Annual Report December 31, 2009 | Matthewsasia.Com
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Matthews Asia Funds | Annual Report December 31, 2009 | matthewsasia.com ASIA GROWTH AND INCOME STRATEGIES Matthews Asian Growth and Income Fund Matthews Asia Dividend Fund Matthews China Dividend Fund ASIA GROWTH STRATEGIES Matthews Asia Pacific Fund Matthews Pacific Tiger Fund Matthews China Fund Matthews India Fund Matthews Japan Fund Matthews Korea Fund ASIA SMALL COMPANY STRATEGY Matthews Asia Small Companies Fund ASIA SPECIALTY STRATEGY Matthews Asian Technology Fund '09 Merrill Corp - Matthews Web-Ready Annual Report [Funds] 12-31-2009 ED | dbaker | 01-Mar-10 14:43 | 10-1483-4.aa | Sequence: 2 CHKSUM Content: 10938 Layout: 53506 Graphics: No Graphics CLEAN Performance and Expenses Through December 31, 2009 2009 Gross 2008 Gross Average Annual Total Return Annual Annual Since Inception Operating Operating 1 year 5 years 10 years Inception Date Expenses Expenses ASIA GROWTH AND INCOME STRATEGIES Matthews Asian Growth and Income Fund 41.44% 10.77% 13.76% 11.18% 9/12/94 1.18% 1.16% Matthews Asia Dividend Fund 47.59% n.a. n.a. 11.00% 10/31/06 1.28% 1.35% After Fee Waiver, Reimbursement and Recoupment 1.30%1 1.32%1 Matthews China Dividend Fund n.a. n.a. n.a. 1.80%2 11/30/09 10.05% n.a. After Fee Waiver, Reimbursement and Recoupment 1.50%3 n.a. ASIA GROWTH STRATEGIES Matthews Asia Pacific Fund 44.82% 7.18% n.a. 9.86% 10/31/03 1.28% 1.23% Matthews Pacific Tiger Fund 75.37% 14.50% 11.55% 9.13% 9/12/94 1.13% 1.12% Matthews China Fund 78.30% 22.23% 17.18% 13.53% 2/19/98 1.21% 1.23% Matthews India Fund 97.25% n.a. n.a. 16.43% 10/31/05 1.27% 1.29% Matthews Japan Fund 10.06% -5.49% -3.85% 3.11% 12/31/98 1.31% 1.23% Matthews Korea Fund 62.92% 10.47% 8.98% 4.81% 1/3/95 1.30% 1.27% ASIA SMALL COMPANY STRATEGY Matthews Asia Small Companies Fund 103.00% n.a. n.a. 44.05% 9/15/08 2.09% 14.31% After Fee Waiver, Reimbursement and Recoupment 2.00%4 2.00%4 ASIA SPECIALTY STRATEGIES Matthews Asian Technology Fund 70.28% 8.03% n.a. -1.64% 12/27/99 1.40% 1.33% 1 The Advisor has contractually agreed to waive Matthews Asia Dividend Fund’s fees and reimburse expenses until at least August 31, 2010 to the extent needed to limit total annual operating expenses to 1.50%. 2 Actual Return for fiscal period beginning 11/30/09 through 12/31/09, not annualized. 3 The Advisor has contractually agreed to waive Matthews China Dividend Fund’s fees and reimburse expenses until at least November 30, 2012 to the extent needed to limit total annual operating expenses to 1.50%. 4 The Advisor has contractually agreed to waive Matthews Asia Small Companies Fund’s fees and reimburse expenses until at least April 30, 2012 to the extent needed to limit total annual operating expenses to 2.00%. Investor Disclosure Past Performance: All performance quoted in this report is past performance and is no guarantee of future results. Investment return and principal value will fluctuate with changing market conditions so that when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the returns quoted. If certain of the Funds’ fees and expenses had not been waived, returns would have been lower. For the Funds’ most recent month-end performance, please call 800.789.ASIA (2742) or visit matthewsasia.com. Investment Risk: Mutual fund shares are not deposits or obligations of, or guaranteed by, any depositary institution. Shares are not insured by the FDIC, Federal Reserve Board or any government agency and are subject to investment risks, including possible loss of principal amount invested. Investing in international markets may involve additional risks, such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. In addition, single-country and sector funds may be subject to a higher degree of market risk than diversified funds because of concentration in a specific industry, sector or geographic location. Investing in small and mid-size companies is more risky than investing in large companies as they may be more volatile and less liquid than larger companies. Please see the Funds’ prospectus and Statement of Additional Information for more risk disclosure. Redemption Fee Policy The Funds assess a redemption fee of 2.00% on the total redemption proceeds on most sales or exchanges of shares that take place within 90 calendar days after their purchase as part of the Funds’ efforts to discourage market timing activity. This fee is payable directly to the Funds. For purposes of determining whether the redemption fee applies, the shares that have been held longest will be redeemed first. The Funds may grant exemptions from the redemption fee in certain circumstances. For more information on this policy, please see the Funds’ prospectus. Cover photo: Huc Bridge, Hanoi, Vietnam ©Eric Brandt JOB: 10-1483-4 CYCLE#;BL#: 2; 0 TRIM: 8.25" x 10.75" COMPOSITE COLORS: Black, PANTONE 875 U, ~note-color 2, ~note-color 3 GRAPHICS: none V1.5 Merrill Corp - Matthews Web-Ready Annual Report [Funds] 12-31-2009 ED | dbaker | 01-Mar-10 14:44 | 10-1483-4.ba | Sequence: 1 CHKSUM Content: 21988 Layout: 59329 Graphics: No Graphics CLEAN Contents Messages to Shareholders 2 Manager Commentaries, Fund Characteristics and Schedules of Investments: ASIA GROWTH AND INCOME STRATEGIES Matthews Asian Growth and Income Fund 5 Matthews Asia Dividend Fund 10 Matthews China Dividend Fund 15 ASIA GROWTH STRATEGIES Matthews Asia Pacific Fund 20 Matthews Pacific Tiger Fund 25 Matthews China Fund 30 Matthews India Fund 35 Matthews Japan Fund 40 Matthews Korea Fund 45 ASIA SMALL COMPANY STRATEGY Matthews Asia Small Companies Fund 50 ASIA SPECIALTY STRATEGY Matthews Asian Technology Fund 55 Disclosures and Index Definitions 59 Disclosure of Fund Expenses 60 Statements of Assets and Liabilities 62 Statements of Operations 64 Statements of Changes in Net Assets 66 Financial Highlights 72 Notes to Financial Statements 83 Report of Independent Registered Public Accounting Firm 94 Tax Information 95 Approval of Investment Advisory Agreement 96 Trustees and Officers of the Funds 100 This report has been prepared for Matthews Asia Funds shareholders. It is not authorized for distribution to prospective investors unless accompanied or preceded by a current Matthews Asia Funds prospectus, which contains more complete information about the Funds’ investment objectives, risks and expenses. Additional copies of the prospectus may be obtained at matthewsasia.com. Please read the prospectus carefully before you invest or send money. The views and opinions in this report were current as of December 31, 2009. They are not guarantees of performance or investment results and should not be taken as investment advice. Investment decisions reflect a variety of factors, and the managers reserve the right to change their views about individual stocks, sectors and the markets at any time. As a result, the views expressed should not be relied upon as a forecast of a Fund’s future investment intent. Statements of fact are from sources considered reliable, but neither the Funds nor the Investment Advisor makes any representation or guarantee as to their completeness or accuracy. Matthews Asia Funds are distributed by: PFPC Distributors, Inc. | 760 Moore Road | King of Prussia, PA 19406 JOB: 10-1483-4 CYCLE#;BL#: 2; 0 TRIM: 8.25" x 10.75" COMPOSITE COLORS: Black, PANTONE 875 U, ~note-color 2, ~note-color 3 GRAPHICS: none V1.5 Merrill Corp - Matthews Web-Ready Annual Report [Funds] 12-31-2009 ED | dbaker | 01-Mar-10 14:44 | 10-1483-4.ba | Sequence: 2 CHKSUM Content: 50330 Layout: 21990 Graphics: 37044 CLEAN Message to Shareholders from the Investment Advisor Dear Fellow Shareholders, Many commentators are describing 2009 as a watershed year—one in which global economic leadership shifted decisively from the West to the East. Indeed, the U.S. and European economies appeared to bottom out in the middle of 2009 when GDP fell 3.8% and 5.0% year-on-year, respectively. Meanwhile, Asia recovered sooner than the West, and China and India grew throughout the cri- sis with year-on-year growth rates falling to approximately 6% in both “Sitting in San Francisco countries. In political circles, the Group of 20 (G–20) usurped the position of might have made us appear the Group of 8 (G–8) as the prime decision-making body while the world’s finance ministers struggled to coordinate global stimulus. Japan had been Asia’s far removed from the sole representative in the G–8, but this change brought China, India, South maelstrom in Asia’s markets, Korea, Indonesia and Australia into the main forum for global economic policy- making. Some of the commentary has been hyperbole, with editorial writers, but it gave us perspective.” book authors and even some foreign leaders announcing the “end of the American Empire.” Even now, however, the conventional wisdom is that the U.S. faces many years of slow growth because of its debt-laden consumers, while Asian consumers are just starting to open their wallets. You could say that markets mirrored the trends in underlying fundamentals— the S&P 500 Index bottomed out in early March 2009, but the MSCI All Country Asia ex Japan Index had already seen its lowest point in late November of the previous year. Asia is now valued at 10% to 15% higher than the U.S.