M A T T H E W S A S I A N F U N D S
A n n u a l R e p o r t • A u g u s t 3 1 , 2 0 0 2
Matthews Pacific Tiger Fund | Matthews Asian Growth and Income Fund
Matthews Korea Fund | Matthews China Fund
Matthews Japan Fund | Matthews Asian Technology Fund
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OUR VIEWS OF ASIA
2 M a t t h e w s A s i a n F u n d s
From top to bottom:
Asia’s demographic profile bodes well for the future of the region. Within the next 10 to 20 years there will be more than one billion people in Asia who will be in their peak spending years.
China, 2001
The consumer sector in Asia continues to play a growing role in the regional economy. Domestic spending in Asia is helping to offset a weak global economy.
Hong Kong, 2001
Korean fans spell out “Dreams Come True” during the World Cup semi-final match between South Korea and Germany on June 25, 2002. The 2002 World Cup, co-hosted by South Korea and Japan, marked the first time in World Cup history that a Korean team made it to the semi-final round.
Korea, 2002
Asian technology companies continue to gain global market share. Regionally, Asia’s high savings rates and rising per-capita incomes are becoming the primary drivers of Asian technology growth.
Japan, 2001
On the cover:
A small portion of Hong Kong’s waterfront.
M A T T H E W S A S I A N F U N D S
A n n u a l R e p o r t • A u g u s t 3 1 , 2 0 0 2
Contents Message to Shareholders 2 Morningstar Analysis 4 Matthews Pacific Tiger Fund 6 Matthews Asian Growth and Income Fund 8 Matthews Korea Fund 10 Matthews China Fund 12 Matthews Japan Fund 14 Matthews Asian Technology Fund 16 Schedule of Investments 18 Statement of Assets and Liabilities 30 Statement of Operations 32 Statement of Changes in Net Assets 34 Financial Highlights 38 Notes 44 Report of Independent Certified Public Accountants 52 Trustees and Officers 53
M e s s a g e t o S h a r e h o l d e r s
Dear Fellow Shareholders,
The fiscal year ended August 31, 2002, has been a period of strong relative performance for many Asian financial markets. Although the latter half of 2001 was dominated by the events of September 11, the region’s initial fears of significant deterioration in post–September 11 global economic activity proved overblown. In the year’s final weeks, financial markets around the region recovered quickly. In the early months of 2002, a number of Asian countries saw significant equity market rallies, fueled by hopes of further economic recovery in the U.S. and Europe. Over the course of the summer, Asian markets pulled back as doubts grew about the strength of the U.S. economic recovery. Nevertheless, so far in 2002 Asia’s economies and markets have fared better than their counterparts elsewhere, with the notable exception of Japan.
For the six funds in the Matthews Asian Funds family, the fiscal year saw returns ranging from +68% in the case of the Matthews Korea Fund to –12% for the Matthews Japan Fund.
Within Asia the nature of economic recovery has remained uneven, with significant strength in some sectors offsetting weakness in others. Notably, the consumer sector continues to play a growing role in China, Thailand, and South Korea. Domestic spending in those countries and for the region as a whole is helping offset a weak global economy, particularly in technology-related exports. Asian exporters have also offset weak market conditions by gaining market share due to their highly competitive cost base.
Japan’s economy has shown very modest signs of renewed growth, but there has been progress in restructuring and reform. We are particularly encouraged by the increased urgency shown by the Bank of Japan in addressing deflation, the major threat to Japanese economic recovery. Although there is disagreement within the government about how vigorously anti-deflation policies should be pursued, the governor of the Bank of Japan has been increasingly supportive of strong measures. With some major Japanese equity indices at close to 20-year lows, such actions are long overdue.
China has continued to grow its economy at a rapid rate, confounding expectations that the slowing demand for exports would cause a dramatic decline in China’s internal growth. While skeptics question the accuracy of China’s statistics, the reality of its steady growth is readily apparent to regular travelers to China. During the past year, China has gained admission to the World Trade Organization, won its bid to host the 2008 Olympics, lost its best basketball player to the NBA draft, and eased tensions with the United States. China’s financial markets remain underdeveloped and geopolitical concerns persist, but reform and restructuring in its state-owned enterprises and domestic financial system continue to move forward. We remain optimistic that Hong Kong will continue to benefit from its ever-closer ties with China—such as the growing number of major Chinese companies seeking to improve their access to foreign capital through listing on Hong Kong’s well-regulated stock market.
G. Paul Matthews,
Chairman and Chief Investment Officer (left)
Mark W. Headley,
President and Portfolio ManagerSouth Korea has sustained its dramatic progress in financial restructuring and economic recovery, proving extraordinarily resilient to slowing external demand. South Korea is one of the few relatively large countries in the region on the verge of surpassing the $10,000-per-capita GNP threshold, widely considered the definition of a developed country. Successful restructuring has allowed it to lead the way in generating consumer growth, which has helped offset declines in trade and the growth of capital investment. As always, the prospect of reunification with North Korea remains an uncertainty, but Kim Dae-Jung’s “sunshine” policies toward the North seem to be improving dialogue between North and South as well as between North Korea, Japan, and the U.S.
South Asian countries still face a number of challenges, but even in the Philippines and Indonesia local financial markets have stabilized and some progress has been made toward improving reporting and governance standards. Thailand has best emulated South Korea’s efforts to grow its domestic economy.
As a fund family, Matthews Asian Funds has worked hard to improve our communications with shareholders and provide as much information as possible on the region and our investment efforts. Most notably, we have enhanced the fund family’s Web site, www.matthewsfunds.com, with daily, weekly, and monthly reports available through e-mail subscription. We are also publishing special reports under our new AsiaNow research series. We encourage you to visit us online or call us at 800-789-ASIA [2742] if you would like to receive this information.
In closing, we remain highly encouraged by broad trends in Asia as well as by the steady growth and the improvement in corporate quality found across the portfolios. We thank you for your continued support of our efforts.
G. Paul Matthews
Chairman and Chief Investment Officer
Mark W. Headley
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President and Portfolio Manager
Matthews Pacific Tiger Fund (MAPTX)
Overall Morningstar rating as of 8/31/02 out of 76 Pacific/Asia ex-Japan Funds.
This growth fan remains one of the
best offerings in its category.William Samuel Rocco, Morningstar Analyst
Matthews Pacific Tiger Fund remains focused on firms with strong growth prospects and moderate prices, and it continues to consider all countries in emerging Asia and companies of all sizes. The portfolio’s 25% financial stake includes significant positions in midsize Hong Kong banks Dah Sing Financial and Bank of East Asia. And the fund also owns several small caps, including the Singapore noodle company Nong Shim and the Hong Kong restaurant chain Cafe de Coral. As a result, its median market cap is still a fraction of the group norm.
Moreover, though Korea and Hong Kong remain the largest country weights here—at about 27% and 25%, respectively—the fund also has significant exposure to the region’s smaller markets. In fact, its 9% Thailand stake and its 5% Indonesia position are much bigger than the category’s norms. Smaller caps have also outpaced larger caps in emerging Asia, and several of Paul Matthews’ and Mark Headley’s picks have done particularly well. The fund has also benefited from its hefty stake in Korea and its oversized positions in Thailand and Indonesia.
Superior results are nothing new here. The fund has beaten the competition in all kinds of markets in the past, and its long-term returns rank among its group’s best. And it hasn’t been much more volatile than most members of its chaotic category along the way. For all these reasons, we think this fund should be on every emerging-Asia fan’s short list. n—September 4, 2002
Investing in foreign securities may involve certain additional risks including exchange rate fluctuations, reduced liquidity, greater volatility, and less regulation. Past performance does not guarantee future results. Investment return and principal value of mutual funds will vary with market conditions, so that shares, when redeemed, may be worth more or less than their original cost. As of 6/30/02, the 1-year total return for the Matthews Asian Growth and Income Fund was 17.63%, the 5-year average annual total return was 7.81% and since inception (9/12/94) the average annual total return was 8.17%. As of August 31, 2002, the Matthews Asian Growth and Income Fund received an Overall Morningstar Rating™ of 5 stars out of 76 funds in the Pacific/Asia ex-Japan stock category, 5 stars out of 76 funds for the 3-year period, and 5 stars out of 57 funds for the 5-year period. As of 6/30/02, the 1-year total return for the Matthews Pacific Tiger Fund was 9.17%, the 5-year average annual total return was –2.79% and since inception (9/12/94) the average annual total return was 1.57%. As of August 31, 2002, the Matthews Pacific Tiger Fund received an Overall Morningstar Rating™ of 4 stars out of 76 funds in the Pacific/Asia ex-Japan stock cate-
4 M a t t h e w s A s i a n F u n d s
Matthews Asian Growth and Income Fund (MACSX)
Overall Morningstar rating as of 8/31/02 out of 76 Pacific/Asia ex-Japan Funds.
Matthews Asian Growth & Income
continues to stand out and to stand tall.
This fund is as conservative as they come in the Pacific/Asia ex-Japan category. For starters, Paul Matthews is the only manager in the group who readily considers convertible bonds, and he normally invests one to two thirds of the portfolio in these tame securities. On Aug. 31, in fact, the fund had 37% of its assets in converts. And the rest of the portfolio, as usual, was divided between preferred stock (6% of assets) and moderately priced common stocks with hefty payouts (54% of assets)-which tend to be pretty resilient securities themselves. Meanwhile, due to the industry orientation of the convertible market as well as Mathews’ value bias, the fund’s sector exposure is also conservative.
Indeed, the fund had just 4% of its assets in tech issues at the end of August, while its typical peer had 24% of its assets invested in computer-related stocks. What’s more, the fund has more country and issue diversification than many of its peers.
This conservatism served the fund nicely as emerging Asia’s markets struggled in late spring and early summer. However, the fund also performed well when the region’s markets bounced back in late summer and when they rallied earlier in the year, thanks to Matthews’ strong security selection. The fund has consistently distinguished itself during past downturns in the market and has often done well during moderate upswings.
Therefore, though it has lagged during go-go surges—such as 1999—its long-term returns rank among its group’s best. And, as would be expected, it has suffered far less volatility than its rivals. In short, this fund remains a great way to play the emerging-Asia story while moderating the risk. n—September 9, 2002
gory, 4 stars out of 76 funds for the 3-year period, and 4 stars out of 57 funds for the 5-year period. For each fund with at least a three-year history, Morningstar calculates a Morningstar Rating™ based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a fund’s monthly performance (including the effects of sales charges, loads, and redemption fees), placing more emphasis on downward variations and rewarding consistent performance. The top 10% of funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars and the bottom 10% receive 1 star. (Each share class is counted as a fraction of one fund within this scale and rated separately, which may cause slight variations in the distribution percentages.) The Overall Morningstar Rating for a fund is derived from a weighted-average of the performance figures associated with its three-, five- and ten-year (if applicable) Morningstar Rating metrics. A fund’s rating may change at any time based on new data. Ratings are historical and do not represent future performance. Past performance is no guarantee of future results. Reprinted by permission of Morningstar.
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P o r t f o l i o M a n a g e r C o m m e n t sMATTHEWS PACIFIC TIGER FUND
Co-Portfolio Managers: G. Paul Matthews and Mark W. HeadleyThe Matthews Pacific Tiger Fund is an all-capitalization, core equity fund focusing on the broad range of equity markets in Asia ex-Japan. Historically, the Fund has not invested in Australia or New Zealand, which we do not consider part of Asia, nor has it invested in India, although it may eventually.
For the past year, the majority of the Matthews Pacific Tiger Fund’s investments has been in Hong Kong, Korea, Singapore, China (typically listed in Hong Kong), and Thailand. The Fund also has exposure to companies in Taiwan, Indonesia, and the Philippines. For the 12-month period ended August 31, 2002, the Fund gained 8.44%, slightly lagging the benchmark MSCI All-Country Far East Free ex-Japan Index which gained 9.05%. Nevertheless, the Fund remains well ahead of the benchmark for its three-year, five-year, and since-inception time periods.
Through one of the most challenging periods in modern financial history, the performance of the Fund’s holdings has been very encouraging. Providing positive returns and significant diversification from the broad U.S. and global markets, the Fund has participated in some of the most important trends in Asian markets. Domestically focused companies, in which the Fund has always maintained sizable exposure, have been the real story of the past year. From banking and electrical generation to fashion and beer, financially solid and well-managed Asian companies with strong local branding and distribution have been the primary contributors to performance.
Despite a very difficult global trade environment, a number of manufacturing companies in the portfolio have done well. Of note is Samsung Electronics, which has evolved from a commodity chip manufacturer into a top global consumer electronics company with an enormous range of high-quality products. Due to the awesome efficiency of China’s manufacturing base, Asian manufacturers are taking market share from virtually every country in the world. Although the world’s economy may continue to slow, the drive for low-cost products is pushing a vast array of traditional manufacturers to focus on marketing and distribution and to outsource manufacturing to Asian specialists.
The Matthews Pacific Tiger Fund remains fully invested in a well-diversified portfolio of companies. Stock selection is guided by continuous on-site company visits and tempered by the more than 20 years of hands-on Asian investing experience of Chief Investment Officer G. Paul Matthews. With the region supported by increasing domestic consumption and growing manufacturing, we are optimistic about the coming year. Valuations and corporate earnings growth are extremely attractive, giving perhaps the best overall growth at a reasonable price picture we have ever seen.
6 M a t t h e w s A s i a n F u n d s
Fund Performance
Average Annual Returns as of August 31, 2002
Matthews
Pacific Tiger FundMSCI All Country Far East
Free ex-Japan Index¹Lipper Pacific ex-Japan
Funds Average²
One Year 8.44% 9.05% 10.55%
Three Years -1.56% -11.19% -7.27%
Five Years -2.21% -8.62% -6.15%
Since Inception
(9/12/94) 0.18% -6.89% -5.82%*
*From 8/31/94
Growth of a $10,000 Investment
Past performance is not indicative of future results. Before taxes on distributions or redemptions of Fund shares.
¹ The MSCI All Country Far East Free ex-Japan Index is an unmanaged capitalization-weighted index of stock markets of Hong Kong, Taiwan, Singapore, Korea, Indonesia, Malaysia, Philippines, Thailand and China that excludes securities not available to foreign investors. Taiwan is only represented at 50% of its total market cap. ² As of 8/31/02, the Lipper Pacific Ex-Japan Funds Average consisted of 67 funds for the one-year period, 58 funds for the three-year period, 48 funds for the five-year period, and 20 funds since 8/31/94. Lipper Analytical Services, Inc. fund performance does not reflect sales charges and is based on total return, including reinvestment of dividends and capital gains for the stated periods. ³ For Lipper Pacific ex-Japan Funds Average, graph start date is 8/31/94.
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P o r t f o l i o M a n a g e r C o m m e n t sMATTHEWS ASIAN GROWTH AND INCOME FUND
Portfolio Manager: G. Paul MatthewsThe Matthews Asian Growth and Income Fund seeks long-term capital appreciation and some current income through investments in higher-yielding equities, convertible bonds, and preferred shares of Asia-based companies.
The fiscal year ended August 31, 2002, was a positive one for the Matthews Asian Growth and Income Fund, which enjoyed a total return of 21.11% for the period. The Fund benefited from a general trend toward lower risk and a sustained decline in interest rates globally. In particular, higher-yielding securities in South Korea performed well, as a combination of better-than-expected economic performance and a shift in market emphasis towards domestically focused companies drove market performance. The Fund maintained an exposure to Korean securities of between 25% and 30% during the year.
Outside of Korea, securities listed in Hong Kong accounted for the second-largest portion of the portfolio. Historically, Hong Kong utilities and finance sectors have offered relatively high dividend yields, and our primary exposure is to these sectors. Although the physical limitations of Hong Kong have always restricted utility industry growth options, in our opinion a recently relaxed Chinese regulatory environment is presenting new growth opportunities. We have seen a number of Hong Kong electric and gas utilities announce acquisitions or new investment projects in China and elsewhere and believe this trend is still in its early stages. In the banking sector, the yields available on a number of bank stocks now exceed their deposit rates, which we believe is due to excessive pessimism over the future economic outlook for Hong Kong.
During the second half of the year, we increased our exposure to securities listed in Singapore, where we saw a number of opportunities to invest in proven, relatively stable businesses that have consistently sustained a relatively high level of dividend payout.
The Fund has maintained modest weightings in Taiwan and Thailand, which have been increased during the year. In Taiwan the exposure is entirely through dollar-denominated convertible bonds that are primarily convertible into the equity securities of listed banks and financial companies.
During the year the Fund’s exposure to convertible bonds was reduced in favor of higher-yielding equities.
8 M a t t h e w s A s i a n F u n d s
Fund Performance
Average Annual Returns as of August 31, 2002
Matthews
Asian
Growth and Income
FundMSCI All Country
Far East Free
ex-Japan Index¹Lipper Pacific
ex-Japan
Funds Average²
One Year 21.11% 9.05% 10.55%
Three Years 13.29% -11.19% -7.27%
Five Years 7.52% -8.62% -6.15%
Since Inception
(9/12/94) 7.90% -6.89% -5.82%*
*From 8/31/94
Growth of a $10,000 Investment
Past performance is not indicative of future results. Before taxes on distributions or redemptions of Fund shares.
¹ The MSCI All Country Far East Free ex-Japan Index is an unmanaged capitalization-weighted index of stock markets of Hong Kong, Taiwan, Singapore, Korea, Indonesia, Malaysia, Philippines, Thailand and China that excludes securities not available to foreign investors. Taiwan is only represented at 50% of its total market cap. ² As of 8/31/02, the Lipper Pacific Ex-Japan Funds Average consisted of 67 funds for the one-year period, 58 funds for the three-year period, 48 funds for the five-year period, and 20 funds since 8/31/94. Lipper Analytical Services, Inc. fund performance does not reflect sales charges and is based on total return, including reinvestment of dividends and capital gains for the stated periods. ³ For Lipper Pacific ex-Japan Funds Average, graph start date is 8/31/94.
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P o r t f o l i o M a n a g e r C o m m e n t sMATTHEWS KOREA FUND
Co-Portfolio Managers: G. Paul Matthews and Mark W. HeadleyThe Matthews Korea Fund is an all-capitalization equity fund with diversified exposure across a wide range of Korean equities.
The fiscal year ended August 31, 2002, was a period of very positive performance for the Korean financial markets, buoyed by stronger-than-expected domestic growth led by the Korean consumer. Robust consumer spending and strength in the domestic real estate market more than compensated for the challenges faced by leading Korean exporters. Although the general environment for exports was difficult, the principal Korean manufacturers of automobiles and key electronic goods experienced surprisingly resilient demand for their products overseas. This was accounted for in part by the low valuation of the Korean won against the U.S. dollar, which remains approximately 40% below its pre-1998 levels.
The Matthews Korea Fund appreciated by 68.49% during the year, outperforming the benchmark KOSPI, which gained 44.09%. This outperformance can be attributed to the Fund’s weighting in domestic industry stocks in general and consumer stocks in particular.
The Fund has consistently maintained a diversified approach to the Korean market, with its exposure broadly divided among the financial, consumer, and technology sectors. The financial sector has seen continuous restructuring over the past two years, with a number of bank mergers announced and completed. This restructuring contributed to positive Fund returns in banking and non-banking financial institutions. The first round of bank mergers has now been completed, but we believe that the next two to three years will see further consolidation. The consumer sector has benefited from a general increase in consumer confidence and spending, driven by lower interest rates and pent-up demand from the 1997–98 Asian crisis. The Korean technology sector has fared less well than purely domestic-oriented industries but has been more resilient than its international counterparts. Although we are encouraged by the strong relative performance of a number of Korean telecoms and semiconductor companies, the Fund has maintained a lower weighting in these two sectors than the benchmark index, and this has contributed positively to the Fund’s performance.
The Korean economy appears well positioned relative to regional competitors. There is likely to be some uncertainty over the results of the coming general election, and, as always, the long-term future of relations with North Korea remains a factor. Irrespective of the coming elections, the reform and restructuring process in Korea has been more successful than in many other Asian countries, and we believe that it is likely to continue. Our portfolio remains broadly diversified by industry and company and we believe it will continue to benefit from sustained growth in the Korean economy.
10 M a t t h e w s A s i a n F u n d s
Fund Performance
Average Annual Returns as of August 31, 2002
Matthews
Korea FundKOSPI Index¹ Lipper Pacific ex-Japan
Funds Average²
One Year 68.49% 44.09% 10.55%
Three Years 4.12% -8.13% -7.27%
Five Years 6.43% -3.97% -6.15%
Since Inception
(1/3/95) -2.06% -9.19% -4.04%*
*From 12/31/94
Growth of a $10,000 Investment
Past performance is not indicative of future results. Before taxes on distributions or redemptions of Fund shares.
¹ KOSPI: The South Korea Stock Price Index is a capitalization-weighted index of all common stocks listed on the Korean Stock Exchange. ² As of 8/31/02, the Lipper Pacific Ex-Japan Funds Average consisted of 67 funds for the one-year period, 58 funds for the three-year period, 48 funds for the five-year period, and 25 funds since 12/31/94. Lipper Analytical Services, Inc. fund performance does not reflect sales charges and is based on total return, including reinvestment of dividends and capital gains for the stated periods. ³ For Lipper Pacific ex-Japan Funds Average, graph start date is 12/31/94.
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P o r t f o l i o M a n a g e r C o m m e n t sMATTHEWS CHINA FUND
Co-Portfolio Managers: G. Paul Matthews, Mark W. Headley, and Richard H. GaoThe Matthews China Fund is an all-capitalization equity fund that invests in a diversified portfolio of Chinese securities.
The Matthews China Fund fell 1.16% for the fiscal year ended August 31, 2002, slightly underperforming its benchmark indices, the MSCI China Free Index and the CLSA China World Index, which were up 1.09% and down 0.41%, respectively. Nevertheless, the Fund outperformed its peer group—the China Region Funds—which was down an average of 2.52% according to Lipper Analytical Services.
During the fiscal year, global economic development continued to slow, worsened no doubt by the terrorist attacks and corporate scandals in the U.S. The Fund maintained its overemphasis on utilities, energy, infrastructure, and consumer goods. We believe these sectors are less affected by the global economy and that companies within them are direct beneficiaries of China’s strong domestic economy.
Huaneng Power and Shangdong International Power, two of the largest independent power producers in China, were among the best-performing stocks in the portfolio. The Fund also benefited from its holdings in oil companies, which saw high profit growth as a result of a surge in oil prices. Consumer companies were also among the portfolio’s top performers. On the downside, the Fund’s investments in telecommunications and technology companies continued to suffer from a weak global technology market. The Fund’s holdings in Hong Kong stocks were also hurt by the economic recession there.
China remains one of the few high-growth countries in the world. Economic growth has been accelerating since the end of 2001. GDP growth for the first half of 2002 was 7.8%. Exports also grew by more than 20% in the months of July and August. With high export growth and continued foreign investment, the country is becoming the manufacturing center of the world, taking export market share from other developing countries. Meanwhile, in the first year since it joined the World Trade Organization, China continues to pursue structural economic reform. The listing of the Bank of China Hong Kong, one of the largest Asian IPOs this year, is just one example of China’s reform efforts in the banking sector.
The Fund remains fully invested and well diversified. We are glad to see that over the past year more and better-quality Chinese companies have been listed on the Hong Kong Stock Exchange. As a result, the Fund has more investment opportunities than ever, and we will continue to invest in companies that we believe have the best growth prospects in China’s dynamic economy.
12 M a t t h e w s A s i a n F u n d s
Fund Performance
Average Annual Returns as of August 31, 2002
Matthews
China
FundMSCI
China
Free Index¹Credit Lyonnais
China World
Index²Lipper China
Region
Funds Average³
One Year -1.16% 1.09% -0.41% -2.52%
Three Years 4.63% -26.89% -7.54% -2.78%
Since Inception
(2/19/98) -0.27% -22.59% -7.11% -2.98%*
*From 2/28/98
Growth of a $10,000 Investment
Past performance is not indicative of future results. Before taxes on distributions or redemptions of Fund shares.
1 The MSCI China Free Index is an unmanaged capitalization-weighted index of Chinese equities that includes Red Chips and H shares listed on the Hong Kong exchange, and B shares listed on the Shanghai and Shenzhen
exchanges. Red Chips are Chinese companies that are incorporated in Hong Kong but have at least 35% of their shares held by Chinese state-owned organizations. 2 The Credit Lyonnais China World Index is an unmanaged capitalization-weighted index of Chinese equities that are listed on the Hong Kong, Shanghai and Shenzhen stock exchanges. 3 As of 8/31/02, the Lipper China Region Funds Average consisted of 23 funds for the one-year period, 21 funds for the three-year period, and 17 funds since 2/28/98. Lipper Analytical Services, Inc. fund performance does not reflect sales charges and is based on total return, including reinvestment of dividends and capital gains for the stated periods. 4 For Lipper China Region Funds Average, graph start date is 2/28/98.
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P o r t f o l i o M a n a g e r C o m m e n t sMATTHEWS JAPAN FUND
Portfolio Manager: Mark W. HeadleyThe Matthews Japan Fund is an all-capitalization core equity fund with diversified exposure across a wide range of corporate Japan.
For the fiscal year ended August 31, 2002, the Fund lost 12.20% but outperformed the benchmark MSCI Developed Market Japan and TOPIX indices, which lost 14.96% and 13.85%, respectively. Following a weaker period the previous year, the Fund has improved its performance relative to its peers and benchmarks.
The Fund remains focused on three primary areas in the Japanese equity market: consumer and retail, financial services, and technology and manufacturing. Investing in innovative consumer and retail companies enables participation in the restructuring of the retail industry and in the long-awaited recovery of consumer spending. The Fund has had significant exposure to the financial services sector, where we believe restructuring ultimately holds the key to a true economic resurgence and a sustained bull market. Finally, the Fund has maintained diversified exposure to the technology and manufacturing industries, including such top names as Sony and Honda. We have also found attractive niche industries in which to participate, including temporary employment agencies and specialty mushroom farming.
On the broad economic picture and government policy in general, we have no prediction. Our years in Asia have taught us that the “sentiment factor” in any economy is vitally important to overall economic health, and the Japanese government has consistently taken steps that have undermined any recovery of confidence in the broad population. We remain convinced that things will improve eventually, but when the bureaucrats will work for the good of their nation rather than fight petty internal wars is hard to say. Japan’s role in the regional economy is one area of undeniable change, as trade throughout the region—especially with China—consistently grows.
The Matthews Japan Fund remains fully invested and is currently unhedged. Looking forward it is well positioned for any positive developments in Japan’s economic picture. We believe that many of the Fund’s holdings control their own destinies and should thrive no matter what the top-line economic growth may be. We further believe that Japan offers many good long-term investment opportunities on a company-by-company basis and with any positive economic change the market could be very exciting.
14 M a t t h e w s A s i a n F u n d s
Fund Performance
Average Annual Returns as of August 31, 2002
Matthews
Japan
FundTOPIX
Index¹MSCI Developed
Market Japan
Index²Lipper
Japanese Funds
Average³
One Year -12.20% -13.85% -14.96% -14.96%
Three Years -20.12% -15.22% -14.65% -17.32%
Since Inception
(12/31/98) 2.78% -3.95% -5.27% -3.23%
Growth of a $10,000 Investment
Past performance is not indicative of future results. Before taxes on distributions or redemptions of Fund shares.
¹ TOPIX: The Tokyo Price Index is a capitalization-weighted index of all companies listed on the First Section of the Tokyo Stock Exchange. ² The MSCI Developed Market Japan Index is an unmanaged capitalization-weighted index of all Japanese equities. ³ As of 8/31/02, the Lipper Japanese Funds Average consisted of 54 funds for the one-year period, 38 funds for the three-year period, and 37 funds since 12/31/98. Lipper Analytical Services, Inc. fund performance does not reflect sales charges and is based on total return, including reinvestment of dividends and capital gains for the stated periods.
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P o r t f o l i o M a n a g e r C o m m e n t sMATTHEWS ASIAN TECHNOLOGY FUND
Co-Portfolio Managers: G. Paul Matthews and Mark W. Headley
The Matthews Asian Technology Fund invests in companies located in Asia that derive a substantial portion of their revenue from technology-related industries and services.
The Asian technology sector had a very difficult year, suffering from the global economic downturn and weak overall demand. The global technology sector is suffering from the overcapacity built up during the peak cycle, as demand for personal computers faded away and no other products came forward to replace it as the main growth driver. Yet despite an environment characterized by global economic malaise, overcapacity, and weak overall demand, Asian technology companies fared better than many of their non-Asian competitors, gaining market share in primary markets, especially the U.S. Nevertheless, gaining market share was not enough for the sector to remain in positive territory for the year. The Fund was down 10.40% for the fiscal year ended August 31, 2002, whereas the MSCI/Matthews Asia Technology Fund Index, which unlike the Fund is heavily weighted in Japan, was down only 6.53% for the same period.
One of the positive trends we are seeing in the Asian technology arena is the growing sale of new consumer products such as digital cameras, flat-screen displays, and DVD players. The demand for these products is expected to accelerate as competition and manufacturing efficiencies continue to erode prices. These innovative products, commercialized by Asian companies, should help drive growth until the global market recovers.
We also expect Asian technology companies to continue gaining market share. For example, Samsung Electronics, which was the biggest positive contributor to the Fund in the past year, is the classic case of a profitable company focused on quality and innovation. We are seeing this more and more in Asia: companies that strive to be number one, not just in Asia but worldwide.
The health of the U.S. economy continues to be the most vital factor for continued growth in the Asian technology sector. The Chinese market is on the rise, but it is not yet big enough to provide any meaningful buffer against a depressed U.S. market. On the other hand, we expect Asia’s high savings rate, rising per-capita income, and increasingly positive cultural attitude toward consumer spending to become the primary drivers for Asian technology growth. The Asian market should eventually become as big as the U.S. market, and Asian technology companies are best positioned to benefit from the rising Asian consumer market.
We continue to focus on innovative companies as they develop new products that will enable them to maintain and sustain growth.
16 M a t t h e w s A s i a n F u n d s
Fund Performance
Average Annual Returns as of August 31, 2002
Matthews
Asian Technology
FundMSCI/Matthews
Asian Technology
Index¹Lipper Science and
Technology Funds
Average²
One Year -10.40% -6.53% -39.69%
Since Inception
(12/27/99) -33.85% -35.13% -41.10%*
*From 12/31/99
Growth of a $10,000 Investment
Past performance is not indicative of future results. Before taxes on distributions or redemptions of Fund shares.
¹ The MSCI/Matthews Asian Technology Index is an unmanaged capitalization-weighted index of Asian equities tracking a broad range of technology stocks including: semiconductor equipment and products, communications equipment, computers and peripherals, electronic equipment and instruments, office electronics, software, IT consulting and services, Internet software and services, diversified telecommunications services, and wireless telecommunications services. ² As of 8/31/02, the Lipper Science and Technology Funds Average consisted of 387 funds for the one-year period and 171 funds since 12/31/99. Lipper Analytical Services, Inc. fund performance does not reflect sales charges and is based on total return, including reinvestment of dividends and capital gains for the stated periods. ³ For Lipper Science and Technology Funds Average, graph start date is 12/31/99. w w w . m a t t h e w s f u n d s . c o m | 8 0 0 - 7 8 9 - A S I A [ 2 7 4 2 ] 17
S c h e d u l e o f I n v e s t m e n t s A u g u s t 3 1 , 2 0 0 2MATTHEWS PACIFIC TIGER FUND
SHARES VALUE ------------------------ EQUITIES: 99.66%* China/Hong Kong: 40.64% Asia Satellite Telecommuni- cations Holdings Ltd. 1,476,600 $2,195,975 AsiaInfo Holdings, Inc.** 418,200 1,913,265 Bank of East Asia Ltd. 1,443,600 2,748,399 Cafe De Coral Holdings Ltd. 2,724,800 2,078,539 China Mobile HK Ltd. ** 1,149,717 3,176,470 China Mobile HK Ltd. ADR ** 165,850 2,297,022 China Pharmaceutical Enterprise and Investment Corp., Ltd. 15,239,000 2,285,856 Dah Sing Financial Group 829,200 3,635,732 Giordano International, Ltd. 9,439,000 4,174,953 Huaneng Power Interna- tional, Inc. ADR 108,000 3,240,000 Legend Group Ltd. 12,322,000 4,620,762 Li & Fung Ltd. 1,561,000 1,701,094 Quality Healthcare Asia Ltd.** 5,852,000 120,041 Shangri-La Asia Ltd. 6,022,000 3,937,472 Swire Pacific Ltd. - Class A 871,000 3,941,843 Television Broadcasts Ltd. 554,700 1,795,668 Vitasoy International Holdings, Ltd. 15,190,750 2,784,978 ----------- Total China/Hong Kong 46,648,069 -------------------------------------------------------------------------------- Indonesia: 4.69% PT Astra International, Inc.** 4,299,000 1,553,563 PT Bank Central Asia 7,265,000 1,845,991 PT Ramayana Lestari Sentosa 5,637,000 1,989,342 ----------- Total Indonesia 5,388,896 -------------------------------------------------------------------------------- Philippines: 0.67% SM Prime Holdings, Inc. 7,030,000 772,900 ----------- Singapore: 11.91% CSE Systems & Engineering Ltd.** 2,313,000 $515,504 DBS Group Holdings Ltd. 456,750 3,106,113 Fraser & Neave Ltd. 876,500 3,856,864 Great Eastern Holdings Ltd. 520,500 2,766,275 Venture Corp., Ltd. 464,800 3,426,475 ----------- Total Singapore 13,671,231 -------------------------------------------------------------------------------- South Korea: 26.77% Hana Bank 378,437 5,887,742 Handsome Co., Ltd. 196,410 1,764,822 Hite Brewery Co., Ltd. 63,527 3,567,596 Hyundai Marine & Fire Insurance Co., Ltd. 47,520 1,443,055 Internet Auction Co., Ltd.** 162,360 3,005,541 KT Corp. ADR 66,000 1,498,860 Nong Shim Co., Ltd. 50,150 3,246,117 Pulmuone Co., Ltd. 105,150 3,123,137 Samsung Electronics Co., Ltd. 16,533 4,552,954 SK Telecom Co., Ltd. 4,945 972,996 SK Telecom Co., Ltd. ADR 76,500 1,664,640 ----------- Total South Korea 30,727,460 -------------------------------------------------------------------------------- Taiwan: 6.15% Hon Hai Precision Industry Co., Ltd. 488,750 1,855,380 SinoPac Holdings Co.** 6,405,966 2,805,942 Taiwan Semiconductor Manufacturing Co., Ltd.** 954,620 1,391,022 Via Technologies, Inc. 588,392 1,005,137 ----------- Total Taiwan 7,057,481 -------------------------------------------------------------------------------- Thailand: 8.83% Advanced Info Service Public Co., Ltd. 6,657,200 4,575,932 Bangkok Bank Public Co., Ltd.** 2,784,500 4,157,935 Serm Suk Public Co., Ltd. 269,100 1,403,225 ----------- Total Thailand 10,137,092 --------------------------------------------------------------------------------
See accompanying notes to financial statements
18 M a t t h e w s A s i a n F u n d s
SHARES VALUE ------------------------ TOTAL INVESTMENTS: 99.66% $114,403,129 (Cost $118,491,564***) CASH AND OTHER ASSETS, LESS LIABILITIES: 0.34% 394,952 -------------------------------------------------------------------------------- NET ASSETS: 100.00% $114,798,081 ================================================================================ * As a percentage of net assets as of August 31, 2002 ** Non - income producing security. ADR American Depositary Receipt *** Cost for Federal income tax purposes is $119,024,662 and net unrealized depreciation consists of: Gross unrealized appreciation $11,564,951 Gross unrealized depreciation (16,186,484) ------------ Net unrealized depreciation $(4,621,533) ============ MARKET SECTOR DIVERSIFICATION As a Percentage of Total Value of Investment in Securities Consumer Discretionary 19.23% Distributors 2.84% Hotels, Restaurants & Leisure 5.26% Internet & Catalog Retail 2.63% Media 1.57% Multiline Retail 1.74% Specialty Retail 3.65% Textiles & Apparel 1.54% Consumer Staples 15.72% Beverages 7.72% Food Products 8.00% Financials 28.95% Banks 22.19% Diversified Financials 2.40% Insurance 3.68% Real Estate 0.68% Health Care 2.10% Health Care Providers & Services 0.10% Medical & Pharmaceutical 2.00% Information Technology 16.85% Computers & Peripherals 5.66% Electronic Equipment & Instruments 3.00% IT Consulting & Services 2.12% Semiconductor Equipment & Products 6.07% Telecommunication Services 14.32% Diversified Telecommunication Services 3.23% Wireless Telecommunication Services 11.09% Utilities 2.83% Electric Utilities 2.83% ------- TOTAL INVESTMENTS 100.00% ================================================================================See accompanying notes to financial statements
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S c h e d u l e o f I n v e s t m e n t s A u g u s t 3 1 , 2 0 0 2MATTHEWS ASIAN GROWTH AND INCOME FUND
SHARES VALUE ------------------------ EQUITIES: 60.13%* China/Hong Kong: 34.76% Bank of East Asia Ltd. 1,625,400 $3,094,519 BOC Hong Kong Holdings Ltd. ** 2,539,500 2,734,853 Cafe De Coral Holdings Ltd. 3,776,000 2,880,418 Cheung Kong Infrastructure Holdings Ltd. 1,392,500 2,427,955 China Hong Kong Photo Products Holdings Ltd. 8,810,003 564,745 CLP Holdings Ltd. 1,120,700 4,511,547 Dickson Concepts International, Ltd. 1,295,500 323,876 Hang Seng Bank Ltd. 278,300 2,988,165 Hong Kong & China Gas Co., Ltd. 2,991,000 4,007,183 Hongkong Electric Holdings Ltd. 1,317,000 5,132,936 Hongkong Land Holdings Ltd. 1,533,000 2,130,870 Huaneng Power International, Inc. ADR 84,950 2,548,500 MTR Corp., Ltd. 2,162,000 2,730,225 PetroChina Co., Ltd. 6,000,000 1,223,080 PetroChina Co., Ltd. ADR 104,700 2,155,773 Shandong International Power Development Co., Ltd. 6,884,000 1,562,142 Shangri-La Asia Ltd. 5,399,000 3,530,124 Television Broadcasts Ltd. 746,000 2,414,942 The Wharf Holdings Ltd. 1,794,000 3,737,510 Vitasoy International Holdings Ltd. 12,905,000 2,365,924 ----------- Total China/Hong Kong 53,065,287 -------------------------------------------------------------------------------- Indonesia: 0.63% PT Indosat ADR 93,000 953,250 ----------- Singapore: 5.37% Fraser & Neave Ltd. 1,219,800 5,367,488 Great Eastern Holdings Ltd. 49,900 265,201 Singapore Exchange Ltd. 3,677,000 2,563,570 ----------- Total Singapore 8,196,259 -------------------------------------------------------------------------------- South Korea: 14.13% Daehan City Gas Co., Ltd. 142,000 $1,677,607 Hyundai Motor Co., Ltd., Pfd. 251,350 3,189,057 Kookmin Bank ADR 1,414 66,175 Korea Electric Power Corp. ADR 125,250 1,252,500 Korea Gas Corp. 148,870 2,508,106 LG Household & Health Care Ltd., Pfd. 143,830 2,393,278 Samsung Fire & Marine Insurance Co., Ltd., Pfd. 114,620 3,528,383 Shinhan Financial Group Co., Ltd. 183,410 2,578,834 Sindo Ricoh Co., Ltd. 57,190 2,697,843 S-Oil Corp. 103,500 1,687,757 ----------- Total South Korea 21,579,540 -------------------------------------------------------------------------------- Thailand: 3.26% Bangkok Bank Public Co., Ltd. ** 843,000 1,258,804 Charoen Pokphand Foods Public Co., Ltd. 4,870,000 526,361 Charoen Pokphand Foods Public Co., Ltd., Foreign 15,405,000 1,665,009 Charoen Pokphand Foods Public Co., Ltd., Warrants ** 638,000 54,439 Thai Farmers Bank Public Co., Ltd. ** 560,000 338,468 Thai Farmers Bank Public Co., Ltd., Foreign ** 304,000 208,959 Thai Reinsurance Public Co., Ltd. 1,197,600 929,637 ----------- Total Thailand 4,981,677 -------------------------------------------------------------------------------- United Kingdom: 1.98% HSBC Holdings PLC ADR 53,000 3,029,480 ----------- TOTAL EQUITIES 91,805,493 -------------------------------------------------------------------------------- (Cost $91,369,374)
See accompanying notes to financial statements
20 M a t t h e w s A s i a n F u n d s
FACE AMOUNT VALUE ------------------------ INTERNATIONAL DOLLAR BONDS: 37.00%* China/Hong Kong: 12.00% Hang Lung Properties, Ltd., Cnv. 5.500%, 12/29/49 $7,000,000 $5,862,500 China Mobile Hong Kong Ltd., Cnv. 2.250%, 11/03/05 7,900,000 7,584,000 New World Capital Finance Ltd., Cnv. 3.000%, 06/09/04 600,000 710,250 New World Infrastructure Cnv. 1.000%, 04/15/03 400,000 532,000 PCCW Capital II Ltd., Cnv. 1.000%, 01/29/07 3,800,000 3,638,500 ----------- Total China/Hong Kong 18,327,250 -------------------------------------------------------------------------------- Singapore: 2.71% Finlayson Global Corp. (DBS Holdings) 0.000%, 02/19/04 3,150,000 4,008,375 Finlayson Global Corp.*** (DBS Holdings) 0.000%, 02/19/04 100,000 127,250 ----------- Total Singapore 4,135,625 -------------------------------------------------------------------------------- South Korea: 11.94% HMC Cayman Finance Co., Cnv. 3.000%, 08/17/03 3,200,000 3,480,000 Korea Deposit Insurance Corp., Cnv. 2.250%, 10/11/05 4,820,000 5,729,775 Korea Telecom Corp., Cnv. 0.250%, 01/04/07 7,825,000 8,607,500 Korea Telecom Corp., Cnv.*** 0.250%, 01/04/07 375,000 412,500 ----------- Total South Korea 18,229,775 -------------------------------------------------------------------------------- Taiwan: 8.67% Cathay Financial Holding Co., Cnv. 0.000%, 05/20/07 6,100,000 5,955,125 Fubon Financial Holding Co., Ltd., Cnv. 0.000%, 07/10/04 4,500,000 4,646,250 Sinopac Holdings Cnv. 0.000%, 07/12/07 2,500,000 2,637,500 ----------- Total Taiwan 13,238,875 -------------------------------------------------------------------------------- Thailand: 1.68% Bangkok Bank Public Co., Ltd., Cnv. 4.589%, 03/03/04 $4,200,000 $2,551,500 Robinson Department Store, Cnv.**** 4.250%, 04/07/04 50,000 5,000 ----------- Total Thailand 2,556,500 -------------------------------------------------------------------------------- TOTAL INTERNATIONAL DOLLAR BONDS 56,488,025 -------------------------------------------------------------------------------- (Cost $56,790,285) TOTAL INVESTMENTS: 97.13%* 148,293,518 (Cost $148,159,659*****) CASH AND OTHER ASSETS, LESS LIABILITIES: 2.87% 4,387,683 -------------------------------------------------------------------------------- NET ASSETS: 100.00% $152,681,201 ================================================================================ * As a percentage of net assets as of August 31, 2002 ** Non - income producing security. *** Securities exempt from registration under rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified, institutional buyers. At August 31, 2002, the value of these securities amounted to $539,750 or 0.35% of net assets. **** Security for which market quotations are no longer available. Represents .003% of net assets. This security has been valued under procedures established by the Fund's Board of Directors. ADR American Depositary Receipt Pfd. Preferred Cnv. Convertible ***** Cost for Federal income tax purposes is $148,167,627 and net unrealized appreciation consists of: Gross unrealized appreciation $5,798,981 Gross unrealized depreciation (5,673,090) ----------- Net unrealized appreciation $125,891 ===========See accompanying notes to financial statements
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S c h e d u l e o f I n v e s t m e n t s A u g u s t 3 1 , 2 0 0 2MATTHEWS ASIAN GROWTH & INCOME FUND continued
MARKET SECTOR DIVERSIFICATION As a Percentage of Total Value of Investment in Securities Consumer Discretionary 12.64% Automobiles 2.15% Hotels, Restaurants & Leisure 4.33% Household Appliances 2.70% Household Products 1.61% Media 1.63% Specialty Retail 0.22% Consumer Staples 5.22% Beverages 5.22% Energy 6.24% Oil & Gas 6.24% Financials 43.94% Banks 6.19% Diversified Financials 13.16% Insurance 11.07% Real Estate 7.91% Special Purpose Entity 5.61% Industrials 5.35% Agriculture 1.51% Transportation Infrastructure 3.84% Information Technology 2.20% Electronic Equipment & Instruments 0.38% Office Electronics 1.82% Telecommunication Services 14.29% Diversified Telecommunication Services 9.18% Wireless Telecommunication Services 5.11% Utilities 10.12% Electric Utilities 10.12% ------- TOTAL INVESTMENTS 100.00% ================================================================================
See accompanying notes to financial statements
22 M a t t h e w s A s i a n F u n d s
MATTHEWS KOREA FUND
SHARES VALUE ------------------------ EQUITIES-SOUTH KOREA: 98.84%* BUSINESS SERVICES: 1.78% Media: 1.78% Cheil Communications, Inc. 24,740 $2,459,695 CJ Entertainment, Inc. ** 163,007 2,054,625 ----------- Total Business Services 4,514,320 -------------------------------------------------------------------------------- CONSUMER DISCRETIONARY: 9.51% Automobiles: 5.23% Hyundai Motor Co., Ltd 304,681 8,618,623 Hyundai Motor Co., Ltd Pfd. 363,380 4,610,462 ----------- 13,229,085 ----------- Automobile Parts: 0.16% Global & Yuasa Battery Co., Ltd. 224,800 393,697 ----------- Internet & Catalog Retail: 2.70% Internet Auction Co., Ltd. ** 250,317 4,633,764 LG Home Shopping, Inc. 20,443 2,202,561 ----------- 6,836,325 ----------- Retail: 1.42% Hyundai Department Store Co., Ltd. 129,200 3,595,607 ----------- Total Consumer Discretionary 24,054,714 -------------------------------------------------------------------------------- CONSUMER STAPLES: 15.43% Beverages: 4.53% Hite Brewery Co., Ltd. 111,351 6,253,332 Lotte Chilsung Beverage Co. 9,270 5,205,915 ----------- 11,459,247 ----------- Consumer Products: 3.44% Handsome Co., Ltd. 114,290 1,026,941 Hanssem Co., Ltd. ** 168,400 1,408,062 Pacific Corp. 58,880 6,270,344 ----------- 8,705,347 ----------- Food Products: 6.41% Cheil Jedang Corp. 42,200 1,948,584 Lotte Confectionery Co., Ltd. 9,450 4,795,956 Nong Shim Co., Ltd. 130,978 8,477,964 Pulmuone Co., Ltd. 33,810 1,004,216 ----------- 16,226,720 ----------- Household Products / Ware: 1.05% LG Household & Health Care, Ltd. Pfd. 159,270 $2,650,193 ----------- Total Consumer Staples 39,041,507 -------------------------------------------------------------------------------- FINANCIALS: 23.28% Banks: 13.07% Hana Bank 917,604 14,276,130 Kookmin Bank 254,263 11,888,665 Kookmin Bank ADR ** 68,939 3,226,345 Shinhan Financial Group Co., Ltd. 261,192 3,672,486 ----------- 33,063,626 ----------- Diversified Financials: 3.77% Good Morning Securities Co., Ltd. ** 1,024,650 4,262,448 Samsung Securities Co., Ltd. 127,495 3,733,786 Seoul Securities Co., Ltd. 336,380 1,539,240 ----------- 9,535,474 ----------- Insurance: 6.44% Hyundai Marine & Fire Insurance Co. 73,510 2,232,302 Samsung Fire & Marine Insurance Co., Ltd. 160,853 11,040,702 Samsung Fire & Marine Insurance Co., Ltd. Pfd. 98,000 3,016,764 ----------- 16,289,768 ----------- Total Financials 58,888,868 -------------------------------------------------------------------------------- HEALTH CARE: 1.75% Health Care Equipment & Supplies: 0.36% Shinhung Co., Ltd. 342,700 919,512 ----------- Pharmaceuticals: 1.39% Yuhan Corp. 79,160 3,497,147 ----------- Total Health Care 4,416,659 --------------------------------------------------------------------------------See accompanying notes to financial statements
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S c h e d u l e o f I n v e s t m e n t s A u g u s t 3 1 , 2 0 0 2MATTHEWS KOREA FUND continued
SHARES VALUE ------------------------ INDUSTRIALS: 6.99% Commercial Services: 2.53% S1 Corp. 318,095 $6,404,508 ----------- Construction: 2.12% Tae Young Corp. 171,590 5,367,764 ----------- Metals & Mining: 2.34% Poongsan Corp. 547,240 5,918,815 ----------- Total Industrials 17,691,087 -------------------------------------------------------------------------------- INFORMATION TECHNOLOGY: 18.68% Electrical & Electronic Equipment: 1.95% Dae Duck GDS Co., Ltd. 525,933 4,944,501 ----------- Internet Software & Services: 2.56% NCSoft Corp. 58,707 6,471,715 ----------- Office Electronics: 2.08% Sindo Ricoh Co. 111,486 5,259,167 ----------- Semiconductor Equipment & Products: 12.09% Samsung Electronics 94,621 26,057,282 Samsung Electronics Co., Ltd. Pfd. 33,040 4,535,630 ----------- 30,592,912 ----------- Total Information Technology 47,268,295 -------------------------------------------------------------------------------- TELECOMMUNICATION SERVICES: 14.05% Telecommunication Services: 5.53% Korea Telecom Corp. 120,570 5,487,066 Korea Telecom Corp. ADR 374,400 8,502,624 ----------- 13,989,690 ----------- Wireless Telecommunication Services: 8.52% KT Freetel ** 262,361 7,530,641 SK Telecom Co., Ltd. 58,115 11,434,916 SK Telecom Co., Ltd. ADR 118,600 2,580,736 ----------- 21,546,293 ----------- Total Telecommunication Services 35,535,983 -------------------------------------------------------------------------------- UTILITIES: 7.37% Daehan City Gas Co., Ltd. 57,492 679,219 Korea Electric Power (KEPCO) Corp. 480,240 8,410,543 Korea Gas Corp. 567,820 9,566,417 ----------- Total Utilities 18,656,179 -------------------------------------------------------------------------------- FACE VALUE AMOUNT ------------------------ TOTAL EQUITIES-SOUTH KOREA $250,067,612 -------------------------------------------------------------------------------- (Cost $181,434,510) INTERNATIONAL DOLLAR BONDS: 1.09%* FINANCIALS: 0.09% Insurance: 0.09% Korea Deposit Insurance Cnv. 2.250%, 10/11/05 $200,000 237,750 ----------- TELECOMMUNICATION SERVICES: 1.00% Telecommunication Services: 1.00% Korea Telecom Co. 0.250%, 01/04/07 1,925,000 2,117,500 Korea Telecom Co. 0.250%, 01/04/07 *** 375,000 412,500 ----------- Total Telecommunications Services 2,530,000 -------------------------------------------------------------------------------- TOTAL INTERNATIONAL DOLLAR BONDS 2,767,750 -------------------------------------------------------------------------------- (Cost $2,656,721) TOTAL INVESTMENTS: 99.93% 252,835,362 (Cost $184,091,231****) CASH AND OTHER ASSETS, LESS LIABILITIES: 0.07% 168,101 -------------------------------------------------------------------------------- NET ASSETS: 100.00% $253,003,463 ================================================================================ * As a percentage of net assets as of August 31, 2002 ** Non - income producing security. *** Securities exempt from registration under rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified, institutional buyers. At August 31, 2002, the value of these securities amounted to $412,500 or 0.16% of net assets. **** Cost for Federal income tax purposes is $189,337,695 and net unrealized depreciation consists of: Gross unrealized appreciation $67,873,462 Gross unrealized depreciation (4,375,795) ----------- Net unrealized appreciation $63,497,667 =========== ADR American Depositary Receipt Cnv. Convertible Pfd. Preferred
See accompanying notes to financial statements
24 M a t t h e w s A s i a n F u n d s
MATTHEWS CHINA FUND
SHARES VALUE ------------------------ EQUITIES-CHINA/HONG KONG: 98.81%* CONSUMER DISCRETIONARY: 24.87% Automobiles & Components: 4.85% Denway Motors, Ltd. 3,650,600 $1,076,462 Qingling Motors Co., Ltd. H Shares 5,227,000 556,208 ----------- 1,632,670 ----------- Consumer Durable & Apparel: 1.98% TCL International Holdings, Ltd. 424,000 114,154 Texwinca Holdings, Ltd. 808,000 554,207 ----------- 668,361 ----------- Distributors: 1.68% Li & Fung, Ltd. 520,000 566,668 ----------- Hotels, Restaurants & Leisure: 6.25% Cafe De Coral Holdings, Ltd. 1,154,100 880,373 Shangri-La Asia, Ltd. 1,875,000 1,225,965 ----------- 2,106,338 ----------- Media: 4.49% Clear Media, Ltd. ** 1,288,000 817,387 MediaNation, Inc. ** 1,709,000 63,540 Television Broadcasts, Ltd. 195,000 631,252 ----------- 1,512,179 ----------- Retail: 2.86% Giordano International, Ltd. 2,174,000 961,579 ----------- Travel & Recreation: 2.76% China Travel International Investment Hong Kong, Ltd. 5,484,000 928,064 ----------- Total Consumer Discretionary 8,375,859 -------------------------------------------------------------------------------- ENERGY: 14.06% Oil & Gas: 14.06% CNOOC, Ltd. 988,500 1,375,032 Hong Kong and China Gas Co., Ltd. 981,400 1,314,828 PetroChina Co., Ltd. H Shares 5,100,000 1,039,618 Sinopec Zhenhai Refining & Chemical Co., Ltd. 4,338,000 1,006,641 ----------- Total Energy 4,736,119 -------------------------------------------------------------------------------- FINANCIALS: 7.80% Banks: 2.16% BOC Hong Kong (Holdings) Ltd. ** 675,000 $726,925 ----------- Diversified Financials: 3.17% Swire Pacific, Ltd. A Shares 236,000 1,068,054 ----------- Real Estate: 2.47% China Vanke Co., Ltd. B Shares 841,733 830,944 ----------- Total Financials 2,625,923 -------------------------------------------------------------------------------- HEALTH CARE: 3.65% Pharmaceuticals: 3.65% China Pharmaceutical Enterprise 8,204,000 1,230,603 ----------- Total Health Care 1,230,603 -------------------------------------------------------------------------------- INDUSTRIALS: 23.38% Airlines: 4.66% Beijing Capital International Airport Co. 3,280,000 735,899 China Southern Airlines Co., Ltd Class H 2,022,000 609,194 China Southern Airlines Co., Ltd. ADR 14,800 225,256 ----------- 1,570,349 ----------- Industrial Conglomerates: 13.92% Beijing Enterprises Holdings, Ltd. 658,000 666,438 BYD Co., Ltd. ** 106,000 199,770 Cheung Kong Infrastructure 919,500 1,603,235 China Merchants Holdings International Co., Ltd. 1,582,000 1,115,516 Shanghai Industrial Holdings, Ltd. 694,000 1,103,285 ----------- 4,688,244 ----------- Machinery: 1.53% Shanghai Zhenhua Port Machinery Co., Ltd. B Shares 515,500 513,954 ----------- Transportation: 3.27% Zhejiang Expressway Co., Ltd. H Shares 3,404,000 1,101,939 ----------- Total Industrials 7,874,486 --------------------------------------------------------------------------------See accompanying notes to financial statements
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S c h e d u l e o f I n v e s t m e n t s A u g u s t 3 1 , 2 0 0 2MATTHEWS CHINA FUND continued
SHARES VALUE ------------------------ INFORMATION TECHNOLOGY: 7.15% Computer Software: 1.51% Travelsky Technology, Ltd. 846,000 $507,059 ----------- Computers & Peripherals: 3.48% Legend Holdings, Ltd. 3,122,000 1,170,753 ----------- IT Consulting & Services: 2.16% AsiaInfo Holdings, Inc. ** 159,263 728,628 ----------- Total Information Technology 2,406,440 -------------------------------------------------------------------------------- TELECOMMUNICATION SERVICES: 7.80% Wireless Telecommunication Services: 7.80% China Mobile HK, Ltd. ** 471,083 1,301,521 China Mobile HK, Ltd. ADR ** 21,500 297,775 China Unicom, Ltd. ** 1,232,000 908,206 China Unicom, Ltd. ADR ** 16,200 119,070 ----------- Total Telecommunication Services 2,626,572 -------------------------------------------------------------------------------- UTILITIES: 10.10% Beijing Datang Power Generation, Co., Ltd. H Shares 2,606,000 918,784 Huaneng Power International, Inc. ADR 39,400 1,182,000 Huaneng Power International, Inc. H Shares 506,000 382,745 Shandong International Power Development Co., Ltd. H Shares 4,050,000 919,040 ----------- Total Utilities 3,402,569 -------------------------------------------------------------------------------- TOTAL INVESTMENTS: 98.81% 33,278,571 (Cost $36,995,847***) CASH AND OTHER ASSETS, LESS LIABILITIES: 1.19% 396,702 -------------------------------------------------------------------------------- NET ASSETS: 100.00% $33,675,273 ================================================================================ * As a percentage of net assets as of August 31, 2002 ** Non - income producing security. ADR American Depositary Receipt *** Cost for Federal income tax purposes is $37,279,516 and net unrealized depreciation consists of: Gross unrealized appreciation $2,231,875 Gross unrealized depreciation (6,232,820) ------------ Net unrealized depreciation $(4,000,945) ============
See accompanying notes to financial statements
26 M a t t h e w s A s i a n F u n d s
MATTHEWS JAPAN FUND
SHARES VALUE ------------------------ EQUITIES-JAPAN: 99.93%* CONSUMER DISCRETIONARY: 50.93% Automobiles: 5.48% Honda Motor Co., Ltd. ADR 24,300 $515,160 ----------- Bicycle Manufacturing: 4.40% Shimano, Inc. 29,700 413,318 ----------- Household Durables: 14.40% Arc Land Sakamoto Co., Ltd. 28,300 372,353 Nintendo Co., Ltd. 3,965 479,552 Sony Corp. 4,100 178,780 Sony Corp. ADR 7,410 322,409 ----------- 1,353,094 ----------- Internet & Catalog Retail: 5.20% Belluna Co., Ltd. 12,124 488,784 ----------- Media: 3.64% Fuji Television Network, Inc. 71 341,931 ----------- Retail: 17.81% Don Quijote Co., Ltd. 5,300 534,180 Fast Retailing Co., Ltd. 14,300 413,689 Kyoto Kimono Yuzen Co., Ltd. 107 324,885 USS Co., Ltd. 9,200 401,940 ----------- 1,674,694 ----------- Total Consumer Discretionary 4,786,981 -------------------------------------------------------------------------------- FINANCIALS: 25.16% Banks: 7.49% Mizuho Holdings, Inc. 232 497,010 The Joyo Bank, Ltd. 34,000 94,632 The Sumitomo Trust and Banking Co., Ltd. 26,000 112,276 ----------- 703,918 ----------- Diversified Financials: 13.60% Japan Securities Finance Co., Ltd. 63,000 222,637 Monex, Inc. ** 1,702 286,239 Nikko Cordial Corp. 39,000 162,822 Nomura Holdings, Inc. 32,000 421,845 UFJ Tsubasa Securities Co., Ltd. 72,000 184,608 ----------- 1,278,151 ----------- Insurance: 4.07% AFLAC, Inc. 12,500 382,625 ----------- Total Financials 2,364,694 -------------------------------------------------------------------------------- INFORMATION TECHNOLOGY: 10.79% Electronic Equipment & Instruments: 6.18% Canon, Inc. 12,500 $428,035 Kyocera Corp. 2,200 152,709 ----------- 580,744 ----------- Semiconductor Equipment: 2.47% Rohm Co., Ltd. 1,700 231,991 ----------- Software: 2.14% Access Co., Ltd. ** 15 201,155 ----------- Total Information Technology 1,013,890 -------------------------------------------------------------------------------- MANUFACTURING: 4.32% Agricultural: 1.07% Hokuto Corp. 3,800 100,316 Electronics: 3.25% Murata Manufacturing Co., Ltd. 5,400 306,060 ----------- Total Manufacturing 406,376 -------------------------------------------------------------------------------- SERVICES: 4.57% Business Services: 4.57% The Goodwill Group, Inc. 135 429,257 ----------- Total Services 429,257 -------------------------------------------------------------------------------- TELECOMMUNICATION SERVICES: 4.16% Diversified Telecommunication Services: 4.16% Nippon Telegraph & Telephone Corp. 36 141,491 Nippon Telegraph & Telephone Corp. ADR 12,525 249,374 ----------- Total Telecommunication Services 390,865 -------------------------------------------------------------------------------- TOTAL INVESTMENTS: 99.93% 9,392,063 (Cost $9,419,135***) CASH AND OTHER ASSETS, LESS LIABILITIES: 0.07% 6,532 -------------------------------------------------------------------------------- NET ASSETS: 100.00% $9,398,595 ================================================================================ * As a percentage of net assets as of August 31, 2002 ** Non - income producing security. ADR American Depositary Receipt *** Cost for Federal income tax purposes is $10,216,662 and net unrealized depreciation consists of: Gross unrealized appreciation $558,931 Gross unrealized depreciation (1,383,530) ----------- Net unrealized depreciation $(824,599) ===========See accompanying notes to financial statements
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S c h e d u l e o f I n v e s t m e n t s A u g u s t 3 1 , 2 0 0 2MATTHEWS ASIAN TECHNOLOGY FUND
SHARES VALUE ------------------------ EQUITIES: 100.44%* China/Hong Kong: 22.21% Asia Satellite Telecommuni- cations Holdings Ltd. 82,900 $123,287 AsiaInfo Holdings, Inc. ** 63,300 289,598 China Mobile HK Ltd. ** 69,000 190,635 China Mobile HK Ltd. ADR ** 6,900 95,565 China Unicom Ltd. ** 180,000 132,693 Legend Group Ltd. 889,000 333,376 TPV Technology Ltd. 442,000 147,334 VTech Holdings Ltd. ** 212,000 216,077 ---------- Total China/Hong Kong 1,528,565 -------------------------------------------------------------------------------- India: 2.05% Wipro Ltd. 5,400 140,940 ---------- Japan: 18.96% Access Co., Ltd. ** 12 160,924 Advantest Corp. 2,900 139,906 Canon, Inc. 7,500 256,821 Nintendo Co., Ltd. 2,235 270,315 Rohm Co., Ltd. 1,000 136,465 Sony Corp. 4,500 196,223 Sony Corp. ADR 3,300 143,583 ---------- Total Japan 1,304,237 -------------------------------------------------------------------------------- Singapore: 6.02% CSE Systems & Engineering Ltd. ** 389,000 86,697 Venture Corp., Ltd. 44,400 327,314 ---------- Total Singapore 414,011 -------------------------------------------------------------------------------- South Korea: 28.79% Intelligent Digital Integrated Security Co., Ltd. 9,571 170,406 Internet Auction Co., Ltd. ** 14,986 277,415 KT Corp. 6,010 273,511 KT Corp. ADR 6,400 145,344 KT Freetel ** 4,241 121,731 NCsoft Corp. ** 3,023 333,248 Samsung Electronics Co., Ltd. 1,348 371,220 SK Telecom Co., Ltd. 1,019 200,502 SK Telecom Co., Ltd. ADR 4,000 $87,040 ---------- Total South Korea 1,980,417 -------------------------------------------------------------------------------- Taiwan: 16.98% Asustek Computer, Inc. 39,000 93,955 Hon Hai Precision Industry Co., Ltd. 66,140 251,079 LITE-ON IT Corp. 46,000 257,906 Realtek Semiconductor Corp. 40,750 116,616 Sunplus Technology Co., Ltd. 107,500 200,905 Taiwan Semiconductor Manufacturing Co., Ltd. ** 169,990 247,700 ---------- Total Taiwan 1,168,161 -------------------------------------------------------------------------------- Thailand: 5.43% Advanced Info Service Public Co., Ltd. 358,000 246,077 Shin Satellite Public Co., Ltd. ** 266,000 127,357 ---------- Total Thailand 373,434 -------------------------------------------------------------------------------- TOTAL INVESTMENTS: 100.44% 6,909,765 (Cost $8,285,166***) LIABILITIES, LESS CASH AND OTHER ASSETS: (0.44%) (30,598) -------------------------------------------------------------------------------- NET ASSETS: 100.00% $6,879,167 ================================================================================ * As a percentage of net assets as of August 31, 2002 ** Non - income producing security. ADR American Depositary Receipt *** Cost for Federal income tax purposes is $9,381,559 and net unrealized depreciation consists of: Gross unrealized appreciation $210,952 Gross unrealized depreciation (2,682,746) ------------ Net unrealized depreciation $(2,471,794) ============
See accompanying notes to financial statements
28 M a t t h e w s A s i a n F u n d s
MARKET SECTOR DIVERSIFICATION As a Percentage of Total Value of Investment in Securities Consumer Discretionary 12.85% Internet & Catalog Retail 4.02% Leisure Equipment & Products 8.83% Industrials 7.20% Commercial Services & Supplies 7.20% Information Technology 54.71% Computers & Peripherals 21.04% Electronic Equipment & Instruments 5.15% Internet Software & Services 13.38% IT Consulting & Services 1.26% Office Electronics 3.72% Semiconductor Equipment & Products 10.16% Telecommunication Services 25.24% Diversified Telecommunication Services 13.85% Wireless Telecommunication Services 11.39% ------- TOTAL INVESTMENTS 100.00% ================================================================================See accompanying notes to financial statements
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S t a t e m e n t o f A s s e t s a n d L i a b i l i t i e s A u g u s t 3 1 , 2 0 0 2Matthews Matthews Pacific Tiger Asian Growth Fund and Income Fund Assets: Investments at value (A) $114,403,129 $148,293,518 Cash -- 3,796,911 Foreign currency at value (B) -- 500,628 Dividends and interest receivable 272,703 710,883 Receivable for securities sold 1,108,474 397,619 Receivable for capital shares sold 475,887 673,274 Deferred organization costs (Note 1-F) -- -- Other assets 2,240 971 ----------------------------------------------------------------------------------------------------------- Total assets 116,262,433 154,373,804 ----------------------------------------------------------------------------------------------------------- Liabilities: Payable for securities purchased -- 1,042,763 Payable for capital shares redeemed 204,646 402,450 Cash overdraft 1,030,298 -- Due to Advisor (Note 2) 99,078 124,132 Payable for shareholder service fee 14,861 18,620 Accrued expenses 114,879 104,638 Other liabilities 590 -- ----------------------------------------------------------------------------------------------------------- Total liabilities 1,464,352 1,692,603 ----------------------------------------------------------------------------------------------------------- Net Assets: $114,798,081 $152,681,201 =========================================================================================================== Shares Outstanding: (shares of beneficial interest issued and outstanding, respectively, unlimited number of shares authorized with a $0.001 par value) 13,444,075 14,258,107 =========================================================================================================== Net asset value, offering price and redemption price $8.54 $10.71 =========================================================================================================== Net Assets Consist of: Capital paid-in $125,092,818 $150,150,828 Accumulated undistributed net investment income (loss) (77,025) 17,691 Accumulated net realized gain (loss) on investments (6,129,228) 2,378,837 Net unrealized appreciation (depreciation) on investments and foreign currency related transactions (4,088,484) 133,845 ----------------------------------------------------------------------------------------------------------- Net Assets: $114,798,081 $152,681,201 =========================================================================================================== (A) Investments at cost $118,491,564 $148,159,659 =========================================================================================================== (B) Foreign currency at cost $0 $500,628
See accompanying notes to financial statements
30 M a t t h e w s A s i a n F u n d s
Matthews Matthews Matthews Matthews Korea China Japan Asian Technology Fund Fund Fund Fund $252,835,362 $33,278,571 $9,392,063 $6,909,765 815,014 530,087 -- -- -- -- -- -- 2,680 40,539 8,564 -- -- -- 261,179 25,057 67,187 53,798 7,450 13,600 -- 1,452 -- -- 11,501 1,961 181 319 ------------------------------------------------------------------------------------------- 253,731,744 33,906,408 9,669,437 6,948,741 ------------------------------------------------------------------------------------------- -- -- -- -- 213,511 158,417 28,203 27,202 -- -- 217,517 18,231 210,007 28,167 12,861 3,776 31,501 4,327 1,243 898 272,122 40,224 10,049 17,490 1,140 -- 969 1,977 ------------------------------------------------------------------------------------------- 728,281 231,135 270,842 69,574 ------------------------------------------------------------------------------------------- $253,003,463 $33,675,273 $9,398,595 $6,879,167 =========================================================================================== 57,286,221 3,758,476 979,016 2,198,076 =========================================================================================== $4.42 $8.96 $9.60 $3.13 =========================================================================================== $169,854,027 $38,899,130 $17,889,579 $26,089,582 (372,722) 439,725 (28,232) (8,487) 14,778,027 (1,946,306) (8,435,766) (17,826,527) 68,744,131 (3,717,276) (26,986) (1,375,401) ------------------------------------------------------------------------------------------- $253,003,463 $33,675,273 $9,398,595 $6,879,167 =========================================================================================== $184,091,231 $36,995,847 $9,419,135 $8,285,166 =========================================================================================== $0 $0 $0 $0
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S t a t e m e n t o f O p e r a t i o n s F o r t h e Y e a r E n d e d A u g u s t 3 1 , 2 0 0 2Matthews Matthews Pacific Tiger Asian Growth Fund and Income Fund Investment Income: Dividends $1,797,548 $1,549,367 Interest 148 981,103 Foreign withholding tax (92,922) (71,305) ----------------------------------------------------------------------------------------------------------- Total investment income 1,704,774 2,459,165 ----------------------------------------------------------------------------------------------------------- Expenses Investment advisory fees (Note 2) 1,002,556 630,055 Transfer agent fees 247,123 123,754 Administration and accounting fees 168,544 107,375 Professional fees 18,557 14,763 Custodian fees 121,258 79,179 Directors fees (Note 2) 6,407 2,915 Shareholder service fee (Note 2) 151,034 96,089 Insurance expense 10,449 3,002 Amortization of organization costs (Note 1-F) -- -- Printing expense 33,392 15,567 Registration expenses 28,244 38,700 Other expenses 2,843 1,249 ----------------------------------------------------------------------------------------------------------- Total expenses 1,790,407 1,112,648 Expenses waived, reimbursed or recaptured (Note 2) 85,156 17,499 ----------------------------------------------------------------------------------------------------------- Net expenses 1,875,563 1,130,147 ----------------------------------------------------------------------------------------------------------- Net Investment Income (Loss) (170,789) 1,329,018 ----------------------------------------------------------------------------------------------------------- Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Related Transactions: Net realized gain (loss) on investments (3,689,958) 3,326,962 Net realized gain (loss) on foreign currency related transactions (78,838) (23,954) Net change in unrealized appreciation (depreciation) on investments and foreign currency related transactions 5,883,551 (280,755) ----------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments and foreign currency related transactions 2,114,755 3,022,253 ----------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets from Operations $1,943,966 $4,351,271 ===========================================================================================================
See accompanying notes to financial statements
32 M a t t h e w s A s i a n F u n d s
Matthews Matthews Matthews Matthews Korea China Japan Asian Technology Fund Fund Fund Fund $2,979,283 $861,417 $74,323 $64,299 4,601 -- -- -- (517,313) -- (11,110) (13,601) ------------------------------------------------------------------------------------------- 2,466,571 861,417 63,213 50,698 ------------------------------------------------------------------------------------------- 2,221,793 291,484 96,012 111,646 488,608 73,176 22,124 26,937 372,633 49,666 15,216 18,298 65,679 10,547 703 1,356 282,902 60,137 14,176 24,424 15,052 1,254 658 972 318,593 40,744 13,501 14,426 18,836 2,312 1,246 1,589 -- 3,088 -- -- 42,902 14,560 3,740 4,875 55,922 25,359 16,223 18,637 4,775 2,299 -- 899 ------------------------------------------------------------------------------------------- 3,887,695 574,626 183,599 224,059 -- 8,342 8,426 (767) ------------------------------------------------------------------------------------------- 3,887,695 582,968 192,025 223,292 ------------------------------------------------------------------------------------------- (1,421,124) 278,449 (128,812) (172,594) ------------------------------------------------------------------------------------------- 34,491,076 (841,030) (4,235,766) (2,202,645) (400,383) (24) 2,217 (9,567) 57,069,545 (1,608,943) 3,160,981 1,639,640 ------------------------------------------------------------------------------------------- 91,160,238 (2,449,997) (1,072,568) (572,572) ------------------------------------------------------------------------------------------- $89,739,114 ($2,171,548) ($1,201,380) ($745,166) ===========================================================================================
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S t a t e m e n t o f C h a n g e s i n N e t A s s e t s A u g u s t 3 1 , 2 0 0 2Matthews Pacific Tiger Fund Year Ended Year Ended August 31, 2002 August 31, 2001 Operations: Net investment income (loss) ($170,789) $574,328 Net realized gain (loss) on investments and foreign currency related transactions (3,768,796) (2,037,058) Net change in unrealized appreciation (depreciation) on investments and foreign currency related transactions 5,883,551 (27,835,776) --------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets from operations 1,943,966 (29,298,506) --------------------------------------------------------------------------------------------------------------- Dividends and Distributions to Shareholders from: Net investment income: Class I (104,784) (2,614,945) Class A N/A (34,982) Realized gains on investments: Class I (274,572) (7,093,168) Class A N/A (107,171) --------------------------------------------------------------------------------------------------------------- Net decrease in net assets resulting from distributions (379,356) (9,850,266) --------------------------------------------------------------------------------------------------------------- Capital Share Transactions (net): (Note 1-L) Class I 36,730,362 3,667,083 Class A N/A (1,187,737) --------------------------------------------------------------------------------------------------------------- Increase in net assets derived from capital share transactions 36,730,362 2,479,346 --------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets 38,294,972 (36,669,426) Net Assets: Beginning of year 76,503,109 113,172,535 --------------------------------------------------------------------------------------------------------------- End of year (including undistributed net investment income (loss) of $(77,025), $42,401, $17,691, $280,057, $(372,722) and $121,474 respectively) $114,798,081 $76,503,109 ===============================================================================================================N/A Not Applicable
See accompanying notes to financial statements
34 M a t t h e w s A s i a n F u n d s
Matthews Asian Growth and Income Fund Matthews Korea Fund Year Ended Year Ended Year Ended Year Ended August 31, 2002 August 31, 2001 August 31, 2002 August 31, 2001 $1,329,018 $1,268,721 $(1,421,124) $830,403 3,303,008 (825,263) 34,090,693 (13,729,542) (280,755) (240,759) 57,069,545 (1,209,908) ------------------------------------------------------------------------------------------- 4,351,271 202,699 89,739,114 (14,109,047) ------------------------------------------------------------------------------------------- (1,362,799) (1,065,963) (467,505) -- N/A N/A N/A -- -- (1,037,531) (3,455,469) (29,963,931) N/A N/A N/A (12,702,421) ------------------------------------------------------------------------------------------- (1,362,799) (2,103,494) (3,922,974) (42,666,352) ------------------------------------------------------------------------------------------- 125,246,184 14,878,373 50,055,031 52,883,977 N/A N/A N/A (5,884,513) ------------------------------------------------------------------------------------------- 125,246,184 14,878,373 50,055,031 46,999,464 ------------------------------------------------------------------------------------------- 128,234,656 12,977,578 135,871,171 (9,775,935) 24,446,545 11,468,967 117,132,292 126,908,227 ------------------------------------------------------------------------------------------- $152,681,201 $24,446,545 $253,003,463 $117,132,292 ===========================================================================================
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S t a t e m e n t o f C h a n g e s i n N e t A s s e t s A u g u s t 3 1 , 2 0 0 2Matthews China Fund Year Ended Year Ended August 31, 2002 August 31, 2001 Operations: Net investment income (loss) $278,449 $376,674 Net realized loss on investments and foreign currency related transactions (841,054) (981,137) Net change in unrealized appreciation (depreciation) on investments and foreign currency related transactions (1,608,943) (2,331,876) ----------------------------------------------------------------------------------------------------------- Net decrease in net assets from operations (2,171,548) (2,936,339) ----------------------------------------------------------------------------------------------------------- Dividends and Distributions to Shareholders from: Net investment income: Class I (381,550) (135,340) Class A N/A N/A Realized gains on investments: Class I — (259,637) Class A N/A N/A ----------------------------------------------------------------------------------------------------------- Net decrease in net assets resulting from distributions (381,550) (394,977) ----------------------------------------------------------------------------------------------------------- Capital Share Transactions (net): (Note 1-L) Class I 16,385,313 13,942,021 Class A N/A N/A ----------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets derived from capital share transactions 16,385,313 13,942,021 ----------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets 13,832,215 10,610,705 Net Assets: Beginning of year 19,843,058 9,232,353 ----------------------------------------------------------------------------------------------------------- End of year (including undistributed net investment income (loss) of $439,725, $358,736, $(28,232), $62,709, $(8,487) and $78,879 respectively $33,675,273 $19,843,058 ===========================================================================================================N/A - Not Applicable
See accompanying notes to financial statements.
36 M a t t h e w s A s i a n F u n d s
Matthews Japan Fund Matthews Asian Technology Fund Year Ended Year Ended Year Ended Year Ended August 31, 2002 August 31, 2001 August 31, 2002 August 31, 2001 ($128,812) ($102,884) ($172,594) $244,064 (4,233,549) (3,446,164) (2,212,212) (12,868,227) 3,160,981 (4,135,528) 1,639,640 2,014,453 ------------------------------------------------------------------------------------------- (1,201,380) (7,684,576) (745,166) (10,609,710) ------------------------------------------------------------------------------------------- (182,412) (360,020) (142,101) (615,326) N/A N/A N/A N/A — (910,401) — — N/A N/A N/A N/A ------------------------------------------------------------------------------------------- (182,412) (1,270,421) (142,101) (615,326) ------------------------------------------------------------------------------------------- 3,024,383 (7,155,774) (1,840,654) (3,737,856) N/A N/A N/A N/A ------------------------------------------------------------------------------------------- 3,024,383 (7,155,774) (1,840,654) (3,737,856) ------------------------------------------------------------------------------------------- 1,640,591 (16,110,771) (2,727,921) (14,962,892) 7,758,004 23,868,775 9,607,088 24,569,980 ------------------------------------------------------------------------------------------- $9,398,595 $7,758,004 $6,879,167 $9,607,088 ===========================================================================================
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F i n a n c i a l H i g h l i g h t s
MATTHEWS PACIFIC TIGER FUND
The table below sets forth financial data for a share of beneficial interest outstanding throughout each year presented.
Year Ended August 31 2002 2001(1) 2000(1) 1999(1) 1998(1) Net Asset Value, beginning of year $7.91 $12.35 $10.41 $4.07 $11.30 ---------------------------------------------------------------------------------------------------------------------------------- Income (loss) from Investment Operations Net investment income (loss) (0.01) 0.02 0.18 0.18 0.02 Net realized gain (loss) and unrealized appreciation (depreciation) on investments and foreign currency 0.66 (3.37) 2.01 6.15 (7.20) ---------------------------------------------------------------------------------------------------------------------------------- Total from investment operations 0.65 (3.35) 2.19 6.33 (7.18) ---------------------------------------------------------------------------------------------------------------------------------- Less Distributions from: Net investment income (0.01) (0.31) (0.27) (0.02) (0.01) Net realized gains on investments (0.03) (0.84) — — (0.06) ---------------------------------------------------------------------------------------------------------------------------------- Total distributions (0.04) (1.15) (0.27) (0.02) (0.07) ---------------------------------------------------------------------------------------------------------------------------------- Paid-in Capital from Redemption Fees (Note 1L) 0.02 0.06 0.02 0.03 0.02 ---------------------------------------------------------------------------------------------------------------------------------- Net Asset Value, end of year $8.54 $7.91 $12.35 $10.41 $4.07 ================================================================================================================================== Total Return 8.44% (27.46%) 21.28% 156.28% (63.43%) Ratios/Supplemental Data Net assets, end of year (in 000's) $114,798 $76,503 $111,502 $109,936 $31,319 Ratio of expenses to average net assets before reimbursement, waiver or recapture of expenses by Advisor and Administrator 1.79% 1.90% 1.88% 1.90% 2.06% Ratio of expenses to average net assets after reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 2) 1.87% 1.90% 1.81% 1.90% 1.90% Ratio of net investment income (loss) to average net assets before reimbursement, waiver or recapture of expenses by Advisor and Administrator (0.17%) 0.67% 1.49% 3.35% 0.14% Ratio of net investment income (loss) to average net assets after reimbursement, waiver or recapture of expenses by Advisor and Administrator (0.09%) 0.67% 1.56% 3.35% 0.30% Portfolio turnover 57.00% 63.59% 52.11% 98.74% 73.09%(1) Net investment income (loss) has been restated to separate Paid-in Capital for redemption fees.
See accompanying notes to financial statements.
38 M a t t h e w s A s i a n F u n d s
MATTHEWS ASIAN GROWTH AND INCOME FUND
The table below sets forth financial data for a share of beneficial interest outstanding throughout each year presented.
Year Ended August 31 2002 2001(1) 2000(1) 1999(1) 1998(1) Net Asset Value, beginning of year $9.08 $10.50 $9.37 $6.54 $11.71 ---------------------------------------------------------------------------------------------------------------------------------- Income (loss) from Investment Operations Net investment income 0.18 0.54 0.61 0.58 0.13 Net realized gain (loss) and unrealized appreciation (depreciation) on investments and foreign currency 1.70 (0.49) 1.09 2.75 (4.16) ---------------------------------------------------------------------------------------------------------------------------------- Total from investment operations 1.88 0.05 1.70 3.33 (4.03) ---------------------------------------------------------------------------------------------------------------------------------- Less Distributions from: Net investment income (0.27) (0.60) (0.59) (0.51) (0.10) Net realized gains on investments — (0.88) — — (1.05) ---------------------------------------------------------------------------------------------------------------------------------- Total distributions (0.27) (1.48) (0.59) (0.51) (1.15) ---------------------------------------------------------------------------------------------------------------------------------- Paid-in Capital from Redemption Fees (Note 1L) 0.02 0.01 0.02 0.01 0.01 ---------------------------------------------------------------------------------------------------------------------------------- Net Asset Value, end of year $10.71 $9.08 $10.50 $9.37 $6.54 ================================================================================================================================== Total Return 21.11% 1.15% 18.68% 52.65% (35.27%) Ratios/Supplemental Data Net assets, end of year (in 000's) $152,681 $24,447 $11,469 $10,644 $4,063 Ratio of expenses to average net assets before reimbursement, waiver or recapture of expenses by Advisor and Administrator 1.77% 1.90% 1.97% 2.05% 3.76% Ratio of expenses to average net assets after reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 2) 1.79% 1.90% 1.90% 1.90% 1.90% Ratio of net investment income (loss) to average net assets before reimbursement, waiver or recapture of expenses by Advisor and Administrator 2.13% 7.71% 6.17% 7.98% (0.36%) Ratio of net investment income (loss) to average net assets after reimbursement, waiver or recapture of expenses by Advisor and Administrator 2.11% 7.71% 6.24% 8.13% 1.50% Portfolio turnover 32.37% 33.94% 62.23% 34.82% 54.67%(1) Net investment income (loss) has been restated to separate Paid-in Capital for redemption fees.
See accompanying notes to financial statements.
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F i n a n c i a l H i g h l i g h t s
MATTHEWS KOREA FUND
The table below sets forth financial data for a share of beneficial interest outstanding throughout each year presented.
Year Ended August 31 2002(1) 2001(1) 2000(1) 1999(1) 1998(1) Net Asset Value, beginning of year $2.68 $5.19 $7.49 $2.03 $6.19 ---------------------------------------------------------------------------------------------------------------------------------- Income (loss) from Investment Operations Net investment income (loss) (0.02) (0.01) (0.01) (0.01) (0.05) Net realized gain (loss) and unrealized appreciation (depreciation) on investments and foreign currency 1.81 (0.90) (1.45) 5.43 (4.13) ---------------------------------------------------------------------------------------------------------------------------------- Total from investment operations 1.79 (0.91) (1.46) 5.42 (4.18) ---------------------------------------------------------------------------------------------------------------------------------- Less Distributions from: Net investment income (0.01) — — — — Net realized gains on investments (0.07) (1.63) (0.88) — — ---------------------------------------------------------------------------------------------------------------------------------- Total distributions (0.08) (1.63) (0.88) — — ---------------------------------------------------------------------------------------------------------------------------------- Paid-in Capital from Redemption Fees (Note 1L) 0.03 0.03 0.04 0.04 0.02 ---------------------------------------------------------------------------------------------------------------------------------- Net Asset Value, end of year $4.42 $2.68 $5.19 $7.49 $2.03 ================================================================================================================================== Total Return 68.49% (13.09%) (22.92%) 268.97% (67.21%) Ratios/Supplemental Data Net assets, end of year (in 000's) $253,003 $117,138 $115,158 $230,846 $66,607 Ratio of expenses to average net assets before reimbursement, waiver or recapture of expenses by Advisor and Administrator 1.75% 1.78% 1.75% 1.77% 2.07% Ratio of expenses to average net assets after reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 2) 1.75% 1.78% 1.75% 1.77% 2.06% Ratio of net investment income (loss) to average net assets before reimbursement, waiver or recapture of expenses by Advisor and Administrator (0.64%) 0.75% 0.42% (0.37%) (1.13%) Ratio of net investment income (loss) to average net assets after reimbursement, waiver or recapture of expenses by Advisor and Administrator (0.64%) 0.75% 0.42% (0.37%) (1.12%) Portfolio turnover 46.52% 81.96% 47.80% 57.06% 94.01%(1) Net investment income (loss) has been restated to separate Paid-in Capital for redemption fees.
See accompanying notes to financial statements.
40 M a t t h e w s A s i a n F u n d s
MATTHEWS CHINA FUND
The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented.
Year Ended August 31 2002 2001(1) 2000(1) 1999(1) 1998(1),(2) Net Asset Value, beginning of period $9.21 $9.93 $8.48 $4.36 $10.00 ---------------------------------------------------------------------------------------------------------------------------------- Income (loss) from Investment Operations Net investment income 0.05 0.24 0.09 0.07 0.10 Net realized gain (loss) and unrealized appreciation (depreciation) on investments and foreign currency (0.20) (0.61) 1.44 4.11 (5.75) ---------------------------------------------------------------------------------------------------------------------------------- Total from investment operations (0.15) (0.37) 1.53 4.18 (5.65) ---------------------------------------------------------------------------------------------------------------------------------- Less Distributions from: Net investment income (0.15) (0.15) (0.11) (0.11) — Net realized gains on investments — (0.28) — — — ---------------------------------------------------------------------------------------------------------------------------------- Total distributions (0.15) (0.43) (0.11) (0.11) — ---------------------------------------------------------------------------------------------------------------------------------- Paid-in Capital from Redemption Fees (Note 1L) 0.05 0.08 0.03 0.05 0.01 ---------------------------------------------------------------------------------------------------------------------------------- Net Asset Value, end of period $8.96 $9.21 $9.93 $8.48 $4.36 ================================================================================================================================== Total Return (1.16%) (2.23%) 18.54% 97.79% (56.40%)(4) Ratios/Supplemental Data Net assets, end of period (in 000's) $33,675 $19,843 $9,232 $6,245 $1,576 Ratio of expenses to average net assets before reimbursement, waiver or recapture of expenses by Advisor and Administrator 1.97% 2.00% 2.15% 2.09% 7.84%(3) Ratio of expenses to average net assets after reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 2) 2.00% 2.00% 2.00% 2.00% 2.00%(3) Ratio of net investment income (loss) to average net assets before reimbursement, waiver or recapture of expenses by Advisor and Administrator 0.99% 2.62% 1.54% 2.93% (3.45%)(3) Ratio of net investment income (loss) to average net assets before reimbursement, waiver or recapture of expenses by Advisor and Administrator 0.96% 2.62% 1.69% 3.02% 2.38%(3) Portfolio turnover 43.84% 61.07% 80.90% 40.27% 11.84%(4)(1) Net investment income (loss) has been restated to separate Paid-in Capital for redemption fees. (2) The China Fund commenced operations on February 19, 1998. (3) Annualized. (4) Not annualized.
See accompanying notes to financial statements.
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F i n a n c i a l H i g h l i g h t s
MATTHEWS JAPAN FUND
The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented.
Year Ended Year Ended Year Ended Period Ended August 31, 2002 August 31, 2001(1) August 31, 2000(1) August 31, 1999(1),(2) Net Asset Value, beginning of period $11.22 $20.76 $21.70 $10.00 ----------------------------------------------------------------------------------------------------------------------------------- Income (loss) from Investment Operations Net investment income (loss) (0.07) (0.26) (0.24) (0.06) Net realized gain (loss) and unrealized appreciation (depreciation) on investments and foreign currency (1.39) (7.99) (0.29) 11.74 ----------------------------------------------------------------------------------------------------------------------------------- Total from investment operations (1.46) (8.25) (0.53) 11.68 ----------------------------------------------------------------------------------------------------------------------------------- Less Distributions from: Net investment income (0.27) (0.37) — — Net realized gains on investments — (1.03) (0.54) — ----------------------------------------------------------------------------------------------------------------------------------- Total distributions (0.27) (1.40) (0.54) — ----------------------------------------------------------------------------------------------------------------------------------- Paid-in Capital from Redemption Fees (Note 1L) 0.11 0.11 0.13 0.02 ----------------------------------------------------------------------------------------------------------------------------------- Net Asset Value, end of period $9.60 $11.22 $20.76 $21.70 =================================================================================================================================== Total Return (12.20%) (40.92%) (1.75%) 117.00%(4) Ratios/Supplemental Data Net assets, end of period (in 000's) $9,399 $7,758 $23,869 $24,486 Ratio of expenses to average net assets before reimbursement, waiver or recapture of expenses by Advisor and Administrator 1.91% 2.08% 1.88% 3.45%(3) Ratio of expenses to average net assets after reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 2) 2.00% 2.00% 2.00% 2.00%(3) Ratio of net investment income (loss) to average net assets before reimbursement, waiver or recapture of expenses by Advisor and Administrator (1.25%) (0.90%) (0.36%) (2.54%)(3) Ratio of net investment income (loss) to average net assets before reimbursement, waiver or recapture of expenses by Advisor and Administrator (1.34%) (0.82%) (0.48%) (1.09%)(3) Portfolio turnover 113.23% 71.09% 23.00% 28.92%(4)(1) Net investment income (loss) has been restated to separate Paid-in Capital for redemption fees. (2) The Japan Fund commenced operations on December 31, 1998. (3) Annualized. (4) Not annualized.
See accompanying notes to financial statements.
42 M a t t h e w s A s i a n F u n d s
MATTHEWS ASIAN TECHNOLOGY FUND
The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented.
Year Ended Year Ended Period Ended August 31, 2002 August 31, 2001(1) August 31, 2000(1),(2) Net Asset Value, beginning of period $3.53 $7.61 $10.00 ------------------------------------------------------------------------------------------------------------------- Income (loss) from Investment Operations Net investment income (loss) (0.10) 0.05 0.22 Net realized gain (loss) and unrealized appreciation (depreciation) on investments and foreign currency (0.31) (3.97) (2.65) ------------------------------------------------------------------------------------------------------------------- Total from investment operations (0.41) (4.02) (2.43) ------------------------------------------------------------------------------------------------------------------- Less Distributions from: Net investment income (0.04) (0.22) — Net realized gains on investments — — — ------------------------------------------------------------------------------------------------------------------- Total distributions (0.04) (0.22) — ------------------------------------------------------------------------------------------------------------------- Paid-in Capital from Redemption Fees (Note 1L) 0.05 0.16 0.04 ------------------------------------------------------------------------------------------------------------------- Net Asset Value, end of period $3.13 $3.53 $7.61 =================================================================================================================== Total Return (10.40%) (51.54%) (23.90%)(4) Ratios/Supplemental Data Net assets, end of period (in 000's) $6,879 $9,607 $24,570 Ratio of expenses to average net assets before reimbursement, waiver or recapture of expenses by Advisor and Administrator 2.01% 2.69% 2.66%(3) Ratio of expenses to average net assets after reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 2) 2.00% 2.00% 2.00%(3) Ratio of net investment income (loss) to average net assets before reimbursement, waiver or recapture of expenses by Advisor and Administrator (1.56%) 1.14% 3.75%(3) Ratio of net investment income (loss) to average net assets before reimbursement, waiver or recapture of expenses by Advisor and Administrator (1.55%) 1.83% 4.41%(3) Portfolio turnover 103.60% 181.24% 50.35%(4)(1) Net investment income (loss) has been restated to separate Paid-in Capital for redemption fees. (2) The Asian Technology Fund commenced operations on December 27, 1999. (3) Annualized. (4) Not annualized.
See accompanying notes to financial statements.
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N o t e s t o F i n a n c i a l S t a t e m e n t s A u g u s t 3 1 , 2 0 0 2
1. SIGNIFICANT ACCOUNTING POLICIES Matthews Asian 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 Pacific Tiger Fund, Matthews Asian Growth and Income Fund, Matthews Korea Fund, Matthews China Fund, Matthews Japan Fund and Matthews Asian Technology Fund. Matthews Pacific Tiger, Matthews Korea Fund and Matthews China Fund are authorized to offer two classes of shares: Class I shares and Class A shares. Currently, only Class I shares are offered. Matthews Pacific Tiger Fund, Matthews Korea Fund, Matthews China Fund, Matthews Japan Fund and Matthews Asian Technology Fund seek to maximize capital appreciation by investing, under normal circumstances, at least 80% 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 80% of its total assets in the convertible bonds and dividend-paying equity 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 investment 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 as 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
44 M a t t h e w s A s i a n F u n d s
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 counterparts to the contract 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 economical instability of the country of the issuer, the difficulty in 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.
D. Federal Income Taxes: It is the policy of the Funds to comply with all requirements of the Internal Revenue Code of 1986, as amended (“the Code”) applicable to regulated investment companies and to distribute substantially all of their taxable income to their shareholders. The Funds have met the requirements of the Code applicable to regulated investment companies for the year ended August 31, 2002. Therefore, no federal income tax provision is required. Income and capital gains of the Funds are determined in accordance with both tax regulations and accounting principles generally accepted in the United States of America. Such may result in temporary and permanent differences between tax basis earnings and earnings reported for financial statement purposes. These reclassifications, which have no impact on the net asset value of the Funds, are primarily attributable to certain differences in computation of distributable income and capital gains under federal tax rules versus accounting principles generally accepted in the United States of America and the use of the tax accounting practice known as equalization.
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 amortized on a straight-line basis over five years from each Fund’s respective commencement of operations with the exception of the Matthews Japan Fund and Matthews Asian Technology Fund which were 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 Fund’s organization costs, the redemption proceeds will be reduced by any such unamortized organization costs in the same proportion as the number of shares being redeemed bears to the number of those shares outstanding at the time of redemption.
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N o t e s t o F i n a n c i a l S t a t e m e n t s A u g u s t 3 1 , 2 0 0 2
G. Distribution to Shareholders: It is the policy of Matthews Asian Growth and Income Fund to distribute net investment income on a semi-annual basis and capital gains, if any, annually. Matthews Pacific Tiger Fund, Matthews Korea Fund, Matthews China Fund, Matthews Japan Fund, and Matthews Asian Technology 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 accounting principles generally accepted in the United States of America. Net investment losses may not be utilized to offset net investment income in future periods for tax purposes.
The tax character of distributions paid for the fiscal years ended August 31, 2001 and August 31, 2002 were as follows:
2001 Taxable Distributions Ordinary Net Long Term Total Taxable Income Capital Gains Distributions Matthews Pacific Tiger Fund $1,606,098 $8,244,168 $9,850,266 Matthews Asian Growth and Income Fund 1,212,984 890,510 2,103,494 Matthews Korea Fund 12,702,526 29,963,826 42,666,352 Matthews China Fund 140,220 254,757 394,977 Matthews Japan Fund 1,199,344 71,077 1,270,421 Matthew Asian Technology Fund 615,326 — 615,326 2002 Taxable Distributions Ordinary Net Long Term Total Taxable Income Capital Gains Distributions Matthews Pacific Tiger Fund $238,674 $140,682 $379,356 Matthews Asian Growth and Income Fund 1,362,799 — 1,362,799 Matthews Korea Fund 468,712 3,454,262 3,922,974 Matthews China Fund 381,550 — 381,550 Matthews Japan Fund 182,412 — 182,412 Matthew Asian Technology Fund 142,101 — 142,101
As of August 31, 2002, the components of distributable earnings/(deficit) on a tax basis were as follows:
Matthews Matthews Asian Growth and Matthews Pacific Tiger Fund Income Fund Korea Fund Undistributed Ordinary Income $— $2,059,795 $— Undistributed Long Term Capital Gains — 368,598 20,024,491 Capital Loss Carryforwards (3,234,939) — — Post October Capital Losses * (2,361,191) — — Post October Currency Losses ** (77,025) (23,897) (372,722) PFIC Mark to Market — — — Unrealized Appreciation/(Depreciation)** (4,621,582) 125,877 63,497,667 --------------------------------------------------------------------------------------------------- Total Accumulated Earnings/(Deficit) $(10,294,737) $2,530,373 $83,149,436 ===================================================================================================46 M a t t h e w s A s i a n F u n d s
As of August 31, 2002, the components of distributable earnings/(deficit) on a tax basis were as follows (continued):
Matthews Matthews Matthews Asian China Fund Japan Fund Technology Fund Undistributed Ordinary Income $ 439,725 $— $— Undistributed Long Term Capital Gains — — — Capital Loss Carryforwards (1,131,447) (4,541,158) (13,732,856) Post October Capital Losses * (531,190) (3,097,081) (2,997,278) Post October Currency Losses * — — (8,487) PFIC Mark to Market — (28,232) — Unrealized Appreciation/(Depreciation)** (4,000,945) (824,513) (2,471,794) --------------------------------------------------------------------------------------------------- Total Accumulated Earnings/(Deficit) $(5,223,857) $(8,490,984) $(19,210,415) ===================================================================================================
* Under the current tax law, capital losses realized after October 31 and prior to the Fund’s fiscal year end may be deferred as occurring on the first day of the following fiscal year.
** The differences between book-basis and tax-basis unrealized appreciation/(depreciation) are attributable primarily to the tax deferral of losses on wash sales and the realization for tax purposes of unrealized gains/losses on investments in passive foreign investment companies (PFICs).
For Federal income tax purposes, the Funds indicated below have capital loss carryforwards, which expire in the year indicated, as of August 31, 2002, which are available to offset future capital gains, if any:
Losses Deferred Expiring in: 2008 2009 2010 Matthews Pacific Tiger Fund $— $— $3,234,939 Matthews Asian Growth and Income Fund — — — Matthews Korea Fund — — — Matthews China Fund — — 1,131,447 Matthews Japan Fund — 35,094 4,506,064 Matthew Asian Technology Fund 2,390,436 5,375,361 5,967,059
H. Reclassifications: Accounting principles generally accepted in the United States of America require that certain components of net assets be reclassified between financial and tax reporting. These reclassifications have no effect on net assets or net asset value per share. For the year ended August 31, 2002, permanent differences in book and tax accounting have been reclassified to paid-in capital, undistributed net investment income/(loss) and accumulated realized gain/(loss) as follows:
Increase/(Decrease) Undistributed Net Increase/(Decrease) Increase/(Decrease) Investment Accumulated Paid-in Capital Income (Loss) Realized Gain/(Loss) Matthews Pacific Tiger Fund $(272,425) $192,753 $79,672 Matthews Asian Growth and Income Fund 204,632 (228,585) 23,953 Matthews Korea Fund (387,089) 1,565,208 (1,178,119) Matthews China Fund (184,114) 184,090 24 Matthews Japan Fund (212,162) 220,283 (8,121) Matthew Asian Technology Fund (236,896) 227,329 9,567w w w . m a t t h e w s f u n d s . c o m | 8 0 0 - 7 8 9 - A S I A [ 2 7 4 2 ] 47
N o t e s t o F i n a n c i a l S t a t e m e n t s A u g u s t 3 1 , 2 0 0 2
I. Fund Expense 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 assets.
J. Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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.
K. 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.
L. 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 were sold with a front-end sales charge of 4.95%.
MATTHEWS PACIFIC TIGER FUND CLASS I Year Ended August 31, 2002 Year Ended August 31, 2001 Shares Amount Shares Amount Shares sold 11,728,059 $106,314,158 9,483,405 $84,833,523 Shares issued through reinvestment of dividends 40,762 366,041 1,053,742 9,155,114 Shares redeemed (7,999,842) (69,949,837) (9,891,330) (90,321,554) --------------------------------------------------------------------------------------------------- Net increase (decrease) 3,768,979 $36,730,362 645,817 $3,667,083 =================================================================================================== MATTHEWS PACIFIC TIGER FUND CLASS A* Year Ended August 31, 2002 Year Ended August 31, 2001 Shares Amount Shares Amount Shares sold — $— 64,314 $623,933 Shares issued through reinvestment of dividends — — 15,913 138,734 Shares redeemed — — (215,664) (1,950,404) --------------------------------------------------------------------------------------------------- Net increase (decrease) — $— (135,437) $(1,187,737) =================================================================================================== MATTHEWS ASIAN GROWTH AND INCOME FUND Year Ended August 31, 2002 Year Ended August 31, 2001 Shares Amount Shares Amount Shares sold 15,326,669 $164,304,863 2,216,555 $20,619,255 Shares issued through reinvestment of dividends 127,019 1,302,597 231,759 2,084,304 Shares redeemed (3,886,595) (40,361,276) (849,169) (7,825,186) --------------------------------------------------------------------------------------------------- Net increase (decrease) 11,567,093 $125,246,184 1,599,145 $14,878,373 ===================================================================================================48 M a t t h e w s A s i a n F u n d s
MATTHEWS KOREA FUND CLASS I Year Ended August 31, 2002 Year Ended August 31, 2001 Shares Amount Shares Amount Shares sold 61,630,311 $249,365,417 46,719,161 $139,361,838 Shares issued through reinvestment of dividends 864,565 3,086,494 14,125,165 35,370,865 Shares redeemed (48,911,935) (202,396,880) (39,309,187) (121,848,726) --------------------------------------------------------------------------------------------------- Net increase (decrease) 13,582,941 $50,055,031 21,535,139 $52,883,977 =================================================================================================== MATTHEWS KOREA FUND CLASS A* Year Ended August 31, 2002 Year Ended August 31, 2001 Shares Amount Shares Amount Shares sold — $— 436,242 $1,828,679 Shares issued through reinvestment of dividends — — 1,380,958 3,341,918 Shares redeemed — — (4,107,637) (11,055,110) --------------------------------------------------------------------------------------------------- Net increase (decrease) — $— (2,290,437) $(5,884,513) =================================================================================================== MATTHEWS CHINA FUND Year Ended August 31, 2002 Year Ended August 31, 2001 Shares Amount Shares Amount Shares sold 4,355,329 $42,461,853 3,045,164 $32,057,967 Shares issued through reinvestment of dividends 37,306 354,407 49,078 392,130 Shares redeemed (2,789,691) (26,430,947) (1,868,802) (18,507,076) --------------------------------------------------------------------------------------------------- Net increase (decrease) 1,602,944 $16,385,313 1,225,440 $13,943,021 =================================================================================================== MATTHEWS JAPAN FUND Year Ended August 31, 2002 Year Ended August 31, 2001 Shares Amount Shares Amount Shares sold 1,870,946 $18,771,725 639,752 $9,296,535 Shares issued through reinvestment of dividends 16,933 176,103 79,959 1,232,922 Shares redeemed (1,600,390) (15,923,445) (1,177,987) (17,685,231) --------------------------------------------------------------------------------------------------- Net increase (decrease) 287,489 $3,024,383 (458,276) $(7,155,774) =================================================================================================== MATTHEWS ASIAN TECHNOLOGY FUND Year Ended August 31, 2002 Year Ended August 31, 2001 Shares Amount Shares Amount Shares sold 4,672,505 $17,384,394 6,956,729 $34,380,863 Shares issued through reinvestment of dividends 33,973 138,271 125,864 610,441 Shares redeemed (5,233,008) (19,363,319) (7,584,635) (38,729,160) --------------------------------------------------------------------------------------------------- Net increase (decrease) (526,530) $(1,840,654) (502,042) $(3,737,856) ===================================================================================================* As of December 15, 2000, Class A shares of Matthews Pacific Tiger Fund and Matthew Korea Fund were closed and exchanged for Class I shares. 155,798 and 1,092,968 shares were exchanged, respectively.
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N o t e s t o F i n a n c i a l S t a t e m e n t s A u g u s t 3 1 , 2 0 0 2
The Funds impose a redemption fee of 2.00% on shares that are redeemed within ninety days of purchase. The charge is 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 redeeming shareholder. The redemption fees were returned to the assets of the Matthews Pacific Tiger Fund, Matthews Asian Growth and Income Fund, Matthews Korea Fund, Matthews China Fund, Matthews Japan Fund, and Matthews Asian Technology Fund in the amounts of $198,248, $285,809, $1,677,238, $184,114, $103,243, and $107,488, respectively, for the year ended August 31, 2002 and $562,008, $22,074, $1,455,637, $170,617, $78,555, and $441,968, respectively, for the year ended August 31, 2001.
2. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Advisor, an investment advisor registered under the Investment Advisers Act of 1940, as amended, provides the Funds with investment management services. As compensation for these services, the Advisor charges the Funds a monthly fee of 1/12th of 1% on each Fund’s respective average daily net assets. 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 fiscal year ended August 31, 2002, were as follows:
Investment Advisory Voluntary Expense Fee Rate Limitation Advisory Fees Matthews Pacific Tiger Fund 1.00% 1.90% $1,002,556 Matthews Asian Growth and Income Fund 1.00% 1.90% 630,055 Matthews Korea Fund 1.00% 2.00% 2,221,793 Matthews China Fund 1.00% 2.00% 291,484 Matthews Japan Fund 1.00% 2.00% 96,012 Matthew Asian Technology Fund 1.00% 2.00% 111,646 Expenses Waived Expenses Remaining and Reimbursed Recaptured Recapturable by the Advisor by the Advisor Expenses Available Matthews Pacific Tiger Fund $-- $85,156 $-- Matthews Asian Growth and Income Fund -- 17,499 -- Matthews Korea Fund -- -- -- Matthews China Fund -- 8,342 6,379 Matthews Japan Fund -- 8,426 10,446 Matthew Asian Technology Fund 767 -- 170,953
Effective March 1, 2002 the voluntary expense limitation for Matthews Korea Fund was reduced from 2.50% to 2.00%.
The investment advisory agreements provide that any reductions made by the Advisor in its fees are subject to reimbursements by the Funds within the following three years provided that the Funds are able to effect such reimbursements and remain in compliance with applicable expense limitations.
50 M a t t h e w s A s i a n F u n d s
Effective March 1, 2002, the Funds’ shareholder servicing plan was activated, pursuant to which the Funds reimburse the Advisor for shareholder servicing activities at an annual rate of 0.15% of each fund’s respective average daily net assets. Under the agreement, the Funds can be charged a maximum of 0.25%. Fees charged by the Advisor under the shareholder servicing fee arrangement are as follows for the fiscal year ended August 31, 2002:
Shareholder Servicing Fees Matthews Pacific Tiger Fund $89,315 Matthews Asian Growth and Income Fund 72,836 Matthews Korea Fund 214,292 Matthews China Fund 26,887 Matthews Japan Fund 8,916 Matthew Asian Technology Fund 8,525
The Funds bear a portion of the fees paid to certain services providers (exclusive of the Funds’ transfer agent) which provide transfer agency and shareholder servicing to certain shareholders. Fees accrued to pay to such service providers for the fiscal year ended August 31, 2002 are reflected in the Statement of Operations as follows:
Transfer Agent Shareholder Servicing Total Matthews Pacific Tiger Fund $123,438 $61,719 $185,157 Matthews Asian Growth and Income Fund 46,505 23,253 69,758 Matthews Korea Fund 208,602 104,301 312,903 Matthews China Fund 27,713 13,857 41,570 Matthews Japan Fund 9,170 4,585 13,755 Matthew Asian Technology Fund 11,801 5,901 17,702
PFPC Inc. (“PFPC”), an indirect wholly-owned subsidiary of PNC Bank, serves as the Trust’s Administrator and, in that capacity, performs various administrative and accounting services for each Fund. PFPC also serves as the Trust’s Transfer Agent, dividend disbursing agent and registrar. An officer of PFPC serves as Assistant Treasurer to the Trust. Total fees accrued by PFPC for the year ended August 31, 2002 were $668,024 for administrative and accounting services and $259,929 for transfer agent services. The Bank of New York serves as custodian to the Trust.
PFPC Distributors, Inc. (“The Distributor”) serves as the Fund’s Distributor pursuant to an Underwriting Agreement.
3. Investment Transactions Investment transactions for the fiscal year ended August 31, 2002, excluding short-term investments, were as follows:
Proceeds Purchases from Sales Matthews Pacific Tiger Fund $92,892,005 $56,257,576 Matthews Asian Growth and Income Fund 141,664,961 20,250,086 Matthews Korea Fund 144,464,192 100,429,618 Matthews China Fund 28,256,138 12,358,585 Matthews Japan Fund 13,204,849 10,513,460 Matthew Asian Technology Fund 11,097,959 13,244,590w w w . m a t t h e w s f u n d s . c o m | 8 0 0 - 7 8 9 - A S I A [ 2 7 4 2 ] 51
R e p o r t o f I n d e p e n d e n t C e r t i f i e d P u b l i c A c c o u n t a n t s
To the Shareholders and Board of Trustees of Matthews Asian Funds:
We have audited the accompanying statements of assets and liabilities of Matthews Asian Funds (comprising the Matthews Pacific Tiger Fund, Matthews Asian Growth and Income Fund, Matthews Korea Fund, Matthews China Fund, Matthews Japan Fund and Matthews Asian Technology Fund, collectively referred to as the “Funds”) including the schedules of investments as of August 31, 2002, and the related statements of operations for the year then ended, statements of changes in net assets for each of the two years in the period then ended and financial highlights for the periods subsequent to August 31, 1998, indicated thereon. These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights of the Funds for the periods prior to September 1, 1998, were audited by other auditors whose report dated October 9, 1998, expressed an unqualified opinion on the financial highlights. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of August 31, 2002, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Matthews Asian Funds as of August 31, 2002, the results of their operations for the year then ended, changes in their net assets for each of the two years in the period then ended and the financial highlights for each of the periods subsequent to August 31, 1998, indicated thereon, in conformity with accounting principles generally accepted in the United States of America.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
October 4, 2002
52 M a t t h e w s A s i a n F u n d s
T r u s t e e s a n d O f f i c e r s o f t h e F u n d s ( U n a u d i t e d )The operations of each Fund are under the direction of the Board of Trustees. The Board of Trustees establishes each Fund’s policies and oversees and reviews the management of each Fund. The Board meets regularly to review the activities of the officers, who are responsible for the day-to-day operations of the Funds. The Statement of Additional Information includes additional information about Fund trustees is available without charge by calling (800) 789-ASIA [2742]. The Trustees and executive officers of the Funds, their ages, business address and their principal occupations during the past five years are set forth below:
Number of Term of Portfolios in Office and Fund Complex Name (Age), Address and Length of Overseen Other Trusteeships/Directorships Position(s) with Trust Time Served(1) Principal Occupation(s) During Past 5 Years by Trustee Held by Trustee --------------------------------------------------------------------------------------------------------------------------------------------------------- DISINTERESTED TRUSTEES --------------------------------------------------------------------------------------------------------------------------------------------------------- Richard K. Lyons (41) Since 1994 Professor, Haas School of Business University of 6 Director, iShares Corporation Haas School of Business, S545 California since 1993. and iShares Trust managed by University of California Barclays Global Investors; Berkeley, CA 94720-1900 Trustee, Barclays Global Chairman of the Board of Investor Funds Trustees and Trustee Robert K. Connolly (70) Since 1994 Retired since 8/90. Prior thereto: Institutional 6 334 Las Casitas Court Sales Manager and Securities Analyst for Sonoma, CA 95476 Barrington Research Associates Trustee Norman W. Berryessa (74) Since 1996 Registered Investment Advisor 6 100 Bush Street, Suite 1000 since 1996; Independent Contractor, San Francisco, CA 94109 Emmett Larkin Co. (financial services), since 1983. Trustee -------------------------------------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES(2) -------------------------------------------------------------------------------------------------------------------------------------------------------- G. Paul Matthews (46) Since 2001 Chairman, Co-Chief Executive Officer and 6 456 Montgomery Street, Suite 1200 Chief Investment Officer, Matthews International San Francisco, CA 94104 Capital Management LLC, since 1991. Trustee David FitzWilliam-Lay (71) Since 1994 Retired since 1993. Prior thereto Chairman of 6 Director, Fidelity Asian Values 456 Montgomery Street, Suite 1200 GT Management, PLC, United Kingdom. Investment Trust; Director, San Francisco, CA 94104 (investment management) Eastern European Investment Trustee Trust; Director and Chairman, Prospect Japan Investment Trust - all UK closed-end investment trusts listed on the London Stock exchange. John H. Dracott (74) Since 1994 International mutual fund consultant. 6 P.O. Box 162 Emeritus since 1998. Tiburon, CA 94920-1866 Trustee -------------------------------------------------------------------------------------------------------------------------------------------------------- OFFICER(S) WHO ARE NOT TRUSTEES(2) -------------------------------------------------------------------------------------------------------------------------------------------------------- Mark W. Headley (43) Since 1999 Co-Chief Executive Officer, President and Portfolio 6 456 Montgomery Street, Suite 1200 Manager, Matthews International Capital San Francisco, CA 94104 Management, LLC since 2001; President and Vice President Portfolio Manager, 1999-2001; Portfolio Manager and Managing Director 1996-1999. James E. Walter (32) Since 2000 Vice President, Investment Operations, Matthews 6 456 Montgomery Street, Suite 1200 International Capital Management, LLC since 2000; San Francisco, CA 94104 Operations Manager, 1998-2000; Fund Accountant, Treasurer 1996-1998. Downey L. Hebble (32) Since 2001 Senior Vice President, Matthews International 6 456 Montgomery Street, Suite 1200 Capital Management, LLC since 2001; San Francisco, CA 94104 Vice President, 1999-2001; Manager, Secretary Montgomery Asset Management LLC, 1997-1999; Marketing Manager, Matthews International Capital Management, LLC, 1995-1997.(1) Each Trustee serves for an indefinite term until retirement age, or until his/her successor is elected. Officers serve at the pleasure of the Board of Trustees. (2) These Trustees and officers are considered “interested persons” of the Trust as defined under the Act either because of an ownership interest in the Advisor or an office held with the Trust.
M A T T H E W S A S I A N F U N D S
For more information about Matthews Asian Funds
visit our Web site at www.matthewsfunds.com
or call toll-free 800-789-ASIA [2742].
B O A R D O F T R U S T E E S
Richard K. Lyons, Chairman
G. Paul Matthews
Robert K. Connolly
David FitzWilliam-Lay
Norman W. Berryessa
John H. Dracott, Emeritus
O F F I C E R S
G. Paul Matthews
Mark W. Headley
James E. Walter
Downey L. Hebble
I N V E S T M E N T A D V I S O R
Matthews International Capital Management, LLC
456 Montgomery Street, Suite 1200
San Francisco, CA 94104
800-789-ASIA [2742]
S H A R E H O L D E R S E R V I C E S
PFPC Inc.
211 South Gulph Road
King of Prussia, PA 19406
800-892-0382
C U S T O D I A N
The Bank of New York
One Wall Street
New York, NY 10286
L E G A L C O U N S E L
Paul, Hastings, Janofsky & Walker, LLP
55 Second Street
San Francisco, CA 94105
Matthews Asian Funds 456 Montgomery Street, Suite 1200 San Francisco, CA 94104
Distributed by PFPC Distributors, Inc. AR/G-1002-33M-PDG
