UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
Investment Company Act file number 811-08510 Matthews Asian Funds
INVESTMENT COMPANIES
(Exact name of registrant as specified in charter) 456 Montgomery St., STE 1200
San Francisco, California 94104
(Address of principal executive offices) (Zip code) James E. Walter
Matthews Asian Funds
456 Montgomery St., STE 1200
San Francisco, California 94104
(Name and address of agent for service) Registrant’s telephone number, including area code: 1-800-789-ASIA (2742) Date of fiscal year end: August 31, 2003 Date of reporting period: February 28, 2003
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
Item 1. Reports to Stockholders.
Matthews Asian Funds
www.matthewsfunds.com Semi-Annual Report
February 28, 2003
Matthews Pacific Tiger Fund
Matthews Asian Growth and Income Fund
Matthews Korea Fund
Matthews China Fund
Matthews Japan Fund
Matthews Asian Technology Fund
Matthews Asian Funds
Contents
2 Message to Shareholders 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 28 Statement of Assets and Liabilities 30 Statement of Operations 32 Statement of Changes in Net Assets 36 Financial Highlights 42 Notes
A Message to Our Shareholders
Dear Fellow Shareholders,
The six months that ended February 28, 2003, were unusually challenging for investors around the world. Geo-political events in the Middle East and Korea dominated most of the international headlines, while growing concerns over the strength of the U.S. and European economic recoveries further added to investor anxieties.
Against this background, many Asian economies continued to perform well, with Mainland China’s extraordinary recent performance emerging as the primary growth story in the region. One of the most remarkable aspects of the success that China has enjoyed under the economic stewardship of Zhou Rhongji (who recently stepped down and was replaced with his handpicked successor Wen Jiabao) has been the relative balance that has been achieved between growth in exports and the expansion of the domestic economy. This pattern of growth is different from that enjoyed by other Asian countries at a similar stage of development. Private consumption as well as government spending has buoyed domestic economic growth in China. With consumer spending starting from a very low base, we believe that this is a trend that will last for many years. China’s economy will not be immune to economic cycles, and great challenges remain as the private sector gradually offsets the potential problems of the old state dominated sector, but China’s recent economic achievements stand out in an economically challenged world.
While China’s emergence at the forefront of Asia’s economic growth has continued to surprise, Japan’s relative underperformance has not. We continue to believe that following fourteen years of generally declining equity prices, there are some uncommon values to be found in Japan. We also believe that many individual companies are showing leadership in their restructuring efforts that will reward their shareholders well in the long term. Unfortunately, the macro management of Japan continues to be characterized by an aversion to strong measures and while this aversion continues, the values that are so apparent at the micro level may remain dormant.
During the past six months, the performance of the Matthews Asian Funds ranged from –20.08% in the case of the Matthews Korea Fund to +1.96% for the Matthews China Fund. All of our Funds continue to focus on identifying and investing in companies that we believe are well positioned to benefit from long term growth trends in Asia. Our
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bottom-up approach to stock selection remains focused on companies with a proven long-term history of growth and whose management teams have consistently demonstrated their abilities. We are frequent visitors to those management teams to allow us to develop and retain high levels of confidence in their abilities to deliver consistent results. We believe that such frequent “on the ground” contacts have been important contributors to our long-term relative performance. During the past six months, China’s financial markets have been the bright spot in an otherwise mixed period. Fears of slowing demand in their major export markets added to the problems facing Japanese manufacturers in the final months of calendar year 2002. Similar concerns affected exporters in South Korea, Taiwan, Singapore, and Malaysia. While exports to and trade with China grew for all of these countries, China’s role is not yet sufficient to offset weakness in Europe and the United States. Around the region, domestic growth remained stronger than many had anticipated. We continue to believe that the long-term trend towards proportionately higher consumer spending and commensurately lower savings rates is likely to be sustained for some years. Consequently, our stock selection continues to emphasize companies that are positioned in the path of this trend, and this is the case in almost every country in which we invest.
The rising tensions between North Korea and the rest of the world have particularly affected the financial markets in South Korea in recent weeks. While most South Koreans remain confident that the issues can and will be resolved diplomatically, the lack of a clear path to diplomacy is adding to uncertainty there. South Korea’s economy continues to be one of the region’s strongest although “aftershocks” to the 1997/98 Asian Crisis continue to occur. The new administration of President Roh Moo-hyun appears keen to retain the mantel of financial reform that was loosely grasped by the previous administration, which we welcome. G. Paul Matthews,
Chairman and
Chief Investment Officer (left)
Mark W. Headley,
President and Portfolio Manager Overall, we remain enthusiastic in our long-term outlook for Asia’s economic and financial markets.
M e s s a g e t o S h a r e h o l d e r s 3
Matthews Pacific Tiger Fund
The 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.
The Matthews Pacific Tiger Fund fell 6.44% in the six months ended February 28, 2003, declining less than its index, the MSCI All Country Far East Free ex-Japan index. During this period, Asian markets were affected by a combination of global geo-political concerns and doubts about the sustainability of an economic recovery in the United States and Europe. While this environment has not been an easy one, we believe that, in the aggregate, the companies represented in the Fund’s portfolio have continued to grow their underlying businesses. Much of the impetus for growth in Asia is now coming from China, where both manufacturing exports and domestic demand are growing strongly.
The Fund’s strong relative performance was helped by individual contributions from companies in a diverse range of industries, from cellular phones in Thailand to pharmaceutical companies in China to Internet companies in South Korea. A number of positions in financial companies and consumer demand-related businesses in South Korea were relatively weak over this period. By country, the weakest performance in the period came from our positions in South Korea, which had been one of the better performers in the prior fiscal year ended August 31, 2002. In general, our below index weighting position in Taiwan contributed to the Fund’s relative performance. PORTFOLIO MANAGERS:
G. Paul Matthews
Mark W. Headley Growth companies in Asia have been faced with an extremely challenging economic environment in recent years, but we believe they are beginning to benefit from improving conditions in a number of areas. We believe that China’s contribution in this respect cannot be underestimated, and we are starting to see an increasing emphasis on a “China strategy” in almost all parts of Asia. In addition to China, the growing role of the consumer throughout Asia is bringing a greater balance to Asia’s economic growth than was evident in the 1980’s and 1990’s. We believe that increased regional trade and growing financial ties in the region will benefit regional growth businesses in the coming years.
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Fund Performance
AVERAGE ANNUAL RETURNS AS OF FEBRUARY 28, 2003
SINCE INCEPTION 1 YEAR 5 YEARS 9/12/94 Matthews Pacific Tiger Fund (12.20%) 4.30% (0.61%) MSCI All Country Far East Free ex-Japan Index(1) (15.89%) (5.72%) (7.86%) Lipper Pacific ex-Japan Funds Average(2) (16.59%) (2.42%) (5.70%)* * From 9/30/94
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 2/28/03, the Lipper Pacific Ex-Japan Funds Average consisted of 62 funds for the one-year period, 52 funds for the three-year period, 47 funds for the five-year period, and 22 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.
M a t t h e w s P a c i f i c T i g e r F u n d 5
Matthews Asian Growth and Income Fund
The 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 region’s financial markets are awaiting clear evidence of the likely direction of the U.S. economy for the remainder of 2003 and are, of course, anxious to see an easing of the current geo-political tensions in the Middle East and on the Korean peninsula. Asian central banks are eyeing the recent volatility in oil prices with some concern but for the most part remain accommodating. Interest rates around the region remain close to historical lows, and confidence has been buoyed by the continued strong relative performance of the Mainland China economy.
While Hong Kong has been challenged by growing competition from China, there are some areas of the Hong Kong economy that are benefiting from China’s continued strong economic performance. One such area is in financial services, where Hong Kong is not only continuing to see good demand for private banking, but is particularly benefiting from the important role that it is playing as a listing center for Chinese corporations anxious to tap the global equity markets. It is expected that 2003 will see additional listings of Mainland China companies, and these listings will likely include a number of large insurance companies. PORTFOLIO MANAGER:
G. Paul Matthews We remain overweight in our exposure to Mainland China through companies listed in Hong Kong because we believe that the regulatory oversight in Hong Kong remains of a higher standard than that of financial centers in Mainland China.
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Fund Performance
AVERAGE ANNUAL RETURNS AS OF FEBRUARY 28, 2003
SINCE INCEPTION 1 YEAR 5 YEARS 9/12/94 Matthews Asian Growth and Income Fund 3.67% 12.98% 7.31% MSCI All Country Far East Free ex-Japan Index(1) (15.89%) (5.72%) (7.86%) Lipper Pacific ex-Japan Funds Average(2) (16.59%) (2.42%) (5.70%)* * From 9/30/94
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 2/28/03, the Lipper Pacific Ex-Japan Funds Average consisted of 62 funds for the one-year period, 52 funds for the three-year period, 47 funds for the five-year period, and 22 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.
M a t t h e w s A s i a n G r o w t h a n d I n c o m e F u n d 7
Matthews Korea Fund
The Matthews Korea Fund is an all-capitalization equity fund with diversified exposure across a wide range of Korean equities.
The six months ended February 28, 2003, were a challenging time for the South Korean equity market. South Korea was plagued by the North Korean threat, the U.S. war with Iraq, a consumer credit crunch, and weak consumer spending. All of these events coupled with a new administration gave enough uncertainties for Korean equities to underperform other equity markets in Asia. The Fund was down 20.08% while its benchmark KOSPI Index was down 19.62%. The Fund has done relatively well considering its traditionally heavy exposure to the consumer and financials sectors.
Consumer spending was the key contributor to South Korea’s economy’s strong performance last year. However, as global uncertainties and geographical risks grew in the latter part of 2002, consumer spending slowed dramatically and turned against the market. We expect consumer spending to pick up rather dramatically when most of the uncertainties become clear and as consumer spending habits continue to change. The consumer credit crunch has been the by-product of fast credit card growth, especially among young Koreans. The government has been too focused on the growth of credit card usage, overlooking the associated risks. However, it has recognized the problem and shifted its policy since working closely with the banks.
The new South Korean president, Mr. Noh Moo-hyun, took office in February 2003, promising to put an end to corruption and continue to restructure the economy. The ability of the new government is already being tested as they are faced with rising tensions in North Korea and a slowing economy. The new government’s take on these issues will be a major factor during the next general election. PORTFOLIO MANAGERS:
G. Paul Matthews
Mark W. Headley Despite these difficulties, the general status of the South Korean economy remains healthy. South Korea has more than US $100 billion in foreign reserves and consistently registers trade surpluses. More Korean companies are going global and the export sector remains strong. We believe that, generally, corporate governance is improving despite the recent SK Group scandal.
We continue to believe that the consumer and financials sectors will lead the economy while technology companies will lead productivity growth.
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Fund Performance
AVERAGE ANNUAL RETURNS AS OF FEBRUARY 28, 2003
SINCE INCEPTION 1 YEAR 5 YEARS 1/3/95 Matthews Korea Fund (15.29%) 17.47% (4.59%) KOSPI Index(1) (20.70%) 8.12% (11.07%) Lipper Pacific ex-Japan Funds Average(2) (16.59%) (7.96%) (5.11%)* * 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 2/28/03, the Lipper Pacific Ex-Japan Funds Average consisted of 62 funds for the one-year period, 52 funds for the three-year period, 47 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.
M a t t h e w s K o r e a F u n d 9
Matthews China Fund
The Matthews China Fund is an all-capitalization equity fund that invests in a diversified portfolio of Chinese securities.
For the six months ended February 28, 2003, the Matthews China Fund was up 1.96%, outperforming its benchmarks, the MSCI China Free and CLSA China World Indices, which were down 5.23% and up 0.50% respectively.
Despite the weakness of the global stock markets during the period, Chinese stocks performed relatively well. Our overweight positions in the pharmaceutical, consumer, energy, and utilities sectors helped the Fund outperform its benchmark indices. Our holdings in the infrastructure and utilities sectors, which we view as growth sectors in China, performed extremely well, taking advantage of strong economic growth in China. Consumer stocks were also major contributors to our performance, as domestic consumer demand continues to accelerate. After a sharp decline in corporate profits in 2001 due to continued deflation and rising competition, we are pleased to see that corporate profits are accelerating again. The average earnings growth of the companies in the portfolio is expected to be more than 11% this year. The fact that these companies can manage double-digit earnings growth during a prolonged period of deflation suggest that there have been huge productivity gains. PORTFOLIO MANAGERS:
G. Paul Matthews
Mark W. Headley
Richard H. Gao China’s economy continues to shine amid the weakness of the global economy. Strong domestic demand, a surge in exports, and foreign direct investment are the major reasons behind its growth. Chinese manufacturers have been gaining market share on a global scale, and these gains have allowed Chinese export growth to do well. The Fund is well positioned to take advantage of global outsourcing trends and we are adding to our positions in export-related companies in the portfolio.
The past six months also saw a successful transition of China’s leadership. The new leadership, lead by new President Hu Jintao, consists of professional technocrats who will continue to adopt reform and open door policies in China. Financial sector reform is on the agenda of the new leadership. We expect to see more and more financial companies list on the Hong Kong stock exchange, widely expanding the investment universe for the Matthews China Fund.
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Fund Performance
AVERAGE ANNUAL RETURNS AS OF FEBRUARY 28, 2003
SINCE INCEPTION 1 YEAR 5 YEARS 2/19/98 Matthews China Fund (4.74%) (1.04%) 0.14% MSCI China Free Index(1) (3.86%) (14.30%) (21.45%) Credit Lyonnais China World Index(2) (3.75%) (8.65%) (6.34%) Lipper China Region Funds Average(3) (10.21%) (3.18%) (3.18%)* * 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 2/28/03, the Lipper China Region Funds Average consisted of 23 funds for the one-year period, 21 funds for the three-year period, 17 funds for the five-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.
M a t t h e w s C h i n a F u n d 11
Matthews Japan Fund
The Matthews Japan Fund is an all-capitalization core equity fund with diversified exposure across a wide range of corporate Japan.
The Matthews Japan Fund underperformed its benchmarks for the six-month period ended February 28, 2003. This result was primarily due to weak performance in financials. In particular, Mizuho Holdings was sold off due to continued uncertainty in Japan’s banking sector. The sharp decline in Mizuho’s share price alone accounted for over 20% of the Fund’s negative performance.
In our view, an element of panic pricing is now creeping into the financials sector. Mizuho serves as a good example. The company is the world’s largest bank by assets and currently trades at a 79% discount to book value and 1 times forward operating earnings. In our opinion, the bank is too big to fail and even with some form of government nationalization, equity holders will not be 100% diluted. We therefore believe that patience will be rewarded over the long term.
Outside of financials, our exposure to telecommunication services and information technology has proven to be a bright spot. We are gaining confidence that the worst is over for the NTT group as it scales back its global ambitions and realizes a more conservative capital expenditure plan. We have positioned NTT DoCoMo, a leading mobile telecommunications provider, as one of the top holdings in the Fund. PORTFOLIO MANAGER:
Mark W. Headley Our performance in small caps has been mixed. On the one hand, technology picks such as Access, a mobile Internet software provider, and NIWS, a computer systems integrator, have delivered outstanding gains over the period. On the other hand, we have been punished for niche discretionary holdings such as Kyoto Kimono and Arc Land Sakamoto. In response, we have increased our position in Kyoto Kimono and cut our exposure to Arc Land Sakamoto.
Finally, large caps have disappointed over the period. With notable exceptions such as Canon and Aflac, the deterioration in the macro outlook has weighed heavily on core holdings such as Honda, Nintendo, and Sony.
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Fund Performance
AVERAGE ANNUAL RETURNS AS OF FEBRUARY 28, 2003
SINCE INCEPTION 1 YEAR 12/31/98 Matthews Japan Fund (8.44%) (2.18%) MSCI Developed Market Japan Index(2) (9.63%) (7.77%) TOPIX Index(1) (7.61%) (6.48%) Lipper Japanese Funds Average(3) (13.15%) (6.27%)
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 2/28/03, the Lipper Japanese Funds Average consisted of 52 funds for the one-year period, 44 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.
M a t t h e w s J a p a n F u n d 13
Matthews Asian Technology Fund
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 has seen the emergence of a new era where digital products are replacing analog products. The number of new digital consumer products such as DVD players, LCD monitors, and digital cameras are growing fast, replacing analog products such as the VHS player, CRT monitor and film camera. At the same time, new digital products such as handsets and PDAs are creating new markets, expanding the Asian technology universe. However, none of these new products have had a big enough impact on sales to be labeled as a “must-have” product.
The last “must-have” was the personal computer (PC). Now, replacment PC sales are greater than new PC buyer sales.
Nevertheless, we believe that a new “must-have” product will appear in the market eventually lifting up overall demand, as a new era of digital convergence arrives. Combining new digital products with different standards onto one device will be a major hurdle for every company in the sector. However, we believe that the process has already begun as more partnerships and integrated moves between companies are made towards the inter-changeability and compatibility between different digital products. PORTFOLIO MANAGERS:
G. Paul Matthews
Mark W. Headley Discovering and identifying companies that will lead the digital era and the digital convergence trend will be major factors in choosing companies for the Fund. We continue to look for leaders in the new digital convergence era and for those that will benefit the most in the Asian technology sector.
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Fund Performance
AVERAGE ANNUAL RETURNS AS OF FEBRUARY 28, 2003
SINCE INCEPTION 1 YEAR 12/27/99 Matthews Asian Technology Fund (28.13%) (32.21%) MSCI/Matthews Asian Technology Index(1) (20.74%) (34.05%) Lipper Science and Technology Funds Average(2) (32.57%) (35.78%)* * 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 2/28/03, the Lipper Science and Technology Funds Average consisted of 358 funds for the one-year period, 170 funds for the three-year period, and 161 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.
M a t t h e w s A s i a n T e c h n o l o g y F u n d 15
---------------------------------------------------------------------------- Schedule of Investments FEBRUARY 28, 2003 (unaudited) ---------------------------------------------------------------------------- Matthews Pacific Tiger Fund ---------------------------------------------------------------------------- [DRAGON LOGO] SHARES VALUE ------------------------------------- EQUITIES: 99.43%* China/Hong Kong: 39.50% Asia Satellite Telecommunications Holdings Ltd. 1,476,600 $1,883,824 AsiaInfo Holdings, Inc.** 327,200 1,217,184 Bank of East Asia Ltd. 803,400 1,498,819 China Insurance International Holdings Co., Ltd. 902,000 491,530 China Mobile HK Ltd.** 1,074,717 2,315,036 China Mobile HK Ltd. ADR** 165,850 1,814,399 China Pharmaceutical Enterprise and Investment Corp., Ltd. 8,681,000 2,192,756 Dah Sing Financial Group 838,400 4,063,474 Giordano International, Ltd. 11,781,000 3,549,804 Huaneng Power International, Inc. ADR 108,000 3,916,080 Legend Group Ltd. 13,372,000 4,586,428 Shangri-La Asia Ltd. 6,022,000 4,323,975 Swire Pacific Ltd. - Class A 1,062,000 4,493,584 Television Broadcasts Ltd. 554,700 1,689,181 Tsingtao Brewery Co., Ltd. 1,656,000 992,650 Vitasoy International Holdings, Ltd. 8,948,750 1,939,115 ---------- Total China/Hong Kong 40,967,839 --------------------------------------------------------------------------- Indonesia: 5.75% PT Astra International 10,558,230 2,793,026 PT Bank Central Asia 5,695,000 1,586,664 PT Ramayana Lestari Sentosa 6,387,000 1,581,742 ---------- Total Indonesia 5,961,432 --------------------------------------------------------------------------- Philippines: 0.66% SM Prime Holdings, Inc. 7,030,000 683,337 ---------- Singapore: 12.29% DBS Group Holdings Ltd. 539,750 2,979,318 Fraser & Neave Ltd. 809,500 3,723,572 Great Eastern Holdings Ltd. 442,500 2,162,645 Venture Corp., Ltd. 503,800 3,881,646 ---------- Total Singapore 12,747,181 ---------------------------------------------------------------------------
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---------------------------------------------------------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- SHARES VALUE ------------------------------------- South Korea: 24.93% Amorepacific Corp. 22,330 $1,702,367 Hana Bank 361,237 4,842,116 Hite Brewery Co., Ltd. 52,127 2,283,954 Hyundai Marine & Fire Insurance Co., Ltd. 65,740 1,219,906 Internet Auction Co., Ltd.** 147,960 3,383,997 Kookmin Credit Card Co., Ltd.** 88,790 1,324,058 KT Corp. ADR 66,000 1,221,000 Nong Shim Co., Ltd. 36,510 2,186,960 Pulmuone Co., Ltd. 71,270 2,203,211 Samsung Electronics Co., Ltd. 15,503 3,630,116 SK Telecom Co., Ltd. 4,945 683,555 SK Telecom Co., Ltd. ADR 76,500 1,177,335 ---------- Total South Korea 25,858,575 --------------------------------------------------------------------------- Taiwan: 5.63% Hon Hai Precision Industry Co., Ltd. 721,750 2,326,213 SinoPac Holdings Co.** 5,276,966 2,019,671 Taiwan Semiconductor Manufacturing Co., Ltd.** 1,130,620 1,366,503 Via Technologies, Inc. 129,446 128,515 ---------- Total Taiwan 5,840,902 --------------------------------------------------------------------------- Thailand: 10.67% Advanced Info Service Public Co., Ltd. 5,935,900 5,410,775 Bangkok Bank Public Co., Ltd.** 2,838,500 4,212,800 Serm Suk Public Co., Ltd.** 311,100 1,439,705 ---------- Total Thailand 11,063,280 --------------------------------------------------------------------------- TOTAL INVESTMENTS: 99.43% 103,122,546 (Cost $109,633,262***) CASH AND OTHER ASSETS, LESS LIABILITIES: 0.57% 586,056 --------------------------------------------------------------------------- NET ASSETS: 100.00% $103,708,602 =========================================================================== * As a percentage of net assets as of February 28, 2003 ** Non-income producing security. *** Cost for Federal income tax purposes is $109,633,262 and net unrealized depreciation consists of: Gross unrealized appreciation $11,126,507 Gross unrealized depreciation (17,637,223) ----------- Net unrealized depreciation $(6,510,716) =========== ADR American Depositary Receipt MARKET SECTOR DIVERSIFICATION As a Percentage of Total Value of Investment in Securities Consumer Discretionary 19.11% Distributors 2.71% Hotels, Restaurants & Leisure 4.19% Internet & Catalog Retail 3.28% Media 1.64% Multiline Retail 2.20% Specialty Retail 5.09% Consumer Staples 14.32% Beverages 8.18% Food Products 6.14% Financials 29.96% Banks 23.46% Diversified Financials 2.74% Insurance 3.76% Health Care 2.13% Health Care Providers & Services 2.13% Information Technology 16.61% Computers & Peripherals 6.70% Electronic Equipment & Instruments 3.76% IT Consulting & Services 1.18% Semiconductor Equipment & Products 4.97% Telecommunication Services 14.07% Diversified Telecommunication Services 3.01% Wireless Telecommunication Services 11.06% Utilities 3.80% Electric Utilities 3.80% ------- TOTAL INVESTMENTS 100.00% ============================================================================ See accompanying notes to financial statements
S c h e d u l e o f I n v e s t m e n t s 17
---------------------------------------------------------------------------- Schedule of Investments FEBRUARY 28, 2003 (unaudited) ---------------------------------------------------------------------------- Matthews Asian Growth and Income Fund ---------------------------------------------------------------------------- [DRAGON LOGO] SHARES VALUE ------------------------------------- EQUITIES: 60.23%* China/Hong Kong: 32.21% Bank of East Asia Ltd. 2,084,000 $3,887,900 BOC Hong Kong Holdings Ltd.** 2,539,500 2,604,909 Cafe De Coral Holdings Ltd. 4,647,100 2,904,765 Cheung Kong Infrastructure Holdings Ltd. 1,946,500 3,544,028 China Hong Kong Photo Products Holdings Ltd. 8,810,003 587,400 CLP Holdings Ltd. 1,168,700 4,795,207 Dickson Concepts International, Ltd. 1,735,500 376,067 Hang Seng Bank Ltd. 351,600 3,843,241 Hong Kong & China Gas Co., Ltd. 3,798,000 4,674,989 Hongkong Electric Holdings Ltd. 1,230,000 4,691,875 Hongkong Land Holdings Ltd. 2,868,000 3,527,640 Huaneng Power International, Inc. ADR 94,950 3,442,887 Kerry Properties, Ltd. 3,071,000 2,598,832 MTR Corp., Ltd. 2,420,000 2,684,020 PetroChina Co., Ltd. H Shares 14,286,000 2,985,744 PetroChina Co., Ltd. ADR 130,700 2,743,393 Shandong International Power Development Co., Ltd. 10,408,000 2,335,392 Shangri-La Asia Ltd. 6,115,000 4,390,752 Television Broadcasts Ltd. 1,220,000 3,715,163 The Wharf Holdings Ltd. 3,238,000 6,642,801 Vitasoy International Holdings Ltd. 17,725,000 3,840,850 ---------- Total China/Hong Kong 70,817,855 --------------------------------------------------------------------------- Indonesia: 0.82% PT Indonesian Satellite Corp. ADR 93,000 809,100 PT Tempo Scan Pacific 2,004,000 992,582 ---------- Total Indonesia 1,801,682 --------------------------------------------------------------------------- Japan: 0.85% Japan Retail Fund Investment Corp. REIT 209 924,568 Nippon Building Fund, Inc. REIT 194 950,104 ---------- Total Japan 1,874,672 --------------------------------------------------------------------------- Singapore: 5.81% Fraser & Neave Ltd. 1,720,800 7,915,409 Singapore Exchange, Ltd. 4,742,000 3,380,930 Singapore Press Holdings, Ltd. 142,000 1,485,979 ---------- Total Singapore 12,782,318 ---------------------------------------------------------------------------
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---------------------------------------------------------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- SHARES VALUE ---------------------------------------------------------------------------- South Korea: 13.95% Daehan City Gas Co., Ltd. 235,780 $2,409,849 Hyundai Motor Co., Ltd., Pfd. 443,890 4,685,640 Korea Electric Power Corp,. ADR 125,250 1,033,313 Korea Gas Corp. 148,870 3,117,957 Korean Reinsurance Co. 142,290 2,366,235 LG Household & Health Care Ltd. Pfd. 177,830 2,428,374 Samsung Electronics Co., Ltd., Pfd. 35,480 3,983,010 Samsung Fire & Marine Insurance Co., Ltd., Pfd. 131,590 3,307,251 Shinhan Financial Group Co., Ltd. 339,900 3,573,698 Sindo Ricoh Co., Ltd. 77,130 3,773,629 ---------- Total South Korea 30,678,956 --------------------------------------------------------------------------- Thailand: 4.84% Bangkok Bank Public Co., Ltd.** 1,625,000 2,411,767 Charoen Pokphand Foods Public Co., Ltd. 7,790,000 764,707 Charoen Pokphand Foods Public Co., Ltd., Foreign 18,005,000 1,767,464 Charoen Pokphand Foods Public Co., Ltd., Warrants** 638,000 35,192 PTT PCL 490,000 501,051 PTT Farmers Bank Public Co., Ltd. 3,150,000 3,165,828 Thai Farmers Bank Public Co., Ltd.** 560,000 376,300 Thai Farmers Bank Public Co., Ltd., Foreign** 304,000 232,698 Thai Reinsurance Public Co., Ltd. 1,563,000 1,379,065 ---------- Total Thailand 10,634,072 --------------------------------------------------------------------------- United Kingdom: 1.75% HSBC Holdings PLC ADR 71,800 3,852,788 ----------- TOTAL EQUITIES 132,442,343 --------------------------------------------------------------------------- (Cost $134,764,252) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- FACE AMOUNT VALUE INTERNATIONAL DOLLAR BONDS: 35.22%* China/Hong Kong: 11.12% Hang Lung Prop., Ltd., Cnv. 5.500%, 12/29/49 6,500,000 $5,443,750 China Mobile Hong Kong Ltd., Cnv. 2.250%, 11/03/05 11,150,000 11,038,500 New World Capital Finance Ltd., Cnv. 3.000%, 06/09/04 1,100,000 1,331,000 New World Infrastructure Cnv. 1.000%, 04/15/03 400,000 566,000 PCCW Capital II Ltd., Cnv 1.000%, 01/29/07 2,050,000 2,093,563 Tingyi (C.I.) Holding Corp. 3.500%, 06/04/05 3,500,000 3,963,750 ---------- Total China/Hong Kong 24,436,563 --------------------------------------------------------------------------- Singapore: 2.42% Finlayson Global Corp., Cnv. 0.000%, 02/19/04 4,000,000 5,010,000 Finlayson Global Corp., Cnv.*** 0.000%, 02/19/04 250,000 313,125 --------- Total Singapore 5,323,125 --------------------------------------------------------------------------- South Korea: 11.58% HMC Cayman Finance Co., Cnv. 3.000%, 08/17/03 5,200,000 5,284,500 Korea Deposit Insurance Corp., Cnv. 2.250%, 10/11/05 8,320,000 10,150,400 Korea Telecom Corp., Cnv. 0.250%, 01/04/07 9,325,000 9,628,062 Korea Telecom Corp., Cnv.*** 0.250%, 01/04/07 375,000 387,188 ---------- Total South Korea 25,450,150 --------------------------------------------------------------------------- Taiwan: 7.95% Cathay Financial Holding Co., Cnv. 0.000%, 05/20/07 6,600,000 6,760,908 Fubon Financial Holding Co., Ltd., Cnv. 0.000%, 07/10/04 6,000,000 6,337,500 Sinopac Holdings Cnv. 0.000%, 07/12/07 4,000,000 4,390,000 ---------- Total Taiwan 17,488,408 ---------------------------------------------------------------------------
S c h e d u l e o f I n v e s t m e n t s 19
---------------------------------------------------------------------------- Schedule of Investments FEBRUARY 28, 2003 (unaudited) ---------------------------------------------------------------------------- < Matthews Asian Growth and Income Fund ---------------------------------------------------------------------------- FACE AMOUNT VALUE ---------------------------------------------------------------------------- Thailand: 2.15% Bangkok Bank Public Co., Ltd., Cnv. 4.589%, 03/03/04 7,700,000 $4,735,500 ---------- Total Thailand 4,735,500 --------------------------------------------------------------------------- TOTAL INTERNATIONAL DOLLAR BONDS 77,433,746 --------------------------------------------------------------------------- (Cost $78,261,466) TOTAL INVESTMENTS: 95.45%* 209,876,089 (Cost $213,025,718****) CASH AND OTHER ASSETS, LESS LIABILITIES: 4.55% 9,997,310 --------------------------------------------------------------------------- NET ASSETS: 100.00% $219,873,399 =========================================================================== * As a percentage of net assets as of February 28, 2003 ** 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 February 28, 2003, the value of these securities amounted to $700,313 or 0.32% of net assets. **** Cost for Federal income tax purposes is $213,025,718 and net unrealized depreciation consists of: Gross unrealized appreciation $6,683,236 Gross unrealized depreciation (9,832,865) ----------- Net unrealized depreciation $(3,149,629) =========== ADR American Depositary Receipt Pfd. Preferred Cnv. Convertible REIT Real Estate Investment Trust MARKET SECTOR DIVERSIFICATION As a Percentage of Total Value of Investment in Securities Consumer Discretionary 8.82% Automobiles 2.23% Hotels, Restaurants & Leisure 3.48% Household Products 1.16% Media 1.77% Textiles & Apparel 0.18% Consumer Staples 7.49% Beverages 3.77% Food Products 3.72% Energy 5.96% Oil & Gas 5.96% Financials 40.72% Banks 11.75% Diversified Financials 18.57% Insurance 3.36% Real Estate 7.04% Health Care 0.47% Medical & Pharmaceutical 0.47% Industrials 8.40% Agriculture 1.22% Commercial Services & Supplies 2.40% Distributors 1.43% Electrical Equipment 1.80% Transportation Infrastructure 1.55% Information Technology 1.90% Semiconductor Equipment & Products 1.90% Telecommunication Services 11.41% Diversified Telecommunication Services 6.15% Wireless Telecommunication Services 5.26% Utilities 14.83% Electric Utilities 12.60% Gas Utilities 2.23% TOTAL INVESTMENTS 100.00% =========================================================================== See accompanying notes to financial statements
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---------------------------------------------------------------------------- Matthews Korea Fund > ---------------------------------------------------------------------------- SHARES VALUE ---------------------------------------------------------------------------- EQUITIES: SOUTH KOREA: 97.60%* BUSINESS SERVICES: 2.89% Media: 2.89% Cheil Communications, Inc. 24,740 $2,072,634 CJ Entertainment, Inc. 285,757 2,609,434 ---------- Total Business Services 4,682,068 --------------------------------------------------------------------------- CONSUMER DISCRETIONARY: 8.79% Automobiles: 3.86% Hyundai Motor Co., Ltd. 137,361 2,888,419 Hyundai Motor Co., Ltd., Pfd. 318,850 3,365,735 --------- 6,254,154 --------- Automobile Parts: 0.20% Global & Yuasa Battery Co., Ltd. 224,800 323,928 --------- Internet & Catalog Retail: 3.43% Internet Auction Co., Ltd.** 183,507 4,196,993 LG Home Shopping, Inc. 20,443 1,349,565 --------- 5,546,558 --------- Retail: 1.30% Hyundai Department Store Co., Ltd. 124,360 2,099,321 --------- Total Consumer Discretionary 14,223,961 --------------------------------------------------------------------------- CONSUMER STAPLES - 17.46% Beverages: 4.28% Hite Brewery Co., Ltd. 93,041 4,076,609 Lotte Chilsung Beverage Co. 6,450 2,853,098 --------- 6,929,707 --------- Consumer Products: 4.04% Amorepacific Corp. 54,700 4,170,150 Handsome Co., Ltd. 114,290 669,281 Hanssem Co., Ltd. 90,900 841,490 Plenus Entertainment, Inc. 92,740 854,639 --------- 6,535,560 --------- Food Products: 7.80% CJ Corp. 42,200 1,435,362 Lotte Confectionery Co., Ltd. 8,010 2,660,717 Nong Shim Co., Ltd. 83,778 5,018,328 Pulmuone Co., Ltd. 66,210 2,046,788 Tong Yang Confectionery Corp. 35,000 1,466,091 ---------- 12,627,286 ---------- Household Products/Ware: 1.34% LG Household & Health Care, Ltd., Pfd. 159,270 2,174,927 ---------- Total Consumer Staples 28,267,480 --------------------------------------------------------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- SHARES VALUE ---------------------------------------------------------------------------- FINANCIALS: 21.16% Banks: 12.62% Hana Bank 681,874 $9,140,019 Kookmin Bank 195,163 5,967,788 Kookmin Bank ADR** 68,939 2,104,018 Shinhan Financial Group Co., Ltd. 306,592 3,223,499 ---------- 20,435,324 ---------- Diversified Financials: 3.11% Kookmin Credit Card Co., Ltd.** 85,750 1,278,725 Samsung Securities Co., Ltd. 163,495 3,752,996 ---------- 5,031,721 ---------- Insurance: 5.43% Hyundai Marine & Fire Insurance Co. 73,510 1,364,090 Samsung Fire & Marine Insurance Co., Ltd. 103,853 4,959,260 Samsung Fire & Marine Insurance Co., Ltd., Pfd. 98,000 2,463,034 ---------- 8,786,384 ---------- Total Financials 34,253,429 --------------------------------------------------------------------------- HEALTH CARE: 2.59% Health Care Equipment & Supplies: 0.44% Shinhung Co., Ltd. 342,700 709,143 ---------- Pharmaceuticals: 2.15% Yuhan Corp. 83,118 3,481,674 ---------- Total Health Care 4,190,817 --------------------------------------------------------------------------- INDUSTRIALS: 6.82% Commercial Services: 2.49% S1 Corp. 245,895 4,027,351 ---------- Construction: 2.48% Tae Young Corp. 154,310 4,007,548 ---------- Metals & Mining: 1.85% Poongsan Corp. 368,840 2,997,318 ---------- Total Industrials 11,032,217 ---------------------------------------------------------------------------
S c h e d u l e o f I n v e s t m e n t s 21
---------------------------------------------------------------------------- Schedule of Investments FEBRUARY 28, 2003 (unaudited) ---------------------------------------------------------------------------- < Matthews Korea Fund ---------------------------------------------------------------------------- SHARES VALUE ---------------------------------------------------------------------------- INFORMATION TECHNOLOGY: 20.02% Electrical & Electronic Equipment: 1.93% Daeduck Electronics Co., Ltd. 428,433 $3,129,842 ---------- Internet Software & Services: 2.98% NCsoft Corp.** 46,472 3,819,297 NHN Corp. 21,400 1,002,187 ---------- 4,821,484 ---------- Office Electronics: 3.20% Sindo Ricoh Co. 105,986 5,185,425 ---------- Semiconductor Equipment & Products: 11.91% Samsung Electronics 68,051 15,934,532 Samsung Electronics Co., Ltd., Pfd. 29,640 3,327,408 ---------- 19,261,940 ---------- Total Information Technology 32,398,691 --------------------------------------------------------------------------- TELECOMMUNICATION SERVICES: 14.10% Telecommunication Services: 6.30% KT Corp. 109,020 3,986,699 KT Corp., ADR 335,500 6,206,750 ---------- 10,193,449 ---------- Wireless Telecommunication Services: 7.80% KT Freetel Co., Ltd.** 222,301 4,562,790 SK Telecom Co., Ltd. 45,155 6,241,842 SK Telecom Co., Ltd., ADR 118,600 1,825,254 ---------- 12,629,886 ---------- Total Telecommunication Services 22,823,335 --------------------------------------------------------------------------- UTILITIES: 3.77% Daehan City Gas Co., Ltd. 57,492 587,611 Korea Electric Power (KEPCO) Corp. 138,610 2,084,405 Korea Gas Corp. 163,750 3,429,607 ---------- Total Utilities 6,101,623 --------------------------------------------------------------------------- TOTAL EQUITIES: SOUTH KOREA 157,973,621 --------------------------------------------------------------------------- (Cost $152,222,277) ---------------------------------------------------------------------------- FACE AMOUNT VALUE ---------------------------------------------------------------------------- INTERNATIONAL DOLLAR BONDS: SOUTH KOREA: 0.98%* FINANCIALS: 0.15% Insurance: 0.15% Korea Deposit Insurance Cnv. 2.250%, 10/11/05 200,000 $244,000 ---------- TELECOMMUNICATION SERVICES: 0.83% Telecommunication Services: 0.83% Korea Telecom Co. 0.250%, 01/04/07 925,000 955,062 Korea Telecom Co. 0.250%, 01/04/07 *** 375,000 387,188 ---------- 1,342,250 ---------- TOTAL INTERNATIONAL DOLLAR BONDS: SOUTH KOREA 1,586,250 --------------------------------------------------------------------------- (Cost $1,628,905) TOTAL INVESTMENTS: 98.58% 159,559,871 (Cost $153,851,182****) CASH AND OTHER ASSETS, LESS LIABILITIES: 1.42% 2,296,397 --------------------------------------------------------------------------- NET ASSETS: 100.00% $161,856,268 =========================================================================== * As a percentage of net assets as of February 28, 2003 ** 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 February 28, 2003, the value of these securities amounted to $387,188 or 0.24% of net assets. **** Cost for Federal income tax purposes is $153,851,182 and net unrealized depreciation consists of: Gross unrealized appreciation $25,633,248 Gross unrealized depreciation (19,924,559) ----------- Net unrealized appreciation $5,708,689 =========== ADR American Depositary Receipt Cnv. Convertible Pfd. Preferred See accompanying notes to financial statements
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---------------------------------------------------------------------------- Matthews China Fund > ---------------------------------------------------------------------------- SHARES VALUE ---------------------------------------------------------------------------- EQUITIES: CHINA/HONG KONG: 97.64%* CONSUMER DISCRETIONARY: 25.00% Automobiles & Components: 4.08% Denway Motors, Ltd. 5,586,600 $2,148,935 ----------- Consumer Durable & Apparel: 6.13% Lerado Group Co., Ltd. 4,442,000 746,112 TCL International Holdings, Ltd. 3,110,000 817,464 Texwinca Holdings, Ltd. 2,180,000 1,663,136 ----------- 3,226,712 ----------- Distributors: 0.97% Li & Fung, Ltd. 520,000 510,058 ----------- Hotels, Restaurants & Leisure: 8.03% Cafe De Coral Holdings, Ltd. 1,006,100 628,883 Shangri-La Asia, Ltd. 2,499,000 1,794,356 Tsingtao Brewery Co. H Shares 3,016,000 1,807,871 ----------- 4,231,110 ----------- Media: 3.61% Clear Media, Ltd. ** 1,873,000 912,590 Television Broadcasts, Ltd. 325,000 989,695 ----------- 1,902,285 ----------- Retail: 1.29% Giordano International, Ltd. 2,256,000 679,769 ----------- Travel & Recreation: 0.89% China Travel International Investment Hong Kong, Ltd. 2,702,000 467,707 ----------- Total Consumer Discretionary 13,166,576 --------------------------------------------------------------------------- ENERGY: 12.12% Oil & Gas: 12.12% China Oilfield Services, Ltd.** 4,728,000 1,176,071 CNOOC, Ltd. 951,500 1,335,910 Hong Kong and China Gas Co., Ltd. 981,400 1,208,013 PetroChina Co., Ltd. H Shares 5,334,000 1,114,795 Sinopec Zhenhai Refining & Chemical Co., Ltd. 4,938,000 1,551,214 ----------- Total Energy 6,386,003 --------------------------------------------------------------------------- FINANCIALS: 9.35% Banks: 2.05% BOC Hong Kong (Holdings) Ltd. ** 1,051,500 $1,078,583 ----------- Diversified Financials: 2.56% Swire Pacific, Ltd. A Shares 319,000 1,349,768 ----------- Insurance: 3.46% China Insurance International Holdings Co., Ltd. 3,348,000 1,824,437 ----------- Real Estate: 1.28% China Vanke Co., Ltd. B Shares 841,733 672,383 ----------- Total Financials 4,925,171 --------------------------------------------------------------------------- HEALTH CARE: 3.93% Pharmaceuticals: 3.93% China Pharmaceutical Enterprise and Investment Corp., Ltd. 8,204,000 2,072,270 ----------- Total Health Care 2,072,270 --------------------------------------------------------------------------- INDUSTRIALS: 25.23% Airlines: 4.93% Beijing Capital International Airport Co. H Shares 8,214,000 1,948,412 China Southern Airlines Co., Ltd. H Shares 2,378,000 647,926 ----------- 2,596,338 ----------- Industrial Conglomerates: 13.72% Beijing Enterprises Holdings, Ltd. H Shares 808,000 792,551 BYD Co., Ltd. ** 428,500 868,085 Cheung Kong Infrastructure 1,166,500 2,123,868 China Merchants Holdings International Co., Ltd. 2,234,000 1,732,978 Shanghai Industrial Holdings, Ltd. 1,101,000 1,708,154 ----------- 7,225,636 ----------- Machinery: 0.90% Shanghai Zhenhua Port Machinery Co., Ltd. B Shares 515,500 473,229 ----------- Transportation: 5.68% Zhejiang Expressway Co., Ltd. H Shares 4,046,000 1,776,809 Sinotrans, Ltd.** 4,222,000 1,218,022 2,994,831 ----------- Total Industrials 13,290,034 ---------------------------------------------------------------------------
S c h e d u l e o f I n v e s t m e n t s 23
---------------------------------------------------------------------------- Schedule of Investments FEBRUARY 28, 2003 (unaudited) ---------------------------------------------------------------------------- < Matthews China Fund ---------------------------------------------------------------------------- SHARES VALUE ---------------------------------------------------------------------------- INFORMATION TECHNOLOGY: 6.60% Computer Software: 3.48% Travelsky Technology, Ltd. H Shares 2,465,000 $1,833,156 ---------- Computers & Peripherals: 2.31% Legend Holdings, Ltd. 3,542,000 1,214,861 ---------- IT Consulting & Services: 0.81% AsiaInfo Holdings, Inc.** 115,263 428,778 ---------- Total Information Technology 3,476,795 --------------------------------------------------------------------------- TELECOMMUNICATION SERVICES: 4.85% Wireless Telecommunication Services: 4.85% China Mobile HK, Ltd.** 471,083 1,014,755 China Mobile HK, Ltd. ADR** 21,500 235,210 China Unicom, Ltd.** 1,988,000 1,204,405 China Unicom, Ltd. ADR** 16,200 99,954 ---------- Total Telecommunication Services 2,554,324 --------------------------------------------------------------------------- UTILITIES: 10.56% Beijing Datang Power Generation, Co., Ltd. H Shares 3,918,000 1,331,266 Huaneng Power International, Inc. ADR 39,400 1,428,644 Huaneng Power International, Inc. H Shares 1,652,000 1,472,140 Shandong International Power Development Co., Ltd. H Shares 5,920,000 1,328,355 ---------- Total Utilities 5,560,405 --------------------------------------------------------------------------- TOTAL INVESTMENTS: 97.64% 51,431,578 (Cost $53,474,454***) CASH AND OTHER ASSETS, LESS LIABILITIES: 2.36% 1,237,449 --------------------------------------------------------------------------- NET ASSETS: 100.00% $52,669,027 =========================================================================== * As a percentage of net assets as of February 28, 2003 ** Non - income producing security. ADR American Depositary Receipt *** Cost for Federal income tax purposes is $53,474,454 and net unrealized depreciation consists of: Gross unrealized appreciation $4,377,631 Gross unrealized depreciation (6,420,507) ----------- Net unrealized depreciation $(2,042,876) =========== ---------------------------------------------------------------------------- Matthews Japan Fund > ---------------------------------------------------------------------------- SHARES VALUE ---------------------------------------------------------------------------- EQUITIES: JAPAN: 98.85%* CONSUMER DISCRETIONARY: 38.22% Automobiles: 10.40% Gulliver International Co., Ltd. 12,200 $303,388 Honda Motor Co., Ltd. ADR 20,500 376,585 ---------- 679,973 ---------- Bicycle Manufacturing: 2.31% Shimano, Inc. 11,500 150,772 ---------- Household Durables: 7.69% Arc Land Sakamoto Co., Ltd. 600 4,212 Nintendo Co., Ltd. 3,665 292,332 Sony Corp. ADR 5,435 206,367 ---------- 502,911 ---------- Media: 4.35% Fuji Television Network, Inc. 81 284,331 ---------- Retail: 13.47% Belluna Co., Ltd. 7,024 213,289 Don Quijote Co., Ltd. 3,500 279,171 Fast Retailing Co., Ltd. 3,900 103,912 Kyoto Kimono Yuzen Co., Ltd. 111 197,166 Paris Miki, Inc. 8,500 88,433 ---------- 881,971 ---------- Total Consumer Discretionary 2,499,958 --------------------------------------------------------------------------- CONSUMER STAPLES: 6.15% Beverages: 3.48% ITO En, Ltd. 7,300 227,228 ---------- Food: 2.67% Nissin Healthcare Food Service Co., Ltd. 10,600 174,836 ---------- Total Consumer Staples 402,064 --------------------------------------------------------------------------- See accompanying notes to financial statements
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---------------------------------------------------------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- SHARES VALUE ---------------------------------------------------------------------------- FINANCIALS: 25.50% Banks: 10.77% Mizuho Financial Group, Inc.** 338 $300,190 The Joyo Bank, Ltd. 53,000 146,145 The Sumitomo Trust and Banking Co., Ltd. 74,000 258,507 ---------- 704,842 ---------- Diversified Financials: 8.46% Japan Securities Finance Co., Ltd. 31,000 103,574 Monex, Inc. ** 1,631 155,892 Nomura Holdings, Inc. 25,000 293,931 ---------- 553,397 ---------- Insurance: 3.25% AFLAC, Inc. 6,800 212,500 ---------- Real Estate: 3.02% Able, Inc. 9,600 197,319 ---------- Total Financials 1,668,058 --------------------------------------------------------------------------- INFORMATION TECHNOLOGY: 12.87% Electronic Equipment & Instruments: 6.74% Canon, Inc. 2,000 72,235 Canon, Inc. ADR 3,900 140,205 Niws Co., Ltd. 173 228,277 ---------- 440,717 ---------- Semiconductor Equipment: 2.10% Rohm Co., Ltd. 1,200 137,534 ---------- Software: 4.03% Access Co., Ltd. ** 18 263,396 ---------- Total Information Technology 841,647 --------------------------------------------------------------------------- MANUFACTURING: 8.49% Agricultural: 2.69% Hokuto Corp. 9,800 176,147 ---------- Electronics: 2.55% Murata Manufacturing Co., Ltd. 4,400 166,733 ---------- Equipment & Products: 3.25% Yushin Precision Equipment Co., Ltd. 4,500 70,417 Nakanishi, Inc. 6,000 142,102 212,519 ---------- Total Manufacturing 555,399 --------------------------------------------------------------------------- ---------------------------------------------------------------------------- SHARES VALUE ---------------------------------------------------------------------------- TELECOMMUNICATION SERVICES: 7.62% Diversified Telecommunication Services: 7.62% NTT DoCoMo, Inc. 127 $239,552 Nippon Telegraph & Telephone Corp. ADR** 14,325 259,139 ---------- Total Telecommunication Services 498,691 --------------------------------------------------------------------------- TOTAL INVESTMENTS: 98.85% 6,465,817 (Cost $7,624,243***) CASH AND OTHER ASSETS, LESS LIABILITIES: 1.15% 74,955 --------------------------------------------------------------------------- NET ASSETS: 100.00% $6,540,772 =========================================================================== * As a percentage of net assets as of February 28, 2003 ** Non - income producing security. *** Cost for Federal income tax purposes is $7,624,243 and net unrealized depreciation consists of: Gross unrealized appreciation $178,459 Gross unrealized depreciation (1,336,885) ----------- Net unrealized depreciation $(1,158,426) =========== ADR American Depositary Receipt See accompanying notes to financial statements
S c h e d u l e o f I n v e s t m e n t s 25
---------------------------------------------------------------------------- Schedule of Investments FEBRUARY 28, 2003 (unaudited) ---------------------------------------------------------------------------- Matthews Asian Technology Fund ---------------------------------------------------------------------------- [DRAGON LOGO] SHARES VALUE ---------------------------------------------------------------------------- EQUITIES: 99.30%* China/Hong Kong: 14.81% Asia Satellite Telecommunications Holdings Ltd. 82,900 $105,762 AsiaInfo Holdings, Inc. ** 21,000 78,120 China Mobile HK Ltd. ** 44,500 95,857 China Mobile HK Ltd. ADR ** 10,900 119,246 Legend Group Ltd. 789,000 270,617 TPV Technology Ltd. 446,000 130,098 ---------- Total China/Hong Kong 799,700 --------------------------------------------------------------------------- India: 2.20% Wipro Ltd. ADR 3,900 118,482 ---------- Japan: 32.01% Access Co., Ltd. ** 16 234,130 Canon, Inc. 3,000 108,353 Canon, Inc. ADR 3,300 118,635 Nakanishi Inc. 7,000 165,785 Nintendo Co., Ltd. 2,935 234,105 Niws Co., Ltd. 186 245,430 NTT DoCoMo, Inc. 119 224,462 Rohm Co., Ltd. 800 91,690 Sony Corp. 2,800 106,340 Sony Corp. ADR 2,175 82,585 Yushin Precision Equipment Co., Ltd. 7,400 115,796 ---------- Total Japan 1,727,311 --------------------------------------------------------------------------- Singapore: 4.20% Venture Corp., Ltd. 29,400 226,519 ---------- South Korea: 24.22% DGI Co., Ltd. 13,610 153,357 Intelligent Digital Intergrated Security Co., Ltd. 10,071 153,556 Internet Auction Co., Ltd. ** 7,196 164,580 KT Corp. 4,120 150,662 KT Corp. ADR 5,000 92,500 NCsoft Corp. ** 1,851 152,124 NHN Corp. 1,000 46,831 Samsung Electronics Co., Ltd. 1,038 243,054 SK Telecom Co., Ltd. 1,089 150,534 ---------- Total South Korea 1,307,198 ---------------------------------------------------------------------------
26 w w w . m a t t h e w s f u nd s . c o m 8 0 0 - 7 8 9 - A S I A [ 2 7 4 2 ]
---------------------------------------------------------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- SHARES VALUE ---------------------------------------------------------------------------- Taiwan: 15.29% Hon Hai Precision Industry Co., Ltd. 79,140 $255,070 LITE-ON IT Corp. 59,800 147,994 Realtek Semiconductor Corp. 28,750 63,705 Sunplus Technology Co., Ltd. 119,500 169,879 Taiwan Semiconductor Manufacturing Co., Ltd. ** 155,989 188,533 --------- Total Taiwan 825,181 --------------------------------------------------------------------------- Thailand: 6.57% Advanced Info Service Public Co., Ltd. 316,800 288,774 Shin Satellite Public Co., Ltd. ** 266,000 65,902 --------- Total Thailand 354,676 --------------------------------------------------------------------------- TOTAL INVESTMENTS: 99.30% 5,359,067 (Cost $6,435,590***) LIABILITIES, LESS CASH AND OTHER ASSETS: 0.70% 37,829 --------------------------------------------------------------------------- NET ASSETS: 100.00% $5,396,896 =========================================================================== * As a percentage of net assets as of February 28, 2003 ** Non - income producing security. ADR American Depositary Receipt *** Cost for Federal income tax purposes is $6,435,590 and net unrealized depreciation consists of: Gross unrealized appreciation $206,709 Gross unrealized depreciation (1,283,232) ----------- Net unrealized depreciation $(1,076,523) =========== MARKET SECTOR DIVERSIFICATION As a Percentage of Total Value of Investment in Securities Consumer Discretionary 9.87% Leisure Equipment & Products 9.87% Industrials 2.16% Commercial Services & Supplies 2.16% Information Technology 62.71% Computers & Peripherals 2.86% Electronic Equipment & Instruments 23.83% Internet Software & Services 11.15% IT Consulting & Services 1.46% Semiconductor Equipment & Products 23.41% Manufacturing 3.09% Equipment & Products 3.09% Telecommunication Services 22.17% Diversified Telecommunication Services 22.17% TOTAL INVESTMENTS 100.00% =========================================================================== See accompanying notes to financial statements
S c h e d u l e o f I n v e s t m e n t s 27
----------------------------------------------------------------------------------------------------------- Statement of Assets and Liabilities FEBRUARY 28, 2003 (unaudited) ----------------------------------------------------------------------------------------------------------- MATTHEWS MATTHEWS PACIFIC TIGER ASIAN GROWTH AND FUND INCOME FUND ----------------------------------------------------------------------------------------------------------- Assets: Investments at value (A) $103,122,546 $209,876,089 Cash 16,870 10,033,213 Dividends and interest receivable 344,148 1,226,953 Receivable for securities sold 1,330,099 -- Receivable for capital shares sold 167,047 2,043,353 Other assets 7,824 12,742 ----------------------------------------------------------------------------------------------------------- Total assets 104,988,534 223,192,350 ----------------------------------------------------------------------------------------------------------- Liabilities: Payable for securities purchased 936,850 2,910,439 Payable for capital shares redeemed 135,596 64,448 Cash overdraft -- -- Due to Advisor (Note 2) 81,416 155,431 Payable for shareholder service fee 12,212 23,315 Accrued expenses 113,858 164,146 Other liabilities -- 1,172 ----------------------------------------------------------------------------------------------------------- Total liabilities 1,279,932 3,318,951 ----------------------------------------------------------------------------------------------------------- Net Assets: $103,708,602 $219,873,399 =========================================================================================================== Shares Outstanding: (shares of beneficial interest issued and outstanding, respectively, unlimited number of shares authorized with a $0.001 par value) 12,971,730 21,141,837 =========================================================================================================== Net asset value, offering price and redemption price $7.99 $10.40 =========================================================================================================== Net Assets Consist of: Capital paid-in $121,263,370 $222,520,211 Accumulated undistributed net investment income (loss) (260,120) 549,113 Accumulated net realized gain (loss) on investments (10,784,710) (48,575) Net unrealized appreciation (depreciation) on investments and foreign currency related transactions (6,509,938) (3,147,350) ----------------------------------------------------------------------------------------------------------- Net Assets: $103,708,602 $219,873,399 =========================================================================================================== (A) Investments at cost $109,633,262 $213,025,718 =========================================================================================================== See accompanying notes to financial statements. -----------------------------------------------------------------------------------------------------------
28 w w w . m a t t h e w s f u nd s . c o m 8 0 0 - 7 8 9 - A S I A [ 2 7 4 2 ]
------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------- MATTHEWS MATTHEWS MATTHEWS MATTHEWS ASIAN KOREA FUND CHINA FUND JAPAN FUND TECHNOLOGY FUND ------------------------------------------------------------------------------------------- $159,559,871 $51,431,578 $6,465,817 $5,359,067 -- 2,397,740 -- 86,423 2,665,768 298 4,955 9,045 1,735,274 -- 481,841 -- 60,959 62,784 -- 5,669 14,996 2,491 475 472 ------------------------------------------------------------------------------------------- 164,036,868 53,894,891 6,953,088 5,460,676 ------------------------------------------------------------------------------------------- 1,246,839 1,003,945 -- 46,397 101,333 138,749 -- -- 437,873 -- 403,282 -- 129,651 36,296 6,019 3,612 19,448 5,444 821 633 245,456 41,430 2,194 13,138 -- -- -- -- ------------------------------------------------------------------------------------------- 2,180,600 1,225,864 412,316 63,780 ------------------------------------------------------------------------------------------- $161,856,268 $52,669,027 $6,540,772 $5,396,896 =========================================================================================== 50,378,876 5,856,424 825,549 1,955,609 =========================================================================================== $3.21 $8.99 $7.92 $2.76 =========================================================================================== $144,585,475 $58,076,469 $16,537,917 $25,327,715 516,350 (126,638) (85,633) (52,296) 11,039,219 (3,237,928) (8,753,109) (18,802,237) 5,715,224 (2,042,876) (1,158,403) (1,076,286) ------------------------------------------------------------------------------------------- $161,856,268 $52,669,027 $6,540,772 $5,396,896 =========================================================================================== $153,851,182 $53,474,454 $7,624,243 $6,435,590 =========================================================================================== -------------------------------------------------------------------------------------------
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 29
----------------------------------------------------------------------------------------------------- Statement of Operations For the six months ended FEBRUARY 28, 2003 (unaudited) ----------------------------------------------------------------------------------------------------- MATTHEWS MATTHEWS PACIFIC TIGER ASIAN GROWTH AND FUND INCOME FUND ----------------------------------------------------------------------------------------------------- Investment Income: Dividends $864,409 $1,799,700 Interest -- 1,501,099 Foreign withholding tax (108,770) (177,509) ----------------------------------------------------------------------------------------------------- Total investment income 755,639 3,123,290 ----------------------------------------------------------------------------------------------------- Expenses: Investment advisory fees (Note 2) 533,130 845,859 Transfer agent fees 111,366 168,417 Administration and accounting fees 82,300 129,555 Professional fees 10,975 17,411 Custodian fees 52,905 76,151 Directors fees (Note 2) 2,998 4,756 Shareholder service fee 113,737 175,643 Insurance expense 3,668 3,096 Amortization of organization costs (Note 1-F) -- -- Printing expense 12,133 14,558 Registration expenses 14,199 22,229 Other expenses 1,323 2,126 ----------------------------------------------------------------------------------------------------- Total expenses 938,734 1,459,801 Expenses waived, reimbursed or recaptured (Note 2) -- -- ----------------------------------------------------------------------------------------------------- Net expenses 938,734 1,459,801 ----------------------------------------------------------------------------------------------------- Net Investment Income (Loss) (183,095) 1,663,489 ===================================================================================================== Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Related Transactions: Net realized gain (loss) on investments (4,645,518) 31,882 Net realized loss on foreign currency related transactions (9,964) (72,860) Net change in unrealized appreciation (depreciation) on investments and foreign currency related transactions (2,421,454) (3,281,195) ----------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments and foreign currency related transactions (7,076,936) (3,322,173) ----------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets from Operations ($7,260,031) ($1,658,684) ===================================================================================================== See accompanying notes to financial statements. -----------------------------------------------------------------------------------------------------
30 w w w . m a t t h e w s f u nd s . c o m 8 0 0 - 7 8 9 - A S I A [ 2 7 4 2 ]
------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ MATTHEWS MATTHEWS MATTHEWS MATTHEWS ASIAN KOREA FUND CHINA FUND JAPAN FUND TECHNOLOGY FUND ------------------------------------------------------------------------------------------------------------ $3,178,382 $300,415 $21,016 $20,622 -- 972 -- -- (530,546) -- (2,784) (3,760) -------------------------------------------------------------------------------------------------------- 2,647,836 301,387 18,232 16,862 -------------------------------------------------------------------------------------------------------- 1,001,624 178,126 37,816 30,336 199,481 35,376 7,547 6,024 155,303 27,349 5,877 4,692 20,672 3,651 780 625 114,142 17,080 3,678 10,277 5,646 997 213 171 208,620 36,980 7,883 6,313 7,551 1,079 285 413 -- 1,452 -- -- 16,686 5,616 1,433 1,570 26,580 11,137 7,562 8,366 2,459 449 96 75 -------------------------------------------------------------------------------------------------------- 1,758,764 319,292 73,170 68,862 -- 6,379 2,463 (8,191) -------------------------------------------------------------------------------------------------------- 1,758,764 325,671 75,633 60,671 -------------------------------------------------------------------------------------------------------- 889,072 (24,284) (57,401) (43,809) ======================================================================================================== 15,833,447 (1,291,612) (317,059) (972,503) (201,173) (10) (284) (3,207) (63,028,907) 1,674,400 (1,131,417) 299,115 -------------------------------------------------------------------------------------------------------- (47,396,633) 382,778 (1,448,760) (676,595) -------------------------------------------------------------------------------------------------------- ($46,507,561) $358,494 ($1,506,161) ($720,404) ======================================================================================================== --------------------------------------------------------------------------------------------------------
S t a t e m e n t o f O p e r a t i o n s 31
-------------------------------------------------------------------------------------------------------------------------- Statement of Changes in Net Assets -------------------------------------------------------------------------------------------------------------------------- MATTHEWS PACIFIC TIGER FUND -------------------------------------------------------------------------------------------------------------------------- Six Months Ended February 28, 2003 Year Ended (unaudited) August 31, 2002 Operations: Net investment income (loss) ($183,095) ($170,789) Net realized gain (loss) on investments and foreign currency related transactions (4,655,482) (3,768,796) Net change in unrealized appreciation (depreciation) on investments and foreign currency related transactions (2,421,454) 5,883,551 -------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets from operations (7,260,031) 1,943,966 -------------------------------------------------------------------------------------------------------------------------- Dividends and Distributions to Shareholders from: Net investment income -- (104,784) Realized gains on investments -- (274,572) -------------------------------------------------------------------------------------------------------------------------- Net decrease in net assets resulting from distributions -- (379,356) -------------------------------------------------------------------------------------------------------------------------- Capital Share Transactions (net) (Note 1-K): (3,829,448) 36,730,362 -------------------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets (11,089,479) 38,294,972 -------------------------------------------------------------------------------------------------------------------------- Net Assets: Beginning of period 114,798,081 76,503,109 -------------------------------------------------------------------------------------------------------------------------- End of period (including undistributed net investment income (loss) of $(260,120), $(77,025), $549,113, $17,691, $516,350, and $(372,722) respectively) $103,708,602 $114,798,081 ========================================================================================================================== See accompanying notes to financial statements. --------------------------------------------------------------------------------------------------------------------------
32 w w w . m a t t h e w s f u nd s . c o m 8 0 0 - 7 8 9 - A S I A [ 2 7 4 2 ]
------------------------------------------------------------------------------------------------------------ MATTHEWS ASIAN GROWTH AND INCOME FUND MATTHEWS KOREA FUND ------------------------------------------------------------------------------------------------------------ Six Months Ended Six Months Ended February 28, 2003 Year Ended February 28, 2003 Year Ended (unaudited) August 31, 2002 (unaudited) August 31, 2002 $1,663,489 $1,329,018 $889,072 ($1,421,124) (40,978) 3,303,008 15,632,274 34,090,693 (3,281,195) (280,755) (63,028,907) 57,069,545 ---------------------------------------------------------------------------------------------------- (1,658,684) 4,351,271 (46,507,561) 89,739,114 ---------------------------------------------------------------------------------------------------- (1,132,067) (1,362,799) -- (467,505) (2,386,434) -- (19,371,082) (3,455,469) ---------------------------------------------------------------------------------------------------- (3,518,501) (1,362,799) (19,371,082) (3,922,974) ---------------------------------------------------------------------------------------------------- 72,369,383 125,246,184 (25,268,552) 50,055,031 ---------------------------------------------------------------------------------------------------- 67,192,198 128,234,656 (91,147,195) 135,871,171 ---------------------------------------------------------------------------------------------------- 152,681,201 24,446,545 253,003,463 117,132,292 ---------------------------------------------------------------------------------------------------- $219,873,399 $152,681,201 $161,856,268 $253,003,463 ==================================================================================================== ----------------------------------------------------------------------------------------------------
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 33
-------------------------------------------------------------------------------------------------------------------------- Statement of Changes in Net Assets -------------------------------------------------------------------------------------------------------------------------- MATTHEWS CHINA FUND -------------------------------------------------------------------------------------------------------------------------- Six Months Ended February 28, 2003 Year Ended (unaudited) August 31, 2002 Operations: Net investment income (loss) ($24,284) $278,449 Net realized gain (loss) on investments and foreign currency related transactions (1,291,622) (841,054) Net change in unrealized appreciation (depreciation) on investments and foreign currency related transactions 1,674,400 (1,608,943) -------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets from operations 358,494 (2,171,548) -------------------------------------------------------------------------------------------------------------------------- Dividends and Distributions to Shareholders from: Net investment income (542,079) (381,550) Realized gains on investments -- -- -------------------------------------------------------------------------------------------------------------------------- Net decrease in net assets resulting from distributions (542,079) (381,550) -------------------------------------------------------------------------------------------------------------------------- Capital Share Transactions (net) (Note 1-K): 19,177,339 16,385,313 -------------------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets 18,993,754 13,832,215 -------------------------------------------------------------------------------------------------------------------------- Net Assets: Beginning of period 33,675,273 19,843,058 -------------------------------------------------------------------------------------------------------------------------- End of period (including undistributed net investment income (loss) of $(126,638), $439,725, $(85,633), $(28,232), $(52,296) and $(8,487), respectively) $52,669,027 $33,675,273 ========================================================================================================================== See accompanying notes to financial statements. -----------------------------------------------------------------------------------------------------------
34 w w w . m a t t h e w s f u nd s . c o m 8 0 0 - 7 8 9 - A S I A [ 2 7 4 2 ]
-------------------------------------------------------------------------------------------------------------- MATTHEWS JAPAN FUND MATTHEWS ASIAN TECHNOLOGY FUND -------------------------------------------------------------------------------------------------------------- Six Months Ended Six Months Ended February 28, 2003 Year Ended February 28, 2003 Year Ended (unaudited) August 31, 2002 (unaudited) August 31, 2002 ($57,401) ($128,812) ($43,809) ($172,594) (317,343) (4,233,549) (975,710) (2,212,212) (1,131,417) 3,160,981 299,115 1,639,640 ----------------------------------------------------------------------------------------------------- (1,506,161) (1,201,380) (720,404) (745,166) ----------------------------------------------------------------------------------------------------- -- (182,412) -- (142,101) -- -- -- -- ----------------------------------------------------------------------------------------------------- -- (182,412) -- (142,101) ----------------------------------------------------------------------------------------------------- (1,351,662) 3,024,383 (761,867) (1,840,654) ----------------------------------------------------------------------------------------------------- (2,857,863) 1,640,591 (1,482,271) (2,727,921) ----------------------------------------------------------------------------------------------------- 9,398,595 7,758,004 6,879,167 9,607,088 ----------------------------------------------------------------------------------------------------- $6,540,772 $9,398,595 $5,396,896 $6,879,167 ===================================================================================================== -----------------------------------------------------------------------------------------------------------
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 35
--------------------------------------------------------------------------------------------------------------------------------- Financial Highlights --------------------------------------------------------------------------------------------------------------------------------- Matthews Pacific Tiger Fund --------------------------------------------------------------------------------------------------------------------------------- The table below sets forth financial data for a share of beneficial interest outstanding throughout each year presented. Six Months Ended Year Ended August 31, Feb. 28, 2003 ------------------------------------------------------------ (unaudited) 2002 2001 2000 1999 1998 Net Asset Value, beginning of period $8.54 $7.91 $12.35 $10.41 $4.07 $11.30 --------------------------------------------------------------------------------------------------------------------------------- Income (loss) from Investment Operations: Net investment income (loss) (0.02) (0.01) 0.02 0.18 0.18 0.02 Net realized gain (loss) and unrealized appreciation (depreciation) on investments and foreign currency (0.54) 0.66 (3.37) 2.01 6.15 (7.20) --------------------------------------------------------------------------------------------------------------------------------- Total from investment operations (0.56) 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 0.00 (0.04) (1.15) (0.27) (0.02) (0.07) --------------------------------------------------------------------------------------------------------------------------------- Paid-in Capital from Redemption Fees (Note 1K) 0.01 0.02 0.06 0.02 0.03 0.02 --------------------------------------------------------------------------------------------------------------------------------- Net Asset Value, end of period $7.99 $8.54 $7.91 $12.35 $10.41 $4.07 ================================================================================================================================= Total Return (6.44%)(2) 8.44% (27.46%) 21.28% 156.28% (63.43%) Ratios/Supplemental Data Net assets, end of period (in 000's) $103,709 $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 1.76%(1) 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) 1.76%(1) 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 (0.34%)(1) (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 (0.34%)(1) (0.17%) 0.67% 1.56% 3.35% 0.30% Portfolio turnover 14.37%(2) 57.00% 63.59% 52.11% 98.74% 73.09% 1 Annualized. 2 Not annualized. See accompanying notes to financial statements. ---------------------------------------------------------------------------------------------------------------------------------
36 w w w . m a t t h e w s f u nd s . c o m 8 0 0 - 7 8 9 - A S I A [ 2 7 4 2 ]
--------------------------------------------------------------------------------------------------------------------------------- Matthews Asian Growth and Income Fund --------------------------------------------------------------------------------------------------------------------------------- The table below sets forth financial data for a share of beneficial interest outstanding throughout each year presented. Six Months Ended Year Ended August 31, Feb. 28, 2003 ------------------------------------------------------------ (unaudited) 2002 2001 2000 1999 1998 Net Asset Value, beginning of period $10.71 $9.08 $10.50 $9.37 $6.54 $11.71 --------------------------------------------------------------------------------------------------------------------------------- Income (loss) from Investment Operations: Net investment income 0.09 0.18 0.54 0.61 0.58 0.13 Net realized gain (loss) and unrealized appreciation (depreciation) on investments and foreign currency (0.19) 1.70 (0.49) 1.09 2.75 (4.16) --------------------------------------------------------------------------------------------------------------------------------- Total from investment operations (0.10) 1.88 0.05 1.70 3.33 (4.03) --------------------------------------------------------------------------------------------------------------------------------- Less Distributions from: Net investment income (0.07) (0.27) (0.60) (0.59) (0.51) (0.10) Net realized gains on investments (0.15) -- (0.88) -- -- (1.05) --------------------------------------------------------------------------------------------------------------------------------- Total distributions (0.22) (0.27) (1.48) (0.59) (0.51) (1.15) --------------------------------------------------------------------------------------------------------------------------------- Paid-in Capital from Redemption Fees (Note 1K) 0.01 0.02 0.01 0.02 0.01 0.01 --------------------------------------------------------------------------------------------------------------------------------- Net Asset Value, end of period $10.40 $10.71 $9.08 $10.50 $9.37 $6.54 ================================================================================================================================= Total Return (0.82%)(2) 21.11% 1.15% 18.68% 52.65% (35.27%) Ratios/Supplemental Data Net assets, end of period (in 000's) $219,873 $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 1.73%(1) 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) 1.73%(1) 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 1.97%(1) 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 1.97%(1) 2.11% 7.71% 6.24% 8.13% 1.50% Portfolio turnover 3.84%(2) 32.37% 33.94% 62.23% 34.82% 54.67% 1 Annualized. 2 Not annualized. See accompanying notes to financial statements. ---------------------------------------------------------------------------------------------------------------------------------
F i n a n c i a l H i g h l i g h t s 37
--------------------------------------------------------------------------------------------------------------------------------- Financial Highlights --------------------------------------------------------------------------------------------------------------------------------- Matthews Korea Fund --------------------------------------------------------------------------------------------------------------------------------- The table below sets forth financial data for a share of beneficial interest outstanding throughout each year presented. Six Months Ended Year Ended August 31, Feb. 28, 2003 ------------------------------------------------------------ (unaudited) 2002 2001 2000 1999 1998 Net Asset Value, beginning of period $4.42 $2.68 $5.19 $7.49 $2.03 $6.19 --------------------------------------------------------------------------------------------------------------------------------- Income (loss) from Investment Operations: Net investment income (loss) 0.02 (0.02) (0.01) (0.01) (0.01) (0.05) Net realized gain (loss) and unrealized appreciation (depreciation) on investments and foreign currency (0.85) 1.81 (0.90) (1.45) 5.43 (4.13) --------------------------------------------------------------------------------------------------------------------------------- Total from investment operations (0.83) 1.79 (0.91) (1.46) 5.42 (4.18) --------------------------------------------------------------------------------------------------------------------------------- Less Distributions from: Net investment income -- (0.01) -- -- -- -- Net realized gains on investments (0.39) (0.07) (1.63) (0.88) -- -- --------------------------------------------------------------------------------------------------------------------------------- Total distributions (0.39) (0.08) (1.63) (0.88) -- -- --------------------------------------------------------------------------------------------------------------------------------- Paid-in Capital from Redemption Fees (Note 1K) 0.01 0.03 0.03 0.04 0.04 0.02 --------------------------------------------------------------------------------------------------------------------------------- Net Asset Value, end of period $3.21 $4.42 $2.68 $5.19 $7.49 $2.03 ================================================================================================================================= Total Return (20.08%)(2) 68.49% (13.09%) (22.92%) 268.97% (67.21%) Ratios/Supplemental Data Net assets, end of period (in 000's) $161,856 $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 1.76%(1) 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) 1.76%(1) 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 0.89%(1) (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 0.89%(1) (0.64%) 0.75% 0.42% (0.37%) (1.12%) Portfolio turnover 6.13%(2) 46.52% 81.96% 47.80% 57.06% 94.01% 1 Annualized. 2 Not annualized. See accompanying notes to financial statements. ---------------------------------------------------------------------------------------------------------------------------------
38 w w w . m a t t h e w s f u nd s . c o m 8 0 0 - 7 8 9 - A S I A [ 2 7 4 2 ]
--------------------------------------------------------------------------------------------------------------------------------- Matthews China Fund --------------------------------------------------------------------------------------------------------------------------------- The table below sets forth financial data for a share of beneficial interest outstanding throughout each year presented. Six Months Ended Year Ended August 31, Period Ended Feb. 28, 2003 ---------------------------------------------- August 31, (unaudited) 2002 2001 2000 1999 1999(1) Net Asset Value, beginning of period $8.96 $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 0.16 (0.20) (0.61) 1.44 4.11 (5.75) ------------------------------------------------------------------------------------------------------------------------------------ Total from investment operations 0.16 (0.15) (0.37) 1.53 4.18 (5.65) ------------------------------------------------------------------------------------------------------------------------------------ Less Distributions from: Net investment income (0.14) (0.15) (0.15) (0.11) (0.11) -- Net realized gains on investments -- -- (0.28) -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ Total distributions (0.14) (0.15) (0.43) (0.11) (0.11) -- ------------------------------------------------------------------------------------------------------------------------------------ Paid-in Capital from Redemption Fees (Note 1K) 0.01 0.05 0.08 0.03 0.05 0.01 ------------------------------------------------------------------------------------------------------------------------------------ Net Asset Value, end of period $8.99 $8.96 $9.21 $9.93 $8.48 $4.36 ==================================================================================================================================== Total Return 1.96%(3) (1.16%) (2.23%) 18.54% 97.79% (56.40%)(3) Ratios/Supplemental Data Net assets, end of period (in 000's) $52,669 $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 1.79%(2) 1.97% 2.00% 2.15% 2.09% 7.84%(2) Ratio of expenses to average net assets after reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 2) 1.83%(2) 2.00% 2.00% 2.00% 2.00% 2.00%(2) Ratio of net investment income (loss) to average net assets before reimbursement, waiver or recapture of expenses by Advisor and Administrator (0.10%)(2) 0.99% 2.62% 1.54% 2.93% (3.45%)(2) Ratio of net investment income (loss) to average net assets after reimbursement, waiver or recapture of expenses by Advisor and Administrator (0.14%)(2) 0.96% 2.62% 1.69% 3.02% 2.38%(2) Portfolio turnover 10.17%(3) 43.84% 61.07% 80.90% 40.27% 11.84%(3) 1 The China Fund commenced operations on February 19, 1998. 2 Annualized. 3 Not annualized. See accompanying notes to financial statements. ------------------------------------------------------------------------------------------------------------------------------------
F i n a n c i a l H i g h l i g h t s 39
--------------------------------------------------------------------------------------------------------------------------------- Financial Highlights --------------------------------------------------------------------------------------------------------------------------------- Matthews Japan Fund --------------------------------------------------------------------------------------------------------------------------------- The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented. Six Months Ended Year Ended August 31, Period Ended Feb. 28, 2003 ---------------------------------- August 31, (unaudited) 2002 2001 2000 1999(1) Net Asset Value, beginning of period $9.60 $11.22 $20.76 $21.70 $10.00 ----------------------------------------------------------------------------------------------------------------------- Income (loss) from Investment Operations: Net investment income (loss) (0.08) (0.07) (0.26) (0.24) (0.06) Net realized gain (loss) and unrealized appreciation (depreciation) on investments and foreign currency (1.63) (1.39) (7.99) (0.29) 11.74 ----------------------------------------------------------------------------------------------------------------------- Total from investment operations (1.71) (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 1K) 0.03 0.11 0.11 0.13 0.02 ----------------------------------------------------------------------------------------------------------------------- Net Asset Value, end of period $7.92 $9.60 $11.22 $20.76 $21.70 ======================================================================================================================= Total Return (17.50%)(3) (12.20%) (40.92%) (1.75%) 117.00%(3) Ratios/Supplemental Data Net assets, end of period (in 000's) $6,541 $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 1.93%(2) 1.91% 2.08% 1.88% 3.45%(2) Ratio of expenses to average net assets after reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 2) 2.00%(2) 2.00% 2.00% 2.00% 2.00%(2) Ratio of net investment income (loss) to average net assets before reimbursement, waiver or recapture of expenses by Advisor and Administrator (1.45%)(2) (1.25%) (0.90%) (0.36%) (2.54%)(2) Ratio of net investment income (loss) to average net assets after reimbursement, waiver or recapture of expenses by Advisor and Administrator (1.52%)(2) (1.34%) (0.82%) (0.48%) (1.09%)(2) Portfolio turnover 46.21%(3) 113.23% 71.09% 23.00% 28.92%(3) 1 The Japan Fund commenced operations on December 31, 1998. 2 Annualized. 3 Not annualized. See accompanying notes to financial statements. ---------------------------------------------------------------------------------------------------------------------------------
40 w w w . m a t t h e w s f u nd s . c o m 8 0 0 - 7 8 9 - A S I A [ 2 7 4 2 ]
------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------ Matthews Asian Technology Fund ------------------------------------------------------------------------------------------------------------------ The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented. Six Months Ended Year Ended Year Ended Period Ended February 28, 2003 August 31, August 31, August 31, (unaudited) 2002 2001 2000(1) Net Asset Value, beginning of period $3.13 $3.53 $7.61 $10.00 ------------------------------------------------------------------------------------------------------------------ Income (loss) from Investment Operations: Net investment income (loss) (0.02) (0.10) (0.05) 0.22 Net realized gain (loss) and unrealized appreciation (depreciation) on investments and foreign currency (0.37) (0.31) (3.97) (2.65) ------------------------------------------------------------------------------------------------------------------ Total from investment operations (0.39) (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 1K) 0.02 0.05 0.16 0.04 ------------------------------------------------------------------------------------------------------------------ Net Asset Value, end of period $2.76 $3.13 $3.53 $7.61 ================================================================================================================== Total Return (11.82%)(3) (10.40%) (51.54%) (23.90%)(3) Ratios/Supplemental Data Net assets, end of period (in 000's) $5,397 $6,879 $9,607 $24,570 Ratio of expenses to average net assets before reimbursement, waiver or recapture of expenses by Advisor and Administrator 2.27%(2) 2.01% 2.69% 2.66%(2) Ratio of expenses to average net assets after reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 2) 2.00%(2) 2.00% 2.00% 2.00%(2) Ratio of net investment income (loss) to average net assets before reimbursement, waiver or recapture of expenses by Advisor and Administrator (1.71%)(2) (1.56%) 1.14% 3.75%(2) Ratio of net investment income (loss) to average net assets after reimbursement, waiver or recapture of expenses by Advisor and Administrator (1.44%)(2) (1.55%) 1.83% 4.41%(2) Portfolio turnover 42.00%(3) 103.60% 181.24% 50.35%(3) 1 The Asian Technology Fund commenced operations on December 27, 1999. 2 Annualized. 3 Not annualized. See accompanying notes to financial statements. ------------------------------------------------------------------------------------------------------------------
F i n a n c i a l H i g h l i g h t s 41
Notes to Financial Statements FEBRUARY 28, 2003 (unaudited)
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.
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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 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 six months ended February 28, 2003. 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.
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 43
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 their respective commencement of operations. In the event that any of the initial shares are redeemed during the period of amortization of the Funds’ organization costs, the redemption proceeds will be reduced by any such unamortized organization costs in the same proportion as the number of shares being redeemed bears to the number of those shares outstanding at the time of redemption.
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 each 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.
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 Matthews Asian Technology Fund 2,390,436 5,375,361 5,967,059H. 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.
I. 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.
J. Other: Securities transactions are accounted for on the date the securities are purchased or sold. Interest income is recorded on the accrual basis and dividend income on the ex-dividend date.
K. Capital Share Transactions: Each Fund is authorized to issue an unlimited number of shares of beneficial interest with a par value of $0.001 per share.
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MATTHEWS PACIFIC TIGER FUND Six Months Ended February 28, 2003 (unaudited) Year Ended August 31, 2002 Shares Amount Shares Amount Shares sold 3,805,964 $31,000,329 11,728,059 $106,314,158 Shares issued through reinvestment of dividends -- -- 40,762 366,041 Shares redeemed (4,278,309) (34,829,777) (7,999,842) (69,949,837) ---------------------------------------------------------------------------------------------------------- Net increase (decrease) (472,345) $(3,829,448) 3,768,979 $36,730,362 ========================================================================================================== MATTHEWS ASIAN GROWTH AND INCOME FUND Six Months Ended February 28, 2003 (unaudited) Year Ended August 31, 2002 Shares Amount Shares Amount Shares sold 11,690,457 $122,518,771 15,326,669 $164,304,863 Shares issued through reinvestment of dividends 318,367 3,342,849 127,019 1,302,597 Shares redeemed (5,125,094) (53,492,237) (3,886,595) (40,361,276) ---------------------------------------------------------------------------------------------------------- Net increase (decrease) 6,883,730 $72,369,383 11,567,093 $125,246,184 ========================================================================================================== MATTHEWS KOREA FUND Six Months Ended February 28, 2003 (unaudited) Year Ended August 31, 2002 Shares Amount Shares Amount Shares sold 11,894,680 $45,576,660 61,630,311 $249,365,417 Shares issued through reinvestment of dividends 3,512,114 13,486,520 864,565 3,086,494 Shares redeemed (22,314,139) (84,331,732) (48,911,935) (202,396,880) ---------------------------------------------------------------------------------------------------------- Net increase (decrease) (6,907,345) $(25,268,552) 13,582,941 $50,055,031 ========================================================================================================== MATTHEWS CHINA FUND Six Months Ended February 28, 2003 (unaudited) Year Ended August 31, 2002 Shares Amount Shares Amount Shares sold 3,035,244 $27,289,474 4,355,329 $42,461,853 Shares issued through reinvestment of dividends 57,638 506,058 37,306 354,407 Shares redeemed (994,934) (8,618,193) (2,789,691) (26,430,947) ---------------------------------------------------------------------------------------------------------- Net increase (decrease) 2,097,948 $19,177,339 1,602,944 $16,385,313 ========================================================================================================== MATTHEWS JAPAN FUND Six Months Ended February 28, 2003 (unaudited) Year Ended August 31, 2002 Shares Amount Shares Amount Shares sold 546,453 $4,703,125 1,870,946 $18,771,725 Shares issued through reinvestment of dividends -- -- 16,933 176,103 Shares redeemed (699,920) (6,054,787) (1,600,390) (15,923,445) ---------------------------------------------------------------------------------------------------------- Net increase (decrease) (153,467) $(1,351,662) 287,489 $3,024,383 ========================================================================================================== MATTHEWS ASIAN TECHNOLOGY FUND Six Months Ended February 28, 2003 (unaudited) Year Ended August 31, 2002 Shares Amount Shares Amount Shares sold 1,568,024 $4,607,669 4,672,505 $17,384,394 Shares issued through reinvestment of dividends -- -- 33,973 138,271 Shares redeemed (1,810,491) (5,369,536) (5,233,008) (19,363,319) ---------------------------------------------------------------------------------------------------------- Net increase (decrease) (242,467) $(761,867) (526,530) $(1,840,654) ==========================================================================================================
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 45
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 $61,515, $155,198, $473,488, $26,555, $22,454, and and $32,572, respectively for the six months ended February 28, 2003, and $198,248, $285,809, $1,677,238, $184,114, $103,243, and $107,488 respectively, for the fiscal year ended August 31, 2002.
2. Investment Advisory Fees and Other Transactions with Affiliates The Advisor, a registered investment advisor 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 resepective 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 six months ended February 28, 2003, were as follows:
Investment Voluntary Advisory Expense Fee Rate Limitation Advisory Fees Matthews Pacific Tiger Fund 1.00% 1.90% $533,130 Matthews Asian Growth and Income Fund 1.00% 1.90% 845,859 Matthews Korea Fund 1.00% 2.00% 1,001,624 Matthews China Fund 1.00% 2.00% 178,126 Matthews Japan Fund 1.00% 2.00% 37,816 Matthews Asian Technology Fund 1.00% 2.00% 30,336 Remaining Expenses Waived Expenses Recoupable and Reimbursed Recouped Expenses by the Advisor by the Advisor Available Matthews Pacific Tiger Fund $-- $-- $-- Matthews Asian Growth and Income Fund -- -- -- Matthews Korea Fund -- -- -- Matthews China Fund -- 6,379 -- Matthews Japan Fund -- 2,463 7,983 Matthews Asian Technology Fund 8,191 -- 179,144Effective March 1, 2002 the voluntary expense limitation for Matthews Korea Fund was reduced from 2.50% to 2.00%.
The Advisor agrees to reimburse money to the Funds if their expense ratio exceeds the Voluntary Expense Limitation shown in the above table. 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. This agreement will continue through at least August 31, 2003.
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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 under the shareholder servicing fee arrangement are as follows for the six months ended February 28, 2003, were as follows:
Shareholder Servicing Fees Matthews Pacific Tiger Fund $79,969 Matthews Asian Growth and Income Fund 126,879 Matthews Korea Fund 150,244 Matthews China Fund 26,719 Matthews Japan Fund 5,672 Matthews Asian Technology Fund 4,550The Funds bear a portion of the fees paid to certain service providers (exclusive of the Funds’ transfer agent) which provide transfer agency and shareholder servicing to certain shareholders. Fees accrued to pay such service providers for the six months ended February 28, 2003, are reflected in the Statement of Operations as follows:
Transfer Shareholder Agent Servicing Total Matthews Pacific Tiger Fund $67,533 $33,768 $101,301 Matthews Asian Growth and Income Fund 99,006 48,764 147,770 Matthews Korea Fund 116,749 58,376 175,125 Matthews China Fund 20,833 10,261 31,094 Matthews Japan Fund 4,422 2,211 6,633 Matthews Asian Technology Fund 3,527 1,763 5,290PFPC 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 received by PFPC for the six months ended February 28, 2003, were $390,262 for administrative and accounting services and $131,482 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 six months ended February 28, 2003, excluding short-term investments, were as follows:
Proceeds Purchases from Sales Matthews Pacific Tiger Fund $15,246,859 $19,000,068 Matthews Asian Growth and Income Fund 70,522,883 6,411,727 Matthews Korea Fund 12,301,516 58,365,189 Matthews China Fund 21,411,517 3,642,046 Matthews Japan Fund 3,511,673 4,989,505 Matthew Asian Technology Fund 2,598,934 3,476,006
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 47
Board of Trustees
RICHARD K. LYONS, CHAIRMAN
G. PAUL MATTHEWS
ROBERT K. CONNOLLY
DAVID FITZWILLIAM-LAY
NORMAN W. BERRYESSA
JOHN H. DRACOTT, EMERITUS
For more information about
Matthews Asian Funds
visit our Web site at
www.matthewsfunds.com
or call toll-free
800-789-ASIA [2742]. Officers
G. PAUL MATTHEWS
MARK W. HEADLEY
JAMES E. WALTER
DOWNEY L. HEBBLE
Investment Advisor
MATTHEWS INTERNATIONAL CAPITAL MANAGEMENT, LLC
456 MONTGOMERY STREET, SUITE 1200
SAN FRANCISCO, CA 94104
800-789-ASIA [2742]
Shareholder Services
PFPC INC.
760 MOORE ROAD
KING OF PRUSSIA, PA 19406
800-892-0382 Custodian
THE BANK OF NEW YORK
ONE WALL STREET
NEW YORK, NY 10286 Legal Counsel
PAUL, HASTINGS, JANOFSKY & WALKER, LLP
55 SECOND STREET
SAN FRANCISCO, CA 94105
Distributed by PFPC Distributors, Inc.
Matthews Asian Funds
www.matthewsfunds.com
Matthews Asian Funds
www.matthewsfunds.com
456 Montgomery Street, Suite 1200
San Francisco, CA 94104
800-789-ASIA [2742] SAR/G-0403-41.5M-PDG
Item 2. Code of Ethics.
Not applicable.
Item 3. Audit Committee Financial Expert.
Not applicable.
Items 4-8. [Reserved]
Item 9. Controls and Procedures.
(a)Not applicable.
(b)There were no significant changes in the registrant’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Item 10. Exhibits.
(a)Not applicable.
(b)Certifications pursuant to Section 302 and 906 of the Sarbanes-Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Matthews Asian Funds
By (Signature and Title)* /s/ G. Paul Matthews
G. Paul Matthews, Chairman
(principal executive officer)
Date April 11, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By (Signature and Title)* /s/ G. Paul Matthews
G. Paul Matthews, Chairman
(principal executive officer)
Date April 11, 2003
By (Signature and Title)* /s/ James E. Walter
James E. Walter, Treasurer
(principal financial officer)Date April 11, 2003
* Print the name and title of each signing officer under his or her signature.
