............. 530,966 $4,513,112 791,595 $6,408,921 935,163 $20,089,926 1,248,676 $22,728,238
Shares issued through
reinvestment of dividends 11,236 100,022 6,071 39,314 28,718 572,639 - -
Shares redeemed......... (422,145) (3,497,767) (423,005) (3,342,024) (1,018,150) (21,174,086) (120,253 (2,495,147)
-------- ---------- ------- ---------- ---------- ----------- --------- -----------
Net increase............ 120,057 $1,115,367 374,661 $3,106,211 (54,269) ($511,521) 1,128,423 $20,233,091
======== ========== ======= ========== ========== =========== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
MATTHEWS
KOREA FUND
------------------------------------------------------------------------------------------------
CLASS I CLASS A
--------------------------------------------------- ------------------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED PERIOD ENDED
FEBRUARY 29, 2000 AUGUST 31, 1999 FEBRUARY 29, 2000 AUGUST 31, 1999
------------------------ ------------------------- ------------------- --------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold............. 12,841,507 $91,707,046 46,512,355 $307,041,168 377,749 $2,704,756 349,768 $2,266,586
Shares issued through
reinvestment of dividends 2,651,302 22,409,247 - - 221,541 1,714,731 - -
Shares redeemed......... (21,021,815) (152,358,641) (48,584,494) (313,750,956) (278,374) (1,975,288) (343,013) (1,706,367)
----------- ------------ ----------- ------------ -------- ---------- -------- ----------
Net increase (decrease). (5,529,006) ($38,242,348) (2,072,139) ($6,709,788 320,916 $2,444,199 6,755 $ 560,219
=========== ============ =========== ============ ======== ========== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
MATTHEWS
PACIFIC TIGER FUND
------------------------------------------------------------------------------------------------
CLASS I CLASS A
--------------------------------------------------- ------------------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED PERIOD ENDED
FEBRUARY 29, 2000 AUGUST 31, 1999 FEBRUARY 29, 2000 AUGUST 31, 1999
------------------------ ------------------------- ------------------- --------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold............. 3,332,162 $39,076,902 14,367,556 $125,011,426 82,910 $721,644 117,898 $1,081,693
Shares issued through
reinvestment of dividends 125,434 1,496,431 20,786 223,856 1,813 21,632 129 1,390
Shares redeemed......... (4,735,965) (54,428,471) (11,513,378) (95,850,236) (47,477) (342,998) (36,570) (245,358)
----------- ----------- ----------- ------------ ------ -------- ------- ----------
Net increase (decrease). (1,278,369) ($13,855,138) 2,874,964 $ 29,385,046 37,246 $400,278 81,457 $ 837,725
========== ============ =========== ============ ====== ======== ======= ==========
</TABLE>
The Funds imposed a redemption fee of 2.00% on shares that are redeemed
within ninety days of purchase. The charge will be assessed on an amount
equal to the net asset value of the shares at the time of redemption. The
redemption fee is deducted from the proceeds otherwise payable to the
shareholder. The redemption fees were returned to the assets of the Asian
Growth and Income Fund, Asian Technology Fund, Dragon Century China Fund,
Japan Fund, Korea Fund and Pacific Tiger Fund in the amounts of $7,665, $256,
$13,741, $48,567, $465,494 and $148,319, respectively.
31
<PAGE>
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MATTHEWS INTERNATIONAL FUNDS
NOTES TO FINANCIAL STATEMENTS FEBRUARY 29, 2000 (UNAUDITED)
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2. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Advisor, a registered investment advisor, provides the Funds with
investment management services. As compensation for these services, the
Advisor charges the Funds a monthly fee of 1/12 of 1% on each Fund's
respective average daily net assets. The Funds reimburse the Advisor any
service fees paid by it to the extent that shareholder service related
expenses are incurred by the Advisor. Certain officers and Trustees of the
Funds are also officers and directors of the Advisor. All officers serve
without direct compensation from the Funds. Investment advisory fees and
other transactions with affiliates, for the period ended February 29, 2000,
are as follows:
<TABLE>
<CAPTION>
EXPENSES
INVESTMENT CONTRACTUAL WAIVED AND
ADVISORY EXPENSE ADVISORY REIMBURSED
FEE RATE LIMITATION* FEES BY ADVISOR
---------- ----------- -------- ----------
<S> <C> <C> <C> <C>
Matthews Asian Growth and Income Fund ......... 1.00% 1.90% $ 55,831 -
Matthews Asian Technology Fund................. 1.00 2.00 8,231 $18,045
Matthews Dragon Century China Fund ............ 1.00 2.00 36,718 -
Matthews Japan Fund ........................... 1.00 2.00 120,762 -
Matthews Korea Fund ........................... 1.00 2.50 1,062,793 -
Matthews Pacific Tiger Fund ................... 1.00 1.90 559,013 2,068
</TABLE>
* For Funds offering Class A shares, the contractual expense limitation would
include an additional 0.25% for Class A Distributor fees.
The investment advisory agreements provide that any reductions made by the
Advisor in its fees are subject to reimbursement by the Funds within the
following three years provided that Funds are able to effect such
reimbursement and remain in compliance with applicable expense limitations.
During the period ended February 29, 2000, the Matthews Asian Growth and
Income Fund, Matthews Dragon Century China Fund, Matthews Japan Fund and
Matthews Pacific Tiger Fund reimbursed expenses to the Advisor totaling
$8,466, $6,483, $48,641 and $144,744, respectively. As of February 29, 2000,
the total expenses waived and reimbursed by the Advisor that are subject to
reimbursement by the Matthews Asian Growth and Income Fund, Matthews Asian
Technology Fund, Matthews Dragon Century China Fund, Matthews Japan Fund,
Matthews Korea Fund and Matthews Pacific Tiger Fund totaled $186,915,
$18,045, $88,975, $12,273, $0 and $612, respectively.
3. DISTRIBUTOR FEES AND CLASS SPECIFIC EXPENSES
Effective December 1, 1999, Provident Distributors, Inc. (the "Distributor")
serves as the Funds' Distributor pursuant to an Underwriting Agreement. Prior
to December 1, 1999, First Data Distributors, Inc. served as the Funds'
distributor. Pursuant to Rule 12b-1 adopted by the Securities and Exchange
Commission under the Act, the Korea Fund Class A and the Pacific Tiger Fund
Class A, have adopted a Plan of Distribution (the "Plan"). The Plan permits
the participating Funds to pay certain expenses associated with the
distribution of their shares. Under the Plan, each Fund offering Class A
shares may pay actual expenses not exceeding, on an annual basis, 0.25% of
each participating Fund's Class A average daily net assets. Pacific Tiger
distribution fees were reimbursed by the Advisor. The Class I shares of the
Funds do not have a distribution plan.
The Matthews Korea Fund bears a portion of the fees paid to certain service
providers (exclusive of the Fund's transfer agent) which provide transfer
agency and shareholder servicing to certain shareholders. Fees paid to such
service providers for the period ended February 29, 2000 are reflected in the
statement of operations as follows: transfer agent fees - $111,690 and
shareholder servicing fees - $55,845.
32
<PAGE>
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MATTHEWS INTERNATIONAL FUNDS
NOTES TO FINANCIAL STATEMENTS FEBRUARY 29, 2000 (UNAUDITED)
- --------------------------------------------------------------------------------
4. INVESTMENT TRANSACTIONS
Investment transactions for the period ended February 29, 2000, excluding
temporary short-term investments, were as follows:
PROCEEDS
PURCHASES FROM SALES
----------- ------------
Matthews Asian Growth and Income Fund..... $ 2,247,893 $ 2,141,259
Matthews Asian Technology Fund............ 10,855,600 583,939
Matthews Dragon Century China Fund........ 4,321,907 2,537,221
Matthews Japan Fund....................... 34,961,350 37,093,453
Matthews Korea Fund....................... 52,522,465 112,925,118
Matthews Pacific Tiger Fund............... 29,048,419 36,260,339
The Funds invest excess cash in interest bearing deposits at The Bank of New
York.
5. CAPITAL LOSS CARRYOVER
At February 29, 2000, the Funds had capital loss carryovers expiring through
2007 as follows:
EXPIRING ON:
-----------------------
2006 2007
---------- ----------
Matthews Asian Growth and Income Fund .... $ 51,948 $ 726,172
Matthews Dragon Century China Fund........ - 295,158
Matthews Pacific Tiger Fund .............. 1,586,029 8,122,479
These amounts are available to offset possible future capital gains of the
Fund.
33
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<PAGE>
<PAGE>
BOARD OF TRUSTEES
Richard K. Lyons
Robert K. Connolly
David FitzWilliam-Lay
Norman W. Berryessa
John H. Dracott, Emeritus
OFFICERS
G. Paul Matthews
Mark W. Headley
Joseph M. O'Donnell
INVESTMENT ADVISOR
Matthews International Capital Management, LLC
456 Montgomery Street, Suite 1200
San Francisco, California 94104-1245
800.789.ASIA (2742)
UNDERWRITER
Provident Distributors, Inc.
3200 Horizon Drive
King of Prussia, PA 19406-0903
SHAREHOLDER SERVICES
PFPC Inc.
211 South Gulph Road
King of Prussia, Pennsylvania 19406-0903
800.892.0382
CUSTODIAN
The Bank of New York
90 Washington Street
New York, New York 10286-0007
LEGAL COUNSEL
Paul, Hastings, Janofsky & Walker LLP
345 California Street
San Francisco, California 94104-2635
[Graphic of dragon omitted]
FOR ADDITIONAL INFORMATION ABOUT THE
MATTHEWS INTERNATIONAL FUNDS:
456 MONTGOMERY STREET, SUITE 1200
SAN FRANCISCO, CALIFORNIA 94104-1245
800.789.ASIA (2742)
WWW.MATTHEWSFUNDS.COM
DISTRIBUTED BY PROVIDENT DISTRIBUTORS, INC.
- --------------------------------------------------------------------------------
MATTHEWS
- --------------------------------------------------------------------------------
INTERNATIONAL FUNDS
WWW.MATTHEWSFUNDS.COM
MATTHEWS ASIAN GROWTH AND INCOME FUND
MATTHEWS ASIAN TECHNOLOGY FUND
MATTHEWS DRAGON CENTURY CHINA FUND
MATTHEWS JAPAN FUND
MATTHEWS KOREA FUND
MATTHEWS PACIFIC TIGER FUND
[Graphic of dragon omitted]
SEMI-ANNUAL REPORT
FEBRUARY 29, 2000
[ASIAN CHARACTERS OMITTED]
