UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number			811-08510
Matthews International Funds
(Exact name of registrant as specified in charter)
Four Embarcadero Center, Suite 550 San Francisco, CA 94111
(Address of principal executive offices) (Zip code)
William J. Hackett, President Four Embarcadero Center, Suite 550 San Francisco, CA  94111
(Name and address of agent for service)
Registrant’s telephone number, including area code:				415-788-7553
Date of fiscal year end:	December 31
Date of reporting period:		June 30, 2012

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, 100 F Street, NE, Washington, DC 20549. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.

Item 1. Reports to Stockholders.

The Report to Shareholders is attached herewith.

Matthews Asia Funds | Semi-Annual Report

June 30, 2012 | matthewsasia.com

ASIA FIXED INCOME STRATEGY

Matthews Asia Strategic Income Fund

ASIA GROWTH AND INCOME STRATEGIES

Matthews Asian Growth and Income Fund

Matthews Asia Dividend Fund

Matthews China Dividend Fund

ASIA GROWTH STRATEGIES

Matthews Asia Growth Fund

Matthews Pacific Tiger Fund

Matthews China Fund

Matthews India Fund

Matthews Japan Fund

Matthews Korea Fund

ASIA SMALL COMPANY STRATEGIES

Matthews Asia Small Companies Fund

Matthews China Small Companies Fund

ASIA SPECIALTY STRATEGY

Matthews Asia Science and Technology Fund

'12

Performance and Expenses

				Average Annual Total Return											2011 Gross Annual
	1 year			5 years			10 years			Since Inception			Inception Date		Operating Expenses*
Matthews Asia Strategic Income Fund
Investor Class (MAINX)		n.a.			n.a.			n.a.			3.64	%1		11/30/11		1.93	%2
After Fee Waiver and Reimbursement																1.40	%3
Institutional Class (MINCX)		n.a.			n.a.			n.a.			3.73	%1		11/30/11		1.78	%2
After Fee Waiver and Reimbursement																1.25	%3
Matthews Asian Growth & Income Fund
Investor Class (MACSX)		-3.68	%		4.08	%		12.33	%		10.49	%		9/12/94		1.12	%
Institutional Class (MICSX)		-3.55	%		n.a.			n.a.			0.33	%		10/29/10		0.99	%
Matthews Asia Dividend Fund
Investor Class (MAPIX)		-3.30	%		6.95	%		n.a.			9.51	%		10/31/06		1.10	%
Institutional Class (MIPIX)		-3.21	%		n.a.			n.a.			0.51	%		10/29/10		1.00	%
Matthews China Dividend Fund
Investor Class (MCDFX)		-7.25	%		n.a.			n.a.			6.50	%		11/30/09		1.52	%
After Fee Waiver and Reimbursement																1.50	%4
Institutional Class (MICDX)		-7.05	%		n.a.			n.a.			-1.04	%		10/29/10		1.31	%
Matthews Asia Growth Fund
Investor Class (MPACX)		-8.58	%		1.94	%		n.a.			8.86	%		10/31/03		1.18	%
Institutional Class (MIAPX)		-8.46	%		n.a.			n.a.			-3.12	%		10/29/10		1.03	%
Matthews Pacific Tiger Fund
Investor Class (MAPTX)		-8.34	%		4.73	%		14.57	%		8.68	%		9/12/94		1.11	%
Institutional Class (MIPTX)		-8.20	%		n.a.			n.a.			-2.80	%		10/29/10		0.95	%
Matthews China Fund
Investor Class (MCHFX)		-17.13	%		2.81	%		14.40	%		10.72	%		2/19/98		1.13	%
Institutional Class (MICFX)		-16.94	%		n.a.			n.a.			-11.45	%		10/29/10		0.96	%
Matthews India Fund
Investor Class (MINDX)		-23.88	%		-0.16	%		n.a.			9.33	%		10/31/05		1.18	%
Institutional Class (MIDNX)		-23.72	%		n.a.			n.a.			-18.35	%		10/29/10		0.99	%
Matthews Japan Fund
Investor Class (MJFOX)		-5.69	%		-3.92	%		2.98	%		3.52	%		12/31/98		1.21	%
Institutional Class (MIJFX)		-5.54	%		n.a.			n.a.			3.59	%		10/29/10		1.07	%
Matthews Korea Fund
Investor Class (MAKOX)		-10.28	%		-0.76	%		10.84	%		5.13	%		1/3/95		1.18	%
Institutional Class (MIKOX)		-10.08	%		n.a.			n.a.			3.51	%		10/29/10		1.07	%
Matthews Asia Small Companies Fund
Investor Class (MSMLX)		-17.24	%		n.a.			n.a.			17.56	%		9/15/08		1.52	%
Matthews China Small Companies Fund
Investor Class (MCSMX)		-26.16	%		n.a.			n.a.			-27.23	%		5/31/11		5.32	%2
After Fee Waiver and Reimbursement																2.00	%5
Matthews Asia Science and Technology Fund
Investor Class (MATFX)		-12.69	%		-0.38	%		9.12	%		-0.71	%		12/27/99		1.21	%

*  These figures are from the Funds' current prospectus and may differ from the actual expense ratios for the preceding fiscal year, as shown in the Financial Highlights section of this report.

1  Actual return for fiscal period beginning 11/30/11 through 6/30/12, not annualized.

2  Gross annual operating expenses for 2011 are annualized.

3  Matthews has contractually agreed to waive fees and reimburse expenses until August 31, 2014 to the extent needed to limit Total Annual Fund Operating Expenses to 1.25% for the Institutional Class and agreed to reduce the expense ratio by an equal amount for the Investor Class. Because certain expenses of the Investor Class may be higher than the Institutional Class, the Total Annual Fund Operating Expenses After Fee Waiver and Expense Reimbursement for the Investor Class may exceed 1.25%. The amounts of the waivers and reimbursements are based on estimated Fund expenses. The fee waiver and expense reimbursement may be terminated at any time by the Fund on 60 days' written notice.

4  The Advisor has contractually agreed to waive the Fund's fees and reimburse expenses until at least August 31, 2013 to the extent needed to limit total annual operating expenses to 1.50%.

5  The Advisor has contractually agreed to waive the Fund's fees and reimburse expenses until at least August 31, 2014 to the extent needed to limit total annual operating expenses to 2.00%.

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 and emerging markets may involve additional risks, such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. Fixed income investments are subject to additional risks, including, but not limited to, interest rate, credit and inflation risks. 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.

Contents

Message to Shareholders	2
Manager Commentaries, Fund Characteristics and Schedules of Investments:
ASIA FIXED INCOME STRATEGY
Matthews Asia Strategic Income Fund	4
ASIA GROWTH AND INCOME STRATEGIES
Matthews Asian Growth and Income Fund	9
Matthews Asia Dividend Fund	14
Matthews China Dividend Fund	19
ASIA GROWTH STRATEGIES
Matthews Asia Growth Fund	24
Matthews Pacific Tiger Fund	29
Matthews China Fund	34
Matthews India Fund	39
Matthews Japan Fund	44
Matthews Korea Fund	49
ASIA SMALL COMPANY STRATEGIES
Matthews Asia Small Companies Fund	54
Matthews China Small Companies Fund	59
ASIA SPECIALTY STRATEGY
Matthews Asia Science and Technology Fund	64
Disclosures	68
Index Definitions	69
Disclosure of Fund Expenses	70
Statements of Assets and Liabilities	72
Statements of Operations	75
Statements of Changes in Net Assets	78
Financial Highlights	85
Notes to Financial Statements	98

Cover photo: Open umbrella under tree, Kyoto, Japan

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 June 30, 2012. 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. Current and future portfolio holdings are subject to risk.

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 in the United States by Foreside Funds Distributors LLC, Berwyn, Pennsylvania

Matthews Asia Funds are distributed in Latin America by HMC Partners

"We focus on companies that we believe will be good stewards of capital; that allocate investments carefully and delight in creating value for shareholders..."

Message to Shareholders
from the Investment Advisor

July 2012

Dear Fellow Shareholders,

According to legend, King Midas gained the power to turn everything that he touched into gold. Delighted with this power, he touched the branch of a tree and it turned to gold. But he soon found himself unable to drink or eat as anything that touched his lips aurified instantly. His final tragedy came when, heedless of his despairing protests, his daughter embraced him and thus was transformed into a priceless, lifeless golden statue. Midas had managed to deprive his life of all value.

I see parallels in the current market environment. Cash, cash and cash—it is all that anyone seems to care about at the moment. European nations need it to pay down debt as do U.S. homeowners and China's local governments. Central banks, meanwhile, seem disinclined to increase the rate at which new cash is supplied. That is the case even in the U.S. and Europe, but it is particularly striking in Asia where central banks have been following quite a tight policy. This has all led to a scramble for cash and, as a consequence, machines idle and rust and labor languishes unemployed. At least in my view, these investors appear to be focusing on the value of cash to the extent that they lose sight of value elsewhere. Midas eventually starved for his love of gold and it is hard not to draw the conclusion that love of cash is starving the world of economic activity and starving labor of potential productivity.

Investors have also bid up prices of the "next best thing to cash"—U.S. treasuries, for example. And they have bid down prices of what are seen as riskier assets such as Asian equities. The notion of a "risk on, risk off" narrative has also added the fuel of a short-term mentality to this investment approach. It has brought valuations in Asia's markets down to levels that are below historic 20-year averages. At the end of the second quarter, a broad-based universe of Asia ex-Japan stocks was trading on about 10X forward 12-month earnings. This is about a 20% discount to that 20-year average, which has historically been an infrequent occurrence. The current Asia ex-Japan dividend yield of 2.7% is similarly infrequently seen. Given the slow drips of bad news out of the U.S. and Europe, the markets have had plenty of time to ruminate on risks to short-term and long-term growth. This is not a fast-moving crisis, and much analysis has been focused on the issues concerning investors. This means it is not something that the markets have had to try to digest quickly with no past knowledge, insight or experience. Consequently, the low valuations are based on relatively subdued forecasts for the near term. Margins are expected to decline year-over-year.

For us, it does mean that there is more value in the markets than there has been in a while. And as a portfolio manager, it is always enticing to see established, seasoned businesses offering good dividend or cash flow yields, particularly when convinced of the long-term demand for their services or products. The frustration of a portfolio manager is, of course, that at the very time when there are so many enticing options, you often don't have the cash to capture that value. At Matthews, portfolio managers witness the high value many investors place on cash—one of the things that we value least. Cash levels in the Funds reflect this. We generally remain fully invested.

2 MATTHEWS ASIA FUNDS

It is not that we don't care about cash—indeed we focus on companies that we believe will be good stewards of capital; that allocate investments carefully, and delight in creating value for shareholders or returning cash to them. As portfolio managers, we are interested in cash only to immediately put it to work, for we see a greater value in what we believe to be the underappreciated potential of Asia's 4 billion people. In the past, extreme demand for cash has often been transitory—which is not the assumption that markets seem to be making about today's world. The "new normal" and similar discussions of a loss of potential output in the global economy make sense to me only if they are a surrender to the idea that this love of cash will be much longer-lasting. Whether or not that assumption is right, it seems to be less appropriate for Asia, where the proximate cause of demand for cash may be the fact that policymakers and central banks have been following relatively tight policies. Compare this policy conservatism with the rest of the world in which one can blame the accumulation of excessive debt over years, even decades. For us, it remains a view that seems to be at odds with the broad sweep of Asia's development and also with our discussions in recent company meetings.

We are meeting companies at a faster pace this year than we did last year. This is partly because we are in the enviable position of having been able to increase our investment team's research resources over the past year and now have "more hands on the wheel." It is also because during these times, when everyone is focusing on cash, short-term trends and the macro picture, we think it is best to take a view which the market may view as contrarian.

As I mentioned in some of my previous communications, we spend a lot of time looking at India and China, particularly small-capitalization companies. But, in truth, the opportunities are quite broad-based across countries and industries. We have seen some effect of the slowdown in global growth. Nevertheless, many of the companies we visit are focused on domestic demand and are somewhat insulated from the weakness in Europe and the U.S.

The portfolios remain fully invested: biased toward businesses that we believe will grow profitably over the coming decades from the growth in spending of Asia's households, the development of new products, the enjoyment of new services and the enhanced expression of individual tastes and preferences. As such we hope to avoid King Midas's fate, to focus instead on what can be valued over the long term.

As always, it is a privilege to act as your investment advisor.

Robert Horrocks, PhD
Chief Investment Officer
Matthews International Capital Management, LLC

Shareholder Notification

Dear Valued Investor,

Beginning with the quarter ending September 30, 2012, Matthews will cease its production of the First Quarter and Third Quarter shareholder reports. The information previously contained in these reports has been and will continue to be available on matthewsasia.com.

As many of our communications are now accessed primarily online, we believe that eliminating these reports—and publishing the information online—is not only a more time-efficient means of communicating updates, but will also result in cost savings for shareholders. All elements previously contained in the First and Third Quarter reports can be found on matthewsasia.com, including:

•  Message to Shareholders from the Investment Advisor

•  Fund Manager Commentaries

•  Performance and Expenses

•  Top 10 and Portfolio Holdings

•  Fund Characteristics

matthewsasia.com | 800.789.ASIA 3

ASIA FIXED INCOME STRATEGY

PORTFOLIO MANAGERS

Teresa Kong, CFA

Lead Manager

Gerald M. Hwang, CFA, Robert J. Horrocks, PhD

Co-Managers

FUND FACTS

	Investor Class	Institutional Class
Ticker	MAINX	MINCX
CUSIP	577125503	577125602
Inception	11/30/11	11/30/11
NAV	$10.18	$10.18
Initial Investment	$2,500	$3 million
Gross Expense Ratio1	1.93%	1.78%
After fee waiver, Reimbursement and Recoupment	1.40%	1.25%

Portfolio Statistics

Total # of Positions	46
Net Assets	$23.2 million
Modified Duration	5.1 years2
Portfolio Turnover	3.66%3

Benchmarks

HSBC Asian Local Bond Index

J.P. Morgan Asia Credit Index

Redemption Fee

2% within first 90 calendar days of purchase

OBJECTIVE

Total return over the long term with an emphasis on income.

STRATEGY

Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 80% of its total assets, which include borrowings for investment purposes, in income-producing securities including, but not limited to, debt and debt-related instruments issued by governments, quasi-governmental entities, supra-national institutions, and companies in Asia. Investments may be denominated in any currency, and may represent any part of a company's capital structure from debt to equity or with features of both.

1  Gross annual operating expenses for the Fund for 2011 are annualized. The Advisor has contractually agreed to waive fees and reimburse expenses until August 31, 2014 to the extent needed to limit Total Annual Fund Operating Expenses to 1.25% for the Institutional Class and agreed to reduce the expense ratio by an equal amount for the Investor Class. Because certain expenses of the Investor Class may be higher than the Institutional Class, the Total Annual Fund Operating Expenses After Fee Waiver and Expense Reimbursement for the Investor Class may exceed 1.25%. The amounts of the waivers and reimbursements are based on estimated Fund expenses. The fee waiver and expense reimbursement may be terminated at any time by the Fund on 60 days' written notice. Matthews Asia Funds does not charge 12b-1 fees.

2  Modified duration measures the percent change in value of the fixed income portion of the portfolio in response to a 1% change in interest rates. In a multi-currency denominated portfolio with sensitivities to different interest rate regimes, modified duration will not accurately reflect the change in value of the overall portfolio from a change in any one interest rate regime.

3  Not annualized. The Fund commenced operations on November 30, 2011. The lesser of fiscal year 2011 long-term purchase costs or sales proceeds divided by the average monthly market value of long-term securities.

Matthews Asia Strategic Income Fund

Portfolio Manager Commentary

For the first half of 2012, the Matthews Asia Strategic Income Fund gained 4.18% (Investor Class) and 4.27% (Institutional Class) while its primary benchmark, the HSBC Asian Local Bond Index and its secondary benchmark, the J.P. Morgan Asia Credit Index, gained 2.35% and 6.68%, respectively. For the quarter ended June 30, the Fund returned 0.59% (Investor Class) and 0.64% (Institutional Class), while the indices returned –0.42% and 2.60%, respectively.

Overall, securities with consistent and sustainable cash flows did well during this period of uncertainty and low global yields. The top contributor to performance by issuer was the Republic of Philippines during the second quarter. Philippines bonds rallied on positive performance in credit, currency and interest rates. The credit spread on the U.S. dollar-denominated Republic of Philippines bonds tightened on expectations that this sovereign will be the next to be upgraded to investment grade status. The Philippine peso was the second best returning currency after the Japanese yen over the quarter with a spot return of 1.82%. The country's robust economy and continued foreign inflows sustained the strength of the peso. The policy rate remained stable at 4%, with inflation coming in lower than expected despite robust GDP growth. Local interest rates fell with greater demand for the Republic of Philippines bonds, driving up prices.

The biggest detractors to performance during the second quarter included positions denominated in Indonesian rupiah and Malaysian ringgit and the Japanese yen. The Fund's Indonesian rupiah-denominated, Indonesian Government bonds (due 2021) and Malaysian ringgit-denominated Malaysian Government bonds (due 2021) lagged due to the underperformance of these currencies relative to the U.S. dollar. Conversely, the Fund's short position in a Japanese yen currency forward underperformed due to the outperformance of the Japanese yen against the U.S. dollar.

Across global bond markets, government yields have hit historic lows. The U.S. 10-year Treasury yield reached 1.45% in June, the lowest yield since the founding of the New York Stock Exchange in 1792. At the same time, yields for Hong Kong and Singapore government bonds also hit multi-decade lows of 0.97% and 1.40%, respectively. This leads us to conclude that central banks are willing to keep interest rates low so capital remains cheap in order to re-start growth. It is at times like this when investors seem to have an insatiable appetite for assets considered "risk-free." We believe a contrarian approach is appropriate. Hence, we have adjusted the portfolio's credit, currency and interest rate positioning.

First on credit, we want to highlight the Fund's increased exposure to Chinese property. Chinese property is going through a perfect storm on three fronts: A slowdown in exports driven by the recession in Europe and slow recovery in the U.S.; the oversupply of residential property driven by China's stimulus in 2008—2009; and uncertainty stemming from China's once in a decade power transition. While the problems in Europe and the U.S. are persistent, we see China's housing oversupply and political issues as temporary in nature and may already be on the mend. While the property sector as a whole still faces challenges, we are finding value in solid companies whose bonds have priced in much of the downside. Specifically, we like developers with large shares in their local markets, strong balance sheets and access to capital. We believe these developers are likely going to gain market share at the detriment of

(continued)

4 MATTHEWS ASIA FUNDS

PERFORMANCE AS OF JUNE 30, 2012

	Actual Return, Not Annualized
	3 Months			Since Inception			Inception Date
Investor Class (MAINX)		0.59	%		3.64	%	11/30/11
Institutional Class (MINCX)		0.64	%		3.73	%	11/30/11
HSBC Asian Local Bond Index4		-0.42	%		3.13	%
J.P. Morgan Asia Credit Index4		2.60	%		7.63	%
Lipper Emerging Market Debt Category Average5		-0.07	%		6.83	%

Performance assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate with 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 return figures quoted. Returns would have been lower if certain of the Fund's fees and expenses had not been waived. For the Fund's most recent month-end performance visit matthewsasia.com.

The performance data does not reflect the deduction of taxes that a shareholder would pay on dividends, capital gains distributions or redemption of Fund shares. Values are in US$.

4  It is not possible to invest directly in an index. Source: Index data from HSBC and J.P. Morgan; total return calculations performed by BNY Mellon Investment Servicing (US) Inc. Please see page 69 for index definition.

5  The Lipper Category Average does not reflect sales charges and is based on total return, including reinvestment of dividends and capital gains for the stated periods.

INCOME DISTRIBUTION HISTORY

	2012										2011
	Q1		Q2		Q3		Q4		Total		Q1		Q2		Q3		Q4		Total
Investor Class (MAINX)	$	0.09	$	0.07		n.a.		n.a.		n.a.		n.a.		n.a.		n.a.	$	0.02	$	0.02
Institutional Class (MINCX)	$	0.10	$	0.07		n.a.		n.a.		n.a.		n.a.		n.a.		n.a.	$	0.02	$	0.02

Note: This table does not include capital gains distributions. For income distribution history, visit matthewsasia.com.

30-DAY YIELD:

3.87% (Investor Class) 4.02% (Institutional Class)

The 30-Day Yield represents net investment income earned by the Fund over the 30-day period ended 6/30/12, expressed as an annual percentage rate based on the Fund's share price at the end of the 30-day period. The 30-Day Yield should be regarded as an estimate of the Fund's rate of investment income, and it may not equal the Fund's actual income distribution rate.

Source: BNY Mellon Investment Servicing (US) Inc

YIELD TO WORST:

4.93%

Yield to worst is the lowest yield that can be received on a bond assuming that the issuer does not default. It is calculated by utilizing the worst case assumptions for a bond with respect to certain income-reducing factors, including prepayment, call or sinking fund provisions. It does not represent the yield that an investor should expect to receive. Past yields are no guarantee of future yields.

Source: FactSet Research Systems

TOP TEN POSITIONS⁶

	Sector	Currency	% Net Assets
Malaysian Government Bond, 4.160%, 7/15/2021	Government Bonds	Malaysian Ringgit		7.1	%
Indonesia Government Bond, 8.250%, 7/15/2021	Government Bonds	Indonesian Rupiah		4.7	%
Korea Treasury Bond, 3.500%, 9/10/2016	Government Bonds	Korean Won		3.8	%
Longfor Properties Co., Ltd., 9.500%, 4/7/2016	Financials	U.S. Dollar		3.4	%
Melco Crown Entertainment, Ltd., 3.750%, 5/9/2013	Consumer Discretionary	Chinese Renminbi		3.3	%
Republic of Philippines, 6.250%, 1/14/2036	Government Bonds	Philippine Peso		3.3	%
KWG Property Holding, Ltd., 12.500%, 8/18/2017	Financials	U.S. Dollar		3.1	%
Galaxy Entertainment Group, Ltd., 4.625%, 12/16/2013	Consumer Discretionary	Chinese Renminbi		3.1	%
Axiata SPV1 Labuan, Ltd., 5.375%, 4/28/2020	Telecommunication Services	U.S. Dollar		3.0	%
Global Logistic Properties, Ltd., 3.375%, 5/11/2016	Financials	Chinese Renminbi		3.0	%
% OF ASSETS IN TOP TEN				37.8	%

6  Holdings may combine more than one security from same issuer and related depositary receipts.

CURRENCY ALLOCATION (%)^7,8

U.S. Dollar (USD)	44.1
Chinese Renminbi (CNY)	11.4
Korean Won (KRW)	8.9
Malaysian Ringgit (MYR)	8.5
Philippine Peso (PHP)	6.1
Singapore Dollar (SGD)	5.3
Indonesian Rupiah (IDR)	4.7
Thai Baht (THB)	3.4
Hong Kong Dollar (HKD)	2.7
Cash and Other Assets, Less Liabilities	4.9

7  Source: FactSet Research Systems. Percentage values in data are rounded to the nearest tenth of one percent; the values may not sum to 100% due to rounding.

8  Cash and other assets may include forward currency exchange contracts and certain derivative instruments that have been marked-to-market.

COUNTRY ALLOCATION (%)⁸

(By issuer's country of risk)

China/Hong Kong	27.7
Philippines	14.7
South Korea	12.5
Malaysia	11.5
Indonesia	9.8
Thailand	7.1
Singapore	6.6
Australia	2.6
Sri Lanka	1.6
Japan	1.0
Cash And Other Assets, Less Liabilities	4.9

matthewsasia.com | 800.789.ASIA 5

SECTOR ALLOCATION (%)⁹

Government Bonds	34.9
Financials	28.7
Consumer Discretionary	8.6
Industrials	8.2
Telecommunication Services	5.0
Energy	4.9
Utilities	3.2
Information Technology	1.6
Cash and Other Assets, Less Liabilities	4.9

ASSET TYPE BREAKDOWN (%)^9,10

Corporate Bonds	53.4
Government Bonds	34.9
Common Equities and ADRs	6.8
Cash and Other Assets, Less Liabilities	4.9

9  Cash and other assets may include forward currency exchange contracts and certain derivative instruments that have been marked-to-market.

10  Source: FactSet Research Systems. Percentage values in data are rounded to the nearest tenth of one percent; the values may not sum to 100% due to rounding.

Matthews Asia Strategic Income Fund

Portfolio Manager Commentary (continued)

smaller players who are over-leveraged or do not have the balance sheets to ride out this downturn.

Second, in terms of our currency exposure, on the margin, we have found more interesting opportunities in U.S. dollar-denominated Asian corporate bonds. Our U.S. dollar exposure is approximately 5% higher than it was at the end of the first quarter and is about 10% higher than it was at the end of 2011. During the quarter, we reduced the portfolio's exposure to the Indonesian rupiah (by selling rupiah-denominated Indonesian Government bonds) given the country's overly loose monetary policy and increasingly protectionist policies that could depress foreign interest going forward. These policies include limiting participation of foreign banks in Indonesia's foreign exchange market, as well as potential limitations on foreign ownership of Indonesian banks.

Finally, in terms of interest rate exposure, we moderated our exposure to Indonesia given our view that interest rates were much more likely to rise than fall. We saw the long end of the yield curve as being especially vulnerable given the relative flatness of the curve. As such, we sold our long-dated Indonesian Government bonds. We believe shorter-term rates are relatively anchored since we don't anticipate Bank Indonesia lowering or raising rates in the medium term.

As always, we will continue to focus on valuations. We believe the market is overly focused on macro events and outcomes rather than security selection, leaving certain issues undervalued. Accordingly, we anticipate taking positions in securities where our own views may differ from implied market expectations of the securities' credit, currency and interest rates.

Fixed income investments are subject to additional risks, including, but not limited to, interest rate, credit and inflation risks. Investing in emerging markets involves different and greater risks, as these countries are substantially smaller, less liquid and more volatile than securities markets in more developed markets.

6 MATTHEWS ASIA FUNDS

Matthews Asia Strategic Income Fund  June 30, 2012

Schedule of Investments^a (unaudited)

FOREIGN GOVERNMENT OBLIGATIONS: 34.9%

	Face Amount*		Value
SOUTH KOREA: 8.9%
Korea Treasury Bond 3.500%, 09/10/16	KRW	1,000,000,000	$	875,701
Korea Treasury Bond 5.750%, 09/10/18	KRW	500,000,000		489,742
Korea Treasury Bond 3.250%, 12/10/14	KRW	500,000,000		436,138
Korea Treasury Bond 4.000%, 09/10/15	KRW	300,000,000		266,846
Total South Korea				2,068,427
MALAYSIA: 8.5%
Malaysian Government Bond 4.160%, 07/15/21	MYR	5,000,000		1,655,390
Malaysian Government Bond 3.580%, 09/28/18	MYR	1,000,000		318,904
Total Malaysia				1,974,294
PHILIPPINES: 7.9%
Republic of Philippines 6.250%, 01/14/36	PHP	30,000,000		759,167
Republic of Philippines 6.375%, 01/15/32		500,000		631,250
Republic of Philippines 4.950%, 01/15/21	PHP	18,000,000		445,087
Total Philippines				1,835,504
INDONESIA: 6.0%
Indonesia Government Bond 8.250%, 07/15/21	IDR	9,000,000,000		1,094,037
Republic of Indonesia 5.875%, 03/13/20		250,000		288,125
Total Indonesia				1,382,162
THAILAND: 2.0%
Thailand Government Bond 4.250%, 03/13/13	THB	15,000,000		475,884
Total Thailand				475,884
SRI LANKA: 1.6%
Republic of Sri Lanka 7.400%, 01/22/15		350,000		374,500
Total Sri Lanka				374,500
TOTAL FOREIGN GOVERNMENT OBLIGATIONS				8,110,771
(Cost $8,094,663)

CORPORATE BONDS: 53.4%

	Face Amount*		Value
CHINA/HONG KONG: 25.0%
Longfor Properties Co., Ltd. 9.500%, 04/07/16		750,000	$	783,750
Melco Crown Entertainment, Ltd. 3.750%, 05/09/13	CNY	5,000,000		777,925
KWG Property Holding, Ltd. 12.500%, 08/18/17		750,000		726,039
Galaxy Entertainment Group, Ltd. 4.625%, 12/16/13	CNY	4,500,000		708,895
FPT Finance, Ltd. 6.375%, 09/28/20		550,000		573,312
Hutchison Whampoa International 11, Ltd. 4.625%, 01/13/22b		500,000		524,540
Standard Chartered Bank Hong Kong, Ltd. 4.150%c, 10/27/21	SGD	500,000		406,627
Wharf Finance No. 1, Ltd. 4.500%, 07/20/21	SGD	500,000		392,801
Tencent Holdings, Ltd. 4.625%, 12/12/16b		350,000		361,389
Fita International, Ltd. 7.000%, 02/10/20		300,000		312,217
Beijing Enterprises Water Group, Ltd. 3.750%, 06/30/14	CNY	1,500,000		234,165
Total China/Hong Kong				5,801,660
PHILIPPINES: 5.9%
Alliance Global Group, Inc. 6.500%, 08/18/17		550,000		579,958
SM Investments Corp. 5.500%, 10/13/17		500,000		507,002
International Container Terminal Services, Inc. 7.375%, 03/17/20		250,000		276,929
Total Philippines				1,363,889
SINGAPORE: 4.7%
Global Logistic Properties, Ltd. 3.375%, 05/11/16	CNY	4,500,000		687,924
Oversea-Chinese Banking Corp., Ltd. 3.750%c, 11/15/22		400,000		401,941
Total Singapore				1,089,865
THAILAND: 3.8%
Bangkok Bank Public Co., Ltd. 9.025%, 03/15/29		500,000		612,500
PTTEP Canada International Finance, Ltd. 5.692%, 04/05/21b		250,000		266,680
Total Thailand				879,180
INDONESIA: 3.8%
PT Berau Coal Energy 7.250%, 03/13/17b		400,000		389,000
PT Adaro Indonesia 7.625%, 10/22/19b		250,000		265,000
Berau Capital Resources Pte., Ltd. 12.500%, 07/08/15		200,000		220,000
Total Indonesia				874,000

matthewsasia.com | 800.789.ASIA 7

Matthews Asia Strategic Income Fund  June 30, 2012

Schedule of Investments^a (unaudited)(continued)

CORPORATE BONDS (continued)

	Face Amount*		Value
SOUTH KOREA: 3.6%
Kia Motors Corp. 3.625%, 06/14/16		500,000	$	513,385
Korea Hydro & Nuclear Power Co., Ltd. 4.750%, 07/13/21		300,000		326,133
Total South Korea				839,518
MALAYSIA: 3.0%
Axiata SPV1 Labuan, Ltd. 5.375%, 04/28/20		650,000		705,871
Total Malaysia				705,871
AUSTRALIA: 2.6%
Macquarie Bank, Ltd. 6.625%, 04/07/21		600,000		602,001
Total Australia				602,001
JAPAN: 1.0%
ORIX Corp. 4.000%, 11/29/14	CNY	1,500,000		234,839
Total Japan				234,839
TOTAL CORPORATE BONDS				12,390,823
(Cost $12,242,828)

COMMON EQUITIES: 6.8%

	Shares
CHINA/HONG KONG: 2.7%
The Link REIT		55,000	225,437
HSBC Holdings PLC		24,000	212,330
Power Assets Holdings, Ltd.		25,000	187,605
Total China/Hong Kong			625,372
SINGAPORE: 1.9%
StarHub, Ltd.		90,000	243,939
Ascendas REIT		110,000	187,654
Total Singapore			431,593
THAILAND: 1.3%
Kasikornbank Public Co., Ltd.		60,000	309,371
Total Thailand			309,371

	Shares		Value
PHILIPPINES: 0.9%
Globe Telecom, Inc.		8,000	$	212,495
Total Philippines				212,495
TOTAL COMMON EQUITIES				1,578,831
(Cost $1,423,659)
TOTAL INVESTMENTS: 95.1%				22,080,425
(Cost $21,761,150d)
CASH AND OTHER ASSETS, LESS LIABILITIES: 4.9%				1,147,620
NET ASSETS: 100.0%			$	23,228,045

a  Certain securities were fair valued under the discretion of the Board of Trustees (Note 2-A).

b  Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. The security may be resold in transactions exempt from registration normally to qualified institutional buyers. The security has been determined to be liquid in accordance with procedures adopted by the Fund's Board of Directors.

c  Variable rate security. The rate represents the rate in effect at June 30, 2012.

d  Cost for federal income tax purposes is $21,761,150 and net unrealized appreciation consists of:

Gross unrealized appreciation	$	484,699
Gross unrealized depreciation		(165,424	)
Net unrealized appreciation	$	319,275

*  All values are in USD unless otherwise noted.

CNY  Chinese Renminbi (Yuan)

IDR  Indonesian Rupiah

JPY  Japanese Yen

KRW  Korean Won

MYR  Malaysian Ringgit

PHP  Philippine Peso

REIT  Real Estate Investment Trust

SGD  Singapore Dollar

THB  Thai Baht

USD  U.S. Dollar

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS:

	Currency Purchased		Currency Sold		Counterparty	Settlement Date	Unrealized Appreciation
LONG	SGD	1,000,000	USD	776,072	Brown Brothers Harriman	09/05/12	$	13,397
SHORT	USD	776,072	JPY	60,927,861	Brown Brothers Harriman	09/05/12	$	13,116

FINANCIAL FUTURES CONTRACTS SOLD AS OF JUNE 30, 2012 WERE AS FOLLOWS:

Contracts		Issue	Exchange	Expiration	Notional Value		Unrealized Appreciation
	10	U.S. Treasury Notes (10 Year)	Chicago Board of Trade	September, 2012	$	1,333,750	$	7,525

See accompanying notes to financial statements.

8 MATTHEWS ASIA FUNDS

ASIA GROWTH AND INCOME STRATEGIES

PORTFOLIO MANAGERS

Robert J. Horrocks, PhD

Lead Manager

Kenneth Lowe, CFA

Co-Manager

FUND FACTS

	Investor Class	Institutional Class
Ticker	MACSX	MICSX
CUSIP	577130206	577130842
Inception	9/12/94	10/29/10
NAV	$16.30	$16.30
Initial Investment	$2,500	$3 million
Gross Expense Ratio1	1.12%	0.99%

Portfolio Statistics

Total # of Positions	67
Net Assets	$3.3 billion
Weighted Average Market Cap	$26.1 billion
Portfolio Turnover	16.54%2

Benchmark

MSCI AC Asia ex Japan Index

Redemption Fee

2% within first 90 calendar days of purchase

OBJECTIVE

Long-term capital appreciation. The Fund also seeks to provide some current income.

STRATEGY

Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 80% of its total net assets, which include borrowings for investment purposes, in dividend-paying common stock, preferred stock and other equity securities, and convertible securities as well as fixed-income securities, of any duration or quality, of companies located in Asia, including developed, emerging and frontier countries and markets in the Asian region.

1  Matthews Asia Funds does not charge 12b-1 fees.

2  The lesser of fiscal year 2011 long-term purchase costs or sales proceeds divided by the average monthly market value of long-term securities.

Matthews Asian Growth and Income Fund

Portfolio Manager Commentary

For the first half of 2012, the Matthews Asian Growth and Income Fund gained 9.51% (Investor Class) and 9.67% (Institutional Class), outperforming its benchmark, the MSCI All Country Asia ex Japan Index, which returned 6.10%. While Asia's stock markets declined in the second quarter, the Fund was able to outperform in this environment. For the quarter ended June 30, the Fund fell –1.35% (Investor Class) and –1.28% (Institutional Class), while its benchmark returned –6.74%.

Detractors to Fund performance over the quarter included, perhaps not surprisingly, the more cyclical industries such as energy, materials and industrials. Contributors to performance included telecommunications businesses, broadcast media, health care companies and some select consumer businesses. We believe the divergences in performance were mainly due to marginal investors taking a very short-term view of profits and trying to guess the course of major macroeconomic events for the remainder of the year.

We continue to evaluate new opportunities with the same philosophy as in the past. The strategy has sought downside protection with some participation on the upside—or what we sometimes refer to as "optionality" in the securities we own. This can be found through the type of security purchased, such as a convertible bond; by the kind of business purchased; or by taking advantage of valuations (particularly dividend yield) and what we see as perverse market sentiment. More recently, we have focused on identifying gaps between what we judge to be short-term market sentiment and our longer-term view of the world.

Starting with convertible bonds, we added to our position in the long-dated convertible bond of an Australian-based insurer, QBE Funding Trust. The bond offers a U.S. dollar yield to put of about 3%—the annualized yield should investors decide to sell back to the company at the next available call date. In addition, since the maturity date for the bond is May 2030, we stand to benefit from any improvement in the underlying business, which has been depressed now for five years. We exited smaller convertible bond positions that had less attractive risk-return profiles.

During the quarter, we also exited two relatively volatile equity positions—one was a Japanese manufacturer of photonics equipment and the other an Australian retailer. Shedding these positions allowed us to add a new position in BHP Billiton, an Australian-based natural resource giant. Typically, the energy and materials sectors have not held major weightings in the Fund. However, BHP is a large, dominant company in control of assets for which there should be long-term demand and its common stock was yielding close to 4% at the end of the second quarter, an attractive yield for this portfolio. BHP management has also postponed some capital expenditure and its CEO has announced: "We are not in the commodity business; we are in the shareholder return business." We wholeheartedly embrace the sentiments behind his comments.

We also added two holdings with long histories in Asia: AIA Group, a regional insurance company founded in 1919 and Jardine Matheson Holdings, a conglomerate that was founded in the 1800s. AIA has a leading position in developed markets such as Hong Kong and Singapore and a footprint in Asia's developing markets. Besides its long history in the region, AIA also exhibits an impressive professionalism and focus on

(continued)

matthewsasia.com | 800.789.ASIA 9

PERFORMANCE AS OF JUNE 30, 2012

				Average Annual Total Returns
	3 Months			1 Year			3 Years			5 Years			10 Years			Since Inception			Inception Date
Investor Class (MACSX)		-1.35	%		-3.68	%		11.46	%		4.08	%		12.33	%		10.49	%	9/12/94
Institutional Class (MICSX)		-1.28	%		-3.55	%		n.a.			n.a.			n.a.			0.33	%	10/29/10
MSCI AC Asia ex Japan Index3		-6.74	%		-13.15	%		10.25	%		0.82	%		11.78	%		3.42	%4
Lipper Pacific Region Funds Category Average5		-5.56	%		-9.80	%		7.39	%		-3.10	%		7.37	%		3.12	%4

Performance assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results.Investment return and principal value will fluctuate with 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 return figures quoted. Returns would have been lower if certain of the Fund's fees and expenses had not been waived. For the Fund's most recent month-end performance, visit matthewsasia.com.

INCOME DISTRIBUTION HISTORY

	2012				2011
	June		December	Total	June		December		Total
Investor Class (MACSX)	$	0.20	n.a	n.a	$	0.27	$	0.21	$	0.48
Institutional Class (MICSX)	$	0.21	n.a	n.a	$	0.28	$	0.22	$	0.50

Note: This table does not include capital gains distributions. Institutional Class Shares were first offered on October 29, 2010. For income distribution history, visit matthewsasia.com.

30-DAY YIELD:

2.91% (Investor Class) 3.07% (Institutional Class)

The 30-Day Yield represents net investment income earned by the Fund over the 30-day period ended 6/30/12, expressed as an annual percentage rate based on the Fund's share price at the end of the 30-day period. The 30-Day Yield should be regarded as an estimate of the Fund's rate of investment income, and it may not equal the Fund's actual income distribution rate.

Source: BNY Mellon Investment Servicing (US) Inc.

DIVIDEND YIELD: 3.43%

The dividend yield (trailing) for the portfolio is the weighted average sum of the dividend paid per share during the last 12 months divided by the current price. The annualized dividend yield for the Fund is for the equity-only portion of the portfolio. Please note that this is based on gross portfolio holdings and does not reflect the actual yield an investor in the Fund would receive. Past yields are no guarantee of future yields.

Source: FactSet Research Systems, Bloomberg, MICM

GROWTH OF A $10,000 INVESTMENT SINCE INCEPTION—INVESTOR CLASS

Plotted monthly. The performance data and graph do not reflect the deduction of taxes that a shareholder would pay on dividends, capital gains distributions or redemption of Fund shares. Values are in US$.

3  It is not possible to invest directly in an index. Source: Index data from Morgan Stanley Capital International and Bloomberg; total return calculations performed by BNY Mellon Investment Servicing (US) Inc. Please see page 69 for index definition.

4  Calculated from 8/31/94.

5  The Lipper Category Average does not reflect sales charges and is based on total return, including reinvestment of dividends and capital gains for the stated periods.

TOP TEN HOLDINGS⁶

	Sector	Country	% Net Assets
Singapore Technologies Engineering, Ltd.	Industrials	Singapore		3.9	%
Telstra Corp., Ltd.	Telecommunication Services	Australia		3.6	%
Taiwan Semiconductor Manufacturing Co., Ltd.	Information Technology	Taiwan		3.3	%
China Petroleum & Chemical Corp. (Sinopec), Cnv., 0.000%, 4/24/2014	Energy	China/Hong Kong		3.1	%
CLP Holdings, Ltd.	Utilities	China/Hong Kong		3.1	%
HSBC Holdings PLC	Financials	China/Hong Kong		3.0	%
Hisamitsu Pharmaceutical Co., Inc.	Health Care	Japan		3.0	%
Ascendas REIT	Financials	Singapore		2.8	%
PTT Public Co., Ltd.	Energy	Thailand		2.7	%
AMMB Holdings BHD	Financials	Malaysia		2.4	%
% OF ASSETS IN TOP TEN				30.9	%

6  Holdings may combine more than one security from same issuer and related depositary receipts.

10 MATTHEWS ASIA FUNDS

Matthews Asian Growth and Income Fund

Portfolio Manager Commentary (continued)

maintaining this competitive advantage over the long term. Whilst the absolute yield of the equity is not high—forecasts for the next 12 months suggest yield just short of 1.5%, that yield is growing due to careful management of the firm's capital and the breadth and quality of the franchise offers some protection from market volatility.

Focused traditionally on China, Jardine Matheson Holdings has more recently expanded into the fast-growing Indonesian economy and its businesses span across several industries including consumer staples, leisure, real estate, motor distribution and logistics. The common stock enjoys a dividend yield of about 2.4% and a free cash flow yield of about 7.4%. The company has been able to navigate Asia's political and financial upheavals throughout nearly two centuries. Its management has proven itself to be careful stewards of capital and we expect this to continue.

Undoubtedly, there are still risks in the markets—not least, the continued slowdown in China due to the determination of authorities to try to prevent a real estate bubble. Fumbles in Western economic policy still affect sentiment toward Asian markets. However, we approach the future with optimism, as we see opportunities to buy compelling business in various sectors at attractive valuations.

COUNTRY ALLOCATION (%)⁷

China/Hong Kong	26.8
Singapore	18.9
Australia	9.4
Thailand	7.8
Japan	6.3
South Korea	5.9
India	5.5
Taiwan	5.3
Malaysia	5.1
Indonesia	2.9
United Kingdom	1.9
Philippines	1.7
Vietnam	1.2
Cash and Other Assets, Less Liabilities	1.3

SECTOR ALLOCATION (%)

Financials	29.7
Telecommunication Services	14.7
Industrials	14.2
Utilities	7.7
Energy	6.9
Health Care	6.7
Consumer Discretionary	6.3
Consumer Staples	5.3
Information Technology	4.6
Materials	2.6
Cash and Other Assets, Less Liabilities	1.3

MARKET CAP EXPOSURE (%)⁸

Large Cap (over $5B)	68.6
Mid Cap ($1B–$5B)	23.9
Small Cap (under $1B)	6.2
Cash and Other Assets, Less Liabilities	1.3

ASSET TYPE BREAKDOWN (%)⁹

Common Equities	80.4
Convertible Bonds	15.0
Preferred Equities	3.1
Corporate Bonds	0.2
Cash and Other Assets, Less Liabilities	1.3

7  Australia, United Kingdom and Japan are not included in the MSCI All Country Asia ex Japan Index.

8  Source: FactSet Research Systems. Percentage values in data are rounded to the nearest tenth of one percent; the values may not sum to 100% due to rounding.

9  Bonds are not included in the MSCI All Country Asia ex Japan Index.

matthewsasia.com | 800.789.ASIA 11

Matthews Asian Growth and Income Fund  June 30, 2012

Schedule of Investments^a (unaudited)

COMMON EQUITIES: 80.4%

	Shares		Value
CHINA/HONG KONG: 22.0%
CLP Holdings, Ltd.		11,771,700	$	100,045,971
HSBC Holdings PLC ADR		2,230,333		98,424,595
AIA Group, Ltd.		19,459,600		67,214,617
China Pacific Insurance Group Co., Ltd. H Shares		20,355,800		66,428,693
Hang Lung Properties, Ltd.		19,139,920		65,470,376
Television Broadcasts, Ltd.		8,897,000		62,021,468
China Mobile, Ltd. ADR		905,500		49,503,685
Shandong Weigao Group Medical Polymer Co., Ltd. H Shares		43,012,000		48,013,455
Vitasoy International Holdings, Ltd.†		51,771,000		43,506,325
VTech Holdings, Ltd.		3,405,300		40,675,652
Jardine Matheson Holdings, Ltd.		736,000		35,850,779
Citic Telecom International Holdings, Ltd.†		132,231,000		24,130,131
Cafe' de Coral Holdings, Ltd.		6,726,000		17,995,324
I-CABLE Communications, Ltd.b		2,870,000		138,360
Total China/Hong Kong				719,419,431
SINGAPORE: 14.6%
Singapore Technologies Engineering, Ltd.		52,104,125		128,450,746
Ascendas REIT		53,925,000		91,993,304
Keppel Corp., Ltd.		8,415,900		68,947,418
United Overseas Bank, Ltd.		3,861,000		57,334,053
SIA Engineering Co., Ltd.		10,768,000		34,038,381
Cerebos Pacific, Ltd.		7,740,000		32,342,880
ARA Asset Management, Ltd.		28,381,100		32,133,029
Singapore Post, Ltd.		38,209,000		31,880,558
Total Singapore				477,120,369
THAILAND: 7.8%
PTT Public Co., Ltd.		8,719,200		89,316,850
BEC World Public Co., Ltd.		30,807,800		49,373,261
Glow Energy Public Co., Ltd.		21,887,400		42,986,711
Land & Houses Public Co., Ltd. NVDR		145,090,300		36,019,558
Banpu Public Co., Ltd.		2,480,250		35,253,914
Total Thailand				252,950,294
AUSTRALIA: 7.4%
Telstra Corp., Ltd.		31,377,088		118,885,252
CSL, Ltd.		1,758,532		71,329,094
Macquarie Group, Ltd.		1,879,326		50,749,103
Total Australia				240,963,449
JAPAN: 6.3%
Hisamitsu Pharmaceutical Co., Inc.		1,983,600		97,622,058
Japan Real Estate Investment Corp., REIT		7,889		72,332,312
NTT DoCoMo, Inc.		22,250		37,024,057
Total Japan				206,978,427

	Shares		Value
TAIWAN: 5.3%
Taiwan Semiconductor Manufacturing Co., Ltd.b		20,673,187	$	56,592,193
Taiwan Semiconductor Manufacturing Co., Ltd. ADRb		3,558,724		49,679,787
Chunghwa Telecom Co., Ltd. ADR		1,277,525		40,152,611
Taiwan Hon Chuan Enterprise Co., Ltd.		9,901,193		22,303,528
CyberLink Corp.		1,146,770		3,346,798
Total Taiwan				172,074,917
MALAYSIA: 5.1%
AMMB Holdings BHD		40,175,100		79,985,252
Axiata Group BHD		29,634,423		51,298,507
Telekom Malaysia BHD		20,245,551		36,189,871
Total Malaysia				167,473,630
INDONESIA: 2.9%
PT Perusahaan Gas Negara Persero		141,686,000		53,640,056
PT Telekomunikasi Indonesia Persero ADR		1,153,600		40,179,888
Total Indonesia				93,819,944
SOUTH KOREA: 2.8%
S1 Corp.		771,922		38,873,383
KT Corp. ADR		2,089,505		27,539,676
GS Home Shopping, Inc.		298,935		25,255,502
Total South Korea				91,668,561
UNITED KINGDOM: 1.9%
BHP Billiton PLC		2,153,817		61,216,545
Total United Kingdom				61,216,545
PHILIPPINES: 1.7%
Globe Telecom, Inc.		2,065,510		54,863,987
Total Philippines				54,863,987
INDIA: 1.4%
Housing Development Finance Corp.		3,875,750		45,703,421
Total India				45,703,421
VIETNAM: 1.2%
Vietnam Dairy Products JSC		5,842,535		24,581,995
Bao Viet Holdings		7,539,961		15,898,531
Total Vietnam				40,480,526
TOTAL COMMON EQUITIES				2,624,733,501
(Cost $2,268,374,958)

12 MATTHEWS ASIA FUNDS

Matthews Asian Growth and Income Fund  June 30, 2012

Schedule of Investments^a (unaudited)(continued)

PREFERRED EQUITIES: 3.1%

	Shares		Value
SOUTH KOREA: 3.1%
Samsung Fire & Marine Insurance Co., Ltd., Pfd.		515,311	$	33,248,774
Hyundai Motor Co., Ltd., Pfd.		541,280		31,670,606
Hyundai Motor Co., Ltd., 2nd Pfd.		305,760		20,089,861
LG Household & Health Care, Ltd., Pfd.		121,855		16,255,597
Total South Korea				101,264,838
TOTAL PREFERRED EQUITIES				101,264,838
(Cost $48,826,622)

CORPORATE BONDS: 15.2%

	Face Amount*
CHINA/HONG KONG: 4.8%
China Petroleum & Chemical Corp. (Sinopec), Cnv. 0.000%, 04/24/14	HKD	676,210,000	100,978,904
Power Regal Group, Ltd., Cnv. 2.250%, 06/02/14	HKD	234,020,000	35,293,267
PB Issuer No. 2, Ltd., Cnv. 1.750%, 04/12/16		21,820,000	19,583,450
Total China/Hong Kong			155,855,621
SINGAPORE: 4.3%
CapitaLand, Ltd., Cnv. 3.125%, 03/05/18	SGD	62,000,000	51,256,759
CapitaLand, Ltd., Cnv. 2.875%, 09/03/16	SGD	41,750,000	32,362,372
Wilmar International, Ltd., Cnv. 0.000%, 12/18/12		26,500,000	30,713,500
Olam International, Ltd., Cnv. 6.000%, 10/15/16		24,300,000	25,223,400
Total Singapore			139,556,031
INDIA: 4.1%
Tata Power Co., Ltd., Cnv. 1.750%, 11/21/14		56,200,000	55,160,300
Larsen & Toubro, Ltd., Cnv. 3.500%, 10/22/14		41,200,000	41,117,600
Sintex Industries, Ltd., Cnv. 0.000%, 03/13/13		26,900,000	30,733,250
Housing Development Finance Corp. 0.000%, 08/24/12	INR	300,000,000	6,648,518
Total India			133,659,668

	Face Amount*		Value
AUSTRALIA: 2.0%
QBE Funding Trust, Cnv. 0.000%, 05/12/30		104,571,000	$	66,402,585
Total Australia				66,402,585
TOTAL CORPORATE BONDS				495,473,905
(Cost $514,114,277)
TOTAL INVESTMENTS: 98.7%				3,221,472,244
(Cost $2,831,315,857c)
CASH AND OTHER ASSETS, LESS LIABILITIES: 1.3%				43,357,468
NET ASSETS: 100.0%			$	3,264,829,712

a  Certain securities were fair valued under the discretion of the Board of Trustees (Note 2-A).

b  Non-income producing security.

c  Cost for federal income tax purposes is $2,834,173,847 and net unrealized appreciation consists of:

Gross unrealized appreciation	$	538,220,758
Gross unrealized depreciation		(150,922,361	)
Net unrealized appreciation	$	387,298,397

†  Affiliated Issuer, as defined under the Investment Company Act of 1940 (ownership of 5% or more of the outstanding voting securities of this issuer)

*  All values are in USD unless otherwise noted.

ADR  American Depositary Receipt

BHD  Berhad

Cnv.  Convertible

HKD  Hong Kong Dollar

INR  Indian Rupee

JSC  Joint Stock Co.

NVDR  Non-voting Depositary Receipt

Pfd.  Preferred

REIT  Real Estate Investment Trust

SGD  Singapore Dollar

USD  U.S. Dollar

See accompanying notes to financial statements.

matthewsasia.com | 800.789.ASIA 13

ASIA GROWTH AND INCOME STRATEGIES

PORTFOLIO MANAGERS

Jesper O. Madsen, CFA

Lead Manager

Yu Zhang, CFA

Co-Manager

FUND FACTS

	Investor Class	Institutional Class
Ticker	MAPIX	MIPIX
CUSIP	577125107	577130750
Inception	10/31/06	10/29/10
NAV	$13.37	$13.36
Initial Investment	$2,500	$3 million
Gross Expense Ratio1	1.10%	1.00%

Portfolio Statistics

Total # of Positions	61
Net Assets	$2.8 billion
Weighted Average Market Cap	$24.4 billion
Portfolio Turnover	16.48%2

Benchmark

MSCI AC Asia Pacific Index

Redemption Fee

2% within first 90 calendar days of purchase

OBJECTIVE

Total return with an emphasis on providing current income.

STRATEGY

Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 80% of its total net assets, which include borrowings for investment purposes, in income-paying equity securities of companies located in Asia, including developed, emerging and frontier countries and markets in the Asian region. The Fund may also invest in convertible debt and equity securities.

1  Matthews Asia Funds does not charge 12b-1 fees.

2  The lesser of fiscal year 2011 long-term purchase costs or sales proceeds divided by the average monthly market value of long-term securities.

Matthews Asia Dividend Fund

Portfolio Manager Commentary

For the first half of 2012, the Matthews Asia Dividend Fund gained 8.76% (Investor Class) and 8.75% (Institutional Class), outperforming its benchmark, the MSCI All Country Asia Pacific Index, which rose 4.58%. For the quarter ended June 30, the Fund declined –2.50% (Investor Class) and –2.47% (Institutional Class) while its benchmark fell –6.70%. In June, the Fund distributed 13.9 cents per share (Investor Class), bringing its total year-to-date income distribution to 19.9 cents per share (Investor Class).

Volatility in financial markets picked up during the second quarter as it became evident that a political consensus around a clear resolution to Europe's debt crisis was not forthcoming. Furthermore, economic data continued to reflect a slowdown in economic activity, not just in Europe and the U.S., but also China. Earlier this year, China's leaders revised down the country's target for 2012 annual GDP growth to 7.5% from 8%—a sign that a moderation in economic expansion should be expected. Since taking its first steps toward opening its economy in 1978, China has evolved from an agrarian economy of about US$220 billion into the world's second-largest economy at almost US$7.3 trillion. Given the sheer scale of the economy, it should come as no surprise that China is likely to face a structural moderation in growth.

Investors and policymakers tend to be overly reliant on headline GDP growth as an indicator of economic activity. However, economic growth is neither one dimensional nor of uniform "quality." In China's case, a moderation in growth could result in growth of higher quality and sustainability—less fueled by fixed asset investments and powered instead by domestic consumption and services-based companies. While a slowdown in China's headline GDP growth may create short-term volatility in equities, investors that are exposed to companies catering to the rising consumption within China should find that such a moderation in growth may not be for the worst.

While May was a tough month in terms of absolute performance, the Fund held up well relative to its benchmark during the second quarter, mainly due to its Japanese holdings. Among the top three performers were Pigeon, a manufacturer of baby care products and Lawson, a convenience store retailer—both Japanese consumer staples firms—and EPS Corporation, a Japanese health care company. Given Japan's dour macroeconomic outlook, we are often asked why we invest in the country. Quite simply, the Fund invests in companies that we believe can grow dividends and pay investors an attractive yield relative to that growth. Since our portfolio construction is not dictated by its benchmark, we invest in companies, including Japanese companies, precisely because we believe they offer the attractive combination of growth and dividend yield. The overall positive performance of the Fund's Japanese holdings during the quarter also illustrated that they can act as effective diversifiers in choppy markets.

Not surprisingly, the Fund's Chinese holdings were the main detractors to performance during the second quarter, given general worries regarding the severity of an economic slowdown. Our Chinese holdings within the energy and materials sectors, which are perceived to be proxies for economic growth, were among the worst performers.

(continued)

14 MATTHEWS ASIA FUNDS

PERFORMANCE AS OF JUNE 30, 2012

				Average Annual Total Returns
	3 Months			1 Year			3 Years			5 Years			Since Inception			Inception Date
Investor Class (MAPIX)		-2.50	%		-3.30	%		14.62	%		6.95	%		9.51	%	10/31/06
Institutional Class (MIPIX)		-2.47	%		-3.21	%		n.a.			n.a.			0.51	%	10/29/10
MSCI AC Asia Pacific Index3		-6.70	%		-10.48	%		7.17	%		-2.62	%		0.43	%4
Lipper Pacific Region Funds Category Average5		-5.56	%		-9.80	%		7.39	%		-3.10	%		0.64	%4

Performance assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate with 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 return figures quoted. Returns would have been lower if certain of the Fund's fees and expenses had not been waived. For the Fund's most recent month-end performance, visit matthewsasia.com.

INCOME DISTRIBUTION HISTORY

	2012										2011
	Q1		Q2		Q3		Q4		Total		Q1		Q2		Q3		Q4		Total
Investor Class (MAPIX)	$	0.06	$	0.14		n.a.		n.a.		n.a.	$	0.10	$	0.11	$	0.12	$	0.03	$	0.36
Institutional Class (MIPIX)	$	0.06	$	0.14		n.a.		n.a.		n.a.	$	0.11	$	0.12	$	0.12	$	0.03	$	0.38

Note: This table does not include capital gains distributions. Institutional Class Shares were first offered on October 29, 2010. For income distribution history, visit matthewsasia.com.

30-DAY YIELD:

3.13% (Investor Class) 3.25% (Institutional Class)

The 30-Day Yield represents net investment income earned by the Fund over the 30-day period ended 6/30/12, expressed as an annual percentage rate based on the Fund's share price at the end of the 30-day period. The 30-Day Yield should be regarded as an estimate of the Fund's rate of investment income, and it may not equal the Fund's actual income distribution rate.

Source: BNY Mellon Investment Servicing (US) Inc.

DIVIDEND YIELD: 4.09%

The dividend yield (trailing) for the portfolio is the weighted average sum of the dividend paid per share during the last 12 months divided by the current price. The annualized dividend yield for the Fund is for the equity-only portion of the portfolio. Please note that this is based on gross portfolio holdings and does not reflect the actual yield an investor in the Fund would receive. Past yields are no guarantee of future yields.

Source: FactSet Research Systems, Bloomberg, MICM.

GROWTH OF A $10,000 INVESTMENT SINCE INCEPTION—INVESTOR CLASS

Plotted monthly. The performance data and graph do not reflect the deduction of taxes that a shareholder would pay on dividends, capital gains distributions or redemption of Fund shares. Values are in US$.

3  It is not possible to invest directly in an index. Source: Index data from Morgan Stanley Capital International and Bloomberg; total return calculations performed by BNY Mellon Investment Servicing (US) Inc. Please see page 69 for index definition.

4  Calculated from 10/31/06.

5  The Lipper Category Average does not reflect sales charges and is based on total return, including reinvestment of dividends and capital gains for the stated periods.

TOP TEN HOLDINGS⁶

	Sector	Country	% Net Assets
Japan Tobacco, Inc.	Consumer Staples	Japan		3.8	%
ITOCHU Corp.	Industrials	Japan		3.6	%
ORIX Corp.	Financials	Japan		3.3	%
HSBC Holdings PLC	Financials	China/Hong Kong		3.1	%
Metcash, Ltd.	Consumer Staples	Australia		3.1	%
KT&G Corp.	Consumer Staples	South Korea		2.9	%
China Mobile, Ltd.	Telecommunication Services	China/Hong Kong		2.8	%
Singapore Technologies Engineering, Ltd.	Industrials	Singapore		2.7	%
Cheung Kong Infrastructure Holdings, Ltd.	Utilities	China/Hong Kong		2.7	%
NTT DoCoMo, Inc.	Telecommunication Services	Japan		2.6	%
% OF ASSETS IN TOP TEN				30.6	%

6  Holdings may combine more than one security from same issuer and related depositary receipts.

matthewsasia.com | 800.789.ASIA 15

COUNTRY ALLOCATION (%)⁷

China/Hong Kong	30.2
Japan	24.0
Singapore	11.8
Australia	8.2
Taiwan	7.9
Thailand	5.6
South Korea	4.1
Indonesia	3.1
Philippines	1.6
Cash and Other Assets, Less Liabilities	3.5

SECTOR ALLOCATION (%)

Consumer Staples	20.6
Financials	19.5
Consumer Discretionary	12.4
Industrials	10.8
Telecommunication Services	9.3
Utilities	6.3
Health Care	5.5
Energy	5.4
Information Technology	4.6
Materials	2.1
Cash and Other Assets, Less Liabilities	3.5

MARKET CAP EXPOSURE (%)⁸

Large Cap (over $5B)	49.7
Mid Cap ($1B–$5B)	25.2
Small Cap (under $1B)	21.6
Cash and Other Assets, Less Liabilities	3.5

7  The United Kingdom is not included in the MSCI All Country Asia Pacific Index.

8  Source: FactSet Research Systems. Percentage values in data are rounded to the nearest tenth of one percent; the values may not sum to 100% due to rounding.

Matthews Asia Dividend Fund

Portfolio Manager Commentary (continued)

Also in the second quarter, the Fund's holdings within the health care and telecommunications services sectors were main contributors to performance, while holdings in more cyclical sectors such as consumer discretionary and information technology hurt performance. Two of the Fund's consumer discretionary holdings, Esprit Holdings and Li Ning, continued to face ongoing challenges in turning around their businesses and both stocks suffered as a result. We continue to monitor these companies, which remain holdings as we believe their businesses are worth more than their current market capitalization reflects. More importantly, we believe both companies have the capacity to deliver dividend growth if and when they turn around their businesses.

Metcash, an Australian distribution and marketing company mainly within the grocery and liquor wholesaling industries, was the main detractor to performance during the quarter. Competition among Australia's supermarket chains has become increasingly fierce as two larger rivals have engaged in a price war to gain market share. In response, Metcash has attempted to apply its know-how as a wholesaler in other product categories. The company has previously engaged in acquisitions to support this type of expansion, and, during the second quarter, the company sold additional shares to fund further acquisitions. The uncertainty surrounding this broader business scope, alongside heightened competition, contributed to a sell-off in its shares.

Volatility tends to make it difficult for investors to maintain a long-term focus, and may cause some investors to overlook the longer-term potential for dividend growth and income that Asia offers. Of the 46 holdings in the portfolio that have paid a dividend year-to-date, 31 raised their dividends while nine cut them and six maintained them. In times of volatility it helps to tune out macro noise and instead focus on fundamentals. Companies in Asia generally continue to offer investors higher dividend yields than U.S. companies alongside the potential for long-term dividend growth.

16 MATTHEWS ASIA FUNDS

Matthews Asia Dividend Fund  June 30, 2012

Schedule of Investments^a (unaudited)

COMMON EQUITIES: 96.3%

	Shares		Value
CHINA/HONG KONG: 30.2%
HSBC Holdings PLC ADR		2,009,791	$	88,692,077
China Mobile, Ltd. ADR		1,463,300		79,998,611
Cheung Kong Infrastructure Holdings, Ltd.		12,468,000		75,478,748
China Shenhua Energy Co., Ltd. H Shares		18,850,000		66,697,063
Shenzhou International Group Holdings, Ltd.		35,791,000		62,264,908
Television Broadcasts, Ltd.		8,815,000		61,449,842
Guangdong Investment, Ltd.		68,798,000		49,803,174
Jiangsu Expressway Co., Ltd. H Shares		46,944,000		44,196,760
Cafe' de Coral Holdings, Ltd.		16,350,000		43,744,207
Yuexiu Transport Infrastructure, Ltd.†		86,530,000		42,736,057
The Link REIT		10,220,000		41,890,366
Minth Group, Ltd.		34,441,000		37,361,791
China Fishery Group, Ltd.		40,671,000		28,283,642
Sichuan Expressway Co., Ltd. H Shares†		74,946,000		25,437,685
Xingda International Holdings, Ltd.		67,852,000		22,425,344
Esprit Holdings, Ltd.		15,574,700		20,172,876
Kingboard Laminates Holdings, Ltd.		52,379,500		19,376,840
Li Ning Co., Ltd.		30,961,000		17,420,125
Haitian International Holdings, Ltd.		15,816,000		15,758,470
Yip's Chemical Holdings, Ltd.		14,912,000		9,580,657
Total China/Hong Kong				852,769,243
JAPAN: 24.0%
Japan Tobacco, Inc.		3,580,000		106,059,811
ITOCHU Corp.		9,663,000		101,564,514
ORIX Corp.		996,140		92,836,101
NTT DoCoMo, Inc.		44,250		73,632,113
Pigeon Corp.†		1,501,800		65,795,724
Lawson, Inc.		815,100		57,001,146
Hisamitsu Pharmaceutical Co., Inc.		979,200		48,190,925
Miraca Holdings, Inc.		1,078,200		44,765,125
EPS Corp.†		14,592		40,002,876
Shinko Plantech Co., Ltd.†		3,760,200		32,656,661
Hokuto Corp.		848,200		16,937,251
Total Japan				679,442,247
SINGAPORE: 11.8%
Singapore Technologies Engineering, Ltd.		30,906,000		76,191,640
Ascendas REIT		39,325,000		67,086,448
United Overseas Bank, Ltd.		3,675,000		54,572,040
CapitaRetail China Trust, REIT†		43,127,000		44,690,705
Super Group, Ltd.		20,514,000		34,100,268
ARA Asset Management, Ltd.		26,180,600		29,641,627
Ascendas India Trust†		46,280,000		27,879,247
Total Singapore				334,161,975

	Shares		Value
AUSTRALIA: 8.2%
Metcash, Ltd.		25,417,446	$	88,055,006
QBE Insurance Group, Ltd.		4,484,726		61,982,242
Coca-Cola Amatil, Ltd.		2,994,730		41,154,831
David Jones, Ltd.		14,887,739		39,808,613
Total Australia				231,000,692
TAIWAN: 7.9%
Taiwan Semiconductor Manufacturing Co., Ltd. ADRb		4,005,040		55,910,358
Johnson Health Tech Co., Ltd.†		13,807,100		33,673,037
TXC Corp.†		21,549,524		31,288,322
Chunghwa Telecom Co., Ltd. ADR		985,701		30,980,582
Taiwan Hon Chuan Enterprise Co., Ltd.		12,151,948		27,373,602
St. Shine Optical Co., Ltd.		1,911,000		21,386,975
Taiwan Semiconductor Manufacturing Co., Ltd.b		4,646,469		12,719,561
CyberLink Corp.		3,451,973		10,074,433
Total Taiwan				223,406,870
THAILAND: 5.4%
Thai Beverage Public Co., Ltd.		240,437,000		64,763,469
PTT Exploration & Production Public Co., Ltd.		10,135,000		54,019,887
Tisco Financial Group Public Co., Ltd.		28,100,000		34,428,534
Total Thailand				153,211,890
SOUTH KOREA: 4.1%
KT&G Corp.		1,143,000		81,033,396
Woongjin Thinkbig Co., Ltd.†		2,079,870		18,180,703
MegaStudy Co., Ltd.		232,984		15,964,465
Total South Korea				115,178,564
INDONESIA: 3.1%
PT Perusahaan Gas Negara Persero		142,302,000		53,873,264
PT Telekomunikasi Indonesia Persero ADR		717,634		24,995,192
PT Telekomunikasi Indonesia Persero		9,036,500		7,895,049
Total Indonesia				86,763,505
PHILIPPINES: 1.6%
Globe Telecom, Inc.		1,703,820		45,256,793
Total Philippines				45,256,793
TOTAL COMMON EQUITIES				2,721,191,779
(Cost $2,645,696,674)

matthewsasia.com | 800.789.ASIA 17

Matthews Asia Dividend Fund  June 30, 2012

Schedule of Investments^a (unaudited)(continued)

CLOSED-END INVESTMENT COMPANY: 0.2%

	Shares		Value
THAILAND: 0.2%
Tesco Lotus Retail Growth Freehold & Leasehold Property Fundb		18,820,900	$	7,288,951
Total Thailand				7,288,951
TOTAL CLOSED-END INVESTMENT COMPANY				7,288,951
(Cost $7,098,764)
TOTAL INVESTMENTS: 96.5%				2,728,480,730
(Cost $2,652,795,438c)
CASH AND OTHER ASSETS, LESS LIABILITIES: 3.5%				98,338,633
NET ASSETS: 100.0%			$	2,826,819,363

a  Certain securities were fair valued under the discretion of the Board of Trustees (Note 2-A).

b  Non-income producing security.

c  Cost for federal income tax purposes is $2,653,648,185 and net unrealized appreciation consists of:

Gross unrealized appreciation	$	363,378,203
Gross unrealized depreciation		(288,545,658	)
Net unrealized appreciation	$	74,832,545

†  Affiliated Issuer, as defined under the Investment Company Act of 1940 (ownership of 5% or more of the outstanding voting securities of this issuer)

ADR  American Depositary Receipt

REIT  Real Estate Investment Trust

See accompanying notes to financial statements.

18 MATTHEWS ASIA FUNDS

ASIA GROWTH AND INCOME STRATEGIES

PORTFOLIO MANAGERS

Jesper O. Madsen, CFA

Lead Manager

Yu Zhang, CFA

Co-Manager

FUND FACTS

	Investor Class	Institutional Class
Ticker	MCDFX	MICDX
CUSIP	577125305	577130735
Inception	11/30/09	10/29/10
NAV	$10.86	$10.86
Initial Investment	$2,500	$3 million
Gross Expense Ratio1	1.52%	1.31%
After Fee Waiver and Reimbursement	1.50%	n.a.

Portfolio Statistics

Total # of Positions	33
Net Assets	$27.6 million
Weighted Average Market Cap	$27.5 billion
Portfolio Turnover	22.31%2

Benchmark

MSCI China Index

Redemption Fee

2% within first 90 calendar days of purchase

OBJECTIVE

Total return with an emphasis on providing current income.

STRATEGY

Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 80% of its total net assets, which include borrowings for investment purposes, in income-paying equity securities of companies located in China and Taiwan. The Fund may also invest in convertible debt and equity securities. China includes its administrative and other districts, such as Hong Kong.

1  The Advisor has contractually agreed to waive Matthews China Dividend Fund's fees and reimburse expenses until at least August 31, 2013 to the extent needed to limit total annual operating expenses to 1.50%. Matthews Asia Funds does not charge 12b-1 fees.

2  The lesser of fiscal year 2011 long-term purchase costs or sales proceeds divided by the average monthly market value of long-term securities.

Matthews China Dividend Fund

Portfolio Manager Commentary

For the first half of 2012, the Matthews China Dividend Fund gained 10.22% (Investor Class) and 10.25% (Institutional Class), outperforming its benchmark, the MSCI China Index, which rose 4.14%. For the quarter ended June 30, the Fund declined –3.58% (Investor Class) and –3.55% (Institutional Class) while the benchmark dropped –5.26%. In June, the Fund paid a semi-annual income distribution of 22.27 cents per share (Investor Class).

As the year progressed, China's economic slowdown increasingly weighed on equity markets. Incremental macroeconomic indicators and business activity all pointed to a further weakening. China's policymakers turned more aggressive in the second quarter, resetting economic policy priorities in an effort to stem further declines. A shift toward policy loosening was evidenced by the central bank's two consecutive interest rate cuts during the same month. In addition, Chinese banks were allowed more flexibility in setting their own rates, indicating an important step toward interest rate liberalization. This latest move, alongside lackluster loan demand and potential risks from non-performing-loans, could further squeeze bank profit margins. While Chinese banks are significant dividend payers within our investment universe, we continue to question the sustainability of their business model as it is difficult to estimate future dividend payments with enough confidence, and we therefore have continued to avoid direct investments in this sector.

During the first half of the year, our consumer discretionary holdings were the top contributors to the Fund's performance, thanks mainly to Shenzhou International, a textile group in mainland China, and Johnson Health Tech, a Taiwanese fitness equipment manufacturer. While both companies are involved in traditional export businesses, they have managed to overcome some industry headwinds. Shenzhou's integrated business model has helped the company benefit from scale and maintain its cost competitiveness. In addition, its research and development capability led to product differentiation, allowing Shenzhou to command better pricing power. Johnson Health Tech, which has traditionally made home fitness equipment, successfully penetrated the commercial fitness equipment segment, thereby adding this new growth driver to its core business. Both companies experienced strong earnings growth in 2011, and shareholders were rewarded with significant dividend growth. Shenzhou announced a 39% increase in dividends, while the dividend growth for Johnson was even higher at 300%.

The Fund's holdings in energy and materials, sectors which tend to be cyclical, were the main performance detractors during the first half of the year. Companies within these sectors faced strong short-term challenges, as both demand and pricing for their products quickly deteriorated during the economic slowdown. However, when we identify compelling opportunities within these sectors, particularly firms that can maintain their competitiveness and long-term growth prospects, we consider adding them should valuations appear attractive. In the first half of the year, we initiated positions in Xingda International, a Chinese materials company with leading domestic market share in certain tire components, and Haitian International, another mainland-based company with a dominant position in the plastic-injection molding machine industry. While industrial activities were rapidly weakening in China, affecting the

(continued)

matthewsasia.com | 800.789.ASIA 19

PERFORMANCE AS OF JUNE 30, 2012

				Average Annual Total Returns
	3 Months			1 Year			Since Inception			Inception Date
Investor Class (MCDFX)		-3.58	%		-7.25	%		6.50	%	11/30/09
Institutional Class (MICDX)		-3.55	%		-7.05	%		-1.04	%	10/29/10
MSCI China Index3		-5.26	%		-15.78	%		-4.14	%4
Lipper China Region Funds Category Average5		-6.45	%		-19.33	%		-3.80	%4

Performance assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate with 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 return figures quoted. Returns would have been lower if certain of the Fund's fees and expenses had not been waived. For the Fund's most recent month-end performance, visit matthewsasia.com.

INCOME DISTRIBUTION HISTORY

	2012				2011
	June		December	Total	June		December		Total
Investor Class (MCDFX)	$	0.22	n.a	n.a	$	0.15	$	0.20	$	0.35
Institutional Class (MICDX)	$	0.23	n.a	n.a	$	0.17	$	0.21	$	0.38

Note: This table does not include capital gains distributions. Institutional Class Shares were first offered on October 29, 2010. For income distribution history, visit matthewsasia.com.

30-DAY YIELD:

3.03% (Investor Class) 3.12% (Institutional Class)

The 30-Day Yield represents net investment income earned by the Fund over the 30-day period ended 6/30/12, expressed as an annual percentage rate based on the Fund's share price at the end of the 30-day period. The 30-Day Yield should be regarded as an estimate of the Fund's rate of investment income, and it may not equal the Fund's actual income distribution rate.

Source: BNY Mellon Investment Servicing (US) Inc.

DIVIDEND YIELD: 4.10%

The dividend yield (trailing) for the portfolio is the weighted average sum of the dividend paid per share during the last 12 months divided by the current price. The annualized dividend yield for the Fund is for the equity-only portion of the portfolio. Please note that this is based on gross portfolio holdings and does not reflect the actual yield an investor in the Fund would receive. Past yields are no guarantee of future yields.

Source: FactSet Research Systems, Bloomberg, MICM.

GROWTH OF A $10,000 INVESTMENT SINCE INCEPTION—INVESTOR CLASS

Plotted monthly. The performance data does not reflect the deduction of taxes that a shareholder would pay on dividends, capital gains distributions or redemption of Fund shares. Values are in US$.

3  It is not possible to invest directly in an index. Source: Index data from Morgan Stanley Capital International and Bloomberg; total return calculations performed by BNY Mellon Investment Servicing (US) Inc. Please see page 69 for index definition.

4  Calculated from 11/30/09.

5  The Lipper Category Average does not reflect sales charges and is based on total return, including reinvestment of dividends and capital gains for the stated periods.

TOP TEN HOLDINGS⁶

	Sector	% Net Assets
HSBC Holdings PLC	Financials		4.3
Vitasoy International Holdings, Ltd.	Consumer Staples		4.3
China Mobile, Ltd.	Telecommunication Services		4.1
Guangdong Investment, Ltd.	Utilities		4.0
Cheung Kong Infrastructure Holdings, Ltd.	Utilities		4.0
Taiwan Hon Chuan Enterprise Co., Ltd.	Materials		3.9
Television Broadcasts, Ltd.	Consumer Discretionary		3.9
Taiwan Semiconductor Manufacturing Co., Ltd.	Information Technology		3.8
CNOOC, Ltd.	Energy		3.8
The Link REIT	Financials		3.8
% OF ASSETS IN TOP TEN			39.9	%

6  Holdings may combine more than one security from same issuer and related depositary receipts.

20 MATTHEWS ASIA FUNDS

Matthews China Dividend Fund

Portfolio Manager Commentary (continued)

near-term business performance of both companies, we believe these firms have a sustainable competitive advantage over their competitors, and felt their valuations were compelling following the market sell-off.

During such volatile times, we continue to employ the same investment approach. As a bottom-up dividend-oriented investor, we believe a balanced approach that emphasizes both dividend yield and dividend growth is an effective tool to filter out short-term market noises and to capture long-term investment opportunities. Based on our fundamental analysis, we develop a view regarding forward-looking dividend growth rates that generally reflect our expectations for future business prospects. We also look at current dividend yield, which is a simple, yet powerful valuation yardstick: equity investors need to be adequately compensated for the risk taken by receiving a cash dividend stream while waiting for the business to deliver its growth. By combining those two factors, we aim to capture in a diversified portfolio both growth companies—those with higher dividend growth rates and moderate dividend yield—and more mature companies—those with higher, more stable dividend yields and moderate growth prospects. Our aim is to try to deliver capital appreciation supported by underlying dividend growth, while concurrently generating a dividend income stream.

Despite a weak economic environment and short-term market noise, our portfolio as a whole delivered on dividend growth. During the first half of 2012, all 33 portfolio holdings declared dividends. Out of these, 18 companies increased dividends, six companies maintained their dividends and nine companies showed a cut to their dividends. While the volatile equity market conditions are likely to persist in the near-term, we continue to find companies that offer attractive dividend yields and are well-positioned to grow dividends over time.

COUNTRY ALLOCATION (%)⁷

China/Hong Kong	73.7
Taiwan	21.9
Singapore	3.5
Cash and Other Assets, Less Liabilities	0.9

SECTOR ALLOCATION (%)

Consumer Discretionary	19.5
Financials	15.2
Industrials	14.5
Information Technology	10.7
Energy	9.3
Materials	8.3
Utilities	8.0
Telecommunication Services	6.4
Consumer Staples	4.3
Health Care	2.9
Cash and Other Assets, Less Liabilities	0.9

MARKET CAP EXPOSURE (%)⁸

Large Cap (over $5B)	35.9
Mid Cap ($1B–$5B)	29.7
Small Cap (under $1B)	33.5
Cash and Other Assets, Less Liabilities	0.9

7  The United Kingdom is not included in the MSCI China Index

8  Source: FactSet Research Systems. Percentage values in data are rounded to the nearest tenth of one percent; the values may not sum to 100% due to rounding.

matthewsasia.com | 800.789.ASIA 21

Matthews China Dividend Fund  June 30, 2012

Schedule of Investments^a (unaudited)

COMMON EQUITIES: 99.1%

	Shares		Value
CONSUMER DISCRETIONARY: 19.5%
Auto Components: 5.0%
Minth Group, Ltd.		868,000	$	941,611
Xinyi Glass Holdings, Ltd.		812,000		437,838
				1,379,449
Media: 3.9%
Television Broadcasts, Ltd.		153,000		1,066,571
Hotels, Restaurants & Leisure: 3.8%
Cafe' de Coral Holdings, Ltd.		388,000		1,038,089
Textiles, Apparel & Luxury Goods: 3.4%
Shenzhou International Group Holdings, Ltd.		549,000		955,085
Leisure Equipment & Products: 3.4%
Johnson Health Tech Co., Ltd.		388,425		947,299
Total Consumer Discretionary				5,386,493
FINANCIALS: 15.2%
Real Estate Investment Trusts: 7.3%
The Link REIT		257,500		1,055,457
CapitaRetail China Trust, REIT		930,000		963,720
				2,019,177
Commercial Banks: 4.3%
HSBC Holdings PLC ADR		27,000		1,191,510
Real Estate Management & Development: 3.6%
Swire Pacific, Ltd. A Shares		53,000		616,435
E-House China Holdings, Ltd. ADS		70,000		385,000
				1,001,435
Total Financials				4,212,122
INDUSTRIALS: 14.5%
Transportation Infrastructure: 9.3%
Jiangsu Expressway Co., Ltd. H Shares		996,000		937,712
Yuexiu Transport Infrastructure, Ltd.		1,282,000		633,163
China Merchants Holdings International Co., Ltd.		182,000		556,784
Sichuan Expressway Co., Ltd. H Shares		1,356,000		460,245
				2,587,904
Machinery: 3.2%
Haitian International Holdings, Ltd.		880,000		876,799
Air Freight & Logistics: 2.0%
Shenzhen Chiwan Petroleum, B Sharesb		473,116		561,406
Total Industrials				4,026,109

	Shares		Value
INFORMATION TECHNOLOGY: 10.7%
Electronic Equipment, Instruments & Components: 4.5%
TXC Corp.		585,199	$	849,666
Digital China Holdings, Ltd.		222,000		391,215
				1,240,881
Semiconductors & Semiconductor Equipment: 3.8%
Taiwan Semiconductor Manufacturing Co., Ltd.b		388,000		1,062,138
Software: 2.4%
CyberLink Corp.		226,963		662,382
Total Information Technology				2,965,401
ENERGY: 9.3%
Oil, Gas & Consumable Fuels: 9.3%
CNOOC, Ltd. ADR		5,250		1,056,562
China Shenhua Energy Co., Ltd. H Shares		238,000		842,117
China Petroleum & Chemical Corp. ADR		7,440		663,574
Total Energy				2,562,253
MATERIALS: 8.3%
Containers & Packaging: 4.0%
Taiwan Hon Chuan Enterprise Co., Ltd.		483,354		1,088,808
Chemicals: 2.2%
Yip's Chemical Holdings, Ltd.		950,000		610,356
Metals & Mining: 2.1%
Xingda International Holdings, Ltd.		1,777,000		587,305
Total Materials				2,286,469
UTILITIES: 8.0%
Water Utilities: 4.0%
Guangdong Investment, Ltd.		1,536,000		1,111,917
Electric Utilities: 4.0%
Cheung Kong Infrastructure Holdings, Ltd.		182,000		1,101,791
Total Utilities				2,213,708
TELECOMMUNICATION SERVICES: 6.4%
Wireless Telecommunication Services: 4.1%
China Mobile, Ltd. ADR		20,530		1,122,375
Diversified Telecommunication Services: 2.3%
Chunghwa Telecom Co., Ltd. ADR		20,604		647,584
Total Telecommunication Services				1,769,959

22 MATTHEWS ASIA FUNDS

Matthews China Dividend Fund  June 30, 2012

Schedule of Investments^a (unaudited)(continued)

COMMON EQUITIES (continued)

	Shares		Value
CONSUMER STAPLES: 4.3%
Food Products: 4.3%
Vitasoy International Holdings, Ltd.		1,406,000	$	1,181,547
Total Consumer Staples				1,181,547
HEALTH CARE: 2.9%
Health Care Equipment & Supplies: 2.9%
St. Shine Optical Co., Ltd.		72,000		805,789
Total Health Care				805,789
TOTAL INVESTMENTS: 99.1%				27,409,850
(Cost $26,885,199c)
CASH AND OTHER ASSETS, LESS LIABILITIES: 0.9%				239,340
NET ASSETS: 100.0%			$	27,649,190

a  Certain securities were fair valued under the discretion of the Board of Trustees (Note 2-A).

b  Non-income producing security.

c  Cost for federal income tax purposes is $26,885,199 and net unrealized appreciation consists of:

Gross unrealized appreciation	$	3,104,555
Gross unrealized depreciation		(2,579,904	)
Net unrealized appreciation	$	524,651

ADR  American Depositary Receipt

ADS  American Depositary Share

REIT  Real Estate Investment Trust

See accompanying notes to financial statements.

matthewsasia.com | 800.789.ASIA 23

ASIA GROWTH STRATEGIES

PORTFOLIO MANAGERS

Taizo Ishida

Lead Manager

Sharat Shroff, CFA

Co-Manager

FUND FACTS

	Investor Class	Institutional Class
Ticker	MPACX	MIAPX
CUSIP	577130867	577130776
Inception	10/31/03	10/29/10
NAV	$16.19	$16.23
Initial Investment	$2,500	$3 million
Gross Expense Ratio1	1.18%	1.03%

Portfolio Statistics

Total # of Positions	61
Net Assets	$363.6 million
Weighted Average Market Cap	$16.1 billion
Portfolio Turnover	28.06%2

Benchmark

MSCI AC Asia Pacific Index

Redemption Fee

2% within first 90 calendar days of purchase

OBJECTIVE

Long-term capital appreciation.

STRATEGY

Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 80% of its total net assets, which include borrowings for investment purposes, in the common and preferred stocks of companies located in Asia, including developed, emerging and frontier countries and markets in the Asian region. The Fund may also invest in the convertible securities, of any duration or quality, of Asian companies.

1  Matthews Asia Funds does not charge 12b-1 fees.

2  The lesser of fiscal year 2011 long-term purchase costs or sales proceeds divided by the average monthly market value of long-term securities.

Matthews Asia Growth Fund

Portfolio Manager Commentary

For the first half of 2012, the Matthews Asia Growth Fund returned 5.54% (Investor Class) and 5.60% (Institutional Class) while its benchmark, the MSCI All Country Asia Pacific Index, returned 4.58%. For the quarter ended June 30, the Fund declined –5.65% (Investor Class) and –5.64% (Institutional Class) while the benchmark fell –6.70%.

During the second quarter, Asian markets were disrupted by two global events: a wide-reaching economic slowdown and negative sentiment toward global equity markets due mainly to uncertainties surrounding Europe's financial crisis. We saw downward revisions of GDP figures across the Asia Pacific region. Most closely watched were GDP estimates for China, which were hovering around 8% at the end of the second quarter. Fortunately, inflation in many emerging Asian markets seemed to have come under control due to lower prices for food and energy—a development that should help lower costs of government subsidies.

As trade with the West still accounts for a substantial portion of Asia's economic activity, the region continues to be impacted by global economic movements. However, during the second quarter, Indonesia's economy held up relatively well as its economy is structurally driven by domestic economic activity. Indonesian consumers are encouraged by their relatively high purchasing power, helped by lower inflation, which has been one of the drivers of its economic performance. On the other hand, India's economy showed just 5.3% GDP growth in the first quarter, stemming from sluggish policymaking by India's leaders. India stands to benefit significantly from lower oil prices as the government's costs for fuel, food and fertilizer subsidies is quite high, at more than 2% of GDP, by some estimates.

During the second quarter, the main detractors to performance came from two of the portfolio's most heavily weighted and economically sensitive sectors—industrials and consumer discretionary. The two sectors comprised a combined weighting of approximately 42% of the portfolio during the second quarter. Within industrials, heavy machinery companies, which are often exposed to commodity and mining industries, did not perform well, impacted by lower commodity prices. Sany Heavy Equipment International, a leading Chinese mining equipment firm, performed poorly as a result of lower coal prices. However, the company should continue to benefit from automation in coal mining, supported by a Chinese government policy to reduce mining accidents.

Within the consumer discretionary sector, our holdings in auto companies, such as Japan's Toyota Motor and Fuji Heavy Industries, as well as auto firms in China and Indonesia were negative contributors amid the global economic slowdown. Japanese auto companies continued to face headwinds from a strong yen, yet their production levels and revenues have sharply rebounded from last year's lows caused by natural disasters. However, despite lower short-term demand, we believe our auto-related holdings will continue to benefit over the long term.

During the first half of the year, we saw strong performance in the casino-related tourism industry. However, China's lodging industry has remained weak. By sector, financials were the top contributor to performance

(continued)

24 MATTHEWS ASIA FUNDS

PERFORMANCE AS OF JUNE 30, 2012

				Average Annual Total Returns
	3 Months			1 Year			3 Years			5 Years			Since Inception			Inception Date
Investor Class (MPACX)		-5.65	%		-8.58	%		11.79	%		1.94	%		8.86	%	10/31/03
Institutional Class (MIAPX)		-5.64	%		-8.46	%		n.a.			n.a.			-3.12	%	10/29/10
MSCI AC Asia Pacific Index3		-6.70	%		-10.48	%		7.17	%		-2.62	%		6.51	%4
Lipper Pacific Region Funds Category Average5		-5.56	%		-9.80	%		7.39	%		-3.10	%		6.33	%4

Performance assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate with 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 return figures quoted. Returns would have been lower if certain of the Fund's fees and expenses had not been waived. For the Fund's most recent month-end performance, visit matthewsasia.com.

GROWTH OF A $10,000 INVESTMENT SINCE INCEPTION—INVESTOR CLASS

Plotted monthly. The performance data and graph do not reflect the deduction of taxes that a shareholder would pay on dividends, capital gains distributions or redemption of Fund shares. Values are in US$.

3  It is not possible to invest directly in an index. Source: Index data from Morgan Stanley Capital International and Bloomberg; total return calculations performed by BNY Mellon Investment Servicing (US) Inc. Please see page 69 for index definition.

4  Calculated from 10/31/03.

5  The Lipper Category Average does not reflect sales charges and is based on total return, including reinvestment of dividends and capital gains for the stated periods.

TOP TEN HOLDINGS⁶

	Sector	Country	% Net Assets
Toyota Motor Corp.	Consumer Discretionary	Japan		4.9	%
ORIX Corp.	Financials	Japan		4.5	%
Mitsui & Co., Ltd.	Industrials	Japan		4.1	%
Rakuten, Inc.	Consumer Discretionary	Japan		2.6	%
Oil Search, Ltd.	Energy	Australia		2.4	%
Sysmex Corp.	Health Care	Japan		2.4	%
Nidec Corp.	Industrials	Japan		2.3	%
Kakaku.com, Inc.	Information Technology	Japan		2.3	%
PT Indofood CBP Sukses Makmur	Consumer Staples	Indonesia		2.3	%
Rinnai Corp.	Consumer Discretionary	Japan		2.2	%
% OF ASSETS IN TOP TEN				30.0	%

6  Holdings may combine more than one security from same issuer and related depositary receipts.

matthewsasia.com | 800.789.ASIA 25

COUNTRY ALLOCATION (%)

Japan	34.3
China/Hong Kong	22.9
Thailand	7.2
India	6.7
Indonesia	6.2
Australia	5.2
Taiwan	5.0
Singapore	3.5
Cambodia	2.2
Vietnam	1.8
Sri Lanka	1.6
South Korea	1.0
Malaysia	0.8
Cash and Other Assets, Less Liabilities	1.6

SECTOR ALLOCATION (%)

Consumer Discretionary	26.6
Financials	17.0
Industrials	14.7
Health Care	13.0
Consumer Staples	12.0
Information Technology	7.9
Energy	3.7
Materials	3.5
Cash and Other Assets, Less Liabilities	1.6

MARKET CAP EXPOSURE (%)⁷

Large Cap (over $5B)	49.0
Mid Cap ($1B–$5B)	32.9
Small Cap (under $1B)	16.4
Cash and Other Assets, Less Liabilities	1.6

7  Source: FactSet Research Systems. Percentage values in data are rounded to the nearest tenth of one percent; the values may not sum to 100% due to rounding.

Matthews Asia Growth Fund

Portfolio Manager Commentary (continued)

during the first six months of the year. Notably, our real estate holdings, predominantly Chinese property companies, contributed positively to performance. In addition, our health care sector holdings, driven by medical device companies also operating mainly in China, performed well as a result of their stable earnings power and defensive nature.

For the remainder of the year, we remain cautious as there does not appear to be a near-term resolution to the current global economic downturn. However, we maintain optimism over the stability and rising purchasing power of Asia's consumers. We look for healthy, domestic consumption rates across the region, and believe they are better indicators of long-term opportunities than headline macroeconomic figures.

26 MATTHEWS ASIA FUNDS

Matthews Asia Growth Fund  June 30, 2012

Schedule of Investments^a (unaudited)

COMMON EQUITIES: 98.4%

	Shares		Value
JAPAN: 34.3%
Toyota Motor Corp.		441,700	$	17,827,993
ORIX Corp.		174,370		16,250,558
Mitsui & Co., Ltd.		1,004,600		14,928,208
Rakuten, Inc.		905,900		9,365,802
Sysmex Corp.		222,100		8,783,573
Nidec Corp.		109,400		8,318,100
Kakaku.com, Inc.		244,900		8,310,299
Rinnai Corp.		117,500		8,107,674
Start Today Co., Ltd.		529,900		7,405,084
Komatsu, Ltd.		188,900		4,509,296
Otsuka Holdings Co., Ltd.		137,900		4,232,873
Nitto Denko Corp.		98,400		4,215,922
Fuji Heavy Industries, Ltd.		457,000		3,702,647
Pigeon Corp.		72,700		3,185,077
FANUC Corp.		18,700		3,073,927
Calbee, Inc.		39,000		2,449,032
Total Japan				124,666,065
CHINA/HONG KONG: 22.9%
Sinopharm Group Co., Ltd. H Shares		2,836,800		7,885,925
Dairy Farm International Holdings, Ltd.		602,454		6,423,221
China Kanghui Holdings, Inc. ADRb		305,800		6,024,260
Sands China, Ltd.		1,692,400		5,444,496
China Lodging Group, Ltd. ADSb		453,600		5,325,264
China Vanke Co., Ltd. B Sharesb		3,789,587		4,995,857
Dongfeng Motor Group Co., Ltd. H Shares		3,184,000		4,976,769
Tingyi (Cayman Islands) Holding Corp.		1,888,000		4,864,252
Hang Lung Group, Ltd.		782,000		4,835,238
Sany Heavy Equipment International Holdings Co., Ltd.		7,862,000		4,246,918
Shandong Weigao Group Medical Polymer Co., Ltd. H Shares		3,804,000		4,246,331
Lianhua Supermarket Holdings Co., Ltd. H Shares		4,165,000		3,998,866
Haitian International Holdings, Ltd.		3,980,000		3,965,523
Shenzhou International Group Holdings, Ltd.		2,259,000		3,929,938
Kingdee International Software Group Co., Ltd.b		20,269,600		3,815,603
Baidu, Inc. ADRb		30,300		3,483,894
Ctrip.com International, Ltd. ADRb		188,000		3,150,880
EVA Precision Industrial Holdings, Ltd.		19,492,000		1,601,809
Total China/Hong Kong				83,215,044
THAILAND: 7.2%
Major Cineplex Group Public Co., Ltd.		11,921,000		6,570,984
Siam Commercial Bank Public Co., Ltd.		1,264,400		5,917,053
SVI Public Co., Ltd.b		47,651,300		5,315,402
Banpu Public Co., Ltd.		331,800		4,716,157
SNC Former Public Co., Ltd.		4,457,900		3,566,791
Total Thailand				26,086,387

	Shares		Value
INDIA: 6.7%
Emami, Ltd.		866,979	$	7,780,363
HDFC Bank, Ltd.		627,431		6,390,581
Castrol India, Ltd.		419,477		4,122,426
Sun Pharmaceutical Industries, Ltd.		313,520		3,594,188
Multi Commodity Exchange of India, Ltd.		121,695		2,311,627
Total India				24,199,185
INDONESIA: 6.2%
PT Indofood CBP Sukses Makmurb		13,349,000		8,254,161
PT Bank Rakyat Indonesia Persero		11,610,500		7,952,093
PT Astra International		8,425,000		6,210,899
Total Indonesia				22,417,153
AUSTRALIA: 5.2%
Oil Search, Ltd.		1,305,704		8,893,857
CSL, Ltd.		137,045		5,558,782
BHP Billiton, Ltd.		136,800		4,455,895
Total Australia				18,908,534
TAIWAN: 5.0%
Synnex Technology International Corp.		3,133,000		7,667,124
St. Shine Optical Co., Ltd.		624,000		6,983,502
Gourmet Master Co., Ltd.		520,800		3,614,628
Total Taiwan				18,265,254
SINGAPORE: 3.5%
Keppel Land, Ltd.		2,204,000		5,671,700
CapitaCommercial Trust, REIT		3,676,000		3,697,239
Goodpack, Ltd.		2,564,000		3,512,011
Total Singapore				12,880,950
CAMBODIA: 2.2%
NagaCorp, Ltd.		17,812,000		7,965,135
Total Cambodia				7,965,135
VIETNAM: 1.8%
Vietnam Dairy Products JSC		1,564,020		6,580,488
Total Vietnam				6,580,488
SRI LANKA: 1.6%
John Keells Holdings PLC		4,298,200		5,895,388
Total Sri Lanka				5,895,388
SOUTH KOREA: 1.0%
Kiwoom Securities Co., Ltd.		67,641		3,635,160
Total South Korea				3,635,160

matthewsasia.com | 800.789.ASIA 27

Matthews Asia Growth Fund  June 30, 2012

Schedule of Investments^a (unaudited)(continued)

COMMON EQUITIES (continued)

	Shares		Value
MALAYSIA: 0.8%
Parkson Holdings BHD		2,096,969	$	3,039,529
Total Malaysia				3,039,529
TOTAL INVESTMENTS: 98.4%				357,754,272
(Cost $308,897,735c)
CASH AND OTHER ASSETS, LESS LIABILITIES: 1.6%				5,885,174
NET ASSETS: 100.0%			$	363,639,446

a  Certain securities were fair valued under the discretion of the Board of Trustees (Note 2-A).

b  Non-income producing security.

c  Cost for federal income tax purposes is $308,897,738 and net unrealized appreciation consists of:

Gross unrealized appreciation	$	71,231,717
Gross unrealized depreciation		(22,375,183	)
Net unrealized appreciation	$	48,856,534

ADR  American Depositary Receipt

ADS  American Depositary Share

BHD  Berhad

JSC  Joint Stock Co.

REIT  Real Estate Investment Trust

See accompanying notes to financial statements.

28 MATTHEWS ASIA FUNDS

ASIA GROWTH STRATEGIES

PORTFOLIO MANAGERS

Richard H. Gao

Lead Manager

Sharat Shroff, CFA

Lead Manager

Mark W. Headley

Co-Manager

FUND FACTS

	Investor Class	Institutional Class
Ticker	MAPTX	MIPTX
CUSIP	577130107	577130834
Inception	9/12/94	10/29/10
NAV	$21.69	$21.70
Initial Investment	$2,500	$3 million
Gross Expense Ratio1	1.11%	0.95%

Portfolio Statistics

Total # of Positions	70
Net Assets	$5.9 billion
Weighted Average Market Cap	$20.0 billion
Portfolio Turnover	10.51%2

Benchmark

MSCI AC Asia ex Japan Index

Redemption Fee

2% within first 90 calendar days of purchase

OBJECTIVE

Long-term capital appreciation.

STRATEGY

Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 80% of its total net assets, which include borrowings for investment purposes, in the common and preferred stocks of companies located in Asia, including developed, emerging and frontier countries and markets in the Asian region, excluding Japan.

1  Matthews Asia Funds does not charge 12b-1 fees.

2  The lesser of fiscal year 2011 long-term purchase costs or sales proceeds divided by the average monthly market value of long-term securities.

Matthews Pacific Tiger Fund

Portfolio Manager Commentary

For the first half of 2012, the Matthews Pacific Tiger Fund gained 6.69% (Investor Class) and 6.79% (Institutional Class) while the MSCI All Country Asia ex Japan Index rose 6.10%. For the quarter ended June 30, the Fund declined –3.81% (Investor and Institutional Class), while the benchmark lost –6.74%. It was a tale of two quarters, as the first quarter marked a partial recovery for equities in Asia that fizzled in the second quarter as hopes of a sustained economic recovery were overshadowed by renewed concerns over growth, particularly in China.

The downside risks to China's economic growth have become more evident, and a common result has been varying forms of restructuring—whether a shake-up of the management team or a complete overhaul of the business processes. Pressures from rising costs, fading demand and shrinking pools of funding have forced a wave of consolidations that are more acute in the small-capitalization universe of Chinese companies. In addition, there has been a spate of governance- related debacles that has raised the risk-premium for Chinese equities, most notably for small-capitalization firms. We are viewing this environment as an opportunity to scout for companies that have reasonable long-term prospects led by management teams that are vigorously taking corrective measures to deal with the current turmoil.

A common risk in investing is that one may be too early in including a stock into a portfolio. This was our experience when we added Li Ning, a leading Chinese company in the sportswear industry, earlier this year. In spite of a relatively modest position in the Fund, Li Ning was one of the biggest detractors to Fund performance during the quarter. After a burst of undisciplined growth leading into the Beijing Olympics, China's sportswear industry entered a phase of consolidation. Li Ning was a firm that had identified its problems early. We continue to own its stock as a more recent spate of management changes gives us some confidence that issues related to the distribution of their products will be reconciled over time. We believe that per capita spending on sportswear goods is still likely to rise in the coming years. However, Li Ning needs to build on its brand proposition to compete and capitalize on this secular economic growth. We will continue to monitor Li Ning, with a focus on its market positioning and branding efforts to gauge its progress.

In evaluating investment ideas, we continue to look for businesses and management teams that are well-suited to deal with the vicissitudes of changing political and macroeconomic environments. In recent periods, the Korean government has become rather active in micro-managing price levels across goods and services, such as insurance and health care, which has impacted some Fund holdings. As such, the shorter-term performance of some of our Korean holdings continues to test our investment thesis.

Relative bright spots across Asia during the quarter occurred in smaller markets, such as the Philippines and Thailand where operating performance remains generally favorable. By contrast, companies in India continued to suffer from an intractable investment climate. However, that did not prevent the portfolio's Indian holdings from delivering positive contributions to returns for the first half of the year. Over the past 18 months, the Fund has been adding to Indian holdings in the industrials sector where we remain comfortable with company-specific risk factors.

(continued)

matthewsasia.com | 800.789.ASIA 29

PERFORMANCE AS OF JUNE 30, 2012

				Average Annual Total Returns
	3 Months			1 Year			3 Years			5 Years			10 Years			Since Inception			Inception Date
Investor Class (MAPTX)		-3.81	%		-8.34	%		13.80	%		4.73	%		14.57	%		8.68	%	9/12/94
Institutional Class (MIPTX)		-3.81	%		-8.20	%		n.a.			n.a.			n.a.			-2.80	%	10/29/10
MSCI AC Asia ex Japan Index3		-6.74	%		-13.15	%		10.25	%		0.82	%		11.78	%		3.42	%4
Lipper Pacific ex Japan Funds Category Average5		-6.76	%		-14.04	%		9.56	%		0.07	%		10.79	%		3.60	%4

Performance assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate with 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 return figures quoted. Returns would have been lower if certain of the Fund's fees and expenses had not been waived. For the Fund's most recent month-end performance, visit matthewsasia.com.

GROWTH OF A $10,000 INVESTMENT SINCE INCEPTION—INVESTOR CLASS

Plotted monthly. The performance data and graph do not reflect the deduction of taxes that a shareholder would pay on dividends, capital gains distributions or redemption of Fund shares. Values are in US$.

3  It is not possible to invest directly in an index. Source: Index data from Morgan Stanley Capital International and Bloomberg; total return calculations performed by BNY Mellon Investment Servicing (US) Inc. Please see page 69 for index definition.

4  Calculated from 8/31/94.

5  The Lipper Category Average does not reflect sales charges and is based on total return, including reinvestment of dividends and capital gains for the stated periods.

TOP TEN HOLDINGS⁶

	Sector	Country	% Net Assets
Ping An Insurance Group Co. of China, Ltd.	Financials	China/Hong Kong		2.6	%
Bank of Ayudhya Public Co., Ltd.	Financials	Thailand		2.6	%
Tata Power Co., Ltd.	Utilities	India		2.5	%
Delta Electronics, Inc.	Information Technology	Taiwan		2.5	%
SM Prime Holdings, Inc.	Financials	Philippines		2.4	%
Hang Lung Group, Ltd.	Financials	China/Hong Kong		2.4	%
Genting BHD	Consumer Discretionary	Malaysia		2.4	%
PT Perusahaan Gas Negara Persero	Utilities	Indonesia		2.3	%
Dairy Farm International Holdings, Ltd.	Consumer Staples	China/Hong Kong		2.3	%
Samsung Electronics Co., Ltd.	Information Technology	South Korea		2.1	%
% OF ASSETS IN TOP TEN				24.1	%

6  Holdings may combine more than one security from same issuer and related depositary receipts.

30 MATTHEWS ASIA FUNDS

Matthews Pacific Tiger Fund

Portfolio Manager Commentary (continued)

A fairly recent addition to the portfolio, GAIL India is a key example. GAIL is the largest distributor of natural gas within the country. The biggest risk facing GAIL is the lack of availability of natural gas, and our contention is that this will change, helped by regulatory and technological shifts that are occurring globally. Common to both Li Ning and GAIL are our efforts to understand company-specific issues, which are currently a drag but can turn into tailwinds in spite of difficult macro conditions.

The last few years have been challenging for both Asian economies and capital markets given shifting business fundamentals and the consequent erosion of equity valuations. Some of these problems are a result of a previously indulgent capital market and benign economic conditions. It is natural that weaker businesses are being forced to exit, but it remains our view that the structural underpinnings of strong household balance sheets and growing prosperity provide a comparatively better outlook for Asia. In our view, the improved outlook and tailwinds from attractive valuations can be an opportunity to generate long-term performance. However a sluggish outlook for global growth doesn't leave room for too many misadventures, particularly with policymaking.

COUNTRY ALLOCATION (%)

China/Hong Kong	31.3
India	15.8
South Korea	13.9
Indonesia	8.5
Taiwan	8.3
Thailand	7.3
Malaysia	4.7
Singapore	2.7
Philippines	2.4
Vietnam	0.8
Cash and Other Assets, Less Liabilities	4.3

SECTOR ALLOCATION (%)

Financials	30.1
Information Technology	15.2
Consumer Discretionary	14.3
Consumer Staples	13.8
Utilities	7.1
Health Care	6.9
Telecommunication Services	3.3
Materials	1.9
Energy	1.9
Industrials	1.2
Cash and Other Assets, Less Liabilities	4.3

MARKET CAP EXPOSURE (%)⁷

Large Cap (over $5B)	68.4
Mid Cap ($1B–$5B)	25.2
Small Cap (under $1B)	2.1
Cash and Other Assets, Less Liabilities	4.3

7  Source: FactSet Research Systems. Percentage values in data are rounded to the nearest tenth of one percent; the values may not sum to 100% due to rounding.

matthewsasia.com | 800.789.ASIA 31

Matthews Pacific Tiger Fund  June 30, 2012

Schedule of Investments^a (unaudited)

COMMON EQUITIES: 95.7%

	Shares		Value
CHINA/HONG KONG: 31.3%
Ping An Insurance Group Co. of China, Ltd. H Shares		19,029,500	$	153,869,876
Hang Lung Group, Ltd.		23,365,000		144,469,744
Dairy Farm International Holdings, Ltd.		12,901,446		137,552,134
Sinopharm Group Co., Ltd. H Shares†		43,503,200		120,933,087
China Mobile, Ltd. ADR		2,063,150		112,792,410
China Resources Land, Ltd.		53,478,000		110,579,878
Digital China Holdings, Ltd.		53,828,000		94,857,377
Tingyi (Cayman Islands) Holding Corp.		35,926,000		92,559,911
Lenovo Group, Ltd.		105,568,000		90,084,485
Hengan International Group Co., Ltd.		7,996,000		77,890,285
Li & Fung, Ltd.		35,302,000		68,353,526
New Oriental Education & Technology Group, Inc. ADRb		2,772,409		67,924,020
Swire Pacific, Ltd. A Shares		5,683,500		66,103,929
China Vanke Co., Ltd. B Sharesb		48,875,258		64,432,823
Shangri-La Asia, Ltd.		31,457,333		60,423,941
Tencent Holdings, Ltd.		2,011,900		59,413,993
China Resources Enterprise, Ltd.		19,852,000		59,313,127
Baidu, Inc. ADRb		497,700		57,225,546
Hong Kong Exchanges and Clearing, Ltd.		3,664,500		52,727,660
Dongfeng Motor Group Co., Ltd. H Shares		30,440,000		47,579,412
China Merchants Bank Co., Ltd. H Shares		22,182,350		42,059,699
Ctrip.com International, Ltd. ADRb		2,490,350		41,738,266
Li Ning Co., Ltd.†		54,193,500		30,491,829
Total China/Hong Kong				1,853,376,958
INDIA: 15.8%
Tata Power Co., Ltd.		78,960,510		149,396,140
ITC, Ltd.		21,185,000		98,651,661
Kotak Mahindra Bank, Ltd.		8,767,491		93,762,819
Sun Pharmaceutical Industries, Ltd.		7,676,815		88,006,890
HDFC Bank, Ltd.		8,635,920		87,959,541
Housing Development Finance Corp.		7,285,685		85,913,881
GAIL India, Ltd.		10,609,419		67,387,390
Container Corp. of India, Ltd.		3,641,969		60,249,237
Titan Industries, Ltd.		13,593,760		54,737,263
Dabur India, Ltd.		25,308,038		52,147,259
Infosys, Ltd.		848,401		38,462,427
Sun TV Network, Ltd.		4,804,753		26,185,524
Thermax, Ltd.		1,237,793		10,667,548
HDFC Bank, Ltd. ADR		319,500		10,415,700
Infosys, Ltd. ADR		219,611		9,895,672
Total India				933,838,952
SOUTH KOREA: 13.9%
Samsung Electronics Co., Ltd.		119,904		126,976,831
Dongbu Insurance Co., Ltd.		3,031,690		111,927,329
NHN Corp.		436,302		95,695,902
Cheil Worldwide, Inc.†		5,916,350		94,499,024
Green Cross Corp.†		704,049		92,051,949
Hyundai Mobis		327,719		79,437,829
Yuhan Corp.†		584,138		68,294,703
Amorepacific Corp.		67,652		62,885,912
POSCO		195,584		62,616,625
MegaStudy Co., Ltd.†		396,412		27,162,833
Total South Korea				821,548,937

	Shares		Value
INDONESIA: 8.5%
PT Perusahaan Gas Negara Persero		364,396,500	$	137,954,693
PT Astra International		146,652,300		108,111,876
PT Bank Central Asia		115,688,500		90,485,367
PT Indofood CBP Sukses Makmurb		132,314,000		81,814,444
PT Telekomunikasi Indonesia Persero		80,460,500		70,297,079
PT Telekomunikasi Indonesia Persero ADR		375,700		13,085,631
Total Indonesia				501,749,090
TAIWAN: 8.3%
Delta Electronics, Inc.		48,296,000		148,249,699
Synnex Technology International Corp.		50,022,354		122,415,439
President Chain Store Corp.		19,439,608		103,721,840
Yuanta Financial Holding Co., Ltd.b		133,911,782		61,357,209
Taiwan Semiconductor Manufacturing Co., Ltd.b		20,423,513		55,908,719
Total Taiwan				491,652,906
THAILAND: 7.3%
Bank of Ayudhya Public Co., Ltd.		163,168,600		152,862,890
Central Pattana Public Co., Ltd.		81,096,100		119,768,672
PTT Exploration & Production Public Co., Ltd.		20,425,000		108,865,930
Siam Cement Public Co., Ltd. NVDR		5,087,900		50,992,132
Total Thailand				432,489,624
MALAYSIA: 4.7%
Genting BHD		47,065,500		140,550,107
Public Bank BHD		22,511,386		97,839,347
Top Glove Corp. BHD		25,175,960		41,413,459
Total Malaysia				279,802,913
SINGAPORE: 2.7%
Keppel Land, Ltd.		35,212,000		90,613,381
Hyflux, Ltd.†		62,284,280		66,709,992
Total Singapore				157,323,373
PHILIPPINES: 2.4%
SM Prime Holdings, Inc.		466,949,271		144,736,199
Total Philippines				144,736,199
VIETNAM: 0.8%
Vietnam Dairy Products JSC		11,907,545		50,100,036
Total Vietnam				50,100,036

32 MATTHEWS ASIA FUNDS

Matthews Pacific Tiger Fund  June 30, 2012

Schedule of Investments^a (unaudited)(continued)

COMMON EQUITIES (continued)

	Value
TOTAL INVESTMENTS: 95.7%	$	5,666,618,988
(Cost $4,529,040,093c)
CASH AND OTHER ASSETS, LESS LIABILITIES: 4.3%		256,767,149
NET ASSETS: 100.0%	$	5,923,386,137

a  Certain securities were fair valued under the discretion of the Board of Trustees (Note 2-A).

b  Non-income producing security.

c  Cost for federal income tax purposes is $4,530,302,695 and net unrealized appreciation consists of:

Gross unrealized appreciation	$	1,396,952,230
Gross unrealized depreciation		(260,635,937	)
Net unrealized appreciation	$	1,136,316,293

†  Affiliated Issuer, as defined under the Investment Company Act of 1940 (ownership of 5% or more of the outstanding voting securities of this issuer)

ADR  American Depositary Receipt

BHD  Berhad

JSC  Joint Stock Co.

NVDR  Non-voting Depositary Receipt

See accompanying notes to financial statements.

matthewsasia.com | 800.789.ASIA 33

ASIA GROWTH STRATEGIES

PORTFOLIO MANAGERS

Richard H. Gao

Lead Manager

Henry Zhang, CFA

Co-Manager

FUND FACTS

	Investor Class	Institutional Class
Ticker	MCHFX	MICFX
CUSIP	577130701	577130818
Inception	2/19/98	10/29/10
NAV	$21.95	$21.96
Initial Investment	$2,500	$3 million
Gross Expense Ratio1	1.13%	0.96%

Portfolio Statistics

Total # of Positions	60
Net Assets	$2.1 billion
Weighted Average Market Cap	$29.1 billion
Portfolio Turnover	8.43%2

Benchmark

MSCI China Index

Redemption Fee

2% within first 90 calendar days of purchase

OBJECTIVE

Long-term capital appreciation.

STRATEGY

Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 80% of its total net assets, which include borrowings for investment purposes, in the common and preferred stocks of companies located in China and Taiwan. China includes its administrative and other districts, such as Hong Kong.

1  Matthews Asia Funds does not charge 12b-1 fees.

2  The lesser of fiscal year 2011 long-term purchase costs or sales proceeds divided by the average monthly market value of long-term securities.

Matthews China Fund

Portfolio Manager Commentary

For the first half of 2012, the Matthews China Fund gained 2.05% (Investor Class) and 2.19% (Institutional Class), underperforming its benchmark, the MSCI China Index, which returned 4.14%. For the quarter ended June 30, the Fund fell –6.36% (Investor Class) and –6.28% (Institutional Class) while its benchmark returned –5.26%.

After a strong rally in the first quarter, Chinese equities came under significant selling pressure during the second quarter. Uncertainties and worries about Europe's debt crisis, weak economic indicators, such as those for industrial output and retail sales, and downward earnings revisions by analysts were the main reasons behind the stock market decline. Investors had been expecting a recovery of China's economy in the second quarter but domestic consumption and industrial production continued to weaken.

In view of the tough economic environment, the government took more decisive action toward monetary easing: the central bank cut reserve ratios further, sped up new project approvals, lowered barriers for private investments and, most importantly, cut interest rates for the first time since 2008. China's subdued inflationary environment during the quarter was a favorable development, and one that should allow the government more room for easing in the coming months. China's June consumer price index stood at 2.2%, well within the government's 4% target.

During the second quarter, the Matthews China Fund gave up most of its gains from the first quarter mainly due to weak performance among its consumer discretionary and consumer staples holdings. The global economic slowdown and decline in exports, coupled with the government's recent efforts to cool the property market, negatively impacted consumer sentiment and spending. The portfolio's holdings in department store, hotel, supermarket and sportswear companies were some of the hardest hit in the second quarter. These companies continued to report weak growth figures and their near-term operating environments may still be challenging. We believe that our investments in most of these consumer areas are experiencing some short-term headwinds but the long-term secular growth of China's consumer demand remains unchanged. China's sportswear sector is an exception in that it is undergoing a restructuring, and positive results in this industry may take longer to develop.

We believe the country's long-term growth in consumer demand is supported by its growing middle class population and rising income levels of both urban and rural workers. Meanwhile, we are starting to see margin pressures ease for consumer companies as rental costs and commodity prices continue to go down. Overall, our long-term overweight positions in the consumer sectors remain unchanged.

Despite a challenging market environment, China's property sector rallied during the second quarter and our real estate company holdings were among the top contributors to Fund performance. Despite ongoing tightening in the country's real estate markets, the overall market seemed to be stabilizing and demand started to pick up, as shown by the increase in property transaction volume.

During the second quarter, no major changes were made to the Fund. We remained fully invested and diversified. We slightly increased our holdings in select health care and hotel companies as we believe valuations in these

(continued)

34 MATTHEWS ASIA FUNDS

PERFORMANCE AS OF JUNE 30, 2012

				Average Annual Total Returns
	3 Months			1 Year			3 Years			5 Years			10 Years			Since Inception			Inception Date
Investor Class (MCHFX)		-6.36	%		-17.13	%		7.09	%		2.81	%		14.40	%		10.72	%	2/19/98
Institutional Class (MICFX)		-6.28	%		-16.94	%		n.a.			n.a.			n.a.			-11.45	%	10/29/10
MSCI China Index3		-5.26	%		-15.78	%		1.79	%		-0.49	%		15.76	%		2.59	%4
Lipper China Region Funds Category Average5		-6.45	%		-19.33	%		2.58	%		-2.95	%		10.58	%		7.42	%4

Performance assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate with 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 return figures quoted. Returns would have been lower if certain of the Fund's fees and expenses had not been waived. For the Fund's most recent month-end performance, visit matthewsasia.com.

GROWTH OF A $10,000 INVESTMENT SINCE INCEPTION—INVESTOR CLASS

Plotted monthly. The performance data and graph do not reflect the deduction of taxes that a shareholder would pay on dividends, capital gains distributions or redemption of Fund shares. Values are in US$.

3  It is not possible to invest directly in an index. Source: Index data from Morgan Stanley Capital International and Bloomberg; total return calculations performed by BNY Mellon Investment Servicing (US) Inc. Please see page 69 for index definition.

4  Calculated from 2/28/98.

5  The Lipper Category Average does not reflect sales charges and is based on total return, including reinvestment of dividends and capital gains for the stated periods.

TOP TEN HOLDINGS⁶

	Sector	% Net Assets
China Mobile, Ltd.	Telecommunication Services		3.8	%
Digital China Holdings, Ltd.	Information Technology		3.0	%
Ping An Insurance Group Co. of China, Ltd.	Financials		2.8	%
Cheung Kong Infrastructure Holdings, Ltd.	Utilities		2.7	%
China Life Insurance Co., Ltd.	Financials		2.7	%
China Resources Land, Ltd.	Financials		2.6	%
Tingyi (Cayman Islands) Holding Corp.	Consumer Staples		2.5	%
China Vanke Co., Ltd.	Financials		2.4	%
Hang Lung Group, Ltd.	Financials		2.3	%
China Merchants Bank Co., Ltd.	Financials		2.2	%
% OF ASSETS IN TOP TEN			27.0	%

6  Holdings may combine more than one security from same issuer and related depositary receipts.

matthewsasia.com | 800.789.ASIA 35

SECTOR ALLOCATION (%)

Financials	22.8
Consumer Discretionary	21.0
Information Technology	11.9
Consumer Staples	11.8
Industrials	8.9
Energy	6.9
Telecommunication Services	5.9
Utilities	5.3
Health Care	4.1
Cash and Other Assets, Less Liabilities	1.4

MARKET CAP EXPOSURE (%)⁷

Large Cap (over $5B)	70.6
Mid Cap ($1B–$5B)	24.6
Small Cap (under $1B)	3.4
Cash and Other Assets, Less Liabilities	1.4

7  Source: FactSet Research Systems. Percentage values in data are rounded to the nearest tenth of one percent; the values may not sum to 100% due to rounding.

Matthews China Fund

Portfolio Manager Commentary (continued)

companies are attractive. Home Inns & Hotels Management, one of China's largest and earliest budget hotel chains with operations throughout the country, saw its stock come under selling pressure this year due to investor concerns over the economic slowdown and the effectiveness of the company's recent acquisition. We believe that Home Inns is among China's most efficient budget hotel operators with a strong track record and management team. Our visits and discussions with its management have convinced us of the strategic benefits of its earlier acquisition toward the company's long-term development. What's more, the integration process for the acquisition seems to be well on track.

Going forward, we believe that the Chinese economy will continue to face the challenge of slowing near-term growth. We expect that the recent easing of monetary policies should gradually take effect and help growth momentum recover toward the end of the year. Given that inflation is still in check, additional easing measures, both for monetary and fiscal policy, are likely. We will continue to emphasize our long-term approach and remain focused on companies with strong fundamentals that can hold up through these short-term headwinds and volatilities.

36 MATTHEWS ASIA FUNDS

Matthews China Fund  June 30, 2012

Schedule of Investments^a (unaudited)

COMMON EQUITIES: CHINA/HONG KONG: 98.6%

	Shares		Value
FINANCIALS: 22.8%
Real Estate Management & Development: 8.6%
China Resources Land, Ltd.		26,366,000	$	54,518,663
China Vanke Co., Ltd. B Shares		37,690,868		49,688,311
Hang Lung Group, Ltd.		8,011,000		49,533,367
Swire Pacific, Ltd. A Shares		2,411,500		28,047,792
				181,788,133
Commercial Banks: 7.2%
China Merchants Bank Co., Ltd. H Shares		24,978,114		47,360,715
BOC Hong Kong Holdings, Ltd.		12,788,500		39,368,828
China Construction Bank Corp. H Shares		51,366,660		35,487,917
Agricultural Bank of China, Ltd. H Shares		71,103,000		28,797,744
				151,015,204
Insurance: 5.4%
Ping An Insurance Group Co. of China, Ltd. H Shares		7,271,000		58,792,289
China Life Insurance Co., Ltd. H Shares		15,359,000		40,447,993
China Life Insurance Co., Ltd. ADR		397,100		15,681,479
				114,921,761
Diversified Financial Services: 1.6%
Hong Kong Exchanges and Clearing, Ltd.		2,395,600		34,469,745
Total Financials				482,194,843
CONSUMER DISCRETIONARY: 21.0%
Hotels, Restaurants & Leisure: 7.2%
Cafe' de Coral Holdings, Ltd.		17,212,100		46,050,745
Shangri-La Asia, Ltd.		17,767,400		34,128,015
Sands China, Ltd.		8,637,200		27,786,104
Home Inns & Hotels Management, Inc. ADRb		1,221,746		27,684,764
Ctrip.com International, Ltd. ADRb		1,032,000		17,296,320
				152,945,948
Multiline Retail: 3.0%
Golden Eagle Retail Group, Ltd.		20,899,000		42,805,086
Parkson Retail Group, Ltd.		23,756,500		21,221,811
				64,026,897
Diversified Consumer Services: 2.2%
New Oriental Education & Technology Group, Inc. ADRb		1,927,900		47,233,550
Distributors: 2.1%
Li & Fung, Ltd.		23,298,400		45,111,546
Specialty Retail: 2.1%
Belle International Holdings, Ltd.		25,710,000		44,045,348
Automobiles: 1.9%
Dongfeng Motor Group Co., Ltd. H Shares		25,626,000		40,054,862

	Shares		Value
Media: 1.4%
Television Broadcasts, Ltd.		4,082,000	$	28,455,843
Textiles, Apparel & Luxury Goods: 1.1%
Ports Design, Ltd.		14,983,500		15,675,279
Li Ning Co., Ltd.		12,019,000		6,762,458
				22,437,737
Total Consumer Discretionary				444,311,731
INFORMATION TECHNOLOGY: 11.9%
Internet Software & Services: 4.2%
Netease, Inc. ADRb		600,900		35,362,965
Tencent Holdings, Ltd.		1,040,700		30,733,209
Sina Corp.b		433,300		22,449,273
				88,545,447
Electronic Equipment, Instruments & Components: 3.0%
Digital China Holdings, Ltd.		35,645,000		62,814,729
Computers & Peripherals: 1.9%
Lenovo Group, Ltd.		46,332,000		39,536,548
Communications Equipment: 1.7%
ZTE Corp. H Shares		18,547,104		36,177,046
Software: 1.1%
Kingdee International Software Group Co., Ltd.b		123,524,800		23,252,635
Total Information Technology				250,326,405
CONSUMER STAPLES: 11.8%
Food Products: 4.4%
Tingyi (Cayman Islands) Holding Corp.		20,295,000		52,288,131
China Mengniu Dairy Co., Ltd.		9,651,000		25,555,806
China Yurun Food Group, Ltd.		16,111,000		14,230,474
				92,074,411
Food & Staples Retailing: 3.3%
China Resources Enterprise, Ltd.		10,466,000		31,269,957
Lianhua Supermarket Holdings Co., Ltd. H Shares†		28,947,800		27,793,131
Sun Art Retail Group, Ltd.		9,443,000		10,406,427
				69,469,515
Personal Products: 2.1%
Hengan International Group Co., Ltd.		4,671,000		45,500,941
Beverages: 2.0%
Tsingtao Brewery Co., Ltd. H Shares		7,261,000		41,491,356
Total Consumer Staples				248,536,223

matthewsasia.com | 800.789.ASIA 37

Matthews China Fund  June 30, 2012

Schedule of Investments^a (unaudited)(continued)

COMMON EQUITIES: CHINA/HONG KONG (continued)

	Shares		Value
INDUSTRIALS: 8.9%
Machinery: 3.5%
CSR Corp., Ltd. H Shares		49,326,000	$	38,717,268
Sany Heavy Equipment International Holdings Co., Ltd.		34,230,500		18,490,731
China National Materials Co., Ltd. H Shares		55,910,000		17,461,502
				74,669,501
Transportation Infrastructure: 3.0%
China Merchants Holdings International Co., Ltd.		12,340,581		37,752,933
Yuexiu Transport Infrastructure, Ltd.		50,775,000		25,077,121
				62,830,054
Airlines: 1.2%
Air China, Ltd. H Shares		45,027,900		26,731,091
Industrial Conglomerates: 1.2%
NWS Holdings, Ltd.		16,914,914		24,739,181
Total Industrials				188,969,827
ENERGY: 6.9%
Oil, Gas & Consumable Fuels: 5.1%
CNOOC, Ltd.		19,737,000		39,792,147
China Shenhua Energy Co., Ltd. H Shares		9,873,500		34,935,462
China Petroleum & Chemical Corp. (Sinopec) H Shares		36,070,000		32,236,736
				106,964,345
Energy Equipment & Services: 1.8%
China Oilfield Services, Ltd. H Shares		26,168,000		37,999,372
Total Energy				144,963,717
TELECOMMUNICATION SERVICES: 5.9%
Wireless Telecommunication Services: 3.9%
China Mobile, Ltd.		4,795,083		52,637,980
China Mobile, Ltd. ADR		522,300		28,554,141
				81,192,121
Diversified Telecommunication Services: 2.0%
China Communications Services Corp., Ltd. H Sharesb		85,864,800		42,683,492
Total Telecommunication Services				123,875,613

	Shares		Value
UTILITIES: 5.3%
Electric Utilities: 2.7%
Cheung Kong Infrastructure Holdings, Ltd.		9,397,500	$	56,890,563
Gas Utilities: 1.9%
Hong Kong & China Gas Co., Ltd.		19,200,739		40,788,147
Independent Power Producers & Energy Traders: 0.7%
China Longyuan Power Group Corp. H Shares		20,724,000		13,685,710
Total Utilities				111,364,420
HEALTH CARE: 4.1%
Health Care Equipment & Supplies: 2.1%
Mindray Medical International, Ltd. ADR		1,470,668		44,546,534
Health Care Providers & Services: 2.0%
Sinopharm Group Co., Ltd. H Shares		15,334,800		42,628,696
Total Health Care				87,175,230
TOTAL INVESTMENTS: 98.6%				2,081,718,009
(Cost $1,889,236,523c)
CASH AND OTHER ASSETS, LESS LIABILITIES: 1.4%				29,932,528
NET ASSETS: 100.0%			$	2,111,650,537

a  Certain securities were fair valued under the discretion of the Board of Trustees (Note 2-A).

b  Non-income producing security.

c  Cost for federal income tax purposes is $1,890,612,384 and net unrealized appreciation consists of:

Gross unrealized appreciation	$	401,748,744
Gross unrealized depreciation		(210,643,119	)
Net unrealized appreciation	$	191,105,625

†  Affiliated Issuer, as defined under the Investment Company Act of 1940 (ownership of 5% or more of the outstanding voting securities of this issuer)

ADR  American Depositary Receipt

See accompanying notes to financial statements.

38 MATTHEWS ASIA FUNDS

ASIA GROWTH STRATEGIES

PORTFOLIO MANAGERS

Sharat Shroff, CFA

Lead Manager

Sunil Asnani

Co-Manager

FUND FACTS

	Investor Class	Institutional Class
Ticker	MINDX	MIDNX
CUSIP	577130859	577130768
Inception	10/31/05	10/29/10
NAV	$15.52	$15.56
Initial Investment	$2,500	$3 million
Gross Expense Ratio1	1.18%	0.99%

Portfolio Statistics

Total # of Positions	45
Net Assets	$604.9 million
Weighted Average Market Cap	$7.4 billion
Portfolio Turnover	3.51%2

Benchmark

Bombay Stock Exchange 100 Index

Redemption Fee

2% within first 90 calendar days of purchase

OBJECTIVE

Long-term capital appreciation.

STRATEGY

Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 80% of its total net assets, which include borrowings for investment purposes, in publicly traded common stocks, preferred stocks and convertible securities of companies located in India.

1  Matthews Asia Funds does not charge 12b-1 fees.

2  The lesser of fiscal year 2011 long-term purchase costs or sales proceeds divided by the average monthly market value of long-term securities.

Matthews India Fund

Portfolio Manager Commentary

For the first half of 2012, the Matthews India Fund gained 14.20% (Investor Class) and 14.33% (Institutional Class), compared to its benchmark, the Bombay Stock Exchange 100 Index, which returned 11.33%. For the quarter ending June 30, the Fund declined –7.78% (Investor Class) and –7.71% (Institutional Class), while its benchmark fell –7.98%. The rupee has been among the region's worst-performing currencies thus far this year, suffering a 4.6% depreciation against the U.S. dollar.

The rupee's depreciation marks a contrast to the relatively stronger performance of the equity markets in local currency terms. This reflects the inherent dichotomy between the performance of the corporate sector, and India's deteriorating macroeconomic fundamentals. Earnings expectations across a broad basket of Indian companies are still coming down, but overall earnings growth is still holding up better than in other parts of Asia. Meanwhile, a persistently high fiscal deficit, slowing GDP growth and inconsistent policymaking are weakening India's macro fundamentals.

During the first half of the year, the portfolio's overweight to small- and mid-capitalization holdings, and limited exposure to volatile metal stocks helped it outperform the benchmark. Last year, small- and mid-cap stocks underwent a much larger correction than larger-cap stocks. We remained invested in these smaller holdings and, in fact, added to a few of them. That strategy paid off during the first half of this year, as small cap stocks have partly recovered, and the difference in valuations between small and large firms has started to narrow. While the earnings performance of smaller-cap firms has been mixed relative to their larger-cap peers over the past few quarters, the extent of the valuation disparity may have led the market to become more positive on small caps. However, this strategy has not worked across all industries. For example, in the second quarter the Fund's industrials sector holdings, where certain stock-specific factors coupled with regulatory headwinds, detracted from portfolio performance.

We attempt to find businesses that have steady secular growth with some ability to pass on cost increases to their customers. For example, India's largest paint maker and one of our larger holdings, Asian Paints, was able to pass on to its customers most of the increases in raw material costs last year. This pricing power is attributable to the company's strong brand, availability, scale and dominant market position within the decorative paint segment. The materials sector, including Asian Paints, was a key contributor to the portfolio's relative outperformance in the first half of the year.

During the first half of the year, the portfolio made no major shifts in strategy. However, we replaced a few information technology and financials sector stocks with companies which we believe have more attractive fundamentals. We also exited a few of our convertible bond holdings as we indentified more attractive risk-reward trade-offs in equities, where valuations were running below historical averages. A recent addition to the portfolio is Bajaj Corporation, a small-cap herbal hair oil maker and distributor. We like the company for its established brand name and wide distribution network for hair oils, although we believe more could be done to leverage its existing network. The firm has made recent changes in its leadership and shown renewed focus on expanding its business. We view these developments positively, and believe the company has the opportunity to diversify its product portfolio in coming years.

(continued)

matthewsasia.com | 800.789.ASIA 39

PERFORMANCE AS OF JUNE 30, 2012

				Average Annual Total Returns
	3 Months			1 Year			3 Years			5 Years			Since Inception			Inception Date
Investor Class (MINDX)		-7.78	%		-23.88	%		8.81	%		-0.16	%		9.33	%	10/31/05
Institutional Class (MIDNX)		-7.71	%		-23.72	%		n.a.			n.a.			-18.35	%	10/29/10
Bombay Stock Exchange 100 Index3		-7.98	%		-23.69	%		3.60	%		-0.47	%		11.43	%4
Lipper India Region Funds Category Average5		-8.91	%		-23.96	%		2.61	%		-4.49	%		6.02	%4

Performance assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate with 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 return figures quoted. Returns would have been lower if certain of the Fund's fees and expenses had not been waived. For the Fund's most recent month-end performance, visit matthewsasia.com.

GROWTH OF A $10,000 INVESTMENT SINCE INCEPTION—INVESTOR CLASS

Plotted monthly. The performance data and graph do not reflect the deduction of taxes that a shareholder would pay on dividends, capital gains distributions or redemption of Fund shares. Values are in US$.

3  It is not possible to invest directly in an index. Source: Index data from Morgan Stanley Capital International and Bloomberg; total return calculations performed by BNY Mellon Investment Servicing (US) Inc. Please see page 69 for index definition.

4  Calculated from 10/31/05.

5  The Lipper Category Average does not reflect sales charges and is based on total return, including reinvestment of dividends and capital gains for the stated periods.

TOP TEN HOLDINGS⁶

	Sector	% Net Assets
Exide Industries, Ltd.	Consumer Discretionary		4.9	%
Emami, Ltd.	Consumer Staples		4.8	%
Sun Pharmaceutical Industries, Ltd.	Health Care		4.6	%
Asian Paints, Ltd.	Materials		4.5	%
HDFC Bank, Ltd.	Financials		4.1	%
Kotak Mahindra Bank, Ltd.	Financials		3.7	%
ICICI Bank, Ltd.	Financials		3.7	%
Info Edge India, Ltd.	Information Technology		3.6	%
Dabur India, Ltd.	Consumer Staples		3.6	%
Infosys, Ltd.	Information Technology		3.3	%
% OF ASSETS IN TOP TEN			40.8	%

6  Holdings may combine more than one security from same issuer and related depositary receipts.

40 MATTHEWS ASIA FUNDS

Matthews India Fund

Portfolio Manager Commentary (continued)

Much like Bajaj, companies and management teams continue to see opportunities for expanding their businesses, notably in the infrastructure sector. But some of these prospects are being stymied because of inconsistent government policies. We continue to believe that many of India's current macroeconomic problems are self-inflicted, and can be resolved with strong political leadership and clear policies that foster long-term decision making.

In spite of the lackluster policy environment, some companies are managing to deliver relatively robust results. This is most evident in the banking sector. A handful of private sector banks have reported better operating performance compared to their peers, and we believe this stems from superior management quality. Instead of eschewing investing in the country's long-term prospects, we remain focused on identifying business models run by management teams that stand a better chance of dealing with different micro and macroeconomic environment. Meanwhile, we are encouraged to find that current market valuations offer us opportunities to find compelling investments at reasonable prices, especially among small- and mid-cap names.

SECTOR ALLOCATION (%)

Financials	23.6
Industrials	17.4
Consumer Staples	12.8
Materials	12.6
Consumer Discretionary	11.6
Information Technology	8.8
Utilities	6.0
Health Care	5.5
Energy	1.1
Cash and Other Assets, Less Liabilities	0.6

MARKET CAP EXPOSURE (%)⁷

Large Cap (over $5B)	37.6
Mid Cap ($1B–$5B)	38.7
Small Cap (under $1B)	23.1
Liabilities in Excess of Cash and Other Assets	0.6

7  Source: FactSet Research Systems. Percentage values in data are rounded to the nearest tenth of one percent; the values may not sum to 100% due to rounding.

matthewsasia.com | 800.789.ASIA 41

Matthews India Fund  June 30, 2012

Schedule of Investments^a (unaudited)

COMMON EQUITIES: 97.2%

	Shares		Value
FINANCIALS: 23.6%
Commercial Banks: 11.7%
ICICI Bank, Ltd.		1,150,000	$	18,679,659
HDFC Bank, Ltd.		1,830,165		18,640,802
Allahabad Bank		6,544,668		17,703,896
Axis Bank, Ltd.		333,532		6,136,172
HDFC Bank, Ltd. ADR		187,635		6,116,901
ICICI Bank, Ltd. ADR		113,283		3,671,502
				70,948,932
Diversified Financial Services: 6.6%
Kotak Mahindra Bank, Ltd.		2,100,000		22,458,183
Infrastructure Development Finance Co., Ltd.		6,211,855		15,326,553
Multi Commodity Exchange of India, Ltd.		109,509		2,080,151
				39,864,887
Real Estate Management & Development: 2.9%
Ascendas India Trust		29,043,000		17,495,613
Thrifts & Mortgage Finance: 2.4%
Housing Development Finance Corp.		1,225,000		14,445,382
Total Financials				142,754,814
INDUSTRIALS: 17.4%
Machinery: 7.9%
Ashok Leyland, Ltd.		40,022,554		17,943,729
AIA Engineering, Ltd.		1,966,467		12,164,983
Thermax, Ltd.		1,378,128		11,876,983
Jain Irrigation Systems, Ltd.		3,675,635		5,515,290
				47,500,985
Road & Rail: 2.8%
Container Corp. of India, Ltd.		1,039,216		17,191,791
Industrial Conglomerates: 2.5%
MAX India, Ltd.b		4,388,102		15,158,104
Electrical Equipment: 2.2%
Crompton Greaves, Ltd.		6,187,500		13,509,704
Transportation Infrastructure: 2.0%
Gujarat Pipavav Port, Ltd.b		11,300,000		11,864,253
Total Industrials				105,224,837
CONSUMER STAPLES: 12.8%
Personal Products: 9.6%
Emami, Ltd.		3,267,712		29,324,799
Dabur India, Ltd.		10,654,430		21,953,473
Bajaj Corp., Ltd.		3,362,178		7,128,907
				58,407,179
Tobacco: 3.2%
ITC, Ltd.		4,140,000		19,278,635
Total Consumer Staples				77,685,814

	Shares		Value
CONSUMER DISCRETIONARY: 11.6%
Media: 5.7%
Jagran Prakashan, Ltd.b		9,750,207	$	15,329,304
Sun TV Network, Ltd.		2,650,127		14,442,983
Dish TV India, Ltd.b		3,868,505		4,439,974
				34,212,261
Auto Components: 4.9%
Exide Industries, Ltd.		12,106,722		29,772,273
Textiles, Apparel & Luxury Goods: 1.0%
Titan Industries, Ltd.		1,538,820		6,196,284
Total Consumer Discretionary				70,180,818
MATERIALS: 11.6%
Chemicals: 8.2%
Asian Paints, Ltd.		390,500		27,259,646
Castrol India, Ltd.		1,881,301		18,488,556
Supreme Industries, Ltd.		915,000		3,675,070
				49,423,272
Construction Materials: 1.7%
Grasim Industries, Ltd.		224,459		10,648,119
Metals & Mining: 1.7%
NMDC, Ltd.		2,995,923		10,068,354
Total Materials				70,139,745
INFORMATION TECHNOLOGY: 8.8%
IT Services: 5.1%
Infosys, Ltd. ADR		238,179		10,732,346
Infosys, Ltd.		206,281		9,351,790
CMC, Ltd.		525,130		7,992,484
MindTree, Ltd.		240,000		2,778,160
				30,854,780
Internet Software & Services: 3.7%
Info Edge India, Ltd.		3,324,978		22,060,673
Total Information Technology				52,915,453
HEALTH CARE: 5.5%
Pharmaceuticals: 5.5%
Sun Pharmaceutical Industries, Ltd.		2,412,300		27,654,570
Cipla India, Ltd.		988,275		5,629,782
Total Health Care				33,284,352
UTILITIES: 4.8%
Gas Utilities: 3.1%
GAIL India, Ltd.		2,944,751		18,704,048
Electric Utilities: 1.7%
CESC, Ltd.		2,016,149		10,528,779
Total Utilities				29,232,827

42 MATTHEWS ASIA FUNDS

Matthews India Fund  June 30, 2012

Schedule of Investments^a (unaudited) (continued)

COMMON EQUITIES (continued)

	Shares		Value
ENERGY: 1.1%
Oil, Gas & Consumable Fuels: 1.1%
Reliance Industries, Ltd.		480,742	$	6,402,511
Total Energy				6,402,511
TOTAL COMMON EQUITIES				587,821,171
(Cost $604,458,375)

CORPORATE BONDS: 2.2%

	Face Amount
UTILITIES: 1.2%
Electric Utilities: 1.2%
Tata Power Co., Ltd., Cnv. 1.750%, 11/21/14	$	7,700,000		7,557,550
Total Utilities				7,557,550
MATERIALS: 1.0%
Metals & Mining: 1.0%
Welspun Corp., Ltd., Cnv. 4.500%, 10/17/14		6,900,000		5,830,500
Total Materials				5,830,500
TOTAL CORPORATE BONDS				13,388,050
(Cost $16,596,125)
TOTAL INVESTMENTS: 99.4%				601,209,221
(Cost $621,054,500c)
CASH AND OTHER ASSETS, LESS LIABILITIES: 0.6%				3,696,446
NET ASSETS: 100.0%			$	604,905,667

a  Certain securities were fair valued under the discretion of the Board of Trustees (Note 2-A).

b  Non-income producing security.

c  Cost for federal income tax purposes is $621,376,739 and net unrealized depreciation consists of:

Gross unrealized appreciation	$	87,626,595
Gross unrealized depreciation		(107,794,113	)
Net unrealized depreciation	($	20,167,518	)

ADR  American Depositary Receipt

Cnv.  Convertible

USD  U.S. Dollar

See accompanying notes to financial statements.

matthewsasia.com | 800.789.ASIA 43

ASIA GROWTH STRATEGIES

PORTFOLIO MANAGERS

Taizo Ishida

Lead Manager

Kenichi Amaki

Co-Manager

FUND FACTS

	Investor Class	Institutional Class
Ticker	MJFOX	MIJFX
CUSIP	577130800	577130792
Inception	12/31/98	10/29/10
NAV	$11.71	$11.72
Initial Investment	$2,500	$3 million
Gross Expense Ratio1	1.21%	1.07%

Portfolio Statistics

Total # of Positions	52
Net Assets	$116.4 million
Weighted Average Market Cap	$15.2 billion
Portfolio Turnover	34.94%2

Benchmarks

MSCI Japan Index

Tokyo Stock Price Index (TOPIX)

Redemption Fee

2% within first 90 calendar days of purchase

OBJECTIVE

Long-term capital appreciation.

STRATEGY

Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 80% of its total net assets, which include borrowings for investment purposes, in the common and preferred stocks of companies located in Japan.

1  Matthews Asia Funds does not charge 12b-1 fees.

2  The lesser of fiscal year 2011 long-term purchase costs or sales proceeds divided by the average monthly market value of long-term securities.

Matthews Japan Fund

Portfolio Manager Commentary

For the first half of 2012, the Matthews Japan Fund returned 3.26% (Investor Class) and 3.35% (Institutional Class) while its benchmark, the MSCI Japan Index, advanced 3.23%. For the quarter ended June 30, the Fund declined –4.10% (Investor Class) and –4.09% (Institutional Class) while the benchmark fell –7.29%.

Investor sentiment toward Japan soured at the beginning of April as central bank monetary easing, which had been anticipated to continue, did not materialize. As the euphoria of easy money wore off, the realities of Europe's debt crisis settled in. Combined with signs of weaker growth from both China and the U.S., global risk appetite decreased considerably at the start of the second quarter. Risk aversion was apparent as cyclical sectors, such as energy, materials and information technology, performed poorly while defensive sectors such as health care, consumer staples and telecom outperformed.

One positive development during the second quarter was that despite the severity of the external environment, the yen did not revert back to historical high levels against the U.S. dollar. Though the yen did strengthen from its March lows, it hovered between 79 and 80 yen to the dollar for the majority of the second quarter, roughly where it was last fiscal year (most Japanese companies have March-end fiscal years). This response differed from recent years when the yen has continuously strengthened, acting as a safe-haven currency in times of crisis and declining risk tolerance. The Bank of Japan's expansionary policies may be responsible for stemming the yen's further rise, at least for the time being.

By sector, health care was the top contributor for the Fund during the second quarter. Medical consulting firm Ship Healthcare performed well on the back of healthy profit growth and a continued favorable outlook for capital spending among hospitals. Medical equipment company Asahi Intecc also showed strong performance as the company restarted operations at its Thai manufacturing facility, shut down since last autumn due to massive flooding in the country.

On the other hand, the industrials sector was the worst-performing sector for the Fund in the second quarter. EVA Precision Industrial declined considerably as global demand for office automation equipment remained weak amid the poor economic environment in developed markets. Demand for EVA's components did not occur at the pace the company had expected, leaving them with considerable underutilized capacity. To increase utilization, EVA took orders for other components, such as printers, but these products have much lower profit margins. Given the continued weak demand outlook for office automation equipment coupled with the deterioration in product mix, we exited our position toward the end of the quarter.

Precision motor manufacturer Nidec was the largest individual detractor to Fund performance during the quarter, as it faced headwinds from slowing demand for personal computers and hard disk drives. Though the environment for Nidec may remain challenging in the short term, we are encouraged by the advances the company is making in its industrial and automotive motor segments. We continue to view Nidec as one of Japan's premier growth companies with unique technological capability.

(continued)

44 MATTHEWS ASIA FUNDS

PERFORMANCE AS OF JUNE 30, 2012

				Average Annual Total Returns
	3 Months			1 Year			3 Years			5 Years			10 Years			Since Inception			Inception Date
Investor Class (MJFOX)		-4.10	%		-5.69	%		7.39	%		-3.92	%		2.98	%		3.52	%	12/31/98
Institutional Class (MIJFX)		-4.09	%		-5.54	%		n.a.			n.a.			n.a.			3.59	%	10/29/10
MSCI Japan Index3		-7.29	%		-7.07	%		2.00	%		-6.37	%		2.63	%		1.07	%4
Tokyo Stock Price Index3		-6.61	%		-6.53	%		1.91	%		-5.97	%		2.63	%		1.41	%4
Lipper Japanese Funds Category Average5		-5.70	%		-5.50	%		3.95	%		-4.91	%		2.56	%		2.42	%4

Performance assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate with 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 return figures quoted. Returns would have been lower if certain of the Fund's fees and expenses had not been waived. For the Fund's most recent month-end performance, visit matthewsasia.com.

GROWTH OF A $10,000 INVESTMENT SINCE INCEPTION—INVESTOR CLASS

Plotted montly. The performance data and graph do not reflect the deduction of taxes that a shareholder would pay on dividends, capital gains distributions or redemption of Fund shares. Values are in US$.

3  It is not possible to invest directly in an index. Source: Index data from Morgan Stanley Capital International and Bloomberg; total return calculations performed by BNY Mellon Investment Servicing (US) Inc. Please see page 69 for index definitions.

4  Calculated from 12/31/98.

5  The Lipper Category Average does not reflect sales charges and is based on total return, including reinvestment of dividends and capital gains for the stated periods.

TOP TEN HOLDINGS⁶

	Sector	% Net Assets
ITOCHU Corp.	Industrials		4.8	%
Toyota Motor Corp.	Consumer Discretionary		4.4	%
ORIX Corp.	Financials		3.8	%
Rakuten, Inc.	Consumer Discretionary		3.5	%
Marubeni Corp.	Industrials		3.1	%
Mitsui & Co., Ltd.	Industrials		3.0	%
Nidec Corp.	Industrials		3.0	%
Rinnai Corp.	Consumer Discretionary		2.9	%
Sysmex Corp.	Health Care		2.9	%
Nissan Motor Co., Ltd.	Consumer Discretionary		2.8	%
% OF ASSETS IN TOP TEN			34.2	%

6  Holdings may combine more than one security from same issuer and related depositary receipts.

matthewsasia.com | 800.789.ASIA 45

SECTOR ALLOCATION (%)

Industrials	26.0
Consumer Discretionary	25.2
Information Technology	14.3
Financials	12.0
Health Care	9.9
Consumer Staples	6.7
Materials	4.2
Telecommunication Services	1.0
Cash and Other Assets, Less Liabilities	0.7

MARKET CAP EXPOSURE (%)⁷

Large Cap (over $5B)	54.3
Mid Cap ($1B–$5B)	21.8
Small Cap (under $1B)	23.2
Cash and Other Assets, Less Liabilities	0.7

7  Source: FactSet Research Systems. Percentage values in data are rounded to the nearest tenth of one percent; the values may not sum to 100% due to rounding.

Matthews Japan Fund

Portfolio Manager Commentary (continued)

The top contributors to Fund performance for the second quarter were Internet service companies Kakaku.com and Cookpad. After being the Fund's worst performer in the first quarter, Kakaku.com rebounded strongly on the back of solid earnings growth. The stock also got a boost after Japan's leading advertising agency, Dentsu, acquired a 15% stake in the firm. Cookpad, which operates a popular recipe website, surged amid the excitement surrounding the public offering of social networking site Facebook. Cookpad is the only Japanese Internet service company to be an official Facebook partner. Given the surge in the share price, we concluded that the "Facebook effect" had pushed valuations to unsustainable levels and exited the position during the second quarter. However, we maintain a favorable view of Cookpad's business model and will continue to monitor the company.

Looking ahead, Japanese lawmakers are considering a controversial consumption tax hike that is viewed as essential to fund growing social welfare costs while reducing the government's fiscal deficit. The proposal won approval in the Lower House of parliament in late June and if the bill passes in the Upper House, the consumption tax will be increased from 5% to 10% in two phases over the next three years. The bill is largely unpopular among the general public but is considered key to curbing growing costs as Japan's elderly population rises.

We continue to employ our bottom-up research process to identify companies with unique business models that we think can deliver growth over the long term. However, we remain mindful of external developments as we manage the portfolio going into the second half of this year.

46 MATTHEWS ASIA FUNDS

Matthews Japan Fund  June 30, 2012

Schedule of Investments^a (unaudited)

COMMON EQUITIES: 99.3%

	Shares		Value
INDUSTRIALS: 26.0%
Trading Companies & Distributors: 10.9%
ITOCHU Corp.		532,800	$	5,600,080
Marubeni Corp.		541,000		3,604,629
Mitsui & Co., Ltd.		238,500		3,544,075
				12,748,784
Machinery: 6.9%
Harmonic Drive Systems, Inc.		101,700		2,299,918
Nabtesco Corp.		80,400		1,793,249
Mitsubishi Heavy Industries, Ltd.		399,000		1,622,001
Komatsu, Ltd.		56,300		1,343,957
FANUC Corp.		5,800		953,411
				8,012,536
Electrical Equipment: 3.0%
Nidec Corp.		46,500		3,535,573
Construction & Engineering: 2.1%
JGC Corp.		83,000		2,406,282
Commercial Services & Supplies: 2.0%
JP-Holdings, Inc.		236,500		2,313,824
Professional Services: 1.1%
Nihon M&A Center, Inc.		41,200		1,255,199
Total Industrials				30,272,198
CONSUMER DISCRETIONARY: 25.2%
Automobiles: 9.2%
Toyota Motor Corp.		126,500		5,105,821
Nissan Motor Co., Ltd.		346,100		3,286,472
Fuji Heavy Industries, Ltd.		289,000		2,341,499
				10,733,792
Internet & Catalog Retail: 5.2%
Rakuten, Inc.		398,700		4,122,028
Start Today Co., Ltd.		140,400		1,962,019
				6,084,047
Household Durables: 5.0%
Rinnai Corp.		49,700		3,429,373
HAJIME CONSTRUCTION Co., Ltd.		80,400		2,334,457
				5,763,830
Auto Components: 2.7%
Nifco, Inc.		78,800		1,904,857
Bridgestone Corp.		53,800		1,235,469
				3,140,326
Specialty Retail: 1.4%
Sanrio Co., Ltd.		43,300		1,578,642
Multiline Retail: 1.2%
H2O Retailing Corp.		145,000		1,453,308

	Shares		Value
Diversified Consumer Services: 0.5%
ESCRIT, Inc.b		25,400	$	612,599
Total Consumer Discretionary				29,366,544
INFORMATION TECHNOLOGY: 14.3%
Electronic Equipment, Instruments & Components: 7.7%
Kyocera Corp.		35,200		3,046,207
Hitachi, Ltd.		491,000		3,027,428
Murata Manufacturing Co., Ltd.		55,000		2,893,033
				8,966,668
Internet Software & Services: 2.8%
Kakaku.com, Inc.		96,200		3,264,397
IT Services: 2.2%
GMO Payment Gateway, Inc.		130,800		2,578,525
Software: 1.6%
Capcom Co., Ltd.		84,500		1,768,432
Total Information Technology				16,578,022
FINANCIALS: 12.0%
Insurance: 5.3%
Tokio Marine Holdings, Inc.		100,100		2,511,819
Sony Financial Holdings, Inc.		151,700		2,476,001
Anicom Holdings, Inc.b		194,000		1,182,779
				6,170,599
Diversified Financial Services: 3.8%
ORIX Corp.		47,390		4,416,551
Real Estate Investment Trusts: 2.6%
Kenedix Realty Investment Corp., REIT		558		1,804,131
Industrial & Infrastructure Fund Investment Corp., REIT		198		1,279,248
				3,083,379
Real Estate Management & Development: 0.3%
Global Logistic Properties, Ltd.b		188,000		312,975
Total Financials				13,983,504
HEALTH CARE: 9.9%
Health Care Equipment & Supplies: 5.0%
Sysmex Corp.		85,200		3,369,475
Asahi Intecc Co., Ltd.		93,200		2,444,415
				5,813,890
Health Care Providers & Services: 2.7%
Ship Healthcare Holdings, Inc.		78,800		1,899,102
Message Co., Ltd.		383		1,217,149
				3,116,251
Pharmaceuticals: 1.4%
Otsuka Holdings Co., Ltd.		53,900		1,654,473

matthewsasia.com | 800.789.ASIA 47

Matthews Japan Fund  June 30, 2012

Schedule of Investments^a (unaudited) (continued)

COMMON EQUITIES (continued)

	Shares		Value
Biotechnology: 0.8%
3-D Matrix, Ltd.b		15,200	$	943,838
Total Health Care				11,528,452
CONSUMER STAPLES: 6.7%
Food & Staples Retailing: 3.1%
Ain Pharmaciez, Inc.		30,200		1,821,764
Daikokutenbussan Co., Ltd.		66,600		1,726,543
				3,548,307
Tobacco: 1.5%
Japan Tobacco, Inc.		58,000		1,718,287
Food Products: 1.1%
Calbee, Inc.		20,100		1,262,193
Household Products: 1.0%
Pigeon Corp.		27,300		1,196,047
Total Consumer Staples				7,724,834
MATERIALS: 4.2%
Chemicals: 2.4%
JSR Corp.		86,800		1,506,119
Nitto Denko Corp.		30,200		1,293,911
				2,800,030
Metals & Mining: 1.8%
Hitachi Metals, Ltd.		177,000		2,112,331
Total Materials				4,912,361
TELECOMMUNICATION SERVICES: 1.0%
Wireless Telecommunication Services: 1.0%
KDDI Corp.		182		1,174,066
Total Telecommunication Services				1,174,066
TOTAL INVESTMENTS: 99.3%				115,539,981
(Cost $109,504,510c)
CASH AND OTHER ASSETS, LESS LIABILITIES: 0.7%				839,840
NET ASSETS: 100.0%			$	116,379,821

a  Certain securities were fair valued under the discretion of the Board of Trustees (Note 2-A).

b  Non-income producing security.

c  Cost for federal income tax purposes is $109,504,510 and net unrealized appreciation consists of:

Gross unrealized appreciation	$	11,156,297
Gross unrealized depreciation		(5,120,826	)
Net unrealized appreciation	$	6,035,471

REIT  Real Estate Investment Trust

See accompanying notes to financial statements.

48 MATTHEWS ASIA FUNDS

ASIA GROWTH STRATEGIES

PORTFOLIO MANAGERS

J. Michael Oh, CFA

Lead Manager

Michael B. Han, CFA

Co-Manager

FUND FACTS

	Investor Class	Institutional Class
Ticker	MAKOX	MIKOX
CUSIP	577130305	577130826
Inception	1/3/95	10/29/10
NAV	$4.77	$4.79
Initial Investment	$2,500	$3 million
Gross Expense Ratio1	1.18%	1.07%

Portfolio Statistics

Total # of Positions	50
Net Assets	$156.1 million
Weighted Average Market Cap	$28.1 billion
Portfolio Turnover	30.13%2

Benchmark

Korea Composite Stock Price Index

Redemption Fee

2% within first 90 calendar days of purchase

OBJECTIVE

Long-term capital appreciation.

STRATEGY

Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 80% of its total net assets, which include borrowings for investment purposes, in the common and preferred stocks of companies located in South Korea.

1  Matthews Asia Funds does not charge 12b-1 fees.

2  The lesser of fiscal year 2011 long-term purchase costs or sales proceeds divided by the average monthly market value of long-term securities.

Matthews Korea Fund

Portfolio Manager Commentary

For the first half of 2012, the Matthews Korea Fund gained 3.92% (Investor Class) and 3.91% (Institutional Class) while its benchmark, the Korea Composite Stock Price Index, returned 2.80%. For the quarter ended June 30, the Fund declined –5.36% (Investor Class) and –5.34% (Institutional Class) while the benchmark fell –8.75%.

The Korean equity market performed well during the first quarter as major markets showed signs of economic recovery. However, the market reversed course in the second quarter as expectations for global economic growth weakened. The Fund's outperformance against the benchmark was helped by the Fund's underweight positions in industrials and its overweight positions in consumer sectors, as well as by stock selection. Industrials segments, such as shipbuilding and construction, suffered from ongoing troubles in Europe as they tend to be susceptible to global economic cycles. In fact, overseas orders continued to slow during the first half of the year. However, we continue to look for long-term investment opportunities in the industrials sector though we remain underweight in this area due to its cyclical nature.

The rapid appreciation of Korea's currency, the won, was a key investor concern during the first quarter. However, the won weakened against the U.S. dollar during the second quarter, easing worries over its impact on Korean exporters. As the global economy recovers we expect the won will again appreciate; however, at the end of the second quarter the currency was still far below the level it reached before the start of the economic crisis in 2008. Exporters should be able to remain competitive even in the face of a steady appreciation in the currency, although short-term profitability could come under pressure. Many Korean companies have also been expanding their manufacturing capacities in overseas markets in efforts to diversify currency and geopolitical risks.

On a sector basis for the first half of the year, information technology and consumer discretionary firms performed well while materials and financials lagged. During the second quarter, Korea's consumer-related industries that derive earnings mainly from the domestic market outperformed as they were less affected by macroeconomic events. In particular, SBS Media Holdings, a diversified media group engaged in television, cable and radio broadcasting, was a notable new addition and among the top contributors to performance. Korea's television broadcasting companies continue to be among the country's most undervalued segments due to government regulations on such things as foreign investment and advertising rates. However, deregulation in the sector is underway and authorities are liberalizing the television advertising industry by allowing more private companies to operate in the segment. We believe Korean media companies are among the most attractively priced in the region with compelling growth opportunities as they are well-positioned to benefit from both growing discretionary income in Korea and ongoing deregulation in the sector. Prior to these deregulation efforts Korea had just one government-owned entity that controlled all television advertising slots and rates.

In June, Korea became the seventh nation to become a member of the so-called "20-50 club"—a label given to countries with a population over 50 million and average national per capita income exceeding US$20,000. Its peers in this group include the U.S., Japan, France, Italy, Germany and

(continued)

matthewsasia.com | 800.789.ASIA 49

PERFORMANCE AS OF JUNE 30, 2012

				Average Annual Total Returns
	3 Months			1 Year			3 Years			5 Years			10 Years			Since Inception			Inception Date
Investor Class (MAKOX)		-5.36	%		-10.28	%		17.64	%		-0.76	%		10.84	%		5.13	%	1/3/95
Institutional Class (MIKOX)		-5.34	%		-10.08	%		n.a.			n.a.			n.a.			3.51	%	10/29/10
Korea Composite Stock Price Index3		-8.75	%		-17.47	%		15.10	%		-1.80	%		12.15	%		2.75	%4
Lipper Pacific ex Japan Funds Category Average5		-6.76	%		-14.04	%		9.56	%		0.07	%		10.79	%		4.83	%4

Performance assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate with 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 return figures quoted. Returns would have been lower if certain of the Fund's fees and expenses had not been waived. For the Fund's most recent month-end performance, visit matthewsasia.com.

GROWTH OF A $10,000 INVESTMENT SINCE INCEPTION—INVESTOR CLASS

Plotted monthly. The performance data and graph do not reflect the deduction of taxes that a shareholder would pay on dividends, capital gains distributions or redemption of Fund shares. Values are in US$.

3  It is not possible to invest directly in an index. Source: Index data from Morgan Stanley Capital International and Bloomberg; total return calculations performed by BNY Mellon Investment Servicing (US) Inc. Please see page 69 for index definition.

4  Calculated from 12/31/94.

5  The Lipper Category Average does not reflect sales charges and is based on total return, including reinvestment of dividends and capital gains for the stated periods.

TOP TEN HOLDINGS⁶

	Sector	% Net Assets
Samsung Electronics Co., Ltd.	Information Technology		15.3	%
Kia Motors Corp.	Consumer Discretionary		3.6	%
POSCO	Materials		3.3	%
Shinhan Financial Group Co., Ltd.	Financials		3.1	%
Hyundai Motor Co., Ltd., 2nd Pfd.	Consumer Discretionary		2.8	%
NHN Corp.	Information Technology		2.8	%
Hyundai Motor Co.	Consumer Discretionary		2.6	%
Hyundai Mobis	Consumer Discretionary		2.6	%
LG Household & Health Care, Ltd.	Consumer Staples		2.5	%
Dongbu Insurance Co., Ltd.	Financials		2.5	%
% OF ASSETS IN TOP TEN			41.1	%

6  Holdings may combine more than one security from same issuer and related depositary receipts.

50 MATTHEWS ASIA FUNDS

Matthews Korea Fund

Portfolio Manager Commentary (continued)

United Kingdom. Korea is the only member that was not industrialized prior to World War II—a testament to the progress the country has made in a relatively short period of time.

There are still risks to the Korean economy and North Korea remains chief among them, particularly as its transition of power is ongoing and little is known about the North's new leadership. A slower-than-expected global recovery could also continue to negatively impact domestic consumer sentiment. In fact, there are already some signs of slowing domestic spending.

We continue to believe, however, that Korea is well-positioned in this difficult market. Korean companies in general are continuing to climb up the value chain, gaining market share and improved brand reputation in many industries, ranging from semiconductors to cars to cosmetics. We have also been encouraged to note the recent global success of some small- to medium-sized companies, particularly consumer markets in Asia. We expect to maintain a diversified portfolio with particular focus on the technology, financials and consumer sectors, as we believe they are sustainable long-term growth drivers of the Korean economy.

SECTOR ALLOCATION (%)

Consumer Discretionary	27.3
Information Technology	21.3
Financials	18.0
Industrials	9.5
Consumer Staples	9.4
Materials	9.0
Energy	2.3
Health Care	2.2
Cash and Other Assets, Less Liabilities	1.0

MARKET CAP EXPOSURE (%)⁷

Large Cap (over $5B)	58.6
Mid Cap ($1B–$5B)	25.7
Small Cap (under $1B)	14.7
Cash and Other Assets, Less Liabilities	1.0

7  Source: FactSet Research Systems. Percentage values in data are rounded to the nearest tenth of one percent; the values may not sum to 100% due to rounding.

matthewsasia.com | 800.789.ASIA 51

Matthews Korea Fund  June 30, 2012

Schedule of Investments^a (unaudited)

COMMON EQUITIES: SOUTH KOREA: 93.4%

	Shares		Value
CONSUMER DISCRETIONARY: 24.5%
Automobiles: 6.2%
Kia Motors Corp.		86,100	$	5,674,824
Hyundai Motor Co.		19,585		4,020,690
				9,695,514
Auto Components: 4.8%
Hyundai Mobis		16,526		4,005,839
Hankook Tire Co., Ltd.		74,700		2,978,985
Motonic Corp.		64,140		389,810
				7,374,634
Media: 4.5%
SBS Media Holdings Co., Ltd.		808,540		2,966,126
CJ CGV Co., Ltd.		91,190		2,076,727
Cheil Worldwide, Inc.		125,730		2,008,225
				7,051,078
Hotels, Restaurants & Leisure: 4.0%
Shinsegae Food Co., Ltd.		44,357		3,251,632
Modetour Network, Inc.		167,436		2,928,662
				6,180,294
Multiline Retail: 3.4%
Hyundai Greenfood Co., Ltd.		205,380		2,990,199
Hyundai Department Store Co., Ltd.		18,765		2,345,534
				5,335,733
Internet & Catalog Retail: 1.6%
Hyundai Home Shopping Network Corp.		25,728		2,517,823
Total Consumer Discretionary				38,155,076
INFORMATION TECHNOLOGY: 21.3%
Semiconductors & Semiconductor Equipment: 15.3%
Samsung Electronics Co., Ltd.		22,604		23,937,352
Internet Software & Services: 5.7%
NHN Corp.		19,856		4,355,098
Daum Communications Corp.		26,431		2,377,175
SBS Contents Hub Co., Ltd.		188,088		2,107,404
				8,839,677
Electronic Equipment, Instruments & Components: 0.3%
Uju Electronics Co., Ltd.		25,296		497,322
Total Information Technology				33,274,351
FINANCIALS: 16.2%
Insurance: 6.2%
Dongbu Insurance Co., Ltd.		103,751		3,830,396
Samsung Fire & Marine Insurance Co., Ltd.		15,264		3,029,002
Hyundai Marine & Fire Insurance Co., Ltd.		109,960		2,865,028
				9,724,426

	Shares		Value
Commercial Banks: 5.6%
Shinhan Financial Group Co., Ltd.		138,924	$	4,870,340
KB Financial Group, Inc.		66,716		2,179,406
Hana Financial Group, Inc.		51,320		1,640,607
				8,690,353
Capital Markets: 3.7%
Kiwoom Securities Co., Ltd.		69,436		3,731,626
Samsung Securities Co., Ltd.		47,910		2,075,396
				5,807,022
Diversified Financial Services: 0.7%
NICE Information Service Co., Ltd.		249,760		999,710
Total Financials				25,221,511
INDUSTRIALS: 9.5%
Construction & Engineering: 2.9%
Samsung Engineering Co., Ltd.		15,473		2,455,079
Hyundai Engineering & Construction Co., Ltd.		36,243		2,084,111
				4,539,190
Commercial Services & Supplies: 1.7%
KEPCO Plant Service & Engineering Co., Ltd.		64,238		2,709,509
Industrial Conglomerates: 1.5%
Samsung Techwin Co., Ltd.		35,222		2,399,215
Building Products: 1.5%
KCC Corp.		9,410		2,306,791
Airlines: 1.1%
Asiana Airlines, Inc.b		252,490		1,656,776
Electrical Equipment: 0.8%
LS Corp.		16,548		1,250,444
Total Industrials				14,861,925
CONSUMER STAPLES: 9.4%
Food Products: 3.7%
Orion Corp.		4,059		3,362,452
Binggrae Co., Ltd.		37,621		2,365,180
				5,727,632
Household Products: 2.5%
LG Household & Health Care, Ltd.		7,357		3,969,239
Personal Products: 2.1%
Amorepacific Corp.		3,531		3,282,240
Tobacco: 1.1%
KT&G Corp.		24,806		1,758,630
Total Consumer Staples				14,737,741

52 MATTHEWS ASIA FUNDS

Matthews Korea Fund  June 30, 2012

Schedule of Investments^a (unaudited) (continued)

COMMON EQUITIES: SOUTH KOREA (continued)

	Shares		Value
MATERIALS: 8.0%
Metals & Mining: 4.1%
POSCO ADR		63,400	$	5,099,896
Poongsan Corp.		52,560		1,261,230
				6,361,126
Chemicals: 3.9%
LG Chem, Ltd.		14,694		3,803,916
OCI Materials Co., Ltd.		32,024		1,160,134
KPX Chemical Co., Ltd.		26,824		1,128,928
				6,092,978
Total Materials				12,454,104
ENERGY: 2.3%
Oil, Gas & Consumable Fuels: 2.3%
SK Innovation Co., Ltd.		29,285		3,587,632
Total Energy				3,587,632
HEALTH CARE: 2.2%
Pharmaceuticals: 2.2%
Dong-A Pharmaceutical Co., Ltd.		24,305		1,790,482
Yuhan Corp.		13,878		1,622,551
Total Health Care				3,413,033
TOTAL COMMON EQUITIES				145,705,373
(Cost $99,520,988)

PREFERRED EQUITIES: SOUTH KOREA: 5.6%

	Shares		Value
CONSUMER DISCRETIONARY: 2.8%
Automobiles: 2.8%
Hyundai Motor Co., Ltd., 2nd Pfd.		67,274	$	4,420,216
Total Consumer Discretionary				4,420,216
FINANCIALS: 1.8%
Insurance: 1.8%
Samsung Fire & Marine Insurance Co., Ltd., Pfd.		44,809		2,891,156
Total Financials				2,891,156
MATERIALS: 1.0%
Chemicals: 1.0%
LG Chem, Ltd., Pfd.		19,243		1,504,025
Total Materials				1,504,025
TOTAL PREFERRED EQUITIES				8,815,397
(Cost $7,437,374)
TOTAL INVESTMENTS: 99.0%				154,520,770
(Cost $106,958,362c)
CASH AND OTHER ASSETS, LESS LIABILITIES: 1.0%				1,544,020
NET ASSETS: 100.0%			$	156,064,790

a  Certain securities were fair valued under the discretion of the Board of Trustees (Note 2-A).

b  Non-income producing security.

c  Cost for federal income tax purposes is $108,123,028 and net unrealized appreciation consists of:

Gross unrealized appreciation	$	52,790,746
Gross unrealized depreciation		(6,393,004	)
Net unrealized appreciation	$	46,397,742

ADR  American Depositary Receipt

Pfd.  Preferred

See accompanying notes to financial statements.

matthewsasia.com | 800.789.ASIA 53

ASIA SMALL COMPANY STRATEGIES

PORTFOLIO MANAGERS

Lydia So

Lead Manager

Michael B. Han, CFA

Co-Manager

FUND FACTS

	Investor Class
Ticker	MSMLX
CUSIP	577125206
Inception	9/15/08
NAV	$15.69
Initial Investment	$2,500
Gross Expense Ratio1	1.52%

Portfolio Statistics

Total # of Positions	70
Net Assets	$309.4 million
Weighted Average Market Cap	$1.2 billion
Portfolio Turnover	19.97%2

Benchmark

MSCI AC Asia ex Japan Small Cap Index

Redemption Fee

2% within first 90 calendar days of purchase

OBJECTIVE

Long-term capital appreciation.

STRATEGY

Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 80% of its total net assets, which include borrowings for investment purposes, in the common and preferred stocks of small companies located in Asia, including developed, emerging and frontier countries and markets in the Asian region, excluding Japan.

1  Matthews Asia Funds does not charge 12b-1 fees.

2  The lesser of fiscal year 2011 long-term purchase costs or sales proceeds divided by the average monthly market value of long-term securities.

Matthews Asia Small Companies Fund

Portfolio Manager Commentary

For the first half of 2012, the Matthews Asia Small Companies Fund returned 6.23%, while its benchmark, MSCI All Country Asia ex Japan Small Cap Index, returned 6.63%. For the quarter ending June 30, the Fund declined –6.99% and the benchmark fell –7.65%. Increased concerns surrounding Europe's debt crises resurfaced during the second quarter causing weakness in global equities markets and Asian markets were also impacted as investors became more risk averse.

While we are aware of Europe's unfavorable macroeconomic events that remain unresolved, they are beyond our control. More pertinent to our long-term investment approach is monitoring and adapting the portfolio to the structural developments and challenges facing Asian economies, and most importantly, identifying the individual companies poised to grow. During the second quarter, Fund performance was negatively impacted by slowing growth momentum in various sectors in China. Our long-term holding Trinity, a luxury menswear retailer, suffered from concerns over weakening demand for their high-end products. However, we continue hold this security as we believe its fundamentals and competitive advantage within the industry remain intact. We did exit other Chinese holdings in the portfolio for company-specific reasons, including PCD Stores, a Chinese department store operator. PCD was a disappointment due to its poor execution track record in new store openings as well as its foray into operating outlet stores, a business model that is somewhat new to the domestic market.

Another top holding, St. Shine Optical, a Taiwan-based contact lens manufacturer, performed poorly in the second quarter due to rising competition in the domestic market. In addition, one of its competitors was publicly listed in May, contributing to St. Shine's share price weakness. During the second quarter, our Indian holdings were exposed to considerable depreciation in India's rupee on the back of concerns over rising fiscal and trade deficits. The majority of the decline in our Indian holdings was due to the weakening of the rupee against the U.S dollar.

In such a volatile and uncertain investment environment, more defensive sectors, namely consumer staples, utilities, and health care, were among the brighter spots in the portfolio. Nippon Indosari, an Indonesia baked goods producer, registered positive returns in the first half of the year, thanks to the rising acceptance of packaged bread products and the company's growing distribution reach. During the second quarter, we also increased our weightings in other consumer staples names such as Super Group, a Singaporean instant coffee manufacturer, and Shenguan Holdings, a Chinese manufacturer of sausage skins. We believe that the demand for their products should remain resilient despite moderations in global economic outlook. The firms also appear to be on track in furthering their expansion and market penetration plans.

During the market sell-off in May, we continued to build up the small position we had initiated earlier in the year in Security Bank of the Philippines. Security Bank's lending franchise is particularly strong among the consumer segment and among small and medium enterprises. Its profitability is also quite strong for its industry. We think that demand for loans continues to be healthy as the economic growth prospects for the Philippines have strengthened.

(continued)

54 MATTHEWS ASIA FUNDS

PERFORMANCE AS OF JUNE 30, 2012

				Average Annual Total Returns
	3 Months			1 Year			3 Years			Inception 9/15/08
Investor Class (MSMLX)		-6.99	%		-17.24	%		16.66	%		17.56	%
MSCI AC Asia ex Japan Small Cap Index3		-7.65	%		-19.14	%		9.47	%		9.84	%
Lipper Pacific ex Japan Funds Category Average4		-6.76	%		-14.04	%		9.56	%		9.61	%5

Performance assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate with 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 return figures quoted. Returns would have been lower if certain of the Fund's fees and expenses had not been waived. For the Fund's most recent month-end performance, visit matthewsasia.com.

GROWTH OF A $10,000 INVESTMENT SINCE INCEPTION—INVESTOR CLASS

Plotted monthly. The performance data does not reflect the deduction of taxes that a shareholder would pay on dividends, capital gains distributions or redemption of Fund shares. Values are in US$.

3  It is not possible to invest directly in an index. Source: Index data from Morgan Stanley Capital International and Bloomberg; total return calculations performed by BNY Mellon Investment Servicing (US) Inc. Please see page 69 for index definition.

4  The Lipper Category Average does not reflect sales charges and is based on total return, including reinvestment of dividends and capital gains for the stated periods.

5  Calculated from 9/30/08.

TOP TEN HOLDINGS⁶

	Sector	Country	% Net Assets
St. Shine Optical Co., Ltd.	Health Care	Taiwan		2.8	%
Towngas China Co., Ltd.	Utilities	China/Hong Kong		2.7	%
Vinda International Holdings, Ltd.	Consumer Staples	China/Hong Kong		2.4	%
PT Nippon Indosari Corpindo	Consumer Staples	Indonesia		2.0	%
PT Bank Tabungan Pensiunan Nasional	Financials	Indonesia		2.0	%
Super Group, Ltd.	Consumer Staples	Singapore		1.9	%
Pacific Hospital Supply Co., Ltd.	Health Care	Taiwan		1.9	%
Emami, Ltd.	Consumer Staples	India		1.9	%
Trinity, Ltd.	Consumer Discretionary	China/Hong Kong		1.9	%
PT Jasa Marga Persero	Industrials	Indonesia		1.8	%
% OF ASSETS IN TOP TEN				21.3	%

6  Holdings may combine more than one security from same issuer and related depositary receipts.

matthewsasia.com | 800.789.ASIA 55

COUNTRY ALLOCATION (%)

China/Hong Kong	28.2
Taiwan	15.8
India	14.9
South Korea	12.9
Indonesia	9.1
Malaysia	6.3
Singapore	4.9
Thailand	4.3
Philippines	2.0
Cash and Other Assets, Less Liabilities	1.6

SECTOR ALLOCATION (%)

Consumer Discretionary	17.4
Industrials	17.3
Information Technology	14.9
Financials	14.7
Consumer Staples	14.3
Health Care	10.4
Materials	6.7
Utilities	2.7
Cash and Other Assets, Less Liabilities	1.6

MARKET CAP EXPOSURE (%)^7,8

Large Cap (over $5B)	1.0
Mid Cap ($1B–$5B)	47.2
Small Cap (under $1B)	50.2
Cash and Other Assets, Less Liabilities	1.6

7  Source: FactSet Research Systems. Percentage values in data are rounded to the nearest tenth of one percent; the values may not sum to 100% due to rounding.

8  The Fund defines Small Companies as companies with market capitalization generally between $100 million and $3 billion.

Matthews Asia Small Companies Fund

Portfolio Manager Commentary (continued)

During the second quarter, the Fund initiated a position in a top Taiwanese online retailer, PChome Online. The company has demonstrated its ability to increase its shipment units and manage its logistics effectively. As observed in developed countries, e-commerce has gained growing acceptance among consumers and this trend is also now occurring in parts of Asia.

We continue to direct our efforts in bottom-up, fundamental research to uncover compelling investment candidates, with less attention paid to extent forecasting unpredictable international market events. As the current operating environment for small companies remains challenging, we remain cautious over the potential effects of adverse macro events on our holdings. We are also wary of the potential pitfalls we have become attuned to: a lack of discipline in business expansion and cost management and, more importantly, lack of foresight in managing a sustainable franchise over varying business cycles. These are some of the risks associated with investing in small companies, and a diversified portfolio is one way to mitigate them.

In our research approach, we have a preference for seasoned, well-managed companies, and believe these trying times may actually present opportunities to gain market share. Emerging opportunities in Asia still exist in the small-cap universe for patient, long-term investors. Differentiating fundamentals among industry peers across Asia is critical to our stock selection process and we continue to seek companies with a strong domestic presence and good competitive positions in secular growth industries.

56 MATTHEWS ASIA FUNDS

Matthews Asia Small Companies Fund  June 30, 2012

Schedule of Investments^a (unaudited)

COMMON EQUITIES: 98.4%

	Shares		Value
CHINA/HONG KONG: 28.2%
Towngas China Co., Ltd.		11,357,000	$	8,207,716
Vinda International Holdings, Ltd.		4,982,000		7,439,858
Trinity, Ltd.		9,094,000		5,760,817
Shenguan Holdings Group, Ltd.		9,524,000		5,496,754
Yip's Chemical Holdings, Ltd.		8,018,000		5,151,402
Airtac International Groupb		805,000		4,637,307
Stella International Holdings, Ltd.		1,869,000		4,632,023
KWG Property Holding, Ltd.		7,206,000		4,608,421
Dah Chong Hong Holdings, Ltd.		5,082,000		4,572,626
Minth Group, Ltd.		4,114,000		4,462,890
Lee's Pharmaceutical Holdings, Ltd.		9,485,000		4,427,329
Comba Telecom Systems Holdings, Ltd.		9,552,011		4,013,184
Kosmopolito Hotels International, Ltd.		19,052,000		3,498,221
AAC Technologies Holdings, Inc.		1,136,000		3,305,937
Singamas Container Holdings, Ltd.		15,124,000		3,297,806
China Kanghui Holdings, Inc. ADRb		164,900		3,248,530
SITC International Holdings Co., Ltd.		11,893,000		3,160,336
Xingda International Holdings, Ltd.		9,378,000		3,099,465
TAL Education Group ADRb		231,562		2,278,570
E-Commerce China Dangdang, Inc. ADRb		290,000		1,931,400
Fook Woo Group Holdings, Ltd.b,c		24,622,000		190,427
Total China/Hong Kong				87,421,019
TAIWAN: 15.8%
St. Shine Optical Co., Ltd.		763,492		8,544,628
Pacific Hospital Supply Co., Ltd.b		1,995,155		6,016,155
TXC Corp.		3,784,792		5,495,239
Simplo Technology Co., Ltd.		785,310		5,423,652
WT Microelectronics Co., Ltd.		3,908,000		5,313,077
Wah Lee Industrial Corp.		3,990,000		5,050,741
PChome Online, Inc.		856,000		4,852,766
Chroma ATE, Inc.		2,091,081		4,773,541
Formosa International Hotels Corp.		315,717		3,380,946
Total Taiwan				48,850,745
INDIA: 14.9%
Emami, Ltd.		662,496		5,945,310
Ipca Laboratories, Ltd.		808,208		5,192,159
Page Industries, Ltd.		95,185		4,936,144
CRISIL, Ltd.		243,954		4,718,953
GlaxoSmithKline Consumer Healthcare, Ltd.		94,290		4,659,980
Gujarat Pipavav Port, Ltd.b		4,061,512		4,264,319
Castrol India, Ltd.		398,681		3,918,052
Federal Bank, Ltd.		479,245		3,885,035
CMC, Ltd.		220,478		3,355,678
AIA Engineering, Ltd.		500,705		3,097,468
Exide Industries, Ltd.		829,267		2,039,294
Total India				46,012,392

	Shares		Value
SOUTH KOREA: 12.9%
Pyeong Hwa Automotive Co., Ltd.		319,541	$	5,435,990
Modetour Network, Inc.		278,388		4,869,350
Dongbu Insurance Co., Ltd.		120,231		4,438,823
Daum Communications Corp.		49,259		4,430,300
KEPCO Plant Service & Engineering Co., Ltd.		102,457		4,321,557
Cheil Worldwide, Inc.		247,635		3,955,355
Kiwoom Securities Co., Ltd.		68,166		3,663,374
POSCO Chemtech Co., Ltd.		25,812		3,076,525
Korea Zinc Co., Ltd.		8,661		2,946,324
OCI Materials Co., Ltd.		74,585		2,701,991
Total South Korea				39,839,589
INDONESIA: 9.1%
PT Nippon Indosari Corpindo		14,332,000		6,334,869
PT Bank Tabungan Pensiunan Nasionalb		14,671,500		6,269,301
PT Jasa Marga Persero		9,869,000		5,716,333
PT AKR Corporindo		12,888,000		4,817,463
PT Sumber Alfaria Trijayab		5,659,000		2,897,394
PT Selamat Sempurna		9,346,000		2,024,878
Total Indonesia				28,060,238
MALAYSIA: 6.3%
Dialog Group BHD		6,995,205		5,215,722
KPJ Healthcare BHD		2,578,500		4,793,101
Alliance Financial Group BHD		3,609,900		4,763,073
LPI Capital BHD		1,081,900		4,582,460
Total Malaysia				19,354,356
SINGAPORE: 4.9%
Super Group, Ltd.		3,626,000		6,027,473
Petra Foods, Ltd.		2,723,000		5,398,650
Amtek Engineering, Ltd.		7,700,000		3,801,669
Total Singapore				15,227,792
THAILAND: 4.3%
Tisco Financial Group Public Co., Ltd.		4,198,900		5,144,554
Dynasty Ceramic Public Co., Ltd.		2,777,000		4,503,515
SNC Former Public Co., Ltd.		4,676,600		3,741,774
Total Thailand				13,389,843
PHILIPPINES: 2.0%
Security Bank Corp.		1,000,030		3,397,798
Alliance Global Group, Inc.		10,215,000		2,820,204
Total Philippines				6,218,002
TOTAL COMMON EQUITIES				304,373,976
(Cost $317,309,503)

matthewsasia.com | 800.789.ASIA 57

Matthews Asia Small Companies Fund  June 30, 2012

Schedule of Investments^a (unaudited) (continued)

WARRANTS: 0.0%

	Shares		Value
MALAYSIA: 0.0%
Dialog Group BHD, expires 02/12/17		582,933	$	109,225
Total Malaysia				109,225
TOTAL WARRANTS				109,225
(Cost $0)
TOTAL INVESTMENTS: 98.4%				304,483,201
(Cost $317,309,503d)
CASH AND OTHER ASSETS, LESS LIABILITIES: 1.6%				4,963,025
NET ASSETS: 100.0%			$	309,446,226

a  Certain securities were fair valued under the discretion of the Board of Trustees (Note 2-A).

b  Non-income producing security.

c  Illiquid security.

d  Cost for federal income tax purposes is $317,344,786 and net unrealized depreciation consists of:

Gross unrealized appreciation	$	36,170,635
Gross unrealized depreciation		(49,032,220	)
Net unrealized depreciation	($	12,861,585	)

ADR  American Depositary Receipt

BHD  Berhad

See accompanying notes to financial statements.

58 MATTHEWS ASIA FUNDS

ASIA SMALL COMPANY STRATEGIES

PORTFOLIO MANAGERS

Richard H. Gao

Lead Manager

Henry Zhang, CFA

Co-Manager

FUND FACTS

	Investor Class
Ticker	MCSMX
CUSIP	577125404
Inception	5/31/11
NAV	$7.08
Initial Investment	$2,500
Gross Expense Ratio1	5.32%
After Fee Waiver, Reimbursement and Recoupment	2.00%

Portfolio Statistics

Total # of Positions	44
Net Assets	$5.2 million
Weighted Average Market Cap	$1.4 billion
Portfolio Turnover	6.08%2

Benchmark

MSCI China Small Cap Index

Redemption Fee

2% within first 90 calendar days of purchase

OBJECTIVE

Long-term capital appreciation.

STRATEGY

Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 80% of its total net assets, which include borrowings for investment purposes, in the common and preferred stocks of small companies located in China and Taiwan. China includes its administrative and other districts, such as Hong Kong.

1  Gross annual operating expenses for the Fund for 2011 are annualized. The Advisor has contractually agreed to waive Matthews China Small Companies Fund's fees and reimburse expenses until at least August 31, 2014 to the extent needed to limit total annual operating expenses to 2.00%. Matthews Asia Funds does not charge 12b-1 fees.

2  Not annualized. The Fund commenced operations on May 31, 2011

Matthews China Small Companies Fund

Portfolio Manager Commentary

For the first half of 2012, the Matthews China Small Companies Fund returned 0.57%, underperforming its benchmark, the MSCI China Small Cap Index, which returned 1.22%. For the quarter ending June 30, the Fund declined –8.05%, while its benchmark fell –8.38%.

The weakness in the equity market reflected investor concerns about Europe's debt crisis and some weaker-than-expected economic data in China. The broad slowdown triggered policy loosening, which, on the fiscal policy front, led China to accelerate approvals for new investment projects. In terms of monetary policy, the central bank again cut its bank reserve requirement ratio during the second quarter, and also cut both the benchmark one-year deposit and lending rates by 25 basis points (0.25%). In addition, Chinese banks were allowed more flexibility in setting their own rates—a significant step toward interest rate liberalization. Inflation in China remained benign and declined to 3% in May, remaining below the government's target of 4%.

During the second quarter, the financials sector, dominated by small real estate developers, rallied as China's property market began showing signs of stabilization and investor sentiment showed expectations for a gradually improving credit environment. The Fund had less exposure to the sector than the benchmark, and this underweight was a drag on performance. However, our financials sector holdings were top contributors to performance during the second quarter, as we saw strong returns for these holdings. China Overseas Grand Oceans Group, a Hong Kong-based property developer, was once again among the top contributors to performance. Given its seasoned management team and strong focus on expansion into smaller cities, the company stands to benefit from China's long-term trend of rising inland urbanization and growing household income.

China's health care sector also performed well in the second quarter. Health care companies showed their defensiveness and resilience amid the challenging economic climate, and our holdings in this sector delivered solid operating results. Holding company Sino Biopharmaceutical was among the Fund's top contributors for the second quarter. The firm has a diversified drug portfolio and a strong product pipeline in hepatitis, cardio-cerebral and oncology. While it may face some short-term macroeconomic uncertainties such as policies to centralize drug procurement in different provinces, the company is well-positioned to benefit from rising health care demand and the consequent long-term growth of China's pharmaceutical market.

Conversely, consumer discretionary and consumer staples sectors declined sharply during the quarter and were the major detractors to Fund performance. Investors sold off stocks in these industries due to recent weak consumer sentiment and a slowdown in consumer spending. Hengdeli Holdings, China's largest Swiss watch distributor and retailer, was sold off sharply as demand for mid-range to high-end consumer goods softened following the robust growth of the past two years. Despite the recent sluggish demand, we continue to hold this position as the company's business fundamentals and leading market position remain intact.

We have not made any major changes to the portfolio in terms of sector allocation. However, we did initiate a position in an oil jetty operator,

(continued)

matthewsasia.com | 800.789.ASIA 59

PERFORMANCE AS OF JUNE 30, 2012

				Average Annual Total Returns
	3 Months			1 Year			Inception 5/31/11
Investor Class (MCSMX)		-8.05	%		-26.16	%		-27.23	%
MSCI China Small Cap Index3		-8.38	%		-30.26	%		-32.08	%
Lipper China Funds Category Average4		-6.45	%		-19.33	%		-20.98	%

Performance assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate with 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 return figures quoted. Returns would have been lower if certain of the Fund's fees and expenses had not been waived. For the Fund's most recent month-end performance, visit matthewsasia.com.

GROWTH OF A $10,000 INVESTMENT SINCE INCEPTION—INVESTOR CLASS

The performance data does not reflect the deduction of taxes that a shareholder would pay on dividends, capital gains distributions or redemption of Fund shares. Values are in US$.

3  It is not possible to invest directly in an index. Source: Index data from Morgan Stanley Capital International and Bloomberg; total return calculations performed by BNY Mellon Investment Servicing (US) Inc. Please see page 69 for index definition.

4  The Lipper Category Average does not reflect sales charges and is based on total return, including reinvestment of dividends and capital gains for the stated periods.

TOP TEN HOLDINGS⁵

	Sector	% Net Assets
Digital China Holdings, Ltd.	Information Technology		5.3	%
China Overseas Grand Oceans Group, Ltd.	Financials		5.1	%
Towngas China Co., Ltd.	Utilities		5.0	%
Franshion Properties China, Ltd.	Financials		4.0	%
Zhuzhou CSR Times Electric Co., Ltd.	Industrials		3.7	%
Yuexiu Transport Infrastructure, Ltd.	Industrials		3.3	%
Sino Biopharmaceutical	Health Care		3.3	%
Vinda International Holdings, Ltd.	Consumer Staples		3.3	%
WuXi PharmaTech Cayman, Inc.	Health Care		3.2	%
Television Broadcasts, Ltd.	Consumer Discretionary		3.2	%
% OF ASSETS IN TOP TEN			39.4	%

5  Holdings may combine more than one security from same issuer and related depositary receipts.

60 MATTHEWS ASIA FUNDS

Matthews China Small Companies Fund

Portfolio Manager Commentary (continued)

Sinopec Kantons Holdings, during the second quarter as it has a high business entry barrier and attractive assets. The company should benefit from long-term growth in China's oil demand.

We believe there will continue to be uncertainties in China as policymakers make ongoing adjustments to fix structural economic imbalances and set the country on a path to more sustainable growth. Small- and medium- enterprises (SMEs) are one of the main pillars of China's economy, and they currently contribute about 65% of GDP and 80% of urban employment. It is encouraging to see that the government has taken some initiative to lower funding costs and improve access to capital for entrepreneurs. Given the government's prompt response in setting a looser credit environment and speeding up new project approvals, we believe there is an increased chance that the economy should stabilize and regain some strength later this year.

COUNTRY ALLOCATION (%)

China/Hong Kong	94.6
Taiwan	3.3
Cash and Other Assets, Less Liabilities	2.1

SECTOR ALLOCATION (%)

Consumer Discretionary	20.5
Industrials	20.4
Information Technology	13.9
Consumer Staples	13.2
Health Care	9.2
Financials	9.1
Utilities	5.0
Materials	4.9
Energy	1.7
Cash and Other Assets, Less Liabilities	2.1

MARKET CAP EXPOSURE (%)^6,7

Large Cap (over $5B)	0.0
Mid Cap ($1B–$5B)	60.5
Small Cap (under $1B)	37.4
Cash and Other Assets, Less Liabilities	2.1

6  Source: FactSet Research Systems. Percentage values in data are rounded to the nearest tenth of one percent; the values may not sum to 100% due to rounding.

7  The Fund defines Small Companies as companies with market capitalization generally between $100 million and $3 billion.

matthewsasia.com | 800.789.ASIA 61

Matthews China Small Companies Fund  June 30, 2012

Schedule of Investments^a (unaudited)

COMMON EQUITIES: 97.9%

	Shares		Value
CONSUMER DISCRETIONARY: 20.5%
Hotels, Restaurants & Leisure: 5.7%
Home Inns & Hotels Management, Inc. ADRb		5,400	$	122,364
Ajisen China Holdings, Ltd.		136,000		94,633
Gourmet Master Co., Ltd.		11,970		83,078
				300,075
Textiles, Apparel & Luxury Goods: 4.0%
Trinity, Ltd.		234,000		148,233
Anta Sports Products, Ltd.		98,000		59,750
				207,983
Media: 3.2%
Television Broadcasts, Ltd.		24,000		167,305
Specialty Retail: 3.0%
Hengdeli Holdings, Ltd.		484,000		154,626
Distributors: 2.1%
Dah Chong Hong Holdings, Ltd.		85,000		76,480
Sparkle Roll Group, Ltd.		536,000		34,170
				110,650
Diversified Consumer Services: 1.7%
TAL Education Group ADRb		9,100		89,544
Leisure Equipment & Products: 0.8%
Goodbaby International Holdings, Ltd.		151,000		44,312
Total Consumer Discretionary				1,074,495
INDUSTRIALS: 20.4%
Machinery: 6.7%
Haitian International Holdings, Ltd.		157,000		156,429
China National Materials Co., Ltd. H Shares		348,000		108,685
Sany Heavy Equipment International Holdings Co., Ltd.		157,000		84,809
				349,923
Electrical Equipment: 6.5%
Zhuzhou CSR Times Electric Co., Ltd. H Shares		70,000		192,279
Hangzhou Steam Turbine Co., Ltd. B Shares		144,088		148,348
				340,627
Transportation Infrastructure: 4.5%
Yuexiu Transport Infrastructure, Ltd.		356,000		175,824
Dalian Port PDA Co., Ltd. H Sharesb		272,000		60,740
				236,564
Industrial Conglomerates: 1.5%
Chongqing Machinery & Electric Co., Ltd. H Shares		570,000		77,563
Marine: 1.2%
SITC International Holdings Co., Ltd.		242,000		64,307
Total Industrials				1,068,984

	Shares		Value
INFORMATION TECHNOLOGY: 13.9%
Electronic Equipment, Instruments & Components: 5.9%
Digital China Holdings, Ltd.		157,000	$	276,670
China High Precision Automation Group, Ltd.c		195,000		34,408
				311,078
Internet Software & Services: 2.5%
21Vianet Group, Inc. ADRb		11,500		131,675
Communications Equipment: 2.3%
Comba Telecom Systems Holdings, Ltd.		285,000		119,740
Semiconductors & Semiconductor Equipment: 2.2%
Spreadtrum Communications, Inc. ADR		3,700		65,305
RDA Microelectronics, Inc. ADRb		5,000		50,200
				115,505
Software: 1.0%
Kingdee International Software Group Co., Ltd.b		276,000		51,955
Total Information Technology				729,953
CONSUMER STAPLES: 13.2%
Household Products: 5.0%
Vinda International Holdings, Ltd.		115,000		171,735
NVC Lighting Holdings, Ltd.		481,000		91,531
				263,266
Food Products: 4.4%
Shenguan Holdings Group, Ltd.		198,000		114,275
Tenfu Cayman Holdings Co., Ltd.		136,000		88,028
China Fishery Group, Ltd.		46,000		31,990
				234,293
Food & Staples Retailing: 3.8%
Wumart Stores, Inc. H Sharesb		62,000		126,045
Lianhua Supermarket Holdings Co., Ltd. H Shares		75,000		72,008
				198,053
Total Consumer Staples				695,612
HEALTH CARE: 9.2%
Pharmaceuticals: 3.3%
Sino Biopharmaceutical		480,000		174,085
Life Sciences Tools & Services: 3.2%
WuXi PharmaTech Cayman, Inc. ADRb		12,000		169,440
Health Care Equipment & Supplies: 2.7%
China Kanghui Holdings, Inc. ADRb		7,100		139,870
Total Health Care				483,395

62 MATTHEWS ASIA FUNDS

Matthews China Small Companies Fund  June 30, 2012

Schedule of Investments^a (unaudited) (continued)

COMMON EQUITIES (continued)

	Shares		Value
FINANCIALS: 9.1%
Real Estate Management & Development: 9.1%
China Overseas Grand Oceans Group, Ltd.		294,750	$	266,584
Franshion Properties China, Ltd.		698,000		212,012
Total Financials				478,596
UTILITIES: 5.0%
Gas Utilities: 5.0%
Towngas China Co., Ltd.		362,000		261,618
Total Utilities				261,618
MATERIALS: 4.9%
Containers & Packaging: 3.5%
Greatview Aseptic Packaging Co., Ltd.b		176,000		92,781
Taiwan Hon Chuan Enterprise Co., Ltd.		39,535		89,057
				181,838
Chemicals: 1.4%
Yip's Chemical Holdings, Ltd.		114,000		73,243
Total Materials				255,081
ENERGY: 1.7%
Oil, Gas & Consumable Fuels: 1.7%
Sinopec Kantons Holdings, Ltd.		122,000		88,239
Total Energy				88,239
TOTAL INVESTMENTS: 97.9%				5,135,973
(Cost $6,018,942d)
CASH AND OTHER ASSETS, LESS LIABILITIES: 2.1%				112,786
NET ASSETS: 100.0%			$	5,248,759

a  Certain securities were fair valued under the discretion of the Board of Trustees (Note 2-A).

b  Non-income producing security.

c  Illiquid security.

d  Cost for federal income tax purposes is $6,024,204 and net unrealized depreciation consists of:

Gross unrealized appreciation	$	313,946
Gross unrealized depreciation		(1,202,177	)
Net unrealized depreciation	($	888,231	)

ADR  American Depositary Receipt

See accompanying notes to financial statements.

matthewsasia.com | 800.789.ASIA 63

ASIA SPECIALTY STRATEGY

PORTFOLIO MANAGERS

J. Michael Oh, CFA

Lead Manager

Lydia So

Co-Manager

FUND FACTS

	Investor Class
Ticker	MATFX
CUSIP	577130883
Inception	12/27/99
NAV	$8.62
Initial Investment	$2,500
Gross Expense Ratio1	1.21%

Portfolio Statistics

Total # of Positions	58
Net Assets	$138.5 million
Weighted Average Market Cap	$21.4 billion
Portfolio Turnover	65.47%2

Benchmark

MSCI AC Asia IT and Telecom Services Index

Redemption Fee

2% within first 90 calendar days of purchase

OBJECTIVE

Long-term capital appreciation.

STRATEGY

Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 80% of its total net assets, which include borrowings for investment purposes, in the common and preferred stocks of companies located in Asia, including developed, emerging and frontier countries and markets in the Asian region, that derive more than 50% of their revenues from the sale of products or services in science- and technology-related industries and services.

1  Matthews Asia Funds does not charge 12b-1 fees.

2  The lesser of fiscal year 2011 long-term purchase costs or sales proceeds divided by the average monthly market value of long-term securities.

Matthews Asia Science and Technology Fund

Portfolio Manager Commentary

For the first half of 2012, the Matthews Asia Science and Technology Fund gained 5.64% while its benchmark, MSCI All Country Asia IT and Telecom Services Index returned 4.39%. For the quarter ended June 30, the Fund declined –7.31%, while its benchmark lost –7.40%.

Following strong performance in the first quarter amid signs of global economic recovery, Asia's technology sector reversed course during the second quarter as Europe's sovereign debt crisis continued and the outlook for global economic growth weakened.

Europe's struggles took a heavy toll on Asian technology companies as the risk appetite among investors continued to decline. Europe continues to be a major importer of technology from Asia and ongoing uncertainty is likely to continue to negatively affect the sector. Concerns over a slowdown in China also significantly impacted performance during the second quarter as the Fund maintained an overweight position in China relative to the benchmark.

Most Asian manufacturers of personal computers faced strong headwinds as consumer computing habits continued to shift toward smartphones and tablets. We expect further consolidation in the sector, and believe this trend may benefit a few large players over the long term. There has also been further consolidation in the semiconductor sector since a major Japanese dynamic random memory (DRAM) manufacturer filed for bankruptcy in February. Although its assets were bought by a U.S. DRAM maker and the extent of any cuts to capacity remains to be seen, we expect reduced competition to benefit the surviving firms in this industry. Our telecommunication services sector holdings, which lagged during the first quarter, performed well during the second quarter as increased risk aversion led investors to shift toward defensive names.

Smartphone-related firms served as a rare bright spot during the first half of the year and Samsung Electronics was the top contributor to Fund performance. Key component suppliers to major smartphone and tablet makers performed well and Samsung maintained its dominant market share. It was one of the few smartphone makers in Asia to see growth during the first half of the year and is expected to continue to do well with the launch of the S3 model of its flagship Galaxy phone in July.

Sunny Optical Technology, a China-based optical lens maker, was the second-largest contributor to Fund performance during the first half of the year. Sunny Optical supplies optical lenses for mobile phones, including smartphones and digital cameras. The company has benefited from the strong growth of so-called "white-box," or unbranded, smartphones in China as well as increased sales of digital single-lens reflex cameras. The company should be well-positioned to benefit from continued growth of China's smartphone market, as it supplies several of the country's smartphone manufacturers.

By country, China was the worst performer during the second quarter. After doing well during the first quarter, Chinese companies underperformed as concerns over China's slowdown increased. Despite short term growth challenges, we continue to overweight China relative to the

(continued)

64 MATTHEWS ASIA FUNDS

PERFORMANCE AS OF JUNE 30, 2012

				Average Annual Total Returns
	3 Months			1 Year			3 Years			5 Years			10 Years			Inception 12/27/99
Investor Class (MATFX)		-7.31	%		-12.69	%		13.02	%		-0.38	%		9.12	%		-0.71	%
MSCI AC Asia IT and Telecom Services Index3		-7.40	%		-4.95	%		10.12	%		-0.90	%		4.90	%		-4.47	%4
Lipper Global Sciences and Technology Funds Category Average5		-9.08	%		-4.66	%		14.82	%		3.46	%		8.75	%		-1.87	%4

Performance assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate with 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 return figures quoted. Returns would have been lower if certain of the Fund's fees and expenses had not been waived. For the Fund's most recent month-end performance, visit matthewsasia.com.

GROWTH OF A $10,000 INVESTMENT SINCE INCEPTION—INVESTOR CLASS

Plotted monthly. The performance data and graph do not reflect the deduction of taxes that a shareholder would pay on dividends, capital gains distributions or redemption of Fund shares. Values are in US$.

3  Formerly known as MSCI/Matthews Asian Technology Index. It is not possible to invest directly in an index. Source: Index data from Morgan Stanley Capital International and Bloomberg; total return calculations performed by BNY Mellon Investment Servicing (US) Inc. Please see page 69 for index definition.

4  Calculated from 12/31/99.

5  The Lipper Category Average does not reflect sales charges and is based on total return, including reinvestment of dividends and capital gains for the stated periods.

TOP TEN HOLDINGS⁶

	Sector	Country	% Net Assets
Baidu, Inc.	Information Technology	China/Hong Kong		6.8	%
Samsung Electronics Co., Ltd.	Information Technology	South Korea		6.1	%
Taiwan Semiconductor Manufacturing Co., Ltd.	Information Technology	Taiwan		2.9	%
Spreadtrum Communications, Inc.	Information Technology	China/Hong Kong		2.9	%
NHN Corp.	Information Technology	South Korea		2.7	%
Digital China Holdings, Ltd.	Information Technology	China/Hong Kong		2.7	%
Hitachi, Ltd.	Information Technology	Japan		2.7	%
Sunny Optical Technology Group Co., Ltd.	Consumer Discretionary	China/Hong Kong		2.5	%
Nabtesco Corp.	Industrials	Japan		2.3	%
Info Edge India, Ltd.	Information Technology	India		2.3	%
% OF ASSETS IN TOP TEN				33.9	%

6  Holdings may combine more than one security from same issuer and related depositary receipts.

matthewsasia.com | 800.789.ASIA 65

COUNTRY ALLOCATION (%)⁷

China/Hong Kong	31.5
South Korea	20.1
Japan	19.6
Taiwan	18.4
India	3.1
United States	2.0
Malaysia	1.6
Indonesia	1.4
Vietnam	0.7
Cash and Other Assets, Less Liabilities	1.6

SECTOR ALLOCATION (%)

Information Technology	69.2
Industrials	8.4
Health Care	7.9
Consumer Discretionary	4.8
Materials	3.9
Telecommunication Services	2.8
Financials	1.4
Cash and Other Assets, Less Liabilities	1.6

MARKET CAP EXPOSURE (%)⁸

Large Cap (over $5B)	50.0
Mid Cap ($1B–$5B)	25.0
Small Cap (under $1B)	23.4
Cash and Other Assets, Less Liabilities	1.6

7  The United States is not included in the MSCI AC Asia IT and Telecom Services Index.

8  Source: FactSet Research Systems. Percentage values in data are rounded to the nearest tenth of one percent; the values may not sum to 100% due to rounding.

Matthews Asia Science and Technology Fund

Portfolio Manager Commentary (continued)

benchmark as we still see strong long-term growth potential in Chinese technology companies, especially in the Internet services sector.

Despite its weak performance during the second quarter, Taiwan was the top contributor to Fund performance during the first half of the year. Taiwanese technology companies rebounded in 2012 due to attractive valuations and higher yield, following a tough year last year. In particular, smartphone manufacturers saw improved performance.

During the second quarter, only Southeast Asian countries delivered positive returns while all other countries in the Fund posted negative returns. Domestically driven growth out of Southeast Asia has helped countries in that region remain relatively unharmed by global economic factors. However, valuations are becoming more demanding as the region continues to outperform its neighbors to the north.

Overall market sentiment remains weak for Asia's technology sector as no near-term resolutions to Europe's economic crisis appear forthcoming. However, the sector's valuations still remain attractive and any signs of global economic recovery should positively impact the sector. We continue to look for opportunities in secular growth industries, such as factory automation, Internet and IT services, which stand to benefit from Asia's long-term development.

Sector funds may be subject to a higher degree of market risk than diversified funds because of a concentration in a specific sector. The Fund's value may be affected by changes in the science and technology-related industries.

66 MATTHEWS ASIA FUNDS

Matthews Asia Science and Technology Fund  June 30, 2012

Schedule of Investments^a (unaudited)

COMMON EQUITIES: 97.9%

	Shares		Value
CHINA/HONG KONG: 31.5%
Baidu, Inc. ADRb		81,800	$	9,405,364
Spreadtrum Communications, Inc. ADR		228,600		4,034,790
Digital China Holdings, Ltd.		2,127,000		3,748,266
Sunny Optical Technology Group Co., Ltd.		10,264,000		3,496,436
21Vianet Group, Inc. ADRb		271,301		3,106,396
Airtac International Groupb		467,000		2,690,214
AAC Technologies Holdings, Inc.		822,000		2,392,148
WuXi PharmaTech Cayman, Inc. ADRb		160,900		2,271,908
Netease, Inc. ADRb		38,300		2,253,955
China Mobile, Ltd. ADR		36,100		1,973,587
ZTE Corp. H Shares		991,144		1,933,276
Sinopharm Group Co., Ltd. H Shares		658,400		1,830,264
Lenovo Group, Ltd.		1,804,000		1,539,410
51job, Inc. ADRb		32,800		1,494,040
Sina Corp.b		28,400		1,471,404
Total China/Hong Kong				43,641,458
JAPAN: 19.6%
Hitachi, Ltd.		606,000		3,736,499
Nabtesco Corp.		144,700		3,227,402
Toshiba Corp.		610,000		2,321,879
Hoya Corp.		99,400		2,189,784
Asahi Intecc Co., Ltd.		80,000		2,098,210
Murata Manufacturing Co., Ltd.		39,200		2,061,943
Rakuten, Inc.		192,600		1,991,228
SMC Corp.		10,900		1,889,817
Hamamatsu Photonics, K.K.		55,400		1,879,493
Nexon Co., Ltd.b		85,500		1,673,786
Tokyo Electron, Ltd.		34,200		1,603,806
FANUC Corp.		8,400		1,380,801
Kakaku.com, Inc.		33,000		1,119,804
Total Japan				27,174,452
SOUTH KOREA: 19.6%
Samsung Electronics Co., Ltd.		7,962		8,431,658
NHN Corp.		17,194		3,771,230
Cheil Industries, Inc.		33,514		2,957,056
Kiwoom Securities Co., Ltd.		35,695		1,918,319
LG Chem, Ltd.		6,923		1,792,195
Daum Communications Corp.		19,635		1,765,950
SBS Contents Hub Co., Ltd.		155,087		1,737,649
LG Display Co., Ltd.b		88,500		1,670,829
Samsung SDI Co., Ltd.		10,370		1,388,829
JVM Co., Ltd.b		29,009		1,007,554
OCI Materials Co., Ltd.		18,776		680,198
Total South Korea				27,121,467
TAIWAN: 18.4%
Taiwan Semiconductor Manufacturing Co., Ltd.b		1,483,933		4,062,220
Hon Hai Precision Industry Co., Ltd.		887,982		2,684,856
TXC Corp.		1,733,198		2,516,476
St. Shine Optical Co., Ltd.		217,000		2,428,558
Delta Electronics, Inc.		738,000		2,265,369
Chroma ATE, Inc.		981,360		2,240,259
Simplo Technology Co., Ltd.		323,980		2,237,530

	Shares		Value
PChome Online, Inc.		389,000	$	2,205,287
Synnex Technology International Corp.		853,447		2,088,568
Largan Precision Co., Ltd.		70,000		1,463,713
Foxconn Technology Co., Ltd.		342,350		1,246,468
Total Taiwan				25,439,304
INDIA: 3.1%
Info Edge India, Ltd.		475,636		3,155,765
Exide Industries, Ltd.		459,586		1,130,192
Multi Commodity Exchange of India, Ltd.		1,540		29,253
Total India				4,315,210
UNITED STATES: 2.0%
Cognizant Technology Solutions Corp. Class Ab		44,700		2,682,000
Total United States				2,682,000
MALAYSIA: 1.6%
KPJ Healthcare BHD		1,217,600		2,263,362
Total Malaysia				2,263,362
INDONESIA: 1.4%
PT Telekomunikasi Indonesia Persero ADR		56,900		1,981,827
Total Indonesia				1,981,827
VIETNAM: 0.7%
FPT Corp.		433,700		976,631
Total Vietnam				976,631
TOTAL COMMON EQUITIES				135,595,711
(Cost $123,673,335)

PREFERRED EQUITIES: 0.5%

SOUTH KOREA: 0.5%
Samsung Electronics Co., Ltd., Pfd.	1,089		718,905
Total South Korea			718,905
TOTAL PREFERRED EQUITIES			718,905
(Cost $695,255)
TOTAL INVESTMENTS: 98.4%			136,314,616
(Cost $124,368,590c)
CASH AND OTHER ASSETS, LESS LIABILITIES: 1.6%			2,154,134
NET ASSETS: 100.0%		$	138,468,750

a  Certain securities were fair valued under the discretion of the Board of Trustees (Note 2-A).

b  Non-income producing security.

c  Cost for federal income tax purposes is $124,448,514 and net unrealized appreciation consists of:

Gross unrealized appreciation	$	21,670,805
Gross unrealized depreciation		(9,804,703	)
Net unrealized appreciation	$	11,866,102

ADR  American Depositary Receipt

BHD  Berhad

Pfd.  Preferred

See accompanying notes to financial statements.

matthewsasia.com | 800.789.ASIA 67

Disclosures

Fund Holdings: The Fund holdings shown in this report are as of June 30, 2012. Holdings are subject to change at any time, so holdings shown in this report may not reflect current Fund holdings. The Funds file complete schedules of portfolio holdings with the Securities and Exchange Commission (the "SEC") for the first and third quarters of each fiscal year on Form N-Q. The Funds' Form N-Q is filed with the SEC within 60 days of the end of the quarter to which it relates, and is available on the SEC's website at www.sec.gov. It may also be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330. Complete schedules of investments are also available without charge, upon request, from the Funds by calling us at 800.789.ASIA (2472).

Proxy Voting Record: The Funds' Statement of Additional Information containing a description of the policies and procedures that the Funds have used to vote proxies relating to portfolio securities, along with each Fund's proxy voting record relating to portfolio securities held during the most recent 12-month period ended June 30, is available upon request, at no charge, at the Funds' website at matthewsasia.com or by calling 800.789.ASIA (2742), or on the SEC's website at www.sec.gov.

Shareholder Reports and Prospectuses: To reduce the Funds' expenses, we try to identify related shareholders in a household and send only one copy of the Funds' prospectus and financial reports to that address. This process, called "householding," will continue indefinitely unless you instruct us otherwise. At any time you may view the Funds' current prospectus, summary prospectus and financial reports on our website. If you prefer to receive individual copies of the Funds' prospectus or financial reports, please call us at 800.789.ASIA (2742).

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 short-term trading 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.

68 MATTHEWS ASIA FUNDS

Index Definitions

The HSBC Asian Local Bond Index (ALBI) tracks the total return performance of a bond portfolio consisting of local-currency denominated, high quality and liquid bonds in Asia ex-Japan. The ALBI includes bonds from the following countries: Korea, Hong Kong, India, Singapore, Taiwan, Malaysia, Thailand, Philippines, Indonesia and China.

The J.P. Morgan Asia Credit Index (JACI) tracks the total return performance of the Asia fixed-rate dollar bond market. JACI is a market cap-weighted index comprising sovereign, quasi-sovereign and corporate bonds and is partitioned by country, sector and credit rating. JACI includes bonds from the following countries: China, Hong Kong, India, Indonesia, Korea, Malaysia, Philippines, Thailand and Singapore.

The MSCI All Country Asia ex Japan Index is a free float–adjusted market capitalization–weighted index of the stock of markets of China, Hong Kong, India, Indonesia, Malaysia, Philippines, Singapore, South Korea, Taiwan and Thailand.

The MSCI All Country Asia Pacific Index is a free float– adjusted market capitalization–weighted index of the stock markets of Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand, Philippines, Singapore, South Korea, Taiwan and Thailand.

The MSCI China Index is a free float–adjusted market capitalization–weighted index of Chinese equities that includes China-affiliated corporations and H shares listed on the Hong Kong Exchange, and B shares listed on the Shanghai and Shenzhen exchanges.

The Bombay Stock Exchange (BSE) 100 Index is a free float–adjusted market capitalization–weighted index of the 100 stocks listed on the Bombay Stock Exchange.

The MSCI Japan Index is a free float–adjusted market capitalization–weighted index of Japanese equities listed in Japan.

The Tokyo Stock Price Index (TOPIX) is a market capitalization–weighted index of all companies listed on the First Section of the Tokyo Stock Exchange.

The Korea Composite Stock Price Index (KOSPI) is a market capitalization–weighted index of all common stocks listed on the Korea Stock Exchange.

The MSCI All Country Asia ex Japan Small Cap Index is a free float–adjusted market capitalization–weighted small cap index of the stock markets of China, Hong Kong, India, Indonesia, Malaysia, Philippines, Singapore, South Korea, Taiwan and Thailand.

The MSCI China Small Cap Index is a free float–adjusted market capitalization–weighted small cap index of the Chinese equity securities markets, including H shares listed on the Hong Kong Exchange, B shares listed on the Shanghai and Shenzhen exchanges, and Hong Kong-listed securities known as Red Chips (issued by entities owned by national or local governments in China) and P Chips (issued by companies controlled by individuals in China and deriving substantial revenues in China).

The MSCI AC Asia IT and Telecom Services Index (formerly known as MSCI/Matthews Asian Technology Index) is a free float–adjusted market 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.

matthewsasia.com | 800.789.ASIA 69

Disclosure of Fund Expenses (Unaudited)

We believe it is important for you to understand the impact of fees regarding your investment. All mutual funds have operating expenses. As a shareholder of a mutual fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund's gross income, directly reduce the investment return of the fund. A fund's operating expenses are expressed as a percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing fees (in dollars) of investing in your fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.

This table illustrates your fund's costs in two ways:

Actual Fund Return: This section helps you to estimate the actual operating expenses, after any applicable fee waivers, that you paid over the period. The "Ending Account Value" shown is derived from the fund's actual return for the past six month period, the "Expense Ratio" column shows the period's annualized expense ratio, and the "Operating Expenses Paid During Period" column shows the dollar amount that would have been paid by an investor who started with $1,000 in the fund at the beginning of the period. You may use the information here, together with your account value, to estimate the expenses that you paid over the period. To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your fund in the first line under the heading entitled "Operating Expenses Paid During Period."

Hypothetical 5% Return: This section is intended to help you compare your fund's costs with those of other mutual funds. It assumes that the fund had an annual return of 5% before operating expenses, but that the expense ratio is unchanged. In this case, because the return used is not the fund's actual return, the results do not apply to your investment. This example is useful in making comparisons to other mutual funds because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on an assumed 5% annual return. You can assess your fund's costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.

Please note that the operating expenses shown in the table are meant to highlight and help you compare your ongoing costs only and do not reflect any transactional costs such as sales charges (loads), redemption fees, or exchange fees. The Funds generally assess a redemption fee of 2.00% of the total redemption proceeds if you sell or exchange your shares within 90 calendar days after purchasing them. The redemption fee is paid directly to the Funds and is designed to discourage frequent short-term trading and to offset transaction costs associated with such trading of Fund shares. For purposes of determining whether the redemption fee applies, the shares that have been held the longest will be redeemed first. The Funds may grant exemption from the redemption fee when the Funds have previously received assurances that transactions do not involve market timing activity. The Funds may also waive the imposition of redemption fees in certain circumstances.

For more information on this policy, please see the Funds' prospectus.

The Matthews Asia Funds do not charge any sales loads, exchange fees, or 12b-1 fees, but these may be present in other funds to which you compare this data. Therefore, the hypothetical portions of the table are useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds.

70 MATTHEWS ASIA FUNDS

  June 30, 2012

	INVESTOR CLASS									INSTITUTIONAL CLASS
	Beginning Account Value 1/1/12		Ending Account Value 6/30/12		Expense Ratio1			Operating Expenses Paid During Period 1/1/12– 6/30/122		Beginning Account Value 1/1/12		Ending Account Value 6/30/12		Expense Ratio1			Operating Expenses Paid During Period 1/1/12– 6/30/122
ASIA FIXED INCOME STRATEGIES
Matthews Asia Strategic Income Fund
Actual Fund Return	$	1,000.00	$	1,041.80		1.11	%	$	5.67	$	1,000.00	$	1,042.70		1.00	%	$	5.11
Hypothetical 5% Return	$	1,000.00	$	1,019.45		1.11	%	$	5.60	$	1,000.00	$	1,020.00		1.00	%	$	5.05
ASIA GROWTH AND INCOME STRATEGIES
Matthews Asian Growth and Income Fund
Actual Fund Return	$	1,000.00	$	1,095.10		1.11	%	$	5.81	$	1,000.00	$	1,096.70		0.98	%	$	5.14
Hypothetical 5% Return	$	1,000.00	$	1,019.45		1.11	%	$	5.60	$	1,000.00	$	1,020.10		0.98	%	$	4.95
Matthews Asia Dividend Fund
Actual Fund Return	$	1,000.00	$	1,087.60		1.08	%	$	5.64	$	1,000.00	$	1,087.50		0.98	%	$	5.11
Hypothetical 5% Return	$	1,000.00	$	1,019.60		1.08	%	$	5.45	$	1,000.00	$	1,020.10		0.98	%	$	4.95
Matthews China Dividend Fund
Actual Fund Return	$	1,000.00	$	1,102.20		1.50	%	$	7.88	$	1,000.00	$	1,102.50		1.40	%	$	7.36
Hypothetical 5% Return	$	1,000.00	$	1,017.50		1.50	%	$	7.57	$	1,000.00	$	1,018.00		1.40	%	$	7.06
ASIA GROWTH STRATEGIES
Matthews Asia Growth Fund
Actual Fund Return	$	1,000.00	$	1,055.40		1.18	%	$	6.06	$	1,000.00	$	1,056.00		1.00	%	$	5.14
Hypothetical 5% Return	$	1,000.00	$	1,019.10		1.18	%	$	5.96	$	1,000.00	$	1,020.00		1.00	%	$	5.05
Matthews Pacific Tiger Fund
Actual Fund Return	$	1,000.00	$	1,066.90		1.13	%	$	5.84	$	1,000.00	$	1,067.90		0.95	%	$	4.91
Hypothetical 5% Return	$	1,000.00	$	1,019.35		1.13	%	$	5.70	$	1,000.00	$	1,020.25		0.95	%	$	4.80
Matthews China Fund
Actual Fund Return	$	1,000.00	$	1,020.50		1.14	%	$	5.76	$	1,000.00	$	1,021.90		0.93	%	$	4.70
Hypothetical 5% Return	$	1,000.00	$	1,019.30		1.14	%	$	5.76	$	1,000.00	$	1,020.35		0.93	%	$	4.70
Matthews India Fund
Actual Fund Return	$	1,000.00	$	1,142.00		1.20	%	$	6.43	$	1,000.00	$	1,143.30		1.01	%	$	5.41
Hypothetical 5% Return	$	1,000.00	$	1,019.00		1.20	%	$	6.06	$	1,000.00	$	1,019.95		1.01	%	$	5.10
Matthews Japan Fund
Actual Fund Return	$	1,000.00	$	1,032.60		1.23	%	$	6.25	$	1,000.00	$	1,033.50		1.07	%	$	5.44
Hypothetical 5% Return	$	1,000.00	$	1,018.85		1.23	%	$	6.21	$	1,000.00	$	1,019.65		1.07	%	$	5.40
Matthews Korea Fund
Actual Fund Return	$	1,000.00	$	1,039.20		1.18	%	$	6.02	$	1,000.00	$	1,039.10		0.99	%	$	5.05
Hypothetical 5% Return	$	1,000.00	$	1,019.10		1.18	%	$	5.96	$	1,000.00	$	1,020.05		0.99	%	$	5.00
ASIA SMALL COMPANY STRATEGY
Matthews Asia Small Companies Fund
Actual Fund Return	$	1,000.00	$	1,062.30		1.52	%	$	7.84
Hypothetical 5% Return	$	1,000.00	$	1,017.40		1.52	%	$	7.67
Matthews China Small Companies Fund
Actual Fund Return	$	1,000.00	$	1,005.70		2.00	%	$	10.03
Hypothetical 5% Return	$	1,000.00	$	1,015.00		2.00	%	$	10.08
ASIA SPECIALTY STRATEGY
Matthews Asia Science and Technology Fund
Actual Fund Return	$	1,000.00	$	1,056.40		1.21	%	$	6.22
Hypothetical 5% Return	$	1,000.00	$	1,018.95		1.21	%	$	6.11

1  Annualized, based on the Fund's most recent fiscal half-year expenses.

2  Operating expenses are equal to the Fund's annualized expense ratio multiplied by the average account value over the period, multiplied by 183 days, then divided by 366.

matthewsasia.com | 800.789.ASIA 71

Statements of Assets and Liabilities (Unaudited)June 30, 2012

	Matthews Asia Strategic Income Fund			Matthews Asian Growth and Income Fund			Matthews Asia Dividend Fund			Matthews China Dividend Fund			Matthews Asia Growth Fund
ASSETS:
Investments at value (A) (Note 2-A and 7):
Unaffiliated issuers	$	22,080,425		$	3,153,835,788		$	2,366,139,713		$	27,409,850		$	357,754,272
Affiliated issuers		—			67,636,456			362,341,017			—			—
Total investments		22,080,425			3,221,472,244			2,728,480,730			27,409,850			357,754,272
Cash		880,186			31,996,018			82,696,075			91,308			2,603,140
Cash pledged as collateral for financial futures contracts		11,000			—			—			—			—
Foreign currency at value (B)		—			6,247,891			4,700,731			60,506			3,020,576
Dividends, interest and other receivables—Unaffiliated issuers		356,263			7,964,459			7,911,144			168,128			824,284
Dividends receivable—Affiliated issuers		—			—			—			—			—
Receivable for securities sold		—			658,679			541,957			—			—
Receivable for capital shares sold		149,820			3,989,149			11,883,249			10,900			270,547
Receivable for daily variation margin on financial futures contracts		5,469			—			—			—			—
Due from Advisor (Note 5)		3,104			—			—			—			—
Deferred offering costs (Note 2-E)		59,312			—			—			—			—
Unrealized appreciation on forward foreign currency exchange contracts		26,513			—			—			—			—
Prepaid expenses		8,644			18,564			41,748			6,450			11,227
TOTAL ASSETS		23,580,736			3,272,347,004			2,836,255,634			27,747,142			364,484,046
LIABILITIES:
Payable for securities purchased		286,106			—			4,406,230			—			—
Payable for capital shares redeemed		5,101			4,133,753			2,415,568			32,669			434,605
Cash overdraft		—			—			—			—			—
Deferred foreign capital gains tax liability (Note 2-D)		—			205,458			—			—			—
Due to Advisor (Note 5)		—			1,823,828			1,556,036			12,750			203,792
Administration and accounting fees payable		300			43,504			36,605			377			4,912
Administration and shareholder servicing fees payable		1,424			591,250			464,087			5,650			67,900
Printing fees payable		—			131,925			161,519			5,007			23,346
Professional fees payable		14,291			25,559			23,010			21,605			22,448
Trustees fees payable		—			1,023			—			—			—
Transfer agent fees payable		—			384,951			267,057			7,633			53,870
Offering costs		42,618			—			—			—			—
Accrued other expenses payable		2,851			176,041			106,159			12,261			33,727
TOTAL LIABILITIES		352,691			7,517,292			9,436,271			97,952			844,600
NET ASSETS	$	23,228,045		$	3,264,829,712		$	2,826,819,363		$	27,649,190		$	363,639,446
NET ASSETS:
Investor Class	$	17,695,792		$	2,556,381,422		$	2,258,864,457		$	27,609,955		$	258,248,987
Institutional Class		5,532,253			708,448,290			567,954,906			39,235			105,390,459
TOTAL	$	23,228,045		$	3,264,829,712		$	2,826,819,363		$	27,649,190		$	363,639,446
SHARES OUTSTANDING:
(shares of beneficial interest issued and outstanding, respectively, unlimited number of shares authorized with a $0.001 par value)
Investor Class		1,738,092			156,788,211			168,982,502			2,543,517			15,950,264
Institutional Class		543,588			43,463,466			42,510,833			3,613			6,491,806
TOTAL		2,281,680			200,251,677			211,493,335			2,547,130			22,442,070
NET ASSET VALUE:
Investor Class, offering price and redemption price	$	10.18		$	16.30		$	13.37		$	10.86		$	16.19
Institutional Class, offering price and redemption price	$	10.18		$	16.30		$	13.36		$	10.86		$	16.23
NET ASSETS CONSIST OF:
Capital paid-in	$	22,994,771		$	2,941,341,682		$	2,817,151,943		$	28,688,291		$	363,776,601
Undistributed (distributions in excess of) net investment income (loss)		15,580			(9,904,853	)		(15,278,248	)		(216,886	)		(1,040,068	)
Undistributed/accumulated net realized gain (loss) on investments, financial futures contracts, and foreign currency related transactions		(134,011	)		(56,585,590	)		(50,741,493	)		(1,346,896	)		(47,969,652	)
Net unrealized appreciation (depreciation) on investments, financial futures contracts, foreign currency translations and deferred foreign capital gains taxes		351,705			389,978,473			75,687,161			524,681			48,872,565
NET ASSETS	$	23,228,045		$	3,264,829,712		$	2,826,819,363		$	27,649,190		$	363,639,446
(A) Investments at cost:
Unaffiliated issuers	$	21,761,150		$	2,765,976,922		$	2,267,666,788		$	26,885,199		$	308,897,735
Affiliated issuers		—			65,338,935			385,128,650			—			—
Total investments at cost	$	21,761,150		$	2,831,315,857		$	2,652,795,438		$	26,885,199		$	308,897,735
(B) Foreign currency at cost	$	—		$	6,242,348		$	4,700,346		$	60,506		$	3,007,603

See accompanying notes to financial statements.

72 MATTHEWS ASIA FUNDS

	Matthews Pacific Tiger Fund		Matthews China Fund		Matthews India Fund			Matthews Japan Fund			Matthews Korea Fund
ASSETS:
Investments at value (A) (Note 2-A and 7):
Unaffiliated issuers	$	5,166,475,571	$	2,053,924,878	$	601,209,221		$	115,539,981		$	154,520,770
Affiliated issuers		500,143,417		27,793,131		—			—			—
Total investments		5,666,618,988		2,081,718,009		601,209,221			115,539,981			154,520,770
Cash		278,871,777		17,368,860		—			332,332			1,185,333
Cash pledged as collateral for financial futures contracts		—		—		—			—			—
Foreign currency at value (B)		14,386,985		2,286,102		2,246,329			264,576			155,927
Dividends, interest and other receivables—Unaffiliated issuers		10,569,080		13,920,950		2,182,778			168,482			66,565
Dividends receivable—Affiliated issuers		1,106,875		494,668		—			—			—
Receivable for securities sold		—		—		3,503,994			—			472,232
Receivable for capital shares sold		8,220,048		675,400		97,374			324,537			69,577
Receivable for daily variation margin on financial futures contracts		—		—		—			—			—
Due from Advisor (Note 5)		—		—		—			—			—
Deferred offering costs (Note 2-E)		—		—		—			—			—
Unrealized appreciation on forward foreign currency exchange contracts		—		—		—			—			—
Prepaid expenses		86,903		40,694		5,409			11,583			12,269
TOTAL ASSETS		5,979,860,656		2,116,504,683		609,245,105			116,641,491			156,482,673
LIABILITIES:
Payable for securities purchased		41,826,168		—		1,010,219			—			—
Payable for capital shares redeemed		8,059,057		2,547,763		1,026,973			102,900			213,322
Cash overdraft		—		—		1,534,187			—			—
Deferred foreign capital gains tax liability (Note 2-D)		927,214		—		—			—			—
Due to Advisor (Note 5)		3,200,249		1,194,781		335,507			64,763			88,831
Administration and accounting fees payable		75,590		29,121		8,110			1,556			2,303
Administration and shareholder servicing fees payable		1,038,184		415,453		117,492			22,849			30,966
Printing fees payable		205,874		211,181		81,101			15,096			14,971
Professional fees payable		19,856		26,573		34,697			21,330			22,669
Trustees fees payable		—		—		—			70			—
Transfer agent fees payable		695,877		348,469		121,910			22,631			29,828
Offering costs		—		—		—			—			—
Accrued other expenses payable		426,450		80,805		69,242			10,475			14,993
TOTAL LIABILITIES		56,474,519		4,854,146		4,339,438			261,670			417,883
NET ASSETS	$	5,923,386,137	$	2,111,650,537	$	604,905,667		$	116,379,821		$	156,064,790
NET ASSETS:
Investor Class	$	2,994,944,504	$	1,686,057,880	$	574,490,183		$	90,218,948		$	133,511,920
Institutional Class		2,928,441,633		425,592,657		30,415,484			26,160,873			22,552,870
TOTAL	$	5,923,386,137	$	2,111,650,537	$	604,905,667		$	116,379,821		$	156,064,790
SHARES OUTSTANDING:
(shares of beneficial interest issued and outstanding, respectively, unlimited number of shares authorized with a $0.001 par value)
Investor Class		138,102,266		76,809,260		37,006,141			7,707,151			27,968,245
Institutional Class		134,957,427		19,381,988		1,955,154			2,232,616			4,705,668
TOTAL		273,059,693		96,191,248		38,961,295			9,939,767			32,673,913
NET ASSET VALUE:
Investor Class, offering price and redemption price	$	21.69	$	21.95	$	15.52		$	11.71		$	4.77
Institutional Class, offering price and redemption price	$	21.70	$	21.96	$	15.56		$	11.72		$	4.79
NET ASSETS CONSIST OF:
Capital paid-in	$	4,734,935,688	$	1,871,021,629	$	615,828,107		$	187,045,067		$	111,493,738
Undistributed (distributions in excess of) net investment income (loss)		31,197,884		24,192,110		4,577,507			39,168			(448,040	)
Undistributed/accumulated net realized gain (loss) on investments, financial futures contracts, and foreign currency related transactions		20,634,731		23,951,027		4,447,539			(76,741,097	)		(2,543,595	)
Net unrealized appreciation (depreciation) on investments, financial futures contracts, foreign currency translations and deferred foreign capital gains taxes		1,136,617,834		192,485,771		(19,947,486	)		6,036,683			47,562,687
NET ASSETS	$	5,923,386,137	$	2,111,650,537	$	604,905,667		$	116,379,821		$	156,064,790
(A) Investments at cost:
Unaffiliated issuers	$	3,988,601,903	$	1,864,345,263	$	621,054,500		$	109,504,510		$	106,958,362
Affiliated issuers		540,438,190		24,891,260		—			—			—
Total investments at cost	$	4,529,040,093	$	1,889,236,523	$	621,054,500		$	109,504,510		$	106,958,362
(B) Foreign currency at cost	$	14,312,411	$	2,286,101	$	2,224,467		$	264,576		$	155,927

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Statements of Assets and Liabilities (Unaudited) (continued)  June 30, 2012

	Matthews Asia Small Companies Fund			Matthews China Small Companies Fund			Matthews Asia Science and Technology Fund
ASSETS:
Investments at value (A) (Note 2-A and 7):
Unaffiliated issuers	$	304,483,201		$	5,135,973		$	136,314,616
Cash		7,394,206			158,899			2,130,493
Foreign currency at value (B)		365,797			—			603,057
Dividends, interest and other receivables—Unaffiliated issuers		746,498			31,237			228,726
Receivable for securities sold		569,027			—			310,901
Receivable for capital shares sold		406,375			—			2,661
Due from Advisor (Note 5)		—			1,896			—
Prepaid expenses		4,853			13,881			2,666
TOTAL ASSETS		313,969,957			5,341,886			139,593,120
LIABILITIES:
Payable for securities purchased		—			35,743			695,255
Payable for capital shares redeemed		4,069,883			—			232,098
Due to Advisor (Note 5)		267,170			—			78,565
Administration and accounting fees payable		4,337			77			1,896
Administration and shareholder servicing fees payable		60,220			766			30,029
Professional fees payable		23,534			15,003			19,150
Trustees fees payable		—			—			42
Offering costs		—			33,179			—
Accrued other expenses payable		98,587			8,359			67,335
TOTAL LIABILITIES		4,523,731			93,127			1,124,370
NET ASSETS	$	309,446,226		$	5,248,759		$	138,468,750
NET ASSETS:
Investor Class	$	309,446,226		$	5,248,759		$	138,468,750
SHARES OUTSTANDING:
(shares of beneficial interest issued and outstanding, respectively, unlimited number of shares authorized with a $0.001 par value)
Investor Class		19,725,943			741,577			16,057,376
NET ASSET VALUE:
Investor Class, offering price and redemption price	$	15.69		$	7.08		$	8.62
NET ASSETS CONSIST OF:
Capital paid-in	$	333,097,112		$	6,735,795		$	138,745,240
Undistributed (distributions in excess of) net investment income (loss)		1,476,781			30,579			(106,929	)
Undistributed/accumulated net realized gain (loss) on investments and foreign currency related transactions		(12,302,583	)		(634,662	)		(12,117,305	)
Net unrealized appreciation (depreciation) on investments and foreign currency translations		(12,825,084	)		(882,953	)		11,947,744
NET ASSETS	$	309,446,226		$	5,248,759		$	138,468,750
(A) Investments at cost: Unaffiliated issuers	$	317,309,503		$	6,018,942		$	124,368,590
(B) Foreign currency at cost	$	365,797		$	—		$	602,802

See accompanying notes to financial statements.

74 MATTHEWS ASIA FUNDS

Statements of Operations (Unaudited)  Six-Month Period Ended June 30, 2012

	Matthews Asia Strategic Income Fund			Matthews Asian Growth and Income Fund			Matthews Asia Dividend Fund
INVESTMENT INCOME:
Dividends—Unaffiliated Issuers	$	41,562		$	52,571,693		$	50,380,652
Dividends—Affiliated Issuers (Note 7)		—			1,227,194			7,085,211
Interest		431,657			10,129,352			4,971
Foreign withholding tax		(15,592	)		(2,553,427	)		(2,823,299	)
TOTAL INVESTMENT INCOME		457,627			61,374,812			54,647,535
EXPENSES:
Investment advisory fees (Note 5)		63,267			10,713,918			8,801,237
Administration and accounting fees (Note 5)		774			127,257			104,531
Administration and shareholder servicing fees (Note 5)		17,737			3,426,099			2,722,770
Custodian fees		6,354			466,351			271,440
Insurance fees		37			9,049			6,921
Printing fees		1,035			260,669			239,524
Professional fees		14,055			38,675			34,016
Registration fees		4,344			115,391			83,059
Transfer agent fees		7,137			1,989,059			1,519,165
Trustees fees		379			74,118			58,467
Offering costs (Note 2-E)		55,010			—			—
Other expenses		6,632			63,198			58,224
TOTAL EXPENSES		176,761			17,283,784			13,899,354
Advisory fees waived and expenses waived or reimbursed (Note 5)		(72,432	)		—			—
NET EXPENSES		104,329			17,283,784			13,899,354
NET INVESTMENT INCOME (LOSS)		353,298			44,091,028			40,748,181
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FINANCAIL FUTURES CONTRACTS, FOREIGN CURRENCY RELATED TRANSACTIONS AND DEFERRED TAXES:
Net realized gain (loss) on investments—Unaffiliated Issuers		75,438			(34,152,235	)		3,931,815
Net realized gain (loss) on financial futures contracts		(143,772	)		—			—
Net realized foreign capital gains tax or refund		—			(403,929	)		—
Net realized gain (loss) on foreign currency related transactions		(65,267	)		(5,380,612	)		56,726
Net change in unrealized appreciation/depreciation on investments		383,456			271,437,472			158,817,185
Net change in deferred foreign capital gains taxes on unrealized appreciation		1,249			(205,458	)		—
Net change in unrealized appreciation/depreciation on financial futures contracts		7,525			—			—
Net change in unrealized appreciation/depreciation on foreign currency related translations		43,004			35,514			(26,971	)
Net realized and unrealized gain (loss) on investments, financial futures contracts, foreign currency related transactions and deferred taxes		301,633			231,330,752			162,778,755
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS	$	654,931		$	275,421,780		$	203,526,936

See accompanying notes to financial statements.

matthewsasia.com | 800.789.ASIA 75

Statements of Operations (Unaudited) (continued)Six-Month Period Ended June 30, 2012

	Matthews China Dividend Fund			Matthews Asia Growth Fund			Matthews Pacific Tiger Fund			Matthews China Fund			Matthews India Fund
INVESTMENT INCOME:
Dividends—Unaffiliated Issuers	$	667,259		$	4,430,808		$	61,866,449		$	38,157,797		$	4,932,282
Dividends—Affiliated Issuers (Note 7)		—			—			2,100,535			549,500			—
Interest		1			10,320			53			10			621,832
Foreign withholding tax		(16,909	)		(214,609	)		(4,018,451	)		(1,741,769	)		—
TOTAL INVESTMENT INCOME		650,351			4,226,519			59,948,586			36,965,538			5,554,114
EXPENSES:
Investment advisory fees (Note 5)		96,597			1,251,474			18,439,460			7,812,110			2,245,101
Administration and accounting fees (Note 5)		1,147			14,864			219,010			92,762			26,649
Administration and shareholder servicing fees (Note 5)		32,533			391,322			5,542,468			2,519,389			743,573
Custodian fees		9,801			93,611			1,058,767			336,239			191,040
Insurance fees		81			1,050			14,738			6,244			1,943
Printing fees		4,624			34,826			273,644			253,238			98,988
Professional fees		17,993			20,260			47,947			28,968			36,395
Registration fees		24,533			29,660			58,196			53,341			49,812
Transfer agent fees		25,901			229,115			2,827,020			1,566,322			537,337
Trustees fees		669			8,692			124,343			55,513			15,951
Offering costs (Note 2-E)		—			—			—			—			—
Other expenses		17,928			25,511			78,552			49,302			27,861
TOTAL EXPENSES		231,807			2,100,385			28,684,145			12,773,428			3,974,650
Advisory fees waived and expenses waived or reimbursed (Note 5)		(16,559	)		—			—			—			—
NET EXPENSES		215,248			2,100,385			28,684,145			12,773,428			3,974,650
NET INVESTMENT INCOME (LOSS)		435,103			2,126,134			31,264,441			24,192,110			1,579,464
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FOREIGN CURRENCY RELATED TRANSACTIONS AND DEFERRED TAXES:
Net realized gain (loss) on investments—Unaffiliated Issuers		(645,620	)		16,941,976			17,091,681			59,194,257			2,103,481
Net realized gain (loss) on foreign currency related transactions		186			(39,273	)		(645,778	)		14,094			(464,562	)
Net change in unrealized appreciation/depreciation on investments		2,814,440			(690,684	)		265,255,397			(41,202,857	)		79,599,840
Net change in deferred foreign capital gains taxes on unrealized appreciation		—			—			(927,214	)		—			—
Net change in unrealized appreciation/depreciation on foreign currency related translations		(93	)		16,534			(55,262	)		(22	)		578
Net realized and unrealized gain (loss) on investments, foreign currency related transactions and deferred taxes		2,168,913			16,228,553			280,718,824			18,005,472			81,239,337
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS	$	2,604,016		$	18,354,687		$	311,983,265		$	42,197,582		$	82,818,801

See accompanying notes to financial statements.

76 MATTHEWS ASIA FUNDS

	Matthews Japan Fund			Matthews Korea Fund			Matthews Asia Small Companies Fund			Matthews China Small Companies Fund			Matthews Asia Science and Technology Fund
INVESTMENT INCOME:
Dividends—Unaffiliated Issuers	$	1,482,376		$	727,045		$	4,169,124		$	88,782		$	786,186
Dividends—Affiliated Issuers (Note 7)		—			—			—			—			—
Interest		16			114			8,243			—			8
Foreign withholding tax		(102,731	)		(120,096	)		(191,295	)		(1,387	)		(50,644	)
TOTAL INVESTMENT INCOME		1,379,661			607,063			3,986,072			87,395			735,550
EXPENSES:
Investment advisory fees (Note 5)		410,130			617,146			1,592,549			28,543			504,929
Administration and accounting fees (Note 5)		4,872			7,330			12,669			227			5,997
Administration and shareholder servicing fees (Note 5)		129,807			188,903			353,606			7,213			163,138
Custodian fees		13,675			31,090			88,072			6,588			42,605
Insurance fees		409			477			846			14			482
Printing fees		15,994			18,462			32,807			1,111			19,874
Professional fees		18,407			18,245			25,262			13,010			19,384
Registration fees		26,818			23,958			33,901			5,038			18,512
Transfer agent fees		82,447			111,368			239,381			7,142			108,912
Trustees fees		3,054			4,224			6,977			122			3,684
Offering costs (Note 2-E)		—			—			—			16,363			—
Other expenses		22,614			23,265			23,432			14,773			21,100
TOTAL EXPENSES		728,227			1,044,468			2,409,502			100,144			908,617
Advisory fees waived and expenses waived or reimbursed (Note 5)		—			—			—			(43,328	)		—
NET EXPENSES		728,227			1,044,468			2,409,502			56,816			908,617
NET INVESTMENT INCOME (LOSS)		651,434			(437,405	)		1,576,570			30,579			(173,067	)
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FOREIGN CURRENCY RELATED TRANSACTIONS AND DEFERRED TAXES:
Net realized gain (loss) on investments—Unaffiliated Issuers		2,125,668			(3,348,770	)		(13,654,637	)		(518,091	)		(846,414	)
Net realized gain (loss) on foreign currency related transactions		37,977			(64,050	)		(52,479	)		(81	)		(44,646	)
Net change in unrealized appreciation/depreciation on investments		1,190,735			7,877,804			25,088,982			371,711			9,747,918
Net change in deferred foreign capital gains taxes on unrealized appreciation		—			—			—			—			—
Net change in unrealized appreciation/depreciation on foreign currency related translations		(419	)		(3,562	)		625			15			925
Net realized and unrealized gain (loss) on investments, foreign currency related transactions and deferred taxes		3,353,961			4,461,422			11,382,491			(146,446	)		8,857,783
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS	$	4,005,395		$	4,024,017		$	12,959,061		($	115,867	)	$	8,684,716

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Statements of Changes in Net Assets

MATTHEWS ASIA STRATEGIC INCOME FUND	Six-Month Period Ended June 30, 2012 (unaudited)			Year Ended December 31, 20111
OPERATIONS:
Net investment income (loss)	$	353,298		$	20,982
Net realized gain (loss) on investments and foreign currency related transactions		(133,601	)		380
Net change in unrealized appreciation/depreciation on investments and foreign currency related translations		426,460			(82,280	)
Net change on deferred foreign capital gains taxes on unrealized appreciation		1,249			(1,249	)
Net change in unrealized appreciation/depreciation on financial futures contracts		7,525			—
Net increase (decrease) in net assets resulting from operations		654,931			(62,167	)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Investor Class		(247,278	)		(13,720	)
Institutional Class		(92,373	)		(9,676	)
Net decrease in net assets resulting from distributions		(339,651	)		(23,396	)
CAPITAL SHARE TRANSACTIONS (net) (Note 4)		9,891,069			13,096,972
REDEMPTION FEES		10,287			—
Total increase (decrease) in net assets		10,216,636			13,011,409
NET ASSETS:
Beginning of period		13,011,409			—
End of period (including undistributed net investment income of $15,580 and $1,933, respectively)	$	23,228,045		$	13,011,409

1  Matthews Asia Strategic Income Fund commenced operations on November 30, 2011.

MATTHEWS ASIAN GROWTH AND INCOME FUND	Six-Month Period Ended June 30, 2012 (unaudited)			Year Ended December 31, 2011
OPERATIONS:
Net investment income (loss)	$	44,091,028		$	99,815,175
Net realized gain (loss) on investments and foreign currency related transactions		(39,936,776	)		75,127,361
Net change in unrealized appreciation/depreciation on investments and foreign currency related translations		271,472,986			(569,899,433	)
Net change on deferred foreign capital gains taxes on unrealized appreciation		(205,458	)		2,051,108
Net increase (decrease) in net assets resulting from operations		275,421,780			(392,905,789	)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Investor Class		(30,681,143	)		(76,967,577	)
Institutional Class		(9,019,939	)		(19,206,528	)
Realized gains on investments:
Investor Class		—			(93,455,486	)
Institutional Class		—			(22,304,133	)
Net decrease in net assets resulting from distributions		(39,701,082	)		(211,933,724	)
CAPITAL SHARE TRANSACTIONS (net) (Note 4)		156,850,222			(578,220,072	)
REDEMPTION FEES		159,957			487,841
Total increase (decrease) in net assets		392,730,877			(1,182,571,744	)
NET ASSETS:
Beginning of period		2,872,098,835			4,054,670,579
End of period (including distributions in excess of net investment income of ($9,904,853) and ($14,294,799), respectively)	$	3,264,829,712		$	2,872,098,835

See accompanying notes to financial statements.

78 MATTHEWS ASIA FUNDS

MATTHEWS ASIA DIVIDEND FUND	Six-Month Period Ended June 30, 2012 (unaudited)			Year Ended December 31, 2011
OPERATIONS:
Net investment income (loss)	$	40,748,181		$	62,460,078
Net realized gain (loss) on investments and foreign currency related transactions		3,988,541			(46,007,986	)
Net change in unrealized appreciation/depreciation on investments and foreign currency related translations		158,790,214			(287,624,247	)
Net increase (decrease) in net assets resulting from operations		203,526,936			(271,172,155	)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Investor Class		(32,771,018	)		(55,295,897	)
Institutional Class		(8,246,825	)		(9,863,378	)
Realized gains on investments:
Investor Class		—			(9,863,184	)
Institutional Class		—			(1,815,393	)
Net decrease in net assets resulting from distributions		(41,017,843	)		(76,837,852	)
CAPITAL SHARE TRANSACTIONS (net) (Note 4)		389,216,861			640,377,706
REDEMPTION FEES		227,876			821,527
Total increase (decrease) in net assets		551,953,830			293,189,226
NET ASSETS:
Beginning of period		2,274,865,533			1,981,676,307
End of period (including distributions in excess of net investment income of ($15,278,248) and ($15,008,586), respectively)	$	2,826,819,363		$	2,274,865,533
MATTHEWS CHINA DIVIDEND FUND	Six-Month Period Ended June 30, 2012 (unaudited)			Year Ended December 31, 2011
OPERATIONS:
Net investment income (loss)	$	435,103		$	987,303
Net realized gain (loss) on investments and foreign currency related transactions		(645,434	)		(475,091	)
Net change in unrealized appreciation/depreciation on investments and foreign currency related translations		2,814,347			(7,111,732	)
Net increase (decrease) in net assets resulting from operations		2,604,016			(6,599,520	)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Investor Class		(565,840	)		(1,063,869	)
Institutional Class		(798	)		(425	)
Realized gains on investments:
Investor Class		—			(51,420	)
Institutional Class		—			(22	)
Net decrease in net assets resulting from distributions		(566,638	)		(1,115,736	)
CAPITAL SHARE TRANSACTIONS (net) (Note 4)		(885,185	)		(11,203,204	)
REDEMPTION FEES		18,882			28,586
Total increase (decrease) in net assets		1,171,075			(18,889,874	)
NET ASSETS:
Beginning of period		26,478,115			45,367,989
End of period (including distributions in excess of net investment income of ($216,886) and ($85,351), respectively)	$	27,649,190		$	26,478,115

See accompanying notes to financial statements.

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Statements of Changes in Net Assets

MATTHEWS ASIA GROWTH FUND	Six-Month Period Ended June 30, 2012 (unaudited)			Year Ended December 31, 2011
OPERATIONS:
Net investment income (loss)	$	2,126,134		$	2,302,379
Net realized gain (loss) on investments and foreign currency related transactions		16,902,703			3,999,688
Net change in unrealized appreciation/depreciation on investments and foreign currency related translations		(674,150	)		(55,786,729	)
Net increase (decrease) in net assets resulting from operations		18,354,687			(49,484,662	)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Investor Class		—			(5,881,357	)
Institutional Class		—			(1,854,156	)
Net decrease in net assets resulting from distributions		—			(7,735,513	)
CAPITAL SHARE TRANSACTIONS (net) (Note 4)		1,784,832			56,083,400
REDEMPTION FEES		31,775			322,245
Total increase (decrease) in net assets		20,171,294			(814,530	)
NET ASSETS:
Beginning of period		343,468,152			344,282,682
End of period (including distributions in excess of net investment income of ($1,040,068) and ($3,166,202), respectively)	$	363,639,446		$	343,468,152
MATTHEWS PACIFIC TIGER FUND	Six-Month Period Ended June 30, 2012 (unaudited)			Year Ended December 31, 2011
OPERATIONS:
Net investment income (loss)	$	31,264,441		$	32,155,967
Net realized gain (loss) on investments and foreign currency related transactions		16,445,903			201,652,647
Net change in unrealized appreciation/depreciation on investments and foreign currency related translations		265,200,135			(873,676,041	)
Net change on deferred foreign capital gains taxes on unrealized appreciation		(927,214	)		3,089,305
Net increase (decrease) in net assets resulting from operations		311,983,265			(636,778,122	)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Investor Class		—			(15,129,147	)
Institutional Class		—			(14,549,336	)
Realized gains on investments:
Investor Class		—			(44,800,205	)
Institutional Class		—			(31,562,381	)
Net decrease in net assets resulting from distributions		—			(106,041,069	)
CAPITAL SHARE TRANSACTIONS (net) (Note 4)		801,261,894			(185,753,267	)
REDEMPTION FEES		409,766			1,091,482
Total increase (decrease) in net assets		1,113,654,925			(927,480,976	)
NET ASSETS:
Beginning of period		4,809,731,212			5,737,212,188
End of period (including undistributed/(distributions in excess of) net investment income of $31,197,884 and ($66,557), respectively)	$	5,923,386,137		$	4,809,731,212

See accompanying notes to financial statements.

80 MATTHEWS ASIA FUNDS

MATTHEWS CHINA FUND	Six-Month Period Ended June 30, 2012 (unaudited)			Year Ended December 31, 2011
OPERATIONS:
Net investment income (loss)	$	24,192,110		$	24,114,210
Net realized gain (loss) on investments and foreign currency related transactions		59,208,351			145,213,641
Net change in unrealized appreciation/depreciation on investments and foreign currency related translations		(41,202,879	)		(687,849,829	)
Net increase (decrease) in net assets resulting from operations		42,197,582			(518,521,978	)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Investor Class		—			(22,545,562	)
Institutional Class		—			(1,635,702	)
Realized gains on investments:
Investor Class		—			(165,934,653	)
Institutional Class		—			(9,954,863	)
Net decrease in net assets resulting from distributions		—			(200,070,780	)
CAPITAL SHARE TRANSACTIONS (net) (Note 4)		(55,314,137	)		(138,886,741	)
REDEMPTION FEES		157,315			906,432
Total increase (decrease) in net assets		(12,959,240	)		(856,573,067	)
NET ASSETS:
Beginning of period		2,124,609,777			2,981,182,844
End of period (including undistributed net investment income of $24,192,110 and $0, respectively)	$	2,111,650,537		$	2,124,609,777
MATTHEWS INDIA FUND	Six-Month Period Ended June 30, 2012 (unaudited)			Year Ended December 31, 2011
OPERATIONS:
Net investment income (loss)	$	1,579,464		$	5,816,036
Net realized gain (loss) on investments and foreign currency related transactions		1,638,919			102,093,230
Net change in unrealized appreciation/depreciation on investments and foreign currency related translations		79,600,418			(520,083,666	)
Net change on deferred foreign capital gains taxes on unrealized appreciation		—			4,120,779
Net increase (decrease) in net assets resulting from operations		82,818,801			(408,053,621	)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Investor Class		—			(2,862,404	)
Institutional Class		—			(132,371	)
Net decrease in net assets resulting from distributions		—			(2,994,775	)
CAPITAL SHARE TRANSACTIONS (net) (Note 4)		(64,281,613	)		(440,540,693	)
REDEMPTION FEES		111,781			835,135
Total increase (decrease) in net assets		18,648,969			(850,753,954	)
NET ASSETS:
Beginning of period		586,256,698			1,437,010,652
End of period (including undistributed net investment income of $4,577,507 and $2,998,043, respectively)	$	604,905,667		$	586,256,698

See accompanying notes to financial statements.

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Statements of Changes in Net Assets

MATTHEWS JAPAN FUND	Six-Month Period Ended June 30, 2012 (unaudited)			Year Ended December 31, 2011
OPERATIONS:
Net investment income (loss)	$	651,434		$	655,220
Net realized gain (loss) on investments and foreign currency related transactions		2,163,645			(4,003,806	)
Net change in unrealized appreciation/depreciation on investments and foreign currency related translations		1,190,316			(8,805,446	)
Net increase (decrease) in net assets resulting from operations		4,005,395			(12,154,032	)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Investor Class		—			(2,022,578	)
Institutional Class		—			(583,768	)
Net decrease in net assets resulting from distributions		—			(2,606,346	)
CAPITAL SHARE TRANSACTIONS (net) (Note 4)		(19,333,223	)		78,411,635
REDEMPTION FEES		36,854			209,844
Total increase (decrease) in net assets		(15,290,974	)		63,861,101
NET ASSETS:
Beginning of period		131,670,795			67,809,694
End of period (including undistributed/(distributions in excess of) net investment income of $39,168 and ($612,266), respectively)	$	116,379,821		$	131,670,795
MATTHEWS KOREA FUND	Six-Month Period Ended June 30, 2012 (unaudited)			Year Ended December 31, 2011
OPERATIONS:
Net investment income (loss)	($	437,405	)	($	210,803	)
Net realized gain (loss) on investments and foreign currency related transactions		(3,412,820	)		1,335,161
Net change in unrealized appreciation/depreciation on investments and foreign currency related translations		7,874,242			(14,446,852	)
Net increase (decrease) in net assets resulting from operations		4,024,017			(13,322,494	)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Investor Class		—			(218,988	)
Institutional Class		—			(23,737	)
Realized gains on investments:
Investor Class		—			(6,521,874	)
Institutional Class		—			(706,903	)
Net decrease in net assets resulting from distributions		—			(7,471,502	)
CAPITAL SHARE TRANSACTIONS (net) (Note 4)		(4,675,721	)		10,383,940
REDEMPTION FEES		16,865			115,820
Total increase (decrease) in net assets		(634,839	)		(10,294,236	)
NET ASSETS:
Beginning of period		156,699,629			166,993,865
End of period (including distributions in excess of net investment loss of ($448,040) and ($10,635), respectively)	$	156,064,790		$	156,669,629

See accompanying notes to financial statements.

82 MATTHEWS ASIA FUNDS

MATTHEWS ASIA SMALL COMPANIES FUND	Six-Month Period Ended June 30, 2012 (unaudited)			Year Ended December 31, 2011
OPERATIONS:
Net investment income (loss)	$	1,576,570		$	3,154,642
Net realized gain (loss) on investments and foreign currency related transactions		(13,707,116	)		35,003,030
Net change in unrealized appreciation/depreciation on investments and foreign currency related translations		25,089,607			(132,814,165	)
Net change on deferred foreign capital gains taxes on unrealized appreciation		—			1,174,891
Net increase (decrease) in net assets resulting from operations		12,959,061			(93,481,602	)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Investor Class		—			(2,890,029	)
Realized gains on investments:
Investor Class		—			(34,232,017	)
Net decrease in net assets resulting from distributions		—			(37,122,046	)
CAPITAL SHARE TRANSACTIONS (net) (Note 4)		37,478,247			(157,938,046	)
REDEMPTION FEES		65,176			391,117
Total increase (decrease) in net assets		50,502,484			(288,150,577	)
NET ASSETS:
Beginning of period		258,943,742			547,094,319
End of period (including undistributed/(distributions in excess of) net investment income of $1,476,781 and ($99,789), respectively)	$	309,446,226		$	258,943,742
MATTHEWS CHINA SMALL COMPANIES FUND	Six-Month Period Ended June 30, 2012 (unaudited)			Year Ended December 31, 20111
OPERATIONS:
Net investment income (loss)	$	30,579		($	12,320	)
Net realized gain (loss) on investments and foreign currency related transactions		(518,172	)		(116,195	)
Net change in unrealized appreciation/depreciation on investments and foreign currency related translations		371,726			(1,254,679	)
Net increase (decrease) in net assets resulting from operations		(115,867	)		(1,383,194	)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Investor Class		—			(5,954	)
Net decrease in net assets resulting from distributions		—			(5,954	)
CAPITAL SHARE TRANSACTIONS (net) (Note 4)		850,823			5,867,611
REDEMPTION FEES		20,505			14,835
Total increase (decrease) in net assets		755,461			4,493,298
NET ASSETS:
Beginning of period		4,493,298			—
End of period (including undistributed net investment income of $30,579 and $0, respectively)	$	5,248,759		$	4,493,298

1  The Matthews China Small Companies Fund commenced operations on May 31, 2011.

See accompanying notes to financial statements.

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Statements of Changes in Net Assets

MATTHEWS ASIA SCIENCE AND TECHNOLOGY FUND	Six-Month Period Ended June 30, 2012 (unaudited)			Year Ended December 31, 2011
OPERATIONS:
Net investment income (loss)	($	173,067	)	$	408,640
Net realized gain (loss) on investments and foreign currency related transactions		(891,060	)		12,874,420
Net change in unrealized appreciation/depreciation on investments and foreign currency related translations		9,748,843			(45,054,729	)
Net increase (decrease) in net assets resulting from operations		8,684,716			(31,771,669	)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Investor Class		—			(454,558	)
Net decrease in net assets resulting from distributions		—			(454,558	)
CAPITAL SHARE TRANSACTIONS (net) (Note 4)		(23,569,930	)		(5,021,334	)
REDEMPTION FEES		5,065			160,697
Total increase (decrease) in net assets		(14,880,149	)		(37,086,864	)
NET ASSETS:
Beginning of period		153,348,899			190,435,763
End of period (including undistributed net investment income (loss) of ($106,929) and $66,138, respectively)	$	138,468,750		$	153,348,899

See accompanying notes to financial statements.

84 MATTHEWS ASIA FUNDS

Financial Highlights

Matthews Asia Strategic Income Fund

The tables below set forth financial data for a share of beneficial interest outstanding throughout each period presented.

INVESTOR CLASS	Six-Month Period Ended June 30, 2012 (unaudited)			Period Ended Dec. 31, 20111
Net Asset Value, beginning of period	$	9.93		$	10.00
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)2		0.19			0.02
Net realized gain (loss) and unrealized appreciation/depreciation on investments, financial futures contracts and foreign currency		0.21			(0.07	)
Total from investment operations		0.40			(0.05	)
LESS DISTRIBUTIONS FROM:
Net investment income		(0.16	)		(0.02	)
Total distributions		(0.16	)		(0.02	)
Paid-in capital from redemption fees (Note 4)		0.01			—
Net Asset Value, end of period	$	10.18		$	9.93
TOTAL RETURN		4.18	%3		(0.52	%)3
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's)	$	17,696		$	7,746
Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 5)		1.86	%4		3.20	%4
Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator		1.11	%4		1.00	%4
Ratio of net investment income (loss) to average net assets		3.65	%4		2.06	%4
Portfolio turnover5		8.66	%3		3.66	%3
INSTITUTIONAL CLASS	Six-Month Period Ended June 30, 2012 (unaudited)			Period Ended Dec. 31, 20111
Net Asset Value, beginning of period	$	9.93		$	10.00
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)2		0.19			0.02
Net realized gain (loss) and unrealized appreciation/depreciation on investments, financial futures contracts, and foreign currency		0.22			(0.07	)
Total from investment operations		0.41			(0.05	)
LESS DISTRIBUTIONS FROM:
Net investment income		(0.17	)		(0.02	)
Total distributions		(0.17	)		(0.02	)
Paid-in capital from redemption fees (Note 4)		0.01			—
Net Asset Value, end of period	$	10.18		$	9.93
TOTAL RETURN		4.27	%3		(0.52	%)3
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's)	$	5,532		$	5,266
Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 5)		1.75	%4		3.20	%4
Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator		1.00	%4		1.00	%4
Ratio of net investment income (loss) to average net assets		3.66	%4		1.96	%4
Portfolio turnover5		8.66	%3		3.66	%3

1 Commencement of operations on November 30, 2011.

2 Calculated using the average daily shares method.

3 Not annualized.

4 Annualized.

5 The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of shares issued.

See accompanying notes to financial statements.

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Financial Highlights

Matthews Asian Growth and Income Fund

The tables below set forth financial data for a share of beneficial interest outstanding throughout each period presented.

	Six-Month Period Ended June 30, 2012			Year Ended Dec. 31
INVESTOR CLASS	(unaudited)			2011			2010			2009			2008			2007
Net Asset Value, beginning of period	$	15.07		$	18.04		$	15.77		$	11.50		$	19.78		$	18.68
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)		0.221			0.471			0.411			0.481			0.541			1.07
Net realized gain (loss) and unrealized appreciation/ depreciation on investments and foreign currency		1.21			(2.36	)		2.57			4.23			(6.73	)		2.93
Total from investment operations		1.43			(1.89	)		2.98			4.71			(6.19	)		4.00
LESS DISTRIBUTIONS FROM:
Net investment income		(0.20	)		(0.47	)		(0.47	)		(0.44	)		(0.42	)		(0.90	)
Net realized gains on investments		—			(0.61	)		(0.24	)		—			(1.67	)		(2.00	)
Total distributions		(0.20	)		(1.08	)		(0.71	)		(0.44	)		(2.09	)		(2.90	)
Paid-in capital from redemption fees (Note 4)		—2			—2			—2			—2			—2			—2
Net Asset Value, end of period	$	16.30		$	15.07		$	18.04		$	15.77		$	11.50		$	19.78
TOTAL RETURN		9.51	%3		(10.62	%)		19.18	%		41.44	%		(32.07	%)		21.54	%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's)	$	2,556,381		$	2,340,606		$	3,926,253		$	2,547,411		$	1,089,712		$	2,273,408
Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 5)		1.11	%4		1.12	%		1.13	%		1.18	%		1.16	%		1.16	%
Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator		1.11	%4		1.12	%		1.13	%		1.18	%		1.16	%		1.15	%
Ratio of net investment income (loss) to average net assets		2.73	%4		2.71	%		2.47	%		3.47	%		3.19	%		2.59	%
Portfolio turnover		7.76	%3,5		16.54	%5		19.84	%5		17.51	%		25.16	%		27.93	%

INSTITUTIONAL CLASS	Six-Month Period Ended June 30, 2012 (unaudited)			Year Ended Dec. 31, 2011			Period Ended Dec. 31, 20106
Net Asset Value, beginning of period	$	15.06		$	18.04		$	18.13
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)1		0.24			0.52			0.07
Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency		1.21			(2.39	)		0.37
Total from investment operations		1.45			(1.87	)		0.44
LESS DISTRIBUTIONS FROM:
Net investment income		(0.21	)		(0.50	)		(0.29	)
Net realized gains on investments		—			(0.61	)		(0.24	)
Total distributions		(0.21	)		(1.11	)		(0.53	)
Paid-in capital from redemption fees (Note 4)		—2			—2			—
Net Asset Value, end of period	$	16.30		$	15.06		$	18.04
TOTAL RETURN		9.67	%3		(10.54	%)		2.49	%3
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's)	$	708,448		$	531,493		$	128,417
Ratio of expenses to average net assets		0.98	%4		0.99	%		0.93	%4
Ratio of net investment income (loss) to average net assets		2.94	%4		3.05	%		2.46	%4
Portfolio turnover5		7.76	%3		16.54	%		19.84	%3

1 Calculated using the average daily shares method.

2 Less than $0.01 per share.

3 Not annualized.

4 Annualized.

5 The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of shares issued.

6 Institutional Class commenced operations on October 29, 2010.

See accompanying notes to financial statements.

86 MATTHEWS ASIA FUNDS

Matthews Asia Dividend Fund

The tables below set forth financial data for a share of beneficial interest outstanding throughout each period presented.

	Six-Month Period Ended June 30, 2012			Year Ended Dec. 31
INVESTOR CLASS	(unaudited)			2011			2010			2009			2008			2007
Net Asset Value, beginning of period	$	12.48		$	14.33		$	12.06		$	8.61		$	12.00		$	10.77
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)		0.201			0.361			0.311			0.321			0.381			0.27
Net realized gain (loss) and unrealized appreciation/ depreciation on investments and foreign currency		0.89			(1.78	)		2.40			3.67			(3.47	)		1.67
Total from investment operations		1.09			(1.42	)		2.71			3.99			(3.09	)		1.94
LESS DISTRIBUTIONS FROM:
Net investment income		(0.20	)		(0.37	)		(0.41	)		(0.55	)		(0.30	)		(0.27	)
Net realized gains on investments		—			(0.06	)		(0.04	)		—			(0.02	)		(0.45	)
Total distributions		(0.20	)		(0.43	)		(0.45	)		(0.55	)		(0.32	)		(0.72	)
Paid-in capital from redemption fees (Note 4)		—2			—2			0.01			0.01			0.02			0.01
Net Asset Value, end of period	$	13.37		$	12.48		$	14.33		$	12.06		$	8.61		$	12.00
TOTAL RETURN		8.76	%3		(10.02	%)		22.83	%		47.59	%		(25.97	%)		18.05	%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's)	$	2,258,864		$	1,930,363		$	1,933,383		$	322,003		$	141,951		$	81,624
Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 5)		1.08	%4		1.10	%		1.14	%		1.28	%		1.35	%		1.42	%
Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator		1.08	%4		1.10	%		1.15	%		1.30	%		1.32	%		1.39	%
Ratio of net investment income (loss) to average net assets		3.06	%4		2.61	%		2.31	%		3.16	%		3.74	%		2.66	%
Portfolio turnover		3.38	%3,5		16.48	%5		10.48	%5		32.41	%		25.07	%		26.95	%

INSTITUTIONAL CLASS	Six-Month Period Ended June 30, 2012 (unaudited)			Year Ended Dec. 31, 2011			Period Ended Dec. 31, 20106
Net Asset Value, beginning of period	$	12.48		$	14.33		$	14.13
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)1		0.23			0.41			0.09
Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency		0.86			(1.82	)		0.32
Total from investment operations		1.09			(1.41	)		0.41
LESS DISTRIBUTIONS FROM:
Net investment income		(0.21	)		(0.38	)		(0.17	)
Net realized gains on investments		—			(0.06	)		(0.04	)
Total distributions		(0.21	)		(0.44	)		(0.21	)
Paid-in capital from redemption fees (Note 4)2		—			—			—
Net Asset Value, end of period	$	13.36		$	12.48		$	14.33
TOTAL RETURN		8.75	%3		(9.93	%)		2.95	%3
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's)	$	567,955		$	344,502		$	48,293
Ratio of expenses to average net assets		0.98	%4		1.00	%		1.02	%4
Ratio of net investment income (loss) to average net assets		3.39	%4		3.03	%		3.86	%4
Portfolio turnover5		3.38	%3		16.48	%		10.48	%3

1 Calculated using the average daily shares method.

2 Less than $0.01 per share.

3 Not annualized.

4 Annualized.

5 The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of share issues.

6 Institutional Class commenced operations on October 29, 2010.

See accompanying notes to financial statements.

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Financial Highlights

Matthews China Dividend Fund

The tables below set forth financial data for a share of beneficial interest outstanding throughout each period presented.

	Six-Month Period Ended June 30, 2012			Year Ended Dec. 31						Period Ended
INVESTOR CLASS	(unaudited)			2011			2010			Dec. 31, 20091
Net Asset Value, beginning of period	$	10.06		$	12.17		$	10.18		$	10.00
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)2		0.17			0.29			0.17			(0.01	)
Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency		0.84			(2.04	)		2.09			0.19
Total from investment operations		1.01			(1.75	)		2.26			0.18
LESS DISTRIBUTIONS FROM:
Net investment income		(0.22	)		(0.35	)		(0.24	)		—
Net realized gains on investments		—			(0.02	)		(0.04	)		—
Total distributions		(0.22	)		(0.37	)		(0.28	)		—
Paid-in capital from redemption fees (Note 4)		0.01			0.01			0.01			—3
Net Asset Value, end of period	$	10.86		$	10.06		$	12.17		$	10.18
TOTAL RETURN		10.22	%4		(14.44	%)		22.53	%		1.80	%4
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's)	$	27,610		$	26,467		$	45,364		$	7,134
Ratio of expenses to average net assets before any reimbursement or waiver or recapture of expenses by Advisor and Administrator (Note 5)		1.62	%5		1.52	%		1.95	%		10.50	%5
Ratio of expenses to average net assets after any reimbursement or waiver or recapture of expenses by Advisor and Administrator		1.50	%5		1.50	%		1.50	%		1.50	%5
Ratio of net investment income (loss) to average net assets		3.03	%5		2.47	%		1.49	%		(0.81	%)5
Portfolio turnover		14.02	%4,6		22.31	%6		6.84	%6		0.00	%4

INSTITUTIONAL CLASS	Six-Month Period Ended June 30, 2012 (unaudited)			Year Ended Dec. 31, 2011			Period Ended Dec 31, 20107
Net Asset Value, beginning of period	$	10.06		$	12.17		$	11.87
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)2		0.28			0.30			—3
Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency		0.74			(2.01	)		0.47
Total from investment operations		1.02			(1.71	)		0.47
LESS DISTRIBUTIONS FROM:
Net investment income		(0.23	)		(0.38	)		(0.13	)
Net realized gains on investments		—			(0.02	)		(0.04	)
Total distributions		(0.23	)		(0.40	)		(0.17	)
Paid-in capital from redemption fees (Note 4)		0.01			—3			—
Net Asset Value, end of period	$	10.86		$	10.06		$	12.17
TOTAL RETURN		10.25	%4		(14.22	%)		3.91	%4
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's)	$	39		$	12		$	4
Ratio of expenses to average net assets		1.40	%5		1.31	%		1.24	%5
Ratio of net investment income (loss) to average net assets		5.07	%5		2.61	%		(0.06	%)5
Portfolio turnover6		14.02	%4		22.31	%		6.84	%4

1 Investor Class commenced operations on November 30, 2009.

2 Calculated using the average daily shares method.

3 Less than $0.01 per share.

4 Not annualized.

5 Annualized.

6 The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of shares issued.

7 Institutional Class commenced operations on October 29, 2010.

See accompanying notes to financial statements.

88 MATTHEWS ASIA FUNDS

Matthews Asia Growth Fund

The tables below set forth financial data for a share of beneficial interest outstanding throughout each period presented.

	Six-Month Period Ended June 30, 2012			Year Ended Dec. 31
INVESTOR CLASS	(unaudited)			2011			2010			2009			2008			2007
Net Asset Value, beginning of period	$	15.34		$	17.97		$	14.29		$	10.03		$	17.29		$	16.92
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)		0.091			0.111			0.101			0.061			0.131			0.09
Net realized gain (loss) and unrealized appreciation/ depreciation on investments and foreign currency		0.76			(2.41	)		3.72			4.44			(6.64	)		2.02
Total from investment operations		0.85			(2.30	)		3.82			4.50			(6.51	)		2.11
LESS DISTRIBUTIONS FROM:
Net investment income		—			(0.35	)		(0.15	)		(0.24	)		—			(0.09	)
Net realized gains on investments		—			—			—			—			(0.76	)		(1.66	)
Total distributions		—			(0.35	)		(0.15	)		(0.24	)		(0.76	)		(1.75	)
Paid-in capital from redemption fees (Note 4)		—2			0.02			0.01			—2			0.01			0.01
Net Asset Value, end of period	$	16.19		$	15.34		$	17.97		$	14.29		$	10.03		$	17.29
TOTAL RETURN		5.54	%3		(12.70	%)		26.85	%		44.82	%		(37.44	%)		11.92	%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's)	$	258,249		$	259,166		$	335,429		$	227,651		$	168,031		$	471,054
Ratio of expenses to average net assets		1.18	%4		1.19	%		1.19	%		1.28	%		1.23	%		1.20	%
Ratio of net investment income (loss) to average net assets		1.08	%4		0.63	%		0.63	%		0.50	%		0.93	%		0.60	%
Portfolio turnover		30.36	%3,5		28.06	%5		26.33	%5		58.10	%		37.10	%		40.49	%

INSTITUTIONAL CLASS	Six-Month Period Ended June 30, 2012 (unaudited)			Year Ended Dec. 31, 2011			Period Ended Dec. 31, 20106
Net Asset Value, beginning of period	$	15.37		$	17.98		$	17.65
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)1		0.11			0.14			0.01
Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency		0.75			(2.42	)		0.47
Total from investment operations		0.86			(2.28	)		0.48
LESS DISTRIBUTIONS FROM:
Net investment income		—			(0.35	)		(0.15	)
Total distributions		—			(0.35	)		(0.15	)
Paid-in capital from redemption fees (Note 4)		—2			0.02			—
Net Asset Value, end of period	$	16.23		$	15.37		$	17.98
TOTAL RETURN		5.60	%3		(12.58	%)		2.76	%3
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's)	$	105,390		$	84,302		$	8,853
Ratio of expenses to average net assets		1.00	%4		1.03	%		0.99	%4
Ratio of net investment income (loss) to average net assets		1.32	%4		0.84	%		0.37	%4
Portfolio turnover5		30.36	%3		28.06	%		26.33	%3

1 Calculated using the average daily shares method.

2 Less than $0.01 per share.

3 Not annualized.

4 Annualized.

5 The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of shares issued.

6 Institutional Class commenced operations on October 29, 2010.

See accompanying notes to financial statements.

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Financial Highlights

Matthews Pacific Tiger Fund

The tables below set forth financial data for a share of beneficial interest outstanding throughout each period presented.

	Six-Month Period Ended June 30, 2012			Year Ended Dec. 31
INVESTOR CLASS	(unaudited)			2011			2010			2009			2008			2007
Net Asset Value, beginning of period	$	20.33		$	23.44		$	19.23		$	11.05		$	27.86		$	23.71
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)		0.111			0.101			0.091			0.061			0.241			0.30
Net realized gain (loss) and unrealized appreciation/ depreciation on investments and foreign currency		1.25			(2.78	)		4.20			8.27			(13.31	)		7.78
Total from investment operations		1.36			(2.68	)		4.29			8.33			(13.07	)		8.08
LESS DISTRIBUTIONS FROM:
Net investment income		—			(0.11	)		(0.08	)		(0.15	)		(0.30	)		(0.31	)
Net realized gains on investments		—			(0.33	)		—			—			(3.44	)		(3.62	)
Total distributions		—			(0.44	)		(0.08	)		(0.15	)		(3.74	)		(3.93	)
Paid-in capital from redemption fees (Note 4)		—2			0.01			—2			—			—2			—2
Net Asset Value, end of period	$	21.69		$	20.33		$	23.44		$	19.23		$	11.05		$	27.86
TOTAL RETURN		6.69	%3		(11.41	%)		22.30	%		75.37	%		(46.12	%)		33.66	%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's)	$	2,994,945		$	2,780,640		$	5,196,743		$	3,565,745		$	1,202,441		$	3,806,714
Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 5)		1.13	%4		1.11	%		1.09	%		1.13	%		1.12	%		1.11	%
Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator		1.13	%4		1.11	%		1.09	%		1.13	%		1.12	%		1.10	%
Ratio of net investment income (loss) to average net assets		1.03	%4		0.44	%		0.43	%		0.41	%		1.10	%		1.12	%
Portfolio turnover		2.55	%3,5		10.51	%5		11.43	%5		13.22	%		16.76	%		24.09	%

INSTITUTIONAL CLASS	Six-Month Period Ended June 30, 2012 (unaudited)			Year Ended Dec. 31, 2011			Period Ended Dec. 31, 20106
Net Asset Value, beginning of period	$	20.32		$	23.44		$	23.37
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)1		0.14			0.23			0.01
Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency		1.24			(2.87	)		0.15
Total from investment operations		1.38			(2.64	)		0.16
LESS DISTRIBUTIONS FROM:
Net investment income		—			(0.15	)		(0.09	)
Net realized gains on investments		—			(0.33	)		—
Total distributions		—			(0.48	)		(0.09	)
Paid-in capital from redemption fees (Note 4)2		—			—			—
Net Asset Value, end of period	$	21.70		$	20.32		$	23.44
TOTAL RETURN		6.79	%3		(11.28	%)		0.67	%3
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's)	$	2,928,442		$	2,029,091		$	540,469
Ratio of expenses to average net assets		0.95	%4		0.95	%		0.95	%4
Ratio of net investment income (loss) to average net assets		1.28	%4		1.03	%		0.38	%4
Portfolio turnover5		2.55	%3		10.51	%		11.43	%3

1 Calculated using the average daily shares method.

2 Less than $0.01 per share.

3 Not annualized.

4 Annualized.

5 The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of shares issued.

6 Institutional Class commenced operations on October 29, 2010.

See accompanying notes to financial statements.

90 MATTHEWS ASIA FUNDS

Matthews China Fund

The tables below set forth financial data for a share of beneficial interest outstanding throughout each period presented.

	Six-Month Period Ended June 30, 2012			Year Ended Dec. 31
INVESTOR CLASS	(unaudited)			2011			2010			2009			2008			2007
Net Asset Value, beginning of period	$	21.51		$	29.36		$	25.50		$	14.34		$	39.73		$	24.16
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)		0.231			0.261			0.151			0.091			0.301			0.12
Net realized gain (loss) and unrealized appreciation/ depreciation on investments and foreign currency		0.21			(5.78	)		3.86			11.12			(19.78	)		16.85
Total from investment operations		0.44			(5.52	)		4.01			11.21			(19.48	)		16.97
LESS DISTRIBUTIONS FROM:
Net investment income		—			(0.28	)		(0.15	)		(0.07	)		(0.33	)		(0.11	)
Net realized gains on investments		—			(2.06	)		(0.02	)		—			(5.62	)		(1.37	)
Total distributions		—			(2.34	)		(0.17	)		(0.07	)		(5.95	)		(1.48	)
Paid-in capital from redemption fees (Note 4)		—2			0.01			0.02			0.02			0.04			0.08
Net Asset Value, end of period	$	21.95		$	21.51		$	29.36		$	25.50		$	14.34		$	39.73
TOTAL RETURN		2.05	%3		(18.93	%)		15.77	%		78.30	%		(48.95	%)		70.14	%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's)	$	1,686,058		$	1,836,333		$	2,939,638		$	2,566,005		$	781,104		$	2,335,402
Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 5)		1.14	%4		1.13	%		1.15	%		1.21	%		1.23	%		1.18	%
Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator		1.14	%4		1.13	%		1.15	%		1.21	%		1.23	%		1.17	%
Ratio of net investment income (loss) to average net assets		2.02	%4		0.93	%		0.54	%		0.46	%		1.03	%		0.49	%
Portfolio turnover		7.17	%3,5		8.43	%5		9.98	%5		5.28	%		7.91	%		22.13	%

INSTITUTIONAL CLASS	Six-Month Period Ended June 30, 2012 (unaudited)			Year Ended Dec. 31, 2011			Period Ended Dec. 31, 20106
Net Asset Value, beginning of period	$	21.49		$	29.36		$	30.02
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)1		0.27			0.26			(0.04	)
Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency		0.20			(5.73	)		(0.44	)
Total from investment operations		0.47			(5.47	)		(0.48	)
LESS DISTRIBUTIONS FROM:
Net investment income		—			(0.34	)		(0.16	)
Net realized gains on investments		—			(2.06	)		(0.02	)
Total distributions		—			(2.40	)		(0.18	)
Paid-in capital from redemption fees (Note 4)		—2			—2			—
Net Asset Value, end of period	$	21.96		$	21.49		$	29.36
TOTAL RETURN		2.19	%3		(18.80	%)		(1.62	%)3
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's)	$	425,593		$	288,277		$	41,545
Ratio of expenses to average net assets		0.93	%4		0.96	%		0.97	%4
Ratio of net investment income (loss) to average net assets		2.38	%4		0.99	%		(0.74	%)4
Portfolio turnover5		7.17	%3		8.43	%		9.98	%3

1 Calculated using the average daily shares method.

2 Less than $0.01 per share.

3 Not annualized.

4 Annualized.

5 The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of shares issued.

6 Institutional Class commenced operations on October 29, 2010.

See accompanying notes to financial statements.

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Financial Highlights

Matthews India Fund

The tables below set forth financial data for a share of beneficial interest outstanding throughout each period presented.

	Six-Month Period Ended June 30, 2012			Year Ended Dec. 31
INVESTOR CLASS	(unaudited)			2011			2010			2009			2008			2007
Net Asset Value, beginning of period	$	13.59		$	21.49		$	16.29		$	8.37		$	24.44		$	15.45
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)		0.041			0.111			0.051			0.071			0.031			(0.01	)
Net realized gain (loss) and unrealized appreciation/ depreciation on investments and foreign currency		1.89			(7.96	)		5.22			8.06			(15.33	)		9.87
Total from investment operations		1.93			(7.85	)		5.27			8.13			(15.30	)		9.86
LESS DISTRIBUTIONS FROM:
Net investment income		—			(0.07	)		(0.09	)		(0.10	)		(0.11	)		(0.21	)
Net realized gains on investments		—			—			—			(0.12	)		(0.69	)		(0.68	)
Total distributions		—			(0.07	)		(0.09	)		(0.22	)		(0.80	)		(0.89	)
Paid-in capital from redemption fees (Note 4)		—2			0.02			0.02			0.01			0.03			0.02
Net Asset Value, end of period	$	15.52		$	13.59		$	21.49		$	16.29		$	8.37		$	24.44
TOTAL RETURN		14.20	%3		(36.48	%)		32.53	%		97.25	%		(62.32	%)		64.13	%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's)	$	574,490		$	559,337		$	1,388,892		$	720,925		$	317,516		$	1,311,072
Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 5)		1.20	%4		1.18	%		1.18	%		1.27	%		1.29	%		1.29	%
Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator		1.20	%4		1.18	%		1.18	%		1.27	%		1.29	%		1.28	%
Ratio of net investment income (loss) to average net assets		0.46	%4		0.58	%		0.25	%		0.59	%		0.16	%		(0.04	%)
Portfolio turnover		4.90	%3,5		3.51	%5		6.14	%5		18.09	%		26.68	%		25.59	%

INSTITUTIONAL CLASS	Six-Month Period Ended June 30, 2012 (unaudited)			Year Ended Dec. 31, 2011			Period Ended Dec. 31, 20106
Net Asset Value, beginning of period	$	13.61		$	21.48		$	22.03
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)1		0.06			0.16			(0.02	)
Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency		1.89			(7.96	)		(0.43	)
Total from investment operations		1.95			(7.80	)		(0.45	)
LESS DISTRIBUTIONS FROM:
Net investment income		—			(0.07	)		(0.10	)
Total distributions		—			(0.07	)		(0.10	)
Paid-in capital from redemption fees (Note 4)		—2			—2			—
Net Asset Value, end of period	$	15.56		$	13.61		$	21.48
TOTAL RETURN		14.33	%3		(36.35	%)		(2.01	%)3
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's)	$	30,415		$	26,920		$	48,119
Ratio of expenses to average net assets		1.01	%4		0.99	%		0.99	%4
Ratio of net investment income (loss) to average net assets		0.71	%4		0.86	%		(0.51	%)4
Portfolio turnover5		4.90	%3		3.51	%		6.14	%3

1 Calculated using the average daily shares method.

2 Less than $0.01 per share.

3 Not annualized.

4 Annualized.

5 The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of shares issued.

6 Institutional Class commenced operations on October 29, 2010.

See accompanying notes to financial statements.

92 MATTHEWS ASIA FUNDS

Matthews Japan Fund

The tables below set forth financial data for a share of beneficial interest outstanding throughout each period presented.

	Six-Month Period Ended June 30, 2012			Year Ended Dec. 31
INVESTOR CLASS	(unaudited)			2011			2010			2009			2008			2007
Net Asset Value, beginning of period	$	11.34		$	12.53		$	10.91		$	10.19		$	14.55		$	17.29
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)		0.061			0.071			0.021			0.101			0.111			0.03
Net realized gain (loss) and unrealized appreciation/ depreciation on investments and foreign currency		0.31			(1.06	)		2.09			0.92			(4.26	)		(1.86	)
Total from investment operations		0.37			(0.99	)		2.11			1.02			(4.15	)		(1.83	)
LESS DISTRIBUTIONS FROM:
Net investment income		—			(0.22	)		(0.49	)		(0.31	)		—			(0.01	)
Net realized gains on investments		—			—			—			—			(0.22	)		(0.91	)
Total distributions		—			(0.22	)		(0.49	)		(0.31	)		(0.22	)		(0.92	)
Paid-in capital from redemption fees (Note 4)		—2			0.02			—2			0.01			0.01			0.01
Net Asset Value, end of period	$	11.71		$	11.34		$	12.53		$	10.91		$	10.19		$	14.55
TOTAL RETURN		3.26	%3		(7.72	%)		19.58	%		10.06	%		(28.38	%)		(10.96	%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's)	$	90,219		$	101,369		$	67,805		$	88,334		$	123,674		$	166,860
Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 5)		1.23	%4		1.22	%		1.30	%		1.31	%		1.23	%		1.24	%
Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator		1.23	%4		1.22	%		1.30	%		1.31	%		1.23	%		1.23	%
Ratio of net investment income (loss) to average net assets		1.05	%4		0.54	%		0.13	%		0.97	%		0.84	%		(0.01	%)
Portfolio turnover		27.01	%3,5		34.94	%5		46.29	%5		126.75	%		88.97	%		45.51	%

INSTITUTIONAL CLASS	Six-Month Period Ended June 30, 2012 (unaudited)			Year Ended Dec. 31, 2011			Period Ended Dec. 31, 20106
Net Asset Value, beginning of period	$	11.34		$	12.53		$	11.73
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)1		0.07			0.06			(0.01	)
Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency		0.31			(1.04	)		1.30
Total from investment operations		0.38			(0.98	)		1.29
LESS DISTRIBUTIONS FROM:
Net investment income		—			(0.22	)		(0.49	)
Total distributions		—			(0.22	)		(0.49	)
Paid-in capital from redemption fees (Note 4)		—2			0.01			—
Net Asset Value, end of period	$	11.72		$	11.34		$	12.53
TOTAL RETURN		3.35	%3		(7.72	%)		11.22	%3
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's)	$	26,161		$	30,302		$	4
Ratio of expenses to average net assets		1.07	%4		1.07	%		1.08	%4
Ratio of net investment income (loss) to average net assets		1.15	%4		0.46	%		(0.51	%)4
Portfolio turnover5		27.01	%3		34.94	%		46.29	%3

1 Calculated using the average daily shares method.

2 Less than $0.01 per share.

3 Not annualized.

4 Annualized.

5 The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of shares issued.

6 Institutional Class commenced operations on October 29, 2010.

See accompanying notes to financial statements.

matthewsasia.com | 800.789.ASIA 93

Financial Highlights

Matthews Korea Fund

The tables below set forth financial data for a share of beneficial interest outstanding throughout each period presented.

	Six-Month Period Ended June 30, 2012			Year Ended Dec. 31
INVESTOR CLASS	(unaudited)			2011			2010			2009			2008			2007
Net Asset Value, beginning of period	$	4.59		$	5.14		$	4.31		$	2.75		$	6.56		$	6.23
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)		(0.01	)1		(0.01	)1		0.011			(0.01	)1		(0.02	)1		0.07
Net realized gain (loss) and unrealized appreciation/ depreciation on investments and foreign currency		0.19			(0.31	)		0.93			1.74			(3.48	)		1.15
Total from investment operations		0.18			(0.32	)		0.94			1.73			(3.50	)		1.22
LESS DISTRIBUTIONS FROM:
Net investment income		—			(0.01	)		—			—			(0.06	)		(0.02	)
Net realized gains on investments		—			(0.22	)		(0.11	)		(0.17	)		(0.25	)		(0.87	)
Total distributions		—			(0.23	)		(0.11	)		(0.17	)		(0.31	)		(0.89	)
Paid-in capital from redemption fees (Note 4)		—2			—2			—2			—2			—2			—2
Net Asset Value, end of period	$	4.77		$	4.59		$	5.14		$	4.31		$	2.75		$	6.56
TOTAL RETURN		3.92	%3		(6.45	%)		21.86	%		62.92	%		(52.66	%)		18.90	%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's)	$	133,512		$	141,590		$	166,990		$	138,371		$	87,253		$	250,421
Ratio of expenses to average net assets		1.18	%4		1.18	%		1.21	%		1.30	%		1.27	%		1.21	%
Ratio of net investment income (loss) to average net assets		(0.55	%)4		(0.18	%)		0.16	%		(0.36	%)		(0.34	%)		1.17	%
Portfolio turnover		21.61	%3,5		30.13	%5		39.05	%5		52.47	%		28.70	%		24.20	%

INSTITUTIONAL CLASS	Six-Month Period Ended June 30, 2012 (unaudited)			Year Ended Dec. 31, 2011			Period Ended Dec. 31, 20106
Net Asset Value, beginning of period	$	4.61		$	5.14		$	4.84
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)1		(0.01	)		0.17			0.03
Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency		0.19			(0.47	)		0.38
Total from investment operations		0.18			(0.30	)		0.41
LESS DISTRIBUTIONS FROM:
Net investment income		—			(0.01	)		—
Net realized gains on investments		—			(0.22	)		(0.11	)
Total distributions		—			(0.23	)		(0.11	)
Paid-in capital from redemption fees (Note 4)		—2			—2			—
Net Asset Value, end of period	$	4.79		$	4.61		$	5.14
TOTAL RETURN		3.91	%3		(6.05	%)		8.51	%3
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's)	$	22,553		$	15,109		$	4
Ratio of expenses to average net assets		0.99	%4		1.07	%		0.91	%4
Ratio of net investment income (loss) to average net assets		(0.22	%)4		3.37	%		3.74	%4
Portfolio turnover5		21.61	%3		30.13	%		39.05	%3

1 Calculated using the average daily shares method.

2 Less than $0.01 per share.

3 Not annualized.

4 Annualized.

5 The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of share issued.

6 Institutional Class commenced operations on October 29, 2010.

See accompanying notes to financial statements.

94 MATTHEWS ASIA FUNDS

Matthews Asia Small Companies Fund

The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented.

	Six-Month Period Ended June 30, 2012			Year Ended Dec. 31									Period Ended
INVESTOR CLASS	(unaudited)			2011			2010			2009			Dec. 31, 20081
Net Asset Value, beginning of period	$	14.77		$	21.16		$	15.79		$	7.89		$	10.00
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)2		0.08			0.15			0.04			0.02			0.01
Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency		0.84			(4.35	)		5.55			8.04			(2.16	)
Total from investment operations		0.92			(4.20	)		5.59			8.06			(2.15	)
LESS DISTRIBUTIONS FROM:
Net investment income		—			(0.17	)		(0.09	)		(0.05	)		(0.02	)
Net realized gains on investments		—			(2.04	)		(0.15	)		(0.15	)		—
Total distributions		—			(2.21	)		(0.24	)		(0.20	)		(0.02	)
Paid-in capital from redemption fees (Note 4)		—3			0.02			0.02			0.04			0.06
Net Asset Value, end of period	$	15.69		$	14.77		$	21.16		$	15.79		$	7.89
TOTAL RETURN		6.23	%4		(20.03	%)		35.54	%		103.00	%		(21.03	%)3
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's)	$	309,446		$	258,944		$	547,094		$	109,726		$	3,173
Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 5)		1.52	%5		1.52	%		1.59	%		2.90	%		14.31	%4
Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator		1.52	%5		1.52	%		1.63	%		2.00	%		2.00	%4
Ratio of net investment income (loss) to average net assets		1.00	%5		0.76	%		0.24	%		0.13	%		0.15	%4
Portfolio turnover		12.96	%4		19.97	%		23.99	%		21.39	%		3.10	%3

1 Investor Class commenced operations on September 15, 2008.

2 Calculated using the average daily shares method.

3 Less than $0.01 per share.

4 Not annualized.

5 Annualized.

See accompanying notes to financial statements.

matthewsasia.com | 800.789.ASIA 95

Financial Highlights

Matthews China Small Companies Fund

The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented.

INVESTOR CLASS	Six-Month Period Ended June 30, 2012 (unaudited)			Period Ended Dec. 31, 20111
Net Asset Value, beginning of period	$	7.04		$	10.00
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)2		0.04			(0.02	)
Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency		(0.03	)		(2.96	)
Total from investment operations		0.01			(2.98	)
LESS DISTRIBUTIONS FROM:
Net investment income		—			(0.01	)
Total distributions		—			(0.01	)
Paid-in capital from redemption fees (Note 4)		0.03			0.03
Net Asset Value, end of period	$	7.08		$	7.04
TOTAL RETURN3		0.57	%		(29.51	%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's)	$	5,249		$	4,493
Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 5)4		3.53	%		5.32	%
Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator4		2.00	%		2.00	%
Ratio of net investment income (loss) to average net assets4		1.08	%		(0.53	%)
Portfolio turnover3		23.86	%		6.08	%

1 Investor Class commenced operations on May 31, 2011.

2 Calculated using the average daily shares method.

3 Not annualized.

4 Annualized.

See accompanying notes to financial statements.

96 MATTHEWS ASIA FUNDS

Matthews Asia Science and Technology Fund

The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented.

	Six-Month Period Ended June 30, 2012			Year Ended Dec. 31
INVESTOR CLASS	(unaudited)			2011			2010			2009			2008			2007
Net Asset Value, beginning of period	$	8.16		$	9.89		$	8.02		$	4.71		$	9.80		$	7.92
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)		(0.01	)1		0.021			0.031			—1,2			0.011			—2
Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency		0.47			(1.74	)		1.86			3.31			(5.11	)		1.87
Total from investment operations		0.46			(1.72	)		1.89			3.31			(5.10	)		1.87
LESS DISTRIBUTIONS FROM:
Net investment income		—			(0.02	)		(0.02	)		—			—			—
Total distributions		—			(0.02	)		(0.02	)		—			—			—
Paid-in capital from redemption fees (Note 4)		—2			0.01			—2			—2			0.01			0.01
Net Asset Value, end of period	$	8.62		$	8.16		$	9.89		$	8.02		$	4.71		$	9.80
TOTAL RETURN		5.64	%3		(17.26	%)		23.58	%		70.28	%		(51.94	%)		23.74	%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's)	$	138,469		$	153,349		$	190,436		$	130,367		$	74,476		$	252,304
Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 5)		1.21	%4		1.21	%		1.26	%		1.40	%		1.33	%		1.26	%
Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator		1.21	%4		1.21	%		1.26	%		1.40	%		1.33	%		1.25	%
Ratio of net investment income (loss) to average net assets		(0.23	%)4		0.23	%		0.35	%		0.30	%		0.08	%		(0.30	%)
Portfolio turnover		18.64	%3		65.47	%		61.61	%		83.27	%		44.84	%		33.21	%

1 Calculated using the average daily shares method.

2 Less than $0.01 per share.

3 Not annualized.

4 Annualized.

See accompanying notes to financial statements.

matthewsasia.com | 800.789.ASIA 97

Notes to Financial Statements(unaudited)

1.  ORGANIZATION

Matthews Asia Funds (the "Trust") is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"). The Trust currently issues thirteen separate series of shares (each a "Fund" and collectively, the "Funds"): Matthews Asia Strategic Income Fund, Matthews Asian Growth and Income Fund, Matthews Asia Dividend Fund, Matthews China Dividend Fund, Matthews Asia Growth Fund, Matthews Pacific Tiger Fund, Matthews China Fund, Matthews India Fund, Matthews Japan Fund, Matthews Korea Fund, Matthews Asia Small Companies Fund, Matthews China Small Companies Fund and Matthews Asia Science and Technology Fund. Each Fund except for Matthews Asia Small Companies Fund, Matthews China Small Companies Fund and Matthews Asia Science and Technology Fund currently offers two classes of shares: Investor Class and Institutional Class. Matthews Asia Small Companies Fund, Matthews China Small Companies Fund and Matthews Asia Science and Technology Fund currently offer only Investor Class shares. Each class of shares has identical voting, dividend, liquidation and other rights and the same terms and conditions, except each class may be subject to different class expenses as outlined in the relevant prospectus and each class has exclusive voting rights with respect to matters solely affecting such class.

2.  SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies consistently followed by the Funds in preparation of their financial statements.

A.  SECURITY VALUATION: The value of the Funds' securities is based on market quotations for those securities, or on their fair value determined by or under the direction of the Funds' Board of Trustees (the "Board"). Market quotations and valuation information are provided by commercial pricing services or securities dealers that are independent of the Funds and Matthews, in accordance with procedures established by the Funds' Board. Foreign exchange-traded securities are valued as of the close of trading on the primary exchange on which they trade. Securities that trade in over-the-counter markets, including most debt securities (bonds), may be valued by other third-party vendors or by using indicative bid quotations from dealers or market makers, or other available market information. Market values for securities are determined based on quotations, market data or other information from the principal (or most advantageous) market on which the security is traded. Market quotations for equity securities used by the Funds include last reported sale prices, or, if such prices are not reported or available, bid and ask prices. Financial futures contracts traded on exchanges are valued at their settlement price. Foreign currency exchange contracts are valued at the mean between the bid and ask prices and are determined at the close of business on the New York Stock Exchange ("NYSE"). Interpolated values are derived when the settlement date of the contract is an interim date for which quotations are not available. The Funds may also utilize independent pricing services to assist them in determining a current market value for each security based on sources believed to be reliable.

The Board has delegated the responsibility of making fair value determinations to the Funds' Valuation Committee (the "Valuation Committee") subject to the Funds' Pricing Policies. When fair value pricing is employed, the prices of securities used by a Fund to calculate its Net Asset Value ("NAV") may differ from any quoted or published prices for the same securities for that day. All fair value determinations are made subject to the Board's oversight. Events affecting the value of foreign investments may occur between the time at which they are determined and when the Funds calculate their NAV, which is normally the close of trading on the NYSE. If such events render market quotations unreliable, and the impact of such events can be reasonably determined, the investments will be valued at their fair value. The fair value of a security held by the Funds may be determined using the services of third-party pricing services retained by the Funds or by the Valuation Committee, in either case subject to the Board's oversight.

The books and records of the Funds are maintained in U.S. dollars. Transactions, portfolio securities, and assets and liabilities denominated in a foreign currency are translated and recorded in U.S. dollars at the prevailing exchange rate as of the close of trading on the NYSE. 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 investments in equity securities that is due to changes in foreign exchange rate from that which is due to changes in market prices of equity securities.

Foreign securities held by the Funds may be traded on days and at times when the NYSE is closed. Accordingly, the NAV of the Funds may be significantly affected on days when shareholders have no access to the Funds.

B.  FAIR VALUE MEASUREMENTS: In accordance with the guidance on fair value measurements and disclosures under generally accepted accounting principles in the United States ("U.S. GAAP"), the Funds disclose the fair value of their investments in a hierarchy that prioritizes the inputs to valuation techniques used to measure the fair value. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (Level 3 measurements). Various inputs are used in determining the fair value of investments and derivative financial instruments, which are as follows:

Level 1: Quoted prices in active markets for identical securities.

Level 2: Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).

Level 3: Significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments).

As of June 30, 2012, Level 3 securities consist primarily of equities that, as of June 30, 2012, were suspended from trading. As described in Note 2-A, these securities are valued based on their fair value as determined under the direction of the Board. The significant unobservable inputs, the methodology used for valuing such securities, and the characterization of such securities as Level 3 securities are not necessarily an indication of liquidity, or the risk associated with investing in these securities. Level 2 equity securities consist primarily of securities that have been fair valued by third-party pricing services (see Note 2-A).

98 MATTHEWS ASIA FUNDS

The summary of inputs used to determine the fair valuation of the Fund's investments and derivative financial instruments as of June 30, 2012 is as follows:

	Matthews Asia Strategic Income Fund		Matthews Asian Growth and Income Fund		Matthews Asia Dividend Fund		Matthews Asia Growth Fund		Matthews Pacific Tiger Fund
Level 1: Quoted Prices
Common Equities:
China/Hong Kong	$	—	$	147,928,280	$	168,690,688	$	17,984,298	$	279,680,242
India		—		—		—		2,311,627		20,311,372
Indonesia		—		40,179,888		24,995,192		—		13,085,631
South Korea		—		27,539,676		81,033,396		—		—
Taiwan		—		89,832,398		86,890,940		—		—
Vietnam		—		24,581,995		—		6,580,488		50,100,036
Preferred Equities:
South Korea		—		33,248,774		—		—		—
Closed-End Investment Company:
Thailand		—		—		7,288,951		—		—
Level 2: Other Significant Observable Inputs
Foreign Government Obligations		8,110,711		—		—		—		—
Corporate Bonds		12,390,823		488,825,387		—		—		—
Common Equities:
Australia		—		240,963,449		231,000,692		18,908,534		—
Cambodia		—		—		—		7,965,135		—
China/Hong Kong		625,372		571,491,151		684,078,555		65,230,746		1,573,696,716
India		—		45,703,421		—		21,887,558		913,527,580
Indonesia		—		53,640,056		61,768,313		22,417,153		488,663,459
Japan		—		206,978,427		679,442,247		124,666,065		—
Malaysia		—		167,473,630		—		3,039,529		279,802,913
Philippines		212,495		54,863,987		45,256,793		—		144,736,199
Singapore		431,593		477,120,369		334,161,975		12,880,950		157,323,373
South Korea		—		64,128,885		34,145,168		3,635,160		821,548,937
Sri Lanka		—		—		—		5,895,388		—
Taiwan		—		82,242,519		102,842,893		18,265,254		491,652,906
Thailand		309,371		252,950,294		153,211,890		26,086,387		432,489,624
United Kingdom		—		61,216,545		—		—		—
Vietnam		—		15,898,531		—		—		—
Preferred Equities:
South Korea		—		68,016,064		—		—		—
Level 3: Significant Unobservable Inputs
Common Equities:
Taiwan		—		—		33,673,037		—		—
Corporate Bonds		—		6,648,518		—		—		—
Total Market Value of Investments	$	22,080,425	$	3,221,472,244	$	2,728,480,730	$	357,754,272	$	5,666,618,988

	Matthews Asia Strategic Income Fund
Derivative Financial Instruments1
Assets
Level 1: Quoted Prices
Interest Rate Contracts	$	7,525
Level 2: Other Significant Observable Inputs
Foreign Currency Exchange Contracts		26,513
Total Market Value of Derivative Financial Instruments	$	34,038

¹  Derivative financial instruments are financial futures contracts and foreign currency exchange contracts. Financial futures contracts and foreign currency exchange contracts are valued at the unrealized appreciation/depreciation on the instrument.

matthewsasia.com | 800.789.ASIA 99

Notes to Financial Statements (unaudited)(continued)

	Matthews China Dividend Fund		Matthews China Fund		Matthews India Fund		Matthews Japan Fund		Matthews Korea Fund		Matthews China Small Companies Fund
Investments
Level 1: Quoted Prices
Common Equities:
Consumer Discretionary	$	—	$	92,214,634	$	—	$	—	$	—	$	211,908
Consumer Staples		—		—		—		—		1,758,630		—
Energy		1,720,136		—		—		—		—		—
Financials		1,576,510		15,681,479		11,868,554		—		—		—
Health Care		—		44,546,534		—		—		—		309,310
Industrials		—		—		—		—		—		—
Information Technology		—		57,812,238		10,732,346		—		—		247,180
Materials		—		—		—		—		5,099,896		—
Telecommunication Services		1,769,959		28,554,141		—		—		—		—
Preferred Equities:
Financials		—		—		—		—		2,891,156		—
Level 2: Other Significant Observable Inputs
Common Equities:
Consumer Discretionary		4,439,194		352,097,097		70,180,818		29,366,544		38,155,076		862,587
Consumer Staples		1,181,547		248,536,223		77,685,814		7,724,834		12,979,111		695,612
Energy		842,117		144,963,717		6,402,511		—		3,587,632		88,239
Financials		2,635,612		466,513,364		130,886,260		13,983,504		25,221,511		478,596
Health Care		805,789		42,628,696		33,284,352		11,528,452		3,413,033		174,085
Industrials		4,026,109		188,969,827		105,224,837		30,272,198		14,861,925		1,068,984
Information Technology		2,965,401		192,514,167		42,183,107		16,578,022		33,274,351		448,365
Materials		2,286,469		—		70,139,745		4,912,361		7,354,208		255,081
Telecommunication Services		—		95,321,472		—		1,174,066		—		—
Utilities		2,213,708		111,364,420		29,232,827		—		—		261,618
Preferred Equities:
Consumer Discretionary		—		—		—		—		4,420,216		—
Materials		—		—		—		—		1,504,025		—
Corporate Bonds		—		—		13,388,050		—		—		—
Level 3: Significant Unobservable Inputs
Common Equities:
Consumer Discretionary		947,299		—		—		—		—		—
Electronic Equipment, Instruments & Components		—		—		—		—		—		34,408
Total Market Value of Investments	$	27,409,850	$	2,081,718,009	$	601,209,221	$	115,539,981	$	154,520,770	$	5,135,973

100 MATTHEWS ASIA FUNDS

	Matthews Asia Small Companies Fund		Matthews Asia Science and Technology Fund
Level 1: Quoted Prices
Common Equities:
China/Hong Kong	$	7,458,500	$	26,011,444
India		5,192,159		29,253
Indonesia		—		1,981,827
United States		—		2,682,000
Warrants:
Malaysia		109,225		—
Level 2: Other Significant Observable Inputs
Common Equities:
China/Hong Kong		79,772,092		17,630,014
India		40,820,233		4,285,957
Indonesia		28,060,238		—
Japan		—		27,174,452
Malaysia		19,354,356		2,263,362
Philippines		6,218,002		—
Singapore		15,227,792		—
South Korea		39,839,589		27,121,467
Taiwan		48,850,745		25,439,304
Thailand		13,389,843		—
Vietnam		—		976,631
Preferred Equities:
South Korea		—		718,905
Level 3: Significant Unobservable Inputs
Common Equities:
China/Hong Kong		190,427		—
Total Market Value of Investments	$	304,483,201	$	136,314,616

Certain foreign securities may be fair valued by external pricing services when the Funds determine that events affecting the value of foreign securities which occur between the time at which they are determined and the close of trading on the NYSE render market quotations unreliable. Such fair valuations are categorized as Level 2 in the fair value hierarchy. Foreign securities that are valued based on market quotations are categorized as Level 1 in the fair value hierarchy (see Note 2-A). The Funds' policy is to recognize transfers in and transfers out as of the beginning of the reporting period. At June 30, 2012, the Funds utilized third party pricing services to fair value certain markets which were different than markets which utilized third party pricing services at December 31, 2011. As a result, certain securities held by the Funds were transferred from Level 1 into Level 2 with beginning of period values as follows:

	Transfer to Level 2 from Level 1
Matthews Asia Strategic Income Fund	$	926,898
Matthews Asian Growth and Income Fund		1,504,534,546
Matthews Asia Dividend Fund		1,624,303,181
Matthews China Dividend Fund		18,308,476
Matthews Asia Growth Fund		211,390,627
Matthews Pacific Tiger Fund		3,064,323,555
Matthews China Fund		1,864,395,755
Matthews India Fund		500,327,143
Matthews Japan Fund		89,275,533
Matthews Korea Fund		6,740,962
Matthews Asia Small Companies Fund		162,495,396
Matthews China Small Companies Fund		3,506,060
Matthews Asia Science and Technology Fund		72,260,460

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Notes to Financial Statements (unaudited)(continued)

Following is a reconciliation of Level 3 investments for which significant unobservable inputs were used to determine value:

	Matthews Asia Strategic Income Fund			Matthews Asia Strategic Income Fund			Matthews Asia Dividend Fund		Matthews China Dividend Fund			Matthews Asian Growth and Income Fund			Matthews India Fund
	Corporate Bonds			Foreign Government Obligations			Common Equities — Taiwan		Common Equities — Consumer Discretionary			Corporate Bonds			Corporate Bonds
Balance as of 12/31/11 (market value)	$	4,268,354		$	6,569,135		$	—	$	—		$	468,582,867		$	40,219,200
Accrued discounts/premiums		—			—			—		—			2,474,995			—
Realized gain/(loss)		—			—			—		129,504			(5,705,306	)		—
Change in unrealized appreciation/depreciation		—			—			5,368,923		99,023			2,855,028			—
Net purchases		—			—			4,320,092		—			—			—
Net sales		—			—			—		(260,862	)		(32,921,590	)		—
Transfers in to Level 3*		—			—			23,984,022		979,634			—			—
Transfers out of Level 3*		(4,268,354	)		(6,569,135	)		—		—			(428,637,476	)		(40,219,200	)
Balance as of 6/30/12 (market value)	$	—		$	—		$	33,673,037	$	947,299		$	6,648,518		$	—
Net change in unrealized appreciation/depreciation on Level 3 investments held as of 6/30/12**	$	—		$	—		$	5,368,923	$	99,023		$	2,855,028		$	—

	Matthews Asia Small Companies Fund			Matthews China Small Companies Fund
	Common Equities — China			Common Equities — Information Technology
Balance as of 12/31/11 (market value)	$	3,040,262		$	37,218
Accrued discounts/premiums		—			—
Realized gain/(loss)		—			—
Change in unrealized appreciation/depreciation		(2,849,835	)		(2,810	)
Net Purchases		—			—
Net Sales		—			—
Transfers in to Level 3*		—			—
Transfers out of Level 3*		—			—
Balance as of 6/30/12 (market value)	$	190,427		$	34,408
Net change in unrealized appreciation/depreciation on Level 3 investments held as of 6/30/12**	($	2,849,835	)	($	2,810	)

*  The Fund's policy is to recognize transfers in and transfer out as of the beginning of the reporting period.

**  Included in the related amounts on the Statements of Operations.

Certain foreign securities, for which market quotations are not readily available, may be fair valued and classified as either Level 2 or Level 3. When the underlying inputs include significant observable inputs obtained from sources independent of the Funds, the securities are classified as Level 2. When the underlying inputs include significant unobservable inputs and reflect assumptions of market participants, the securities are classified as Level 3. As of June 30, 2012, the Funds utilized significant observable inputs including evaluated price from the Funds' pricing vendors, day-on-day prices changes, primary and ancillary pricing sources, and other available independent market indicators of value. As a result, certain securities held by the Funds that were previously classified as Level 3 were transferred to Level 2. As of June 30, 2012, certain equity securities were suspended from trading and were transferred from Level 1 to Level 3.

102 MATTHEWS ASIA FUNDS

The following table summarizes the valuation techniques used and unobservable inputs developed by the Valuation Committee to determine the fair value of certain, material Level 3 investments:

	Value		Valuation Technique	Unobservable Input	Range of Unobservatble Inputs			Impact to Valuation from an Increase in Inputs
MATTHEWS ASIA DIVIDEND FUND
Common Equities	$	33,673,037	Closing Price Mulitplied by Circuit Limit Fair Valuation Factor	Upward Circuit Limit Fair Valuation Factor		0-2	%	Increase
MATTHEWS CHINA DIVIDEND FUND
Common Equities	$	947,299	Closing Price Mulitplied by Circuit Limit Fair Valuation Factor	Upward Circuit Limit Fair Valuation Factor		0-2	%	Increase

In the event of a downward circuit limit fair valuation, an increase in input would result in a decrease in value.

C.  RISKS ASSOCIATED WITH NON-U.S. COMPANIES: Investments by the Funds in the securities of non-U.S. companies may involve investment risks not typically associated with investments in U.S. issuers. These risks include possible political, economic, social and religious instability, inadequate investor protection; changes in laws or regulations of countries within the Asia Pacific region (including both in countries where you invest, as well as in the broader region); international relations with other nations; natural disasters; corruption; and military activity. Foreign securities may be subject to greater fluctuations in price than securities of domestic corporations or the U.S. government. Foreign investing may also include the risk of expropriation or confiscatory taxation, limitation on the removal or funds or other assets, currency crises and exchange controls, the imposition of foreign withholding tax on the interest income payable on such instruments, 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. Additionally, Asia Pacific countries may utilize formal or informal currency exchange controls or "capital controls" that may limit the ability to repatriate investments or income or adversely affect the value of portfolio investments. The economies of many Asia Pacific countries differ from the economies of more developed countries in many respects, such as their rate of growth, inflation, capital reinvestment, resource self-sufficiency and dependence on other economies, financial system stability, the national balance of payments position and sensitivity to changes in global trade. Certain Asia Pacific countries are highly dependent upon and may be affected by developments in the economies of other countries. Non-U.S. companies are subject to different accounting, auditing, and financial reporting standards, practices, and requirements than U.S. companies. There is generally less government regulation of stock exchanges, brokers, and listed companies abroad than in the United States, which may result in less transparency with respect to a company's operations, and make obtaining information about them more difficult (or such information may be unavailable).

Foreign stock markets may not be as developed or efficient as those in the United States, and the absence of negotiated brokerage commissions in certain countries may result in higher brokerage fees. The time between the trade and settlement dates of securities transactions on foreign exchanges ranges from one day to four weeks or longer and may result in higher custody charges. Custodial arrangements may be less well developed than in the United States. Foreign securities are generally denominated and pay distributions in foreign currencies, exposing the Funds to changes in foreign currency exchange rates. Investing in any country in the Asia Pacific region will also entail risks specific and unique to that country, and these risks can be significant and change rapidly.

D.  INCOME AND WITHHOLDING 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 six-month period ended June 30, 2012. Therefore, no federal income tax provision is required. Income and capital gains of the Funds are determined in accordance with both tax regulations and U.S. GAAP. Such treatment 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 U.S. GAAP, and the use of the tax accounting practice known as equalization.

Management has analyzed the Funds' tax positions taken on federal income tax returns for all open tax years (current and prior three tax years), and has concluded that no provision for federal income tax is required in the Funds' financial statements. The Funds' federal and state income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue.

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Notes to Financial Statements (unaudited)(continued)

Under current tax law, the Funds have elected to defer certain qualified late-year losses and recognize such losses in the year ending December 31, 2012.

	Post October Capital Losses		Late Year Ordinary Losses
Matthews Asia Strategic Income Fund	$	410	$	—
Matthews Asian Growth and Income Fund		13,790,791		7,343,712
Matthews Asia Growth Fund		5,622,994		807,738
Matthews Pacific Tiger Fund		—		66,556
Matthews China Fund		33,012,775		—
Matthews India Fund		—		90,831
Matthews Japan Fund		3,352,918		19,415
Matthews Korea Fund		—		10,635
Matthews Asia Small Companies Fund		—		99,789
Matthews China Small Companies Fund		29,356		—
Matthews Asia Science and Technology Fund		262,214		401

For federal income tax purposes, the Funds indicated below have capital loss carryforwards as of December 31, 2011, which expire in the year indicated, which are available to offset future capital gains, if any:

LOSSES DEFERRED EXPIRING IN:	2016		2017		With No Expiration*		Total
Matthews Asia Dividend Fund	$	—	$	—	$	54,055,529	$	54,055,529
Matthews China Dividend Fund		—		—		701,462		701,462
Matthews Asia Growth Fund		1,000,383		58,248,975		—		59,249,358
Matthews Japan Fund		30,079,024		44,032,426		1,382,944		75,494,394
Matthews China Small Companies Fund		—		—		87,134		87,134
Matthews Asia Science and Technology Fund		—		10,329,226		—		10,329,226

*  Post-Enactment Losses: Must be utilized prior to losses subject to expiration. All losses are short-term.

Under the Regulated Investment Company Modernization Act of 2010, the Funds are permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to any losses incurred in pre-enactment taxable years, which generally expire after eight years from when they are incurred. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.

The Funds may be subject to foreign taxation related to income received, capital gains on the sale of securities and certain foreign currency transactions in the foreign jurisdictions in which it invests. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Funds invest. When a capital gain tax is determined to apply the Funds record an estimated deferred tax liability in an amount that may be payable if the securities were disposed of on the valuation date.

E.  OFFERING COSTS: Offering costs are amortized on a straight-line basis over one year from each Fund's respective commencement of operations. In the event that any of the initial shares are redeemed during the period of amortization of the Fund's offering costs, the redemption proceeds will be reduced by any such unamortized offering 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.

F.  DISTRIBUTIONS TO SHAREHOLDERS: It is the policy of Matthews Asian Growth and Income Fund and Matthews China Dividend Fund to distribute net investment income on a semi-annual basis and capital gains, if any, annually. It is the policy of Matthews Asia Dividend Fund and Matthews Asia Strategic Income Fund to distribute net investment income on a quarterly basis and capital gains, if any, annually. Each of the other Funds 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 U.S. GAAP.Net investment losses may not be utilized to offset net investment income in future periods for tax purposes.

104 MATTHEWS ASIA FUNDS

The tax character of distributions paid for the fiscal year ended December 31, 2011 was as follows:

YEAR ENDED DECEMBER 31, 2011	Ordinary Income		Net Long-Term Capital Gains		Total Taxable Distributions
Matthews Asia Strategic Income Fund	$	23,396	$	—	$	23,396
Matthews Asian Growth and Income Fund		99,386,784		112,546,940		211,933,724
Matthews Asia Dividend Fund		65,160,891		11,676,961		76,837,852
Matthews China Dividend Fund		1,087,962		27,774		1,115,736
Matthews Asia Growth Fund		7,735,513		—		7,735,513
Matthews Pacific Tiger Fund		28,983,044		77,058,025		106,041,069
Matthews China Fund		25,170,852		174,899,928		200,070,780
Matthews India Fund		2,994,775		—		2,994,775
Matthews Japan Fund		2,606,346		—		2,606,346
Matthews Korea Fund		1,792,530		5,678,972		7,471,502
Matthews Asia Small Companies Fund		2,884,834		34,237,212		37,122,046
Matthews China Small Companies Fund		5,954		—		5,954
Matthews Asia Science and Technology Fund		454,558		—		454,558

G.  INVESTMENT TRANSACTIONS AND INCOME: Securities transactions are accounted for on the date the securities are purchased or sold. Gains or losses on the sale of securities are determined on the identified cost basis. Interest income is recorded on the accrual basis. Dividend income is generally recorded on the ex-dividend date. Dividend income for certain issuers headquartered in countries which the Funds invest may not be recorded until approved by the shareholders (which may occur after the ex-dividend date) if, in the judgment of management, such dividends are not reasonably determined as of the ex-dividend date. Income and realized and unrealized gains or losses on investments are allocated to each class of shares based on its relative net assets or another appropriate basis.

H.  FUND EXPENSE ALLOCATIONS: The Funds account separately for the assets, liabilities and operations of each Fund. Direct expenses of each Fund or class are charged to that Fund or class while general expenses are allocated pro-rata among the Funds based on net assets or other appropriate methods.

I.  CASH OVERDRAFTS: When cash balances are overdrawn, a Fund is charged an overdraft fee by the custodian of 1.00% above the 30-day LIBOR rate on outstanding balances. These amounts, if any, are included in "Other expenses" on the Statements of Operations.

J.  USE OF ESTIMATES: The preparation of financial statements in conformity with U.S. GAAP 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.

3.  DERIVATIVE FINANCIAL INSTRUMENTS

Matthews Asia Strategic Income Fund engages in various portfolio investment strategies using derivative contracts to hedge its exposure to foreign currency exchange rate risk. Losses may arise if the value of the contract decreases due to an unfavorable change in the market rates or values of the underlying instrument or if the counterparty does not perform under the contract. The Fund's primary risks associated with the use of derivatives include the other party to the derivative contract may fail to fulfill its obligation, reduced liquidity, the Fund may suffer disproportionately heavy losses relative to the amount invested, and changes in the value of the derivatives may not match or fully offset changes in the value of the hedged portfolio securities, thereby failing to achieve the original purpose for using the derivative.

Financial Futures Contracts: Matthews Asia Strategic Income Fund may purchase financial futures contracts for hedging purposes or to maintain liquidity. Financial futures contracts are agreements between the Fund and a counterparty to buy or sell a specific quantity of an underlying instrument at a specified price and at a specified date. Depending on the terms of the particular contract, futures contracts are settled either through physical delivery of the underlying instrument on the settlement date or by payment of a cash settlement amount on settlement date. Pursuant to the contract, the Fund agrees to receive from or pay an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized appreciation or depreciation. When the contract is closed, the Fund records 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 primary risks associated with the use of futures contracts are: (i) imperfect correlation between the change in market value of the securities held by the Fund and the price of futures contracts; (ii) possible lack of a liquid secondary market for a futures contract and the resulting inability to close a futures contract when desired; (iii) losses, which are potentially unlimited, due to unanticipated market movements; and (iv) Matthews' ability to predict correctly the direction of security prices, interest rates and other economic factors.

Forward Foreign Currency Exchange Contracts: Matthews Asia Strategic Income entered into forward foreign currency exchange contracts as a hedge against either specific transactions or portfolio instruments or to obtain exposure to foreign currencies (foreign currency exchange rate risk). Forward foreign currency exchange contracts, when used by the Fund, may also help to manage the overall exposure to the currencies (currency risk) in which some of the investments held by the Fund are denominated. A forward foreign currency exchange contract is an agreement between two parties to buy and sell a currency at a set exchange rate on a future date. The contract is marked-to-market daily and the change in market value is recorded by the Fund as an unrealized gain or loss. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value at the time it was opened and the value at the time it was closed. The use of forward foreign currency exchange contracts involves the risk that the value of a forward foreign currency exchange contract changes unfavorably due to movements in the value of the referenced foreign currencies and the risk that the counterparty to the contract does not perform its obligations under the agreement.

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Notes to Financial Statements (unaudited)(continued)

Derivative Financial Instruments Categorized by Risk Exposure:

Fair Values of Derivative Financial Instruments as of June 30, 2012
	Statements of Assets and Liabilities Location	Matthews Asia Strategic Income Fund
	Asset Derivatives
Interest rate contracts:	Unrealized appreciation on financial futures contracts*	$	7,525
Forward foreign currency exchange contracts	Unrealized appreciation on forward foreign currency exchange contracts		26,513
	Total	$	34,038

*  Includes cumulative appreciation/depreciation of financial futures contracts as reported in the Schedule of Investments. Only current day's margin variation is reported within the Statements of Assets and Liabilities.

The Effect of Derivative Instruments on the Statements of Operations

Six-Month Period Ended June 30, 2012	Matthews Asia Strategic Income Fund
Net Realized Gain (Loss)
Interest rate contracts:
Financial futures contracts	($	143,772	)
Forward Currency Exchange Contracts:
Foreign currency related transactions	($	65,267	)
Net Change in Unrealized Appreciation (Depreciation)
Interest rate contracts:
Financial futures contracts	$	7,525
Forward Currency Exchange Contracts:
Foreign currency related translations	$	43,004

For the six-month period ended June 30, 2012, the average quarterly balances of outstanding derivative financial instruments were as follows:

	Matthews Asia Strategic Income Fund
Financial Futures Contracts (Interest Rate Risk):
Average number of contracts sold		15
Average notional value of contracts sold	$	1,961,719
Forward Foreign Currency Exchange Contracts (Foreign Currency Exchange Risk):
Average number of contracts—U.S. dollars purchased		1
Average U.S. dollar amounts purchased	$	788,838
Average number of contracts—U.S. dollars sold		1
Average U.S. dollar amounts sold	$	788,926

4.  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.

	Six-Month Period Ended June 30, 2012 (Unaudited)						Period Ended December 31, 2011
MATTHEWS ASIA STRATEGIC INCOME FUND*	Shares			Amount			Shares			Amount
Investor Class
Shares sold		1,111,806		$	11,335,247			778,753		$	7,781,032
Shares issued through reinvestment of distributions		23,627			239,374			1,377			13,650
Shares redeemed		(177,419	)		(1,819,083	)		(52	)		(519	)
Net increase (decrease)		958,014		$	9,755,538			780,078		$	7,794,163

106 MATTHEWS ASIA FUNDS

	Six-Month Period Ended June 30, 2012 (Unaudited)						Period Ended December 31, 2011
	Shares			Amount			Shares		Amount
Institutional Class
Shares sold		5,962		$	61,161			529,314	$	5,293,133
Shares issued through reinvestment of distributions		9,114			92,374			976		9,676
Shares redeemed		(1,778	)		(18,004	)		—		—
Net increase (decrease)		13,298		$	135,531			530,290	$	5,302,809

*  Investor Class and Institutional Class commenced of operations on November 30, 2011.

	Six-Month Period Ended June 30, 2012 (Unaudited)						Year Ended December 31, 2011
MATTHEWS ASIAN GROWTH AND INCOME FUND	Shares			Amount			Shares			Amount
Investor Class
Shares sold		18,901,739		$	306,087,654			32,060,064		$	559,112,796
Shares issued through reinvestment of distributions		1,814,819			28,655,986			10,068,790			158,200,819
Shares redeemed		(19,295,236	)		(312,606,086	)		(104,375,074	)		(1,819,398,166	)
Net increase (decrease)		1,421,322		$	22,137,554			(62,246,220	)	($	1,102,084,551	)
	Six-Month Period Ended June 30, 2012 (Unaudited)						Year Ended December 31, 2011
	Shares			Amount			Shares			Amount
Institutional Class
Shares sold		10,837,635		$	177,542,777			42,908,389		$	768,482,507
Shares issued through reinvestment of distributions		510,238			8,056,652			2,445,888			38,413,987
Shares redeemed		(3,171,162	)		(50,886,761	)		(17,185,882	)		(283,032,015	)
Net increase (decrease)		8,176,711		$	134,712,668			28,168,395		$	523,864,479
	Six-Month Period Ended June 30, 2012 (Unaudited)						Year Ended December 31, 2011
MATTHEWS ASIA DIVIDEND FUND	Shares			Amount			Shares			Amount
Investor Class
Shares sold		37,785,921		$	502,767,152			110,243,475		$	1,519,475,047
Shares issued through reinvestment of distributions		2,180,675			28,630,288			4,409,967			57,884,041
Shares redeemed		(25,608,185	)		(340,211,995	)		(94,904,591	)		(1,294,339,749	)
Net increase (decrease)		14,358,411		$	191,185,445			19,748,851		$	283,019,339
	Six-Month Period Ended June 30, 2012 (Unaudited)						Year Ended December 31, 2011
	Shares			Amount			Shares			Amount
Institutional Class
Shares sold		17,321,247		$	230,373,541			37,459,944		$	527,212,815
Shares issued through reinvestment of distributions		387,207			5,070,173			394,869			5,170,880
Shares redeemed		(2,807,594	)		(37,412,298	)		(13,615,599	)		(175,025,328	)
Net increase (decrease)		14,900,860		$	198,031,416			24,239,214		$	357,358,367

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Notes to Financial Statements (unaudited)(continued)

	Six-Month Period Ended June 30, 2012 (Unaudited)						Year Ended December 31, 2011
MATTHEWS CHINA DIVIDEND FUND	Shares			Amount			Shares			Amount
Investor Class
Shares sold		535,697		$	5,916,457			1,578,670		$	18,586,260
Shares issued through reinvestment of distributions		50,548			535,306			98,443			1,066,240
Shares redeemed		(673,105	)		(7,365,159	)		(2,774,075	)		(30,866,410	)
Net increase (decrease)		(86,860	)	($	913,396	)		(1,096,962	)	($	11,213,910	)
	Six-Month Period Ended June 30, 2012 (Unaudited)						Year Ended December 31, 2011
	Shares			Amount			Shares			Amount
Institutional Class
Shares sold		2,389		$	27,413			1,623		$	20,100
Shares issued through reinvestment of distributions		75			798			42			446
Shares redeemed		—			—			(815	)		(9,840	)
Net increase (decrease)		2,464		$	28,211			850		$	10,706
	Six-Month Period Ended June 30, 2012 (Unaudited)						Year Ended December 31, 2011
MATTHEWS ASIA GROWTH FUND	Shares			Amount			Shares			Amount
Investor Class
Shares sold		1,648,664		$	27,452,652			5,632,916		$	97,848,412
Shares issued through reinvestment of distributions		6			99			348,624			5,393,217
Shares redeemed		(2,593,072	)		(42,660,447	)		(7,753,246	)		(132,663,366	)
Net increase (decrease)		(944,402	)	($	15,207,696	)		(1,771,706	)	($	29,421,737	)
	Six-Month Period Ended June 30, 2012 (Unaudited)						Year Ended December 31, 2011
	Shares			Amount			Shares			Amount
Institutional Class
Shares sold		2,731,300		$	45,877,524			7,003,033		$	119,247,333
Shares issued through reinvestment of distributions		—			—			118,577			1,837,939
Shares redeemed		(1,724,898	)		(28,884,996	)		(2,128,608	)		(35,580,135	)
Net increase (decrease)		1,006,402		$	16,992,528			4,993,002		$	85,505,137
	Six-Month Period Ended June 30, 2012 (Unaudited)						Year Ended December 31, 2011
MATTHEWS PACIFIC TIGER FUND	Shares			Amount			Shares			Amount
Investor Class
Shares sold		16,539,491		$	361,437,123			41,532,204		$	934,343,952
Shares issued through reinvestment of distributions		1			24			2,676,956			55,278,364
Shares redeemed		(15,205,450	)		(330,190,300	)		(129,175,269	)		(2,984,869,324	)
Net increase (decrease)		1,334,042		$	31,246,847			(84,966,109	)	($	1,995,247,008	)

108 MATTHEWS ASIA FUNDS

	Six-Month Period Ended June 30, 2012 (Unaudited)						Year Ended December 31, 2011
	Shares			Amount			Shares			Amount
Institutional Class
Shares sold		41,944,006		$	917,949,690			91,157,431		$	2,125,434,487
Shares issued through reinvestment of distributions		—			—			1,088,887			22,463,738
Shares redeemed		(6,823,017	)		(147,934,643	)		(15,469,797	)		(338,404,484	)
Net increase (decrease)		35,120,989		$	770,015,047			76,776,521		$	1,809,493,741
	Six-Month Period Ended June 30, 2012 (Unaudited)						Year Ended December 31, 2011
MATTHEWS CHINA FUND	Shares			Amount			Shares			Amount
Investor Class
Shares sold		6,906,230		$	159,558,774			16,475,470		$	462,682,408
Shares issued through reinvestment of distributions		3			55			8,291,580			182,081,269
Shares redeemed		(15,466,381	)		(352,803,009	)		(39,534,640	)		(1,062,621,657	)
Net increase (decrease)		(8,560,148	)	($	193,244,180	)		(14,767,590	)	($	417,857,980	)
	Six-Month Period Ended June 30, 2012 (Unaudited)						Year Ended December 31, 2011
	Shares			Amount			Shares			Amount
Institutional Class
Shares sold		9,607,181		$	220,388,221			12,452,573		$	289,794,029
Shares issued through reinvestment of distributions		—			—			254,874			5,591,931
Shares redeemed		(3,637,716	)		(82,458,178	)		(709,945	)		(16,414,721	)
Net increase (decrease)		5,969,465		$	137,930,043			11,997,502		$	278,971,239
	Six-Month Period Ended June 30, 2012 (Unaudited)						Year Ended December 31, 2011
MATTHEWS INDIA FUND	Shares			Amount			Shares			Amount
Investor Class
Shares sold		3,012,241		$	48,586,663			10,457,996		$	199,418,664
Shares issued through reinvestment of distributions		1			17			182,527			2,717,658
Shares redeemed		(7,156,086	)		(112,446,582	)		(34,128,620	)		(639,558,369	)
Net increase (decrease)		(4,143,844	)	($	63,859,902	)		(23,488,097	)	($	437,422,047	)
	Six-Month Period Ended June 30, 2012 (Unaudited)						Year Ended December 31, 2011
	Shares			Amount			Shares			Amount
Institutional Class
Shares sold		22,556		$	364,084			371,582		$	7,299,291
Shares issued through reinvestment of distributions		—			—			8,878			132,371
Shares redeemed		(45,897	)		(785,795	)		(641,677	)		(10,550,308	)
Net increase (decrease)		(23,341	)	($	421,711	)		(261,217	)	($	3,118,646	)

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Notes to Financial Statements (unaudited)(continued)

	Six-Month Period Ended June 30, 2012 (Unaudited)						Year Ended December 31, 2011
MATTHEWS JAPAN FUND	Shares			Amount			Shares			Amount
Investor Class
Shares sold		1,584,324		$	18,650,782			9,300,532		$	114,703,172
Shares issued through reinvestment of distributions		—			—			167,878			1,900,379
Shares redeemed		(2,819,730	)		(32,833,094	)		(5,937,057	)		(71,506,114	)
Net increase (decrease)		(1,235,406	)	($	14,182,312	)		3,531,353		$	45,097,437
	Six-Month Period Ended June 30, 2012 (Unaudited)						Year Ended December 31, 2011
	Shares			Amount			Shares			Amount
Institutional Class
Shares sold		477,221		$	5,661,121			2,679,969		$	33,412,230
Shares issued through reinvestment of distributions		—			—			34,653			392,273
Shares redeemed		(916,947	)		(10,812,032	)		(42,618	)		(490,305	)
Net increase (decrease)		(439,726	)	($	5,150,911	)		2,672,004		$	33,314,198
	Six-Month Period Ended June 30, 2012 (Unaudited)						Year Ended December 31, 2011
MATTHEWS KOREA FUND	Shares			Amount			Shares			Amount
Investor Class
Shares sold		1,322,413		$	6,456,017			9,980,437		$	52,613,715
Shares issued through reinvestment of distributions		—			—			1,372,595			6,464,876
Shares redeemed		(4,170,481	)		(20,356,768	)		(13,035,214	)		(65,292,520	)
Net increase (decrease)		(2,848,068	)	($	13,900,751	)		(1,682,182	)	($	6,213,929	)
	Six-Month Period Ended June 30, 2012 (Unaudited)						Year Ended December 31, 2011
	Shares			Amount			Shares			Amount
Institutional Class
Shares sold		8,618,941		$	42,519,900			3,273,646		$	16,597,460
Shares issued through reinvestment of distributions		—			—			21,797			102,882
Shares redeemed		(7,191,186	)		(33,294,870	)		(18,269	)		(102,473	)
Net increase (decrease)		1,427,755		$	9,225,030			3,277,174		$	16,597,869
	Six-Month Period Ended June 30, 2012 (Unaudited)						Year Ended December 31, 2011
MATTHEWS ASIA SMALL COMPANIES FUND	Shares			Amount			Shares			Amount
Investor Class
Shares sold		5,403,785		$	88,688,403			7,391,135		$	149,600,807
Shares issued through reinvestment of distributions		—			—			2,209,203			33,557,805
Shares redeemed		(3,209,881	)		(51,210,156	)		(17,921,097	)		(341,096,658	)
Net increase (decrease)		2,193,904		$	37,478,247			(8,320,759	)	($	157,938,046	)

110 MATTHEWS ASIA FUNDS

	Six-Month Period Ended June 30, 2012 (Unaudited)						Period Ended December 31, 2011
MATTHEWS CHINA SMALL COMPANIES FUND*	Shares			Amount			Shares			Amount
Investor Class
Shares sold		370,546		$	2,818,272			850,982		$	7,444,714
Shares issued through reinvestment of distributions		—			—			824			5,923
Shares redeemed		(267,579	)		(1,967,449	)		(213,196	)		(1,583,026	)
Net increase (decrease)		102,967		$	850,823			638,610		$	5,867,611

*  The Investor Class commenced operations on May 31, 2011.

	Six-Month Period Ended June 30, 2012 (Unaudited)						Year Ended December 31, 2011
MATTHEWS ASIA SCIENCE AND TECHNOLOGY FUND	Shares			Amount			Shares			Amount
Investor Class
Shares sold		389,457		$	3,445,528			8,443,941		$	78,551,775
Shares issued through reinvestment of distributions		—			—			50,284			420,876
Shares redeemed		(3,132,408	)		(27,015,458	)		(8,950,512	)		(83,993,985	)
Net increase (decrease)		(2,742,951	)	($	23,569,930	)		(456,287	)	($	5,021,334	)

The Funds generally assess a redemption fee of 2.00% of the total redemption proceeds if shareholders sell or exchange their shares within 90 calendar days after purchasing them. The redemption fee is paid directly to the Funds and is designed to offset transaction costs associated with short-term trading of Fund shares. For purposes of determining whether the redemption fee applies, the shares that have been held the longest will be redeemed first. The Funds may grant an exemption from the redemption fee when the Funds have previously received assurances that transactions do not involve a substantial risk of the type of harm that the policy is designed to avoid. The Funds may also waive the imposition of redemption fees in certain circumstances. For more information on this policy, please see the Funds' prospectus. The redemption fees returned to the assets of the Funds are stated in the Statements of Changes in Net Assets.

5.  INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES

Matthews International Capital Management, LLC ("Matthews"), a registered investment advisor under the 1940 Act, provides the Funds with investment management services. Pursuant to an Investment Advisory Agreement dated August 13, 2004, as amended (the "Advisory Agreement"), the Funds pay Matthews (i) for management and advisory services; and (ii) for certain administrative services, an annual fee as a percentage of average daily net assets. Under the Advisory Agreement each of the Funds, other than Matthews Asia Strategic Income Fund, Matthews Asia Small Companies Fund and Matthews China Small Companies Fund pays Matthews 0.75% of their annual aggregate average daily net assets up to $2 billion, 0.6834% of the annual aggregate average daily net assets between $2 billion and $5 billion, and 0.65% of the annual aggregate average daily net assets over $5 billion. Matthews Asia Strategic Income Fund pays Matthews an annual fee of 0.65% of its annual average daily net assets pursuant to the Advisory Agreement. Matthews Asia Small Companies Fund and Matthews China Small Companies Fund pay Matthews an annual fee of 1.00% of their annual average daily net assets pursuant to the Advisory Agreement. Each Fund pays Matthews a monthly fee of one-twelfth (1/12) of the management fee of the Fund's average daily net asset value.

Under a written agreement between the Funds and Matthews, Matthews agrees to waive fees and reimburse money to a Fund if its expense ratio exceeds a certain percentage level. For Matthews Asia Science and Technology Fund, Matthews China Fund, Matthews India Fund, Matthews Japan Fund, Matthews Korea Fund, Matthews Asia Small Companies Fund and Matthews China Small Companies Fund, this level is 2.00%. For Matthews Asia Growth Fund, Matthews Pacific Tiger Fund and Matthews Asian Growth and Income Fund, this level is 1.90%. For Matthews Asia Dividend Fund and Matthews China Dividend Fund, this level is 1.50%. For Matthews Asia Strategic Income Fund, Matthews agrees to waive fees and reimburse money to the Fund if its expense ratio exceeds 1.25% for the Institutional Class and agrees to reduce the expense ratio by an equal amount for the Investor Class. In turn, if a Fund's expenses fall below the level noted within three years after Matthews has made such a reimbursement, the Fund may reimburse Matthews up to an amount of the recoupment available not to exceed its expense limitation. For each Fund other than Matthews China Dividend Fund, Matthews China Small Companies Fund and Matthews Asia Strategic Income Fund, this agreement will continue through at least August 31, 2012. For Matthews China Dividend Fund, this agreement will continue through at least August 31, 2013. For Matthews China Small Companies Fund and Matthews Asia Strategic Income Fund, this agreement will continue through at least August 31, 2014. These agreements may be extended for additional periods for each of the Funds.

Matthews has also agreed to waive fees and reimburse additional expenses for the Institutional Class of Matthews Asia Strategic Income Fund on a voluntary basis if its expense ratio exceeds 1.00%. Furthermore, any amounts voluntarily waived by Matthews in respect of the Institutional Class of Matthews Asia Strategic Income Fund, excluding any voluntary waiver of class-specific shareholder servicing fees, will also be waived for the Investor Class of Matthews Asia Strategic Income Fund. These voluntary waivers and/or reimbursements may be terminated at any time in the sole and absolute discretion of Matthews. At June 30, 2012, Matthews China Dividend Fund had $151,750 available for recoupment, of which $30,662 expires in 2012, $96,407 expires in 2013, $8,122 expires in 2014 and $16,559 expires in 2015. Matthews China Small Companies Fund had $120,272 available for recoupment, which $76,945 expires in 2014 and $43,328 expires in 2015. Matthews Asia Strategic Income Fund had $95,228 available for recoupment, which $22,796 expires in 2014 and $72,432 expires in 2015. Matthews Asian Growth and Income Fund, Matthews Asia Dividend Fund, Matthews Asia Growth Fund, Matthews Pacific Tiger Fund, Matthews China Fund, Matthews India Fund, Matthews Japan Fund, Matthews Korea Fund, Matthews Asia Small Companies Fund, Matthews Asia Science and Technology Fund had no amounts available for recoupment and no amounts recouped during the year.

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Notes to Financial Statements (unaudited)(continued)

Investment advisory fees charged, waived and reimbursed for the six-month period ended June 30, 2012, were as follows:

	Gross Advisory Fees		Advisory Fees Waived and Reimbursed in Excess of the Expense Limitation			Net Advisory Fee/ Reimbursement
Matthews Asia Strategic Income Fund	$	63,267	($	72,432	)	($	9,165	)
Matthews Asian Growth and Income Fund		10,713,918		—			10,713,918
Matthews Asia Dividend Fund		8,801,237		—			8,801,237
Matthews China Dividend Fund		96,597		(16,559	)		80,038
Matthews Asia Growth Fund		1,251,474		—			1,251,474
Matthews Pacific Tiger Fund		18,439,460		—			18,439,460
Matthews China Fund		7,812,110		—			7,812,110
Matthews India Fund		2,245,101		—			2,245,101
Matthews Japan Fund		410,130		—			410,130
Matthews Korea Fund		617,146		—			617,146
Matthews Asia Small Companies Fund		1,592,549		—			1,592,549
Matthews China Small Companies Fund		28,543		(43,328	)		(14,785	)
Matthews Asia Science and Technology Fund		504,929		—			504,929

Certain officers and Trustees of the Funds are also officers and directors of Matthews. All officers serve without compensation from the Funds. The Funds paid the Independent Trustees $338,000 in aggregate for regular compensation during the six-month period ended June 30, 2012.

The Funds have a Shareholder Services Agreement, in which the Funds pay an annual administration and shareholder servicing fee to Matthews, as a percentage of the average daily net assets of each Fund in aggregate, computed and prorated on a daily basis. Under the Shareholder Services Agreement, the Funds pay 0.25% of their aggregate average daily net assets between $0 and $2 billion, 0.1834% of their aggregate average daily net assets between $2 billion and $5 billion, 0.15% of their aggregate average daily net assets between $5 billion and $7.5 billion, 0.125% of their aggregate average daily net assets between $7.5 billion and $15 billion and 0.11% of their aggregate average daily net assets over $15 billion.

Administration and shareholder servicing fees charged, for the six-month period ended June 30, 2012, were as follows:

	Administration and Shareholder Servicing Fees
Matthews Asia Strategic Income Fund	$	15,176
Matthews Asian Growth and Income Fund		2,495,056
Matthews Asia Dividend Fund		2,049,499
Matthews China Dividend Fund		22,493
Matthews Asia Growth Fund		291,437
Matthews Pacific Tiger Fund		4,294,084
Matthews China Fund		1,819,119
Matthews India Fund		522,763
Matthews Japan Fund		95,557
Matthews Korea Fund		143,643
Matthews Asia Small Companies Fund		248,333
Matthews China Small Companies Fund		4,449
Matthews Asia Science and Technology Fund		117,611

112 MATTHEWS ASIA FUNDS

The 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. Additional information concerning these services and fees is contained in the Funds' prospectus. Fees accrued to pay to such service providers for the six-month period ended June 30, 2012 are a component of Transfer Agent fees and Administration and Shareholder Servicing Fees in the Statements of Operations as follows:

	Transfer Agent Fees		Administration & Shareholder Servicing Fees		Total
Matthews Asia Strategic Income Fund	$	5,121	$	2,561	$	7,682
Matthews Asian Growth and Income Fund		1,862,085		931,043		2,793,128
Matthews Asia Dividend Fund		1,346,543		673,271		2,019,814
Matthews China Dividend Fund		20,079		10,040		30,119
Matthews Asia Growth Fund		199,769		99,885		299,654
Matthews Pacific Tiger Fund		2,496,767		1,248,384		3,745,151
Matthews China Fund		1,400,541		700,270		2,100,811
Matthews India Fund		441,620		220,810		662,430
Matthews Japan Fund		68,500		34,250		102,750
Matthews Korea Fund		90,519		45,260		135,779
Matthews Asia Small Companies Fund		210,545		105,273		315,818
Matthews China Small Companies Fund		5,528		2,764		8,292
Matthews Asia Science and Technology Fund		91,055		45,527		136,582

BNY Mellon Investment Servicing (US) Inc. ("BNY Mellon"), an indirect wholly owned subsidiary of The Bank of New York Mellon Corporation, serves as the Funds administrator, and in that capacity, performs various administrative and accounting services for each Fund. BNY Mellon also serves as the Funds' transfer agent, dividend disbursing agent and registrar. An officer of BNY Mellon serves as Assistant Treasurer to the Funds. Total fees accrued by the Funds for administration and accounting services for the six-month period ended June 30, 2012 were as follows:

	Administration and Accounting Fees
Matthews Asia Strategic Income Fund	$	774
Matthews Asian Growth and Income Fund		127,257
Matthews Asia Dividend Fund		104,531
Matthews China Dividend Fund		1,147
Matthews Asia Growth Fund		14,864
Matthews Pacific Tiger Fund		219,010
Matthews China Fund		92,762
Matthews India Fund		26,649
Matthews Japan Fund		4,872
Matthews Korea Fund		7,330
Matthews Asia Small Companies Fund		12,669
Matthews China Small Companies Fund		227
Matthews Asia Science and Technology Fund		5,997

Brown Brothers Harriman & Co. serves as the Funds' custodian. Foreside Funds Distributors LLC, serves as the Funds' distributor in the United States pursuant to an Underwriting Agreement. Matthews Asia Funds are distributed in Latin America by HMC Partners.

On November 30, 2011, Matthews invested USD$10 million in Matthews Asia Strategic Income Fund to provide the Fund with its initial investment assets. As of June 30, 2012, the Fund's net assets were $23,228,045, of which 1,018,524 shares held by Matthews represented 45%.

The Funds entered into transactions with J.P. Morgan Chase Bank, N.A., including its subsidiaries and affiliates ("J.P. Morgan") acting as a broker-dealer in the purchase and sale of portfolio investments on an agency basis. The aggregate value of such transactions with J.P. Morgan by the Funds in 2012 was $379,863. In addition, pursuant to an Administrative Fee Agreement dated July 1, 2009, the Funds received certain shareholder, administrative and sub-transfer agency services from J.P. Morgan (including transmission of purchase and redemption orders in accordance with the Funds' prospectus; maintenance of separate records for its clients; mailing of shareholder confirmations and periodic statements; processing dividend payments; and shareholder information and support). Pursuant to the agreement with J.P. Morgan, the Funds paid J.P. Morgan $487,275 for such services.

matthewsasia.com | 800.789.ASIA 113

Notes to Financial Statements (unaudited)(continued)

6.  INVESTMENTS

The value of investment transactions made for affiliated and unaffiliated holdings for the six-month period ended June 30, 2012, excluding short-term investments, were as follows:

	Affiliated Purchases		Unaffiliated Purchases		Proceeds from Unaffiliated Sales
Matthews Asia Strategic Income Fund	$	—	$	11,319,099	$	1,574,573
Matthews Asian Growth and Income Fund		—		433,969,757		240,555,660
Matthews Asia Dividend Fund		35,658,359		387,814,262		85,545,499
Matthews China Dividend Fund		—		3,929,220		5,059,963
Matthews Asia Growth Fund		—		117,155,647		110,362,236
Matthews Pacific Tiger Fund		142,986,731		694,681,318		135,540,979
Matthews China Fund		—		161,872,829		182,213,610
Matthews India Fund		—		31,872,636		100,687,393
Matthews Japan Fund		—		33,030,714		52,534,265
Matthews Korea Fund		—		37,933,371		42,285,649
Matthews Asia Small Companies Fund		—		78,489,366		39,559,149
Matthews China Small Companies Fund		—		2,204,834		1,278,089
Matthews Asia Science and Technology Fund		—		27,495,885		52,216,667

7.  HOLDINGS OF 5% VOTING SHARES OF PORTFOLIO COMPANIES

The 1940 Act defines "affiliated companies" to include investments in portfolio companies in which a fund owns 5% or more of the outstanding voting shares. During the six-month period ended June 30, 2012, the Funds below held 5% or more of the outstanding voting shares of the noted portfolio companies. During this period, other Funds in the Trust may also have held voting shares of the issuers at levels below 5%.

Investments in affiliates:
A summary of transactions in securities of issuers affiliated with a Fund for the six-month period ended June 30, 2012 is set forth below:

	Shares Held at Dec. 31, 2011		Shares Purchased		Shares Sold		Shares Held at June 30, 2012		Value at June 30, 2012		Dividend Income Jan. 1, 2012– June 30, 2012
MATTHEWS ASIAN GROWTH AND INCOME FUND
Name of Issuer:
Citic Telecom International Holdings, Ltd.		132,231,000		—		—		132,231,000	$	24,130,131	$	1,227,194
Vitasoy International Holdings, Ltd.		51,771,000		—		—		51,771,000		43,506,325		—
Total Affiliates									$	67,636,456	$	1,227,194
MATTHEWS ASIA DIVIDEND FUND
Name of Issuer:
Ascendas India Trust		46,280,000		—		—		46,280,000	$	27,879,247	$	1,095,604
CapitaRetail China Trust, REIT		38,501,000		4,626,000		—		43,127,000		44,690,705		1,369,049
EPS Corp.		14,592		—		—		14,592		40,002,876		281,665
Johnson Health Tech Co., Ltd.		11,713,100		2,094,000		—		13,807,100		33,673,037		—
Pigeon Corp.		1,381,300		120,500		—		1,501,800		65,795,724		792,040
Shinko Plantech Co., Ltd.		2,400,200		1,360,000		—		3,760,200		32,656,661		919,954
Sichuan Expressway Co., Ltd. H Shares		65,612,000		9,334,000		—		74,946,000		25,437,685		1,065,449
TXC Corp.		21,549,524		—		—		21,549,524		31,288,322		—
Woongjin Thinkbig Co., Ltd.		2,079,870		—		—		2,079,870		18,180,703		—
Yuexiu Transport Infrastructure, Ltd.†		69,730,000		16,800,000		—		86,530,000		42,736,057		1,561,450
Total Affiliates									$	362,341,017	$	7,085,211

114 MATTHEWS ASIA FUNDS

	Shares Held at Dec. 31, 2011		Shares Purchased		Shares Sold		Shares Held at June 30, 2012		Value at June 30, 2012		Dividend Income Jan. 1, 2012– June 30, 2012
MATTHEWS PACIFIC TIGER FUND
Name of Issuer:
Cheil Worldwide, Inc.		5,916,350		—		—		5,916,350	$	94,499,024	$	—
Green Cross Corp.		684,049		20,000		—		704,049		92,051,949		—
Hyflux, Ltd.†		28,487,280		33,797,000		—		62,284,280		66,709,992		870,674
Li Ning Co., Ltd.		—		54,193,500		—		54,193,500		30,491,829		—
MegaStudy Co., Ltd.		396,412		—		—		396,412		27,162,833		—
Sinopharm Group Co., Ltd. H Shares†		25,328,800		18,174,400		—		43,503,200		120,933,087		1,229,861
Yuhan Corp.		584,138		—		—		584,138		68,294,703		—
Total Affiliates									$	500,143,417	$	2,100,535
MATTHEWS CHINA FUND
Name of Issuer:
Lianhua Supermarket Holdings Co., Ltd. H Shares		28,947,800		—		—		28,947,800	$	27,793,131	$	549,500
Total Affiliates									$	27,793,131	$	549,500

†  Issuer was not an affiliated company at December 31, 2011.

8.  SUBSEQUENT EVENTS

Management has evaluated the impact of all subsequent events on the Funds through the date the financial statements were issued, and has determined that there no additional subsequent events that require recognition or disclosure in the financial statements.

matthewsasia.com | 800.789.ASIA 115

Matthews Asia Funds

INVESTMENT ADVISOR

Matthews International Capital Management, LLC

Four Embarcadero Center, Suite 550

San Francisco, CA 94111

800.789.ASIA

CUSTODIAN

Brown Brothers Harriman & Co.

50 Milk Street

Boston, MA 02109

ACCOUNT SERVICES

Matthews Asia Funds

P.O. Box 9791

Providence, RI 02940

800.789.ASIA

LEGAL COUNSEL

Paul Hastings LLP

55 Second Street, 24th Floor

San Francisco, CA 94105

matthewsasia.com | 800.789.ASIA

P.O. Box 9791  |  Providence, RI 02940  |  matthewsasia.com  |  800.789.ASIA (2742)

  SAR-0612-277M

Item 2. Code of Ethics.

Not applicable.

Item 3. Audit Committee Financial Expert.

Not applicable.

Item 4. Principal Accountant Fees and Services.

Not applicable.

Item 5. Audit Committee of Listed registrants.

Not applicable.

Item 6. Investments.

(a)Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is included as part of the report to shareholders filed under Item 1 of this form.

(b)Not applicable.

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

Not applicable.

Item 8. Portfolio Managers of Closed-End Management Investment Companies.

Not applicable.

Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.

Not applicable.

Item 10. Submission of Matters to a Vote of Security Holders.

There have been no material changes to the procedures by which the shareholders may recommend nominees to the registrant’s board of directors, where those changes were implemented after the registrant last provided disclosure in response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR 229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)), or this Item.

Item 11. Controls and Procedures.

(a)The registrant’s principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”) (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)).

(b)There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the registrant’s second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

Item 12. Exhibits.

(a)(1)	Not applicable.
(a)(2)	Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(a)(3)	Not applicable.
(b)	Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section 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 International Funds
By (Signature and Title)*		/s/ William J. Hackett
		William J. Hackett, President
		(principal executive officer)
Date	8/29/12

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/ William J. Hackett
		William J. Hackett, President
		(principal executive officer)
Date	8/29/12

By (Signature and Title)*		/s/ Shai Malka
		Shai Malka, Treasurer
		(principal financial officer)
Date	8/29/12

* Print the name and title of each signing officer under his or her signature.