Japan. Matthews currently makes that
determination based primarily on one or more of the following criteria: (A) with respect
to a company or issuer, whether (i) it is organized under the laws of Japan; (ii) it
derives at least 50% of its revenues or profits from goods produced or sold, investments made, or services performed, or has at least 50% of its assets located, within Japan; (iii) it has the primary trading markets for
its securities in Japan; (iv) it has its principal place of business in or is otherwise headquartered in Japan; or (v) it is a governmental entity or an agency, instrumentality or a political subdivision of
Japan; and (B) with respect to an instrument or issue, whether(i) its issuer is headquartered or organized in Japan; (ii) it is issued to finance a project that has at least 50% of its assets or
operations in Japan; (iii) it is at least 50% secured or backed by assets located in Japan; (iv) it is a component of or its issuer is included in the MSCI Japan Index; or (v) it is denominated in the currency of
Japan and addresses at least one of the other above criteria. The term “located” and the associated criteria listed above have been defined in such a way that Matthews has latitude in determining
whether an issuer should be included within a region or country. The Fund may also invest in depositary receipts, including American, European and Global Depositary Receipts.
The Fund seeks to invest in companies capable of sustainable growth based on the fundamental characteristics of those companies, including balance sheet
information; number of employees; size and stability of cash flow; management’s depth, adaptability and integrity; product lines; marketing strategies; corporate governance; and financial
health. The Fund may invest in companies of any market capitalization. Matthews measures a
company’s size with respect to fundamental criteria such as, but not limited to,
market capitalization, book value, revenues, profits, cash flow, dividends paid and number of employees. The implementation of the principal investment strategies of the Fund may result in a significant portion of the
Fund’s assets being invested from time to time in one or more sectors, but the Fund may invest in companies in any sector.
The Fund may invest in affiliated and unaffiliated ETFs, including the Matthews Japan Active ETF, a
series of the Trust with a substantially similar investment strategy to the Fund, for cash equitization purposes, which allows the Fund to invest in a manner consistent with its investment strategy while
managing daily cash flows, including purchases and redemptions by investors.
Principal Risks of Investment
There is no guarantee that your investment in the Fund will
increase in value. The value of your investment in the Fund could go down, meaning you could lose money. The principal risks of investing in the Fund are:
Political, Social and Economic Risks of Investing in Asia: The value of the Fund’s assets may be adversely affected by political, economic, social and religious instability; inadequate investor protection; changes in laws or
regulations of countries within the Asian region (including countries in which the Fund invests, as well as the broader region); international relations with other nations; natural disasters; corruption
and military activity. The economies of many Asian countries differ from the economies of
more developed countries in many respects, such as rate of growth, inflation, capital
reinvestment, resource self-sufficiency, financial system stability, the national balance of payments position and sensitivity to changes in global trade.
Geopolitical Events Risk: The interconnectivity between global economies and financial markets increases the likelihood that
events or conditions in one region or financial market may
adversely impact issuers in a different
country, region or financial market. Securities in the Fund’s portfolio may underperform due to inflation (or expectations for inflation), interest rates, global demand for particular products or
resources, trade disputes, supply chain disruptions, natural disasters, climate change and
climate-related events, pandemics, epidemics, terrorism, international conflicts,
cybersecurity events, regulatory events and governmental or quasi-governmental actions. The occurrence of global events similar to those in recent years may result in market volatility and may have long term
effects on the global financial markets.
Currency Risk: When the Fund conducts securities transactions in a foreign currency, there is the risk of the value
of the foreign currency increasing or decreasing against the value of the U.S. dollar.
The value of an investment denominated in a foreign currency will decline in U.S. dollar terms if that currency weakens against the U.S. dollar. While the Fund is permitted to hedge currency risks, Matthews does not
anticipate doing so at this time.
Risks Associated with Japan: The Japanese economy has only recently emerged from a prolonged economic downturn. Since the year 2000, Japan’s economic growth rate has remained relatively low. The Japanese economy is
characterized by an aging demographic, declining population, large government debt and
highly regulated labor market. Economic growth in Japan is dependent on domestic
consumption, deregulation and consistent government policy. International trade, particularly with the U.S., also impacts growth of the Japanese economy and adverse economic conditions in the U.S.
or other trade partners may affect Japan. Japan also has a growing economic relationship
with China and other Southeast Asian countries, and thus Japan’s economy may also
be affected by economic, political or social instability in those countries (whether resulting from local or global events). Other factors, such as the occurrence of natural disasters and relations with
neighboring countries (including China, South Korea, North Korea and Russia), may also negatively impact the Japanese economy.
U.S. Trade Policy Risk: The Trump administration recently enacted and proposed to enact significant new tariffs on imports
from certain countries. Additionally, President Trump has directed various federal
agencies to further evaluate key aspects of U.S. trade policy and there has been ongoing discussion and commentary regarding potential significant changes to U.S. trade policies, treaties and tariffs. There
continues to exist significant uncertainty about the future relationship between the U.S. and other countries with respect to such trade policies, treaties and tariffs. These developments, or the
perception that any of them could occur, may have a material adverse effect on global
economic conditions and the stability of global financial markets, and may significantly
reduce global trade and, in particular, trade between the impacted nations and the U.S. Any of these factors could depress economic activity and restrict a portfolio company’s access to suppliers or
customers and have a material adverse effect on its business, financial condition or operations, which in turn could negatively impact the Fund.
Growth Stock Risk: Growth stocks may be more volatile than other stocks because they are more sensitive to investor
perceptions of the issuing company’s growth potential. Growth stocks may go in and
out of favor over time and may perform differently than the market as a whole.
