A company or other issuer is considered
to be “located” in Japan, and a security or instrument is deemed to be a Japanese security or instrument, if it has substantial ties to 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 U.S. presidential administration has enacted significant new tariffs, and proposed to enact
additional tariffs, on imports from certain countries. Additionally, 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.
