As filed with the Securities and Exchange Commission on April 29, 2009

Securities Act of 1933 File No. 33-78960

Investment Company Act of 1940 File No. 811-08510

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC  20549

FORM N-1A

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)

Registrant’s Telephone Number, including Area Code:  (415) 788-6036

William J. Hackett, President

Four Embarcadero Center, Suite 550

San Francisco, CA  94111

(Name and Address of Agent for Service)

Copies To:

Tim Parker

4 Embarcadero Center, Suite 550

San Francisco, CA  94111

Gregory Zeck, Esq.

Paul, Hastings, Janofsky & Walker LLP

55 Second Street

San Francisco, CA 94105

It is proposed that this filing will become effective

x           immediately upon filing pursuant to paragraph (b)

o            on                          pursuant to paragraph (b)

o            60 days after filing pursuant to paragraph (a)(1)

o            on                          pursuant to paragraph (a)(1)

o            75 days after filing pursuant to paragraph (a)(2)

o            on                            pursuant to paragraph (a)(2) of Rule 485.

If appropriate, check the following box:

o            This post-effective amendment designates a new effective date for a previously filed post-effective amendment.

Matthews Asia Funds | Prospectus

April 29, 2009 | matthewsasia.com

Asian Growth and Income Fund

Asia Pacific Equity Income Fund

Asia Pacific Fund

Pacific Tiger Fund

China Fund

India Fund

Japan Fund

Korea Fund

Asia Small Companies Fund

Asian Technology Fund

The U.S. Securities and Exchange Commission (the “SEC”) has not approved or disapproved the Funds. Also, the SEC has not passed upon the adequacy or accuracy of this prospectus. Anyone who informs you otherwise is committing a crime.

Matthews Asia Funds

matthewsasia.com

Please read this document carefully before you make any investment decision. If you have any questions, do not hesitate to contact a Matthews Asia Funds representative at 800.789.ASIA (2742) or visit matthewsasia.com.

Please keep this prospectus with your other account documents for future reference.

Please see important information about market timing and redemption fees on page 64.

Investment Objectives of the Funds

Matthews Asia Funds (each a “Fund” and collectively the “Funds”) offers a range of regional and country-specific funds with the following objective(s):

Principal Investment Strategies

Matthews International Capital Management, LLC (“Matthews”) is the investment advisor to each of the Funds. Matthews invests in the Asia Pacific region based on its assessment of the future development and growth prospects of companies located in that region. Matthews believes that the region’s countries are on paths toward economic development and, in general, deregulation and greater openness to market forces. Matthews believes in the potential for these economies, and that the intersection of development and deregulation will give rise to new markets and create opportunities for further growth. Matthews attempts to capitalize on its beliefs by investing in companies it considers to be well-positioned to participate in the region’s economic evolution. Matthews uses a range of approaches to participate in the anticipated growth of the Asia Pacific region to suit clients’ differing needs and investment objectives.

Matthews researches the fundamental characteristics of individual companies to help to understand the foundation of a company’s long-term growth, and to assess whether it is generally consistent with Matthews’ expectations for the region’s economic evolution. Matthews evaluates potential portfolio holdings on the basis of their individual merits, and invests in those companies that it believes are positioned to help a Fund achieve its investment objectives.

Matthews has long-term investment goals, and its process aims to identify potential portfolio investments that can be held over an indefinite time horizon. Matthews regularly tests its beliefs and adjusts portfolio holdings in light of prevailing market conditions and other factors, including, among other things, economic, political or market events (e.g., changes in credit conditions or military action), changes in relative valuation (of a company’s growth prospects relative to other issuers), liquidity requirements and corporate governance.

Matthews has long-term investment goals, and its process aims to identify potential portfolio investments that can be held over an indefinite time horizon.

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Matthews Seeks to Invest in the Long-Term Growth Potential of the Asia Pacific Region

·                  Matthews believes that the countries of the Asia Pacific region will continue to benefit from economic development over longer investment horizons.

·                  Matthews seeks to invest in those companies that it believes will benefit from the long-term economic evolution of the region and that will help each Fund achieve its investment objective.

·                  Matthews does not generally hedge currency risks.

Matthews and the Funds Believe in Investing for the Long Term

·                  Matthews constructs portfolios with long investment horizons—typically five to ten years.

Matthews Is an Active Investor with Strong Convictions

·                  Matthews uses an active approach to investment management (rather than relying on passive or index strategies) because it believes that the current composition of the stock markets and indices may not be the best guide to the most successful industries and companies of the future.

·                  Matthews invests in individual companies based on a fundamental analysis that aims to develop an understanding of a company’s long-term business direction.

·                  Matthews monitors the composition of benchmark indices but is not constrained by their composition or weightings, and constructs portfolios independent of indices.

·                  Matthews believes that investors benefit in the long term when the Funds are fully invested; cash and cash equivalents typically represent less than 2% of portfolios.

Matthews Is a Fundamental Investor

·                  Fundamental investing is based on identifying, analyzing and understanding basic information about a company or security. These factors may include matters such as balance sheet information; number of employees; size and stability of cash flow; management’s depth, adaptability and integrity; product lines; marketing strategies; corporate governance; and financial health.

·                  Matthews may also consider factors such as:

·                  Management: Does the management exhibit integrity? Is there a strong corporate governance culture? What is the business strategy? Does management exhibit the ability to adapt to change and handle risk appropriately?

·                  Evolution of Industry: Can company growth be sustained as the industry and environment evolve?

·                  Valuation: Is the company’s valuation reasonable in relation to its growth prospects and relative to other similar companies in the region or globally?

·                  Following this fundamental analysis, Matthews seeks to invest in companies and securities that it believes are positioned to help a Fund achieve its investment objective.

Each of the Funds concentrates its investments in individual countries or in groups of countries within the Asia Pacific region. A company is considered to be “located” in a country if it (i) is organized under the laws of that country; (ii) derives at least 50% of its revenues or profits from goods produced or sold, investments made, services performed, or has at least 50% of its assets located within that country; (iii) has the primary trading markets for its securities in that country or (iv) is a governmental entity or an agency, instrumentality or political subdivision of that country.

THE ASIA PACIFIC REGION IS DIVIDED INTO THE FOLLOWING GROUPS:

ASIA

China, Hong Kong, India, Indonesia, Japan, Malaysia, Pakistan, Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam

ASIA PACIFIC

Countries of Asia plus Australia and New Zealand

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Matthews Focuses on Individual Companies

·                  Matthews develops views about the course of growth in the region over the long term.

·                  Matthews then seeks to combine these beliefs with its analysis of individual companies and their fundamental characteristics.

·                  Matthews then seeks to invest in companies and securities that it believes are positioned to help a Fund achieve its investment objective.

·                  Each of the Funds may invest in companies of any equity market capitalization (the number of shares outstanding times the market price per share). Except with respect to the Matthews Asia Small Companies Fund, a company’s size (including its market capitalization) is not a primary consideration for Matthews when it decides whether to include that company’s securities in one or more of the Funds. The Matthews Asia Small Companies Fund invests at least 80% of its assets in Small Companies, as defined on page 46.

In extreme market conditions, Matthews may sell some or all of a Fund’s securities and temporarily invest that Fund’s money in U.S. government securities or money-market instruments backed by U.S. government securities, if it believes it is in the best interest of shareholders to do so. As of the date of this Prospectus, this has never occurred; but if it were to occur, the investment goals of the Funds may not be achieved.

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Principal Risks of Investing in the Funds

There is no guarantee that a Fund’s investment objective will be achieved or that the value of the investments of any Fund will increase. If the value of a Fund’s investments declines, the net asset value (“NAV”) per share of that Fund will decline and investors may lose some or all of the value of their investment.

Foreign securities held by the Funds may be traded on days and at times when the NYSE is closed and the NAV of the Funds is therefore not calculated. Accordingly, the NAV of the Funds may be significantly affected on days when shareholders are not able to buy or sell shares of the Funds. For additional information on the calculation of the Funds’ NAV, see page 58.

Your investment in the Funds is exposed to many different financial, market, regional and country-related risks, including, but not limited to, the lower degree of economic development in some countries, less developed and more uncertain legal and financial systems, unusual or unique political structures, unpredictable foreign relations, the state of international economics and the global financial system, natural resources dependencies, and the effect of climate and environmental conditions. A description of some of these risks follows. Information about risks that relate to a specific Fund are discussed later in this prospectus in connection with that specific Fund. Additional information is also included in the Funds’ Statement of Additional Information (“SAI”).

Different investment styles tend to shift in and out of favor depending upon market and economic conditions as well as investor sentiment. A Fund may outperform or underperform other funds that employ a different investment style. Examples of different investment styles include growth and value investing. Growth stocks may be more volatile than other stocks because they are more sensitive to investor perceptions of the issuing company’s potential earnings growth. Growth companies are often expected by investors to increase their earnings at a certain rate. When these expectations are not met, stocks prices may decrease significantly even if earnings showed an absolute increase. Also, because growth companies usually reinvest a high portion of earnings in their business, growth stocks may lack the dividends of some value stocks that can cushion stock prices in a falling market. Growth oriented funds will typically underperform when value investing is in favor. Value stocks are those that are believed to be undervalued in comparison to their peers due to adverse business developments or other factors.

Matthews is an active manager, and its investment process does not rely on passive or index strategies. For this reason, you should not expect that the composition of the Funds’ portfolios will closely track the composition or weightings of market indices (including any Fund’s benchmark index) or of the broader markets generally. As a result, investors should expect that changes in the Funds’ net asset values and performance (over short and longer periods) will vary from the performance of such indices and of broader markets. Differences in the performance of the Funds and any index (or the markets generally) may also result from the Funds’ fair valuation procedures, which the Funds use to value their holdings for purposes of determining each Fund’s net asset value, see page 58.

Because of these risks, your investment in a Fund should constitute only a portion of your overall investment portfolio, not all of it. We recommend that you invest in a Fund only for the long term (at least five years), so that you can better manage volatility in a Fund’s NAV (as described below). Investing in regionally concentrated, single-country, or small company funds, such as the Funds, may not be appropriate for all investors.

There is no guarantee that your investment in a Fund will increase in value. The value of your investment in a Fund could go down, meaning you could lose some or all of your investment. An investment in a Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

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Political, Social and Economic Risks

The value of the Funds’ assets may be adversely affected by political, economic, social and religious instability; inadequate investor protection; changes in laws or regulations of countries within the Asia Pacific region (including countries in which the Funds invest, as well as the broader region); international relations with other nations; natural disasters; corruption and military activity. The Funds may have difficulty in obtaining or enforcing judgments against companies of Asia Pacific countries or their management. Furthermore, the economies of many Asia Pacific countries differ from the economies of more developed countries in many respects, such as rate of growth, inflation, capital reinvestment, resource self-sufficiency, financial system stability, the national balance of payments position and sensitivity to changes in global trade. The governments of certain countries have placed restrictions on the operational freedom of private enterprise, and have or may nationalize privately owned assets including companies held by the Funds.

From time to time, a relatively small number of companies and industries may represent a large portion of the total stock market in a particular country or region, and these companies and industries may be especially sensitive to adverse social, political, economic or regulatory developments. Asia Pacific countries also have different accounting standards, corporate disclosure, governance and regulatory requirements than do the United States and other more developed countries. As a result, there may be less publicly available information about companies in Asia Pacific countries. There is generally less governmental regulation of stock exchanges, brokers and issuers than in the United States, which may result in less transparency with respect to a company’s operations. The economies of many Asia Pacific countries are dependent on exports and global trade and some have limited natural resources (such as oil), resulting in dependence on foreign sources for certain raw materials, and vulnerability to global fluctuations in price or supply. Changes in the economies of the main trading partners of Asia Pacific countries, including the United States and other developed countries, could negatively impact the growth prospects of Asia Pacific countries and markets. The securities markets of Asia Pacific countries may be correlated with the markets of the United States and other developed countries. A decline in the markets of the United States or other countries could result in a significant decline in Asia Pacific markets. Because the Funds concentrate their investments in a single region of the world (or in a single country within that region), the Funds’ performance may be more volatile than that of funds that invest globally. If securities of Asia Pacific countries (or the securities of companies from individual countries in the region) fall out of favor, it may cause a Fund to underperform funds that do not concentrate in a single region or country.

Currency Risks

When a Fund buys or sells securities in an Asia Pacific market, the transaction is usually undertaken in the local currency rather than in U.S. dollars. To execute such transactions, a Fund must purchase or sell a specified amount of the local currency, which exposes that Fund to the risk that the value of the foreign currency will increase or decrease. Similarly, when a Fund receives income from Asia Pacific securities, that Fund receives local currency rather than U.S. dollars. As a result, the value of that Fund’s portfolio holdings as well as the income derived from these holdings may be impacted. While the Funds are permitted to hedge currency risks, Matthews does not anticipate doing so at this time. For additional information see the Funds’ SAI. Additionally, Asia Pacific countries may utilize formal or informal currency-exchange controls (or “capital controls”). Currency controls may artificially affect the value of the Funds’ holdings and may negatively impact the Funds’ ability to calculate their NAV (see, Pricing of Fund Shares, on page 58). Such controls may also restrict or prohibit a Fund’s ability to repatriate both investment capital and income; this, in turn, may undermine the value of the Fund’s holdings and potentially place the Fund’s assets at risk of total loss. In extreme circumstances, such as the imposition of capital controls that substantially limit repatriation, the Funds may suspend shareholders’ redemption privileges for an indefinite period.

Risks Associated with Emerging Markets

Many Asia Pacific countries are considered emerging markets. Investing in emerging markets involves the political, social, economic and currency risks described above, as well as different and greater risks than investing in more developed markets because, among other things, emerging markets are often less stable politically and economically, and their markets are smaller and less developed than that of the United States. Their stock exchanges and brokerage industries do not have the level of government oversight as do those in the United States. Securities markets of such countries are substantially smaller, less liquid and more volatile than securities markets in the United States. Local regulation frequently imposes limits (collars) on intra-day changes in trading prices for securities, which may artificially constrain trading volume and distort market pricing mechanisms. Many markets also require the suspension of trading in securities at times or for reasons that are unusual in U.S. markets (e. g., trading may be suspended prior to shareholder meetings or in connection with the distribution of dividends, stock splits or other corporate actions). Trading suspensions may make a determination of a Fund’s net asset value more difficult and may result in the security being treated as being illiquid during the suspension. The absence of negotiated brokerage commissions in certain countries may result in higher brokerage and other fees. The procedures and rules governing foreign transactions and custody also may involve delays in payment, delivery or recovery of money or investments. In

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addition, standards related to corporate governance may be weaker, and transactions with or among management may be less transparent. As a result, the rights of a Fund and other independent shareholders may be adversely impacted in corporate actions. Brokerage commissions, custodian services fees, withholding taxes and other costs relating to investment in emerging markets are generally higher than in the United States. All of these factors make the prices of securities of emerging market companies, especially smaller companies, in which the Funds may invest, generally more volatile than the prices of securities of companies in developed markets, and increase the risk of loss to the Funds.

Risks Associated with Smaller Companies

The Matthews Asia Small Companies Fund invests in securities of small companies and each of the other Funds may invest in the securities of small companies. Smaller companies may offer substantial opportunities for capital growth; they also involve substantial risks, and investments in smaller companies may be considered speculative. Such companies often have limited product lines, markets or financial resources. Smaller companies may be more dependent on one or few key persons and may lack depth of management. Larger portions of their stock may be held by a small number of investors (including founders and management) than is typical of larger companies. Credit may be more difficult to obtain (and on less advantageous terms) than for larger companies. As a result, the influence of creditors (and the impact of financial or operating restrictions associated with debt financing) may be greater than in larger or more established companies. Both of these factors may dilute the holdings, or otherwise adversely impact the rights of a Fund and smaller shareholders in corporate governance or corporate actions. Small companies also may be unable to generate funds necessary for growth or development, or be developing or marketing new products or services for which markets are not yet established and may never become established. The Funds may have more difficulty obtaining information about smaller companies, making it more difficult to evaluate the impact of market, economic, regulatory and other factors on them. Informational difficulties may also make valuing or disposing of their securities more difficult than it would for larger companies. Securities of smaller companies may trade less frequently and in lesser volume than more widely held securities and the securities of such companies generally are subject to more-abrupt or erratic price movements than more widely held or larger, more-established companies or the market indices in general. Among the reasons for the greater price volatility are the less certain growth prospects of smaller companies, the lower degree of liquidity in the markets for such securities, and the greater sensitivity of smaller companies to changing economic conditions. For these and other reasons, the value of securities of smaller companies may react differently to political, market and economic developments than the markets as a whole or than other types of stocks.

Trading Markets and Depositary Receipts

Securities of companies from the Asia Pacific region typically are listed on their respective stock exchanges, but may also be traded on other markets within or outside of the Asia Pacific region (including U.S. markets). Asia Pacific securities may also trade in the form of depositary receipts, including American, European and Global Depositary Receipts. Although depositary receipts have risks similar to the securities that they represent, they may also involve higher expenses, and may lack fungibility, which may result in their trading at a discount (or premium) to the underlying security. In addition, depositary receipts may not pass through voting and other shareholder rights, and may be less liquid than the underlying securities listed on an exchange.

Volatility

The smaller size and lower levels of liquidity in the markets of developing countries, as well as other factors may result in changes in the prices of Asia Pacific securities that are more dramatic, or volatile, than those of companies in more developed regions. This volatility can cause the price of a Fund’s shares (NAV) to go up or down dramatically. Volatility in the price of an investment can be disadvantageous because you may have planned or may need to sell your investment at a time when its value has decreased. Because of this volatility, it is recommended that you invest in a Fund only for the long term (at least five years).

Credit Ratings

In this prospectus, references are made to credit ratings of debt securities, which measure an issuer’s expected ability to pay principal and interest over time (but not other risks, including market risks). Credit ratings are determined by rating organizations, such as Moody’s Investors Service, Inc. (“Moody’s”), Standard & Poor’s Corporation (“S&P”) or Fitch Inc. (“Fitch”), based on their view of past and potential developments related to an issuer (or security). Such potential developments may not reflect actual developments or a rating organization’s evaluation may be incomplete or inaccurate. The following terms are generally used to describe the credit quality of debt securities depending on the security’s credit rating or, if unrated, credit quality as determined by Matthews:

·                  High quality

·                  Investment grade

·                  Below investment grade (“high-yield securities” or “junk bonds”)

For a further description of credit ratings, see the Funds’ SAI “Appendix: Bond Ratings.” As noted in the Appendix to the Funds’ SAI, Moody’s, S&P and Fitch may modify their ratings of securities to show relative standing within

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a rating category, with the addition of numerical modifiers (1, 2 or 3) in the case of Moody’s, and with the addition of a plus (+) or minus (-) sign in the case of S&P or Fitch. A Fund may purchase a security, regardless of any rating modification, provided the security is rated at or above the Fund’s minimum rating category. For example, a Fund may purchase a security rated B3 by Moody’s, B- by S&P, or B- by Fitch, to the extent that the Fund may purchase securities rated B.

Convertible Securities

The Matthews Asia Pacific Equity Income Fund may invest in convertible preferred stocks. In addition, the Matthews Asia Pacific Fund, Matthews Asian Growth and Income Fund and Matthews India Fund may invest in convertible preferred stocks, and convertible bonds and debentures. Convertible securities may, under specific circumstances, be converted into the common or preferred stock of the issuing company, and may be denominated in U.S. dollars, Euros or a local currency. The value of convertible securities varies with a number of factors including the value and volatility of the underlying stock, the level and volatility of interest rates, the passage of time, dividend policy and other variables.

Convertible bonds and debentures carry different kinds of risks than those of common and preferred stocks. These risks include repayment risk and interest rate risk. Repayment risk is the risk that a borrower does not repay the amount of money that was borrowed (or “principal”) when the bond was issued. This failure to repay the amount borrowed is called a “default,” and could result in a Fund losing its investment. Interest rate risk is the risk that market rates of interest may increase over the rate paid by a bond held by a Fund. When interest rates increase, the market value of a bond paying a lower rate generally will decrease. If a Fund were to sell such a bond, the Fund might receive less than it originally paid for it. In addition, many Asia Pacific convertible securities are not rated by rating agencies like Moody’s, S&P or Fitch, or, if they are rated, they may be rated below investment grade. These securities are commonly referred to as “junk bonds” and may have a greater risk of default. Investing in a convertible security denominated in a currency different from that of the security into which it is convertible may expose a Fund to currency risk as well as risks associated with the level and volatility of the foreign exchange rate between the security’s currency and the underlying stock’s currency.

High-Yield Securities

Securities rated lower than Baa by Moody’s, or equivalently rated by S&P or Fitch, and unrated securities of similar credit quality are referred to as “high-yield securities” or “junk bonds.” Investing in these securities involves special risks in addition to the risks associated with investments in higher-rated fixed income securities. While offering a greater potential opportunity for capital appreciation and higher yields, high-yield securities typically entail greater potential price volatility, entail greater levels of credit and repayment risks, and may be less liquid than higher-rated securities. High-yield securities are considered predominantly speculative with respect to the issuer’s continuing ability to meet principal and interest payments. They may also be more susceptible to real or perceived adverse economic and competitive industry conditions than higher-rated securities. An economic downturn or period of rising interest rates could adversely affect the market for these securities and reduce a Fund’s ability to sell these securities (liquidity risk). Issuers of securities in default may fail to resume principal and interest payments, in which case a Fund may lose its entire investment. Funds that invest in junk bonds may be subject to greater levels of credit and liquidity risk than funds that do not invest in such securities.

Dividend-Paying Equities

Each of the Funds, including the Matthews Asia Pacific Equity Income Fund and Matthews Asian Growth and Income Fund (each of which seek to provide current income), may invest in dividend-paying equity securities. There can be no guarantee that companies that have historically paid dividends will continue to pay them or pay them at the current rates in the future. A reduction or discontinuation of dividend payments may have a negative impact on the value of a Fund’s holdings in these companies. In addition, dividend-paying equity securities, in particular those whose market price is closely related to their yield, may exhibit greater sensitivity to interest rate changes. During periods of rising interest rates, such securities may decline. A Fund’s investment in such securities may also limit its potential for appreciation during a broad market advance.

Initial Public Offerings (IPOs)

IPOs of securities issued by unseasoned companies with little or no operating history are risky and their prices are highly volatile, but they can result in very large gains in their initial trading. Attractive IPOs are often oversubscribed and may not be available to the Funds, or only in very limited quantities. Thus, when a Fund’s size is smaller, any gains or losses from IPOs may have an exaggerated impact on a Fund’s performance than when a Fund is larger. Although IPO investments have had a positive impact on the performance of some funds, there can be no assurance that a Fund will have favorable IPO investment opportunities in the future, or that a Fund’s investments in IPOs will have a positive impact on a Fund’s performance.

Preferred Stocks

Preferred stock represents an equity or ownership interest in a company. Preferred stock normally pays dividends at a specified rate and has precedence over common stock in the event the issuer is liquidated or declares bankruptcy.

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However, in the event a company is liquidated or declares bankruptcy, the claims of owners of bonds take precedence over the claims of those who own preferred and common stock. Preferred stock, unlike common stock, often has a stated dividend rate payable from the corporation’s earnings. Preferred stock dividends may be cumulative or non-cumulative, participating, or auction rate. If interest rates rise, the fixed dividend on preferred stocks may be less attractive, causing the price of such stocks to decline. Preferred stock may have mandatory sinking fund provisions, as well as provisions allowing the stock to be called or redeemed, which can limit the benefit of a decline in interest rates. Preferred stock is subject to many of the risks to which common stock and debt securities are subject.

Recent Developments in Global Credit and Equity Markets

Global capital markets have recently experienced credit and valuation problems and the mass liquidation of investment portfolios. These conditions have generated extreme volatility and illiquidity. This volatility and illiquidity has been exacerbated by, among other things, growing uncertainty regarding the extent of the problems in the mortgage industry and financial institutions, decreased risk tolerance by investors, significantly tightened availability of credit and global deleveraging. This financial crisis has caused a significant decline in the value and liquidity of many securities, and made valuation of the Funds’ portfolios more difficult.

Current market conditions may continue or worsen. Because of the expansive scope of these conditions, past investment strategies and models may not be able to identify all significant risks that the Funds may encounter, or to predict the duration of these events. These conditions could prevent the Funds from successfully executing their investment strategies, result in further declines in the market values of the investment assets held by the Funds, or require the Funds to dispose of investments at a loss while such adverse market conditions prevail.  

The Funds attempt to remain fully invested at all times and do not anticipate hedging interest rate or currency risks. These practices may make the Funds’ performance more volatile, especially during periods of distress in financial and credit markets.

Market Timing

The Funds are not intended for, and the Funds attempt to discourage, time zone arbitrage and other market-timing transactions in shares of the Funds. Market timing can harm other shareholders because it can dilute the value of their shares. Market timing can also disrupt the management of a Fund’s investment portfolio and cause the targeted Fund to incur costs, which are borne by non-redeeming shareholders. Such activity poses a risk for your investment in a Fund. See page 64 for a discussion of policies and procedures intended to minimize such trading.

Regional and Country Risks

In addition to the risks discussed above, there are specific risks associated with investing in the Asia Pacific region, including the risk of severe economic, political or military disruption. The Asia Pacific region comprises countries in all stages of economic development. Some Asia Pacific economies may experience overextension of credit, currency devaluations and restrictions, rising unemployment, high inflation, underdeveloped financial services sectors, heavy reliance on international trade and prolonged economic recessions.

Global economies and financial markets are becoming increasingly interconnected. This increases the possibility that conditions in one country or region might adversely impact the issuers of securities in a different country or region. The economies of many Asia Pacific countries are dependent on the economies of the United States, Europe and other Asian countries, and, as seen in the recent developments in global credit and equity markets, events in any of these economies could negatively impact the economies of Asia Pacific countries.

Currency fluctuations, devaluations and trading restrictions in any one country can have a significant effect on the entire Asia Pacific region. Increased political and social instability in any Asia Pacific country could cause further economic and market uncertainty in the region, or result in significant downturns and volatility in the economies of Asia Pacific countries. As an example, in the late 1990s, the economies in the Asian region suffered significant downturns and increased volatility in their financial markets.

The development of Asia Pacific economies, and particularly those of China, Japan and South Korea, may also be affected by political, military, economic and other factors related to North Korea. Since 1953, the United States has maintained a military force in South Korea to help deter the ongoing military threat from North Korean forces. The situation remains a source of tension and is currently volatile, particularly as North Korea appears to continue to develop nuclear capabilities, and tactical and strategic missile systems. Negotiations to ease tensions and resolve the political division of the Korean peninsula have been carried on from time to time producing sporadic and inconsistent results. Recently, there have also been efforts to increase economic, cultural and humanitarian contacts among North Korea, South Korea, Japan and other nations. There can be no assurance that such negotiations or efforts will continue or will ease tensions in the region.

Military action or the risk of military action or strains on the economy of North Korea could have a materially adverse effect on all countries in the region, particularly China, Japan and South Korea. Consequently, any military action or other instability could adversely impact the ability of a Fund to achieve its investment objective. Lack of available information regarding North Korea is also a significant risk factor.

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Some companies in the region may have less established shareholder governance and disclosure standards than in the U.S. Some companies are controlled by family and financial institutional investors whose investment decisions may be hard to predict based on standard U.S.-based equity analysis. Consequently, investments may be vulnerable to unfavorable decisions by the management or shareholders. Corporate protectionism (e.g., adoption of poison pills and restrictions on shareholders seeking to influence management) appears to be increasing, which could adversely impact the value of affected companies.

Japan. The Japanese economy and financial markets produced disappointing returns over the past two decades. Despite significant monetary and fiscal action by the government of Japan as well as the Bank of Japan (BoJ), the Japanese stock market, as measured by the Tokyo Stock Price Index, has been volatile, and the footing of the Japanese economy remains uncertain. The Japanese yen has also shown volatility over this period. Such currency volatility could affect returns in the future. The Japanese yen may also be affected by currency volatility elsewhere in Asia, especially Southeast Asia. Depreciation of the yen, and any other currencies in which the Funds’ securities are denominated, will decrease the value of the Funds’ holdings. Japan’s economy could be negatively impacted by many factors, including rising interest rates, tax increases and budget deficits.

Poor performance of the global economy has negatively affected equity returns in Japan, and may continue to do so. Japan’s economy and stock market have in the recent past had a strong correlation with the U.S. economic cycle and U.S. stock markets, and thus Japan’s economy may continue to be affected by current economic problems in the U.S. Japan also has a growing economic relationship with China and other Southeast Asian countries, and thus Japan’s economy may also be affected by economic, political or social instability in those countries (whether resulting from local or global events).

In the longer term, Japan will have to address the effects of an aging population, such as a shrinking workforce and higher welfare costs. To date, Japan has had restrictive immigration policies that, combined with other demographic concerns, appear to be having a negative impact on the economy. Japan’s growth prospects appear to be dependent on its export capabilities. Japan’s neighbors, in particular China, have become increasingly important export markets. Despite a deepening in the economic relationship between Japan and China, the countries’ political relationship has at times been strained in recent years. Should political tension increase, it could adversely affect the economy, especially the export sector, and destabilize the region as a whole. Japan also remains heavily dependent on oil imports, and higher commodity prices could therefore have a negative impact on the economy.

Japan is largely dependent on foreign economies for raw materials. International trade is important to Japan’s economy, as exports provide the means to pay for many of the raw materials it must import. Because of the concentration of Japanese exports in highly visible products such as automobiles, machine tools and semiconductors, and the large trade surplus ensuing from there, Japan has entered a difficult phase in its relations with its trading partners, particularly with respect to the United States, with whom its trade imbalance is the greatest. The export-sector of the Japanese economy is heavily dependent on exports to the United States and other countries whose currencies are tied to or that utilize the U.S. dollar for foreign exchange. Changes in the dollar/yen exchange rate could adversely affect the profitability and value of export-oriented Japanese companies.

China. The Chinese government exercises significant control over China’s economy through the allocation of resources, by controlling payment of foreign currency-denominated obligations, by setting monetary policy and by providing preferential treatment to particular industries or companies. For over three decades, the Chinese government has been reforming economic and market practices and providing a larger sphere for private ownership of property. While currently contributing to growth and prosperity, these reforms could be altered or discontinued at any time. Military conflicts, either in response to internal social unrest or conflicts with other countries, could disrupt economic development. China’s long-running conflict over Taiwan remains unresolved, while territorial border disputes persist with several neighboring countries. While economic relations with Japan have deepened, the political relationship between the two countries has become more strained in recent years, which could weaken economic ties. Development of the Chinese economy is also vulnerable to developments on the Korean peninsula. Should political tension increase or military actions be precipitated, it could adversely affect the economy and destabilize the region as a whole. There is also a greater risk involved in currency fluctuations, currency convertibility, interest rate fluctuations and higher rates of inflation. The Chinese government also sometimes takes actions intended to increase or decrease the values of Chinese stocks. The emergence of a domestic consumer class is still at an early stage, making China’s economic health largely dependent on exports. China’s growing trade surplus with the U.S. has increased the risk of trade disputes, which could potentially have adverse effects on China’s management of its currency, as well as on some export-dependent sectors. Social cohesion in China is being tested by growing income inequality and larger scale environmental degradation. Social instability could threaten China’s political system and economic growth, which could decrease the value of the Fund’s investments.

Hong Kong. Since Hong Kong reverted to Chinese sovereignty in 1997, it has been governed by the Basic Law, a “quasi-constitution.” The Basic Law guarantees a high degree of autonomy in certain matters until 2047, while defense and foreign affairs are the responsibility of the

9

central government in Beijing. If China were to exert its authority so as to alter the economic, political or legal structures or the existing social policy of Hong Kong, investor and business confidence in Hong Kong could be negatively affected, which in turn could negatively affect markets and business performance and have an adverse effect on the Funds’ investments. There is uncertainty as to whether China will continue to respect the relative independence of Hong Kong and refrain from exerting a tighter grip on Hong Kong’s political, economic and social concerns. The economy of Hong Kong may be significantly affected by increasing competition from the emerging economies of Asia, including that of China itself. In addition, the Hong Kong dollar trades within a fixed trading band rate to (or is “pegged” to) the U.S. dollar. This fixed exchange rate has contributed to the growth and stability of the Hong Kong economy. However, some market participants have questioned the continued viability of the currency peg. It is uncertain what affect any discontinuance of the currency peg and the establishment of an alternative exchange rate system would have on capital markets generally and the Hong Kong economy.

Taiwan. The political reunification of China and Taiwan, over which China continues to claim sovereignty, is a highly complex issue and is unlikely to be settled in the near future. The continuing hostility between China and Taiwan may have an adverse impact on the values of investments in both China and Taiwan, or make investments in China and Taiwan impractical or impossible. Any escalation of hostility between China and Taiwan would likely distort Taiwan’s capital accounts, as well as have a significant adverse impact on the value of investments in both countries and the region.

Taiwan’s growth has to a significant degree been export-driven. While the percentage of Taiwan’s exports purchased by the United States has been declining recently, the United States has remained a key export market. Accordingly, Taiwan is affected by changes in the economies of the United States and other main trading partners, by protectionist impulses in those countries and by the development of export sectors in lower-wage economies. In the event that growth in the export sector declines in the future, the burden of future growth will increasingly be placed on domestic demand.

The island of Taiwan has limited natural resources, resulting in dependence on foreign sources for certain raw materials and vulnerability to global fluctuations of price and supply. This dependence is especially pronounced in the energy sector. In recent years, over half of Taiwan’s crude oil has been supplied by Kuwait and Saudi Arabia. A significant increase in energy prices could have an adverse impact on Taiwan’s economy.

South Korea. Investing in South Korean securities has special risks, including political, economic and social instability, and the potential for increasing militarization in North Korea (see page 8). The market capitalization and trading volume of issuers in South Korean securities markets are concentrated in a small number of issuers, which results in potentially fewer investment opportunities for the Funds. South Korea’s financial sector has shown certain signs of systemic weakness and illiquidity, which, if exacerbated, could prove to be a material risk for any investments in South Korea.

There are also a number of risks to the Funds associated with the South Korean government. The South Korean government has historically exercised and continues to exercise substantial influence over many aspects of the private sector. The South Korean government from time to time has informally influenced the prices of certain products, encouraged companies to invest or to concentrate in particular industries and induced mergers between companies in industries experiencing excess capacity. The South Korean government has sought to minimize excessive price volatility on the South Korean Stock Exchange through various steps, including the imposition of limitations on daily price movements of securities, although

10

there is no assurance that this would prevent the value of an investment from declining over time.

South Korea is dependent on foreign sources for its energy needs. A significant increase in energy prices could have an adverse impact on South Korea’s economy.

Thailand. In recent years Thailand has experienced increased political and militant unrest in its predominantly Muslim southern provinces. While the unrest and associated acts of violence have been contained in the South, they could spread to other parts of the country, negatively impacting tourism and the broader economy. Thailand’s political institutions remain unseasoned, increasing the risk of political instability. In September 2006, Thailand’s elected government was overthrown in a military coup and replaced by new leadership backed by a military junta. The impact of the coup and military rule on investments in Thai securities was initially negative and subsequently has been uneven. Following the coup, the new government imposed investment controls that appear to have been designed to control volatility in the Thai baht and to support certain export-oriented Thai industries. These controls have been revised and updated since their initial imposition, and more recently have largely been suspended (although there is no guarantee that such controls will not be re-imposed). However, partially in response to these controls, an offshore market for the exchange of Thai baht developed. The depth and transparency of this market have been uncertain. With the general suspension of investment controls, it is unclear whether this offshore market will continue. Accordingly, this market’s impact on the Funds is uncertain. Political instability continues in Thailand. The military junta gave way to a democratically elected government but that government was subsequently ousted by a political movement that used public protest and civil unrest to remove the government. This lack of stability may lead to a deterioration of economic conditions in the country. This risk could be exacerbated upon the death of the aged, reigning king, who has generally been a force for stability in the country.

India. In India, the government has exercised and continues to exercise significant influence over many aspects of the economy. Government actions, bureaucratic obstacles and inconsistent economic reform within the Indian government have had a significant effect on the economy and could adversely affect market conditions, deter economic growth and the profitability of private enterprises. Global factors and foreign actions may inhibit the flow of foreign capital on which India is dependent to sustain its growth. Large portions of many Indian companies remain in the hands of their founders (including members of their families). Corporate governance standards of family-controlled companies may be weaker and less transparent, which increases the potential for loss and unequal treatment of investors. India experiences many of the risks associated with developing economies, including relatively low levels of liquidity, which may result in extreme volatility in the prices of Indian securities.

Religious, cultural and military disputes persist in India, and between India and Pakistan (as well as sectarian groups within each country). The longstanding dispute with Pakistan over the bordering Indian state of Jammu and Kashmir remains unresolved. In recent years, terrorists believed to be based in Pakistan struck Mumbai (India’s financial capital), further damaging relations between the two countries. If the Indian government is unable to control the violence and disruption associated with these tensions (including both domestic and external sources of terrorism), the result may be military conflict, which could destabilize the economy of India. Both India and Pakistan have tested nuclear arms, and the threat of deployment of such weapons could hinder development of the Indian economy, and escalating tensions could impact the broader region, including China.

Australia. The Australian economy is dependent, in particular, on the price and demand for agricultural products and natural resources. The United States and  

For additional information about strategies and risks, see individual Fund descriptions on pages 14–53 and the Funds’ SAI. The SAI is available to you free of charge. To receive an SAI, please call 800.789.ASIA (2742), visit the Funds’ website at matthewsasia.com, or visit the SEC’s website at sec.gov and access the EDGAR database.

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China are Australia’s largest trade and investment partners, which may make the Australian markets sensitive to economic and financial events in those two countries. Australian markets may also be susceptible to sustained increases in oil prices as well as weakness in commodity and labor markets.

Indonesia. Indonesia’s political institutions and democracy have a relatively short history, increasing the risk of political instability. Indonesia has in the past faced political and militant unrest within several of its regions, and further unrest could present a risk to the local economy and stock markets. The country has also experienced acts of terrorism, predominantly targeted at foreigners, which has had a negative impact on tourism. Corruption and the perceived lack of a rule of law in dealings with international companies in the past may have discouraged much needed foreign direct investment. Should this issue remain, it could negatively impact the long-term growth of the economy. In addition, many economic development problems remain, including high unemployment, a fragile banking sector, endemic corruption, inadequate infrastructure, a poor investment climate and unequal resource distribution among regions.

Philippines. Philippines’ consistently large budget deficit has produced a high debt level and has forced the country to spend a large portion of its national government budget on debt service. Large, unprofitable public enterprises, especially in the energy sector, contribute to the government’s debt because of slow progress on privatization. Some credit rating agencies have expressed concerns about Philippines’ ability to sustain its debt.

Malaysia. Malaysia has previously imposed currency controls and a 10% “exit levy” on profits repatriated by foreign entities such as the Funds and has limited foreign ownership of Malaysian companies (which may artificially support the market price of such companies). The Malaysian capital controls have been changed in significant ways since they were first adopted without prior warning on September 1, 1998. Malaysia has also abolished the exit levy. However, there can be no assurance that the Malaysian capital controls will not be changed adversely in the future or that the exit levy will not be re-established, possibly to the detriment of the Funds and their shareholders. In addition, Malaysia is currently exhibiting political instability which could have an adverse impact on the country’s economy.

Singapore. As a small open economy, Singapore is particularly vulnerable to external economic influences, such as the Asian economic crisis of the late 1990s. Although Singapore has been a leading manufacturer of electronics goods, the extent to which other countries can successfully compete with Singapore in this and related industries, and adverse Asian economic influences generally, may negatively affect Singapore’s economy.

Pakistan. Changes in the value of investments in Pakistan and in companies with significant economic ties to that country largely depend on continued economic growth and reform in Pakistan, which remains uncertain and subject to a variety of risks. Adverse developments can result in substantial declines in the value of investments. Pakistan has and continues to face high levels of political instability and social unrest at both the regional and national levels. Such instability has and may erupt again into wide-scale disorder. The Pakistan government recently imposed a state of emergency following riots and the deaths of opposition leaders. Social and political instability may also result in increased levels of terrorism, prolonged economic disruption and may discourage foreign investment.

Ongoing disputes with India over the Kashmir border region may result in armed conflict between the two nations, both of which possess nuclear capabilities. Even in the absence of armed conflict, the lingering threat of war with India may depress economic growth and investment in Pakistan. Additionally, Pakistan’s geographic location and its shared borders with Afghanistan and Iran increase the risk that it will be involved in, or otherwise affected by, international conflict. Pakistan’s recent economic growth is in part attributable to high levels of foreign aid, loans and debt forgiveness. Such international support, however, may be significantly reduced or terminated in response to changes in the political leadership of Pakistan.

Pakistan faces a wide range of other economic problems and risks. Pakistan had undertaken a privatization initiative, but recently halted that effort. There is substantial uncertainty over whether privatization will continue and whether existing efforts will be reversed. Pakistan is subject to substantial natural resource constraints, which both hamper development and make Pakistan’s economy vulnerable to price fluctuations in these resources. Pakistan maintains large budgetary and current account deficits. The resulting high levels of national debt may not be sustainable. Pakistan also maintains a trade deficit, which could be worsened if relations with the United States, the largest market for Pakistani exports, deteriorate. The rights of investors and other property owners in Pakistan are subject to protection by a developing judicial system that is widely perceived as lacking transparency. Inflation threatens long-term economic growth and may deter foreign investment in the country. Leaders of the recently installed civil government have previously adopted policies that increased legal and economic uncertainty and inhibited foreign investment.

Vietnam. In 1992, Vietnam initiated the process of privatization of state-owned enterprises, and expanded that process in 1996. The Vietnamese government has exercised and continues to exercise significant influence over many aspects of the economy. Accordingly, government and bureaucratic actions have a significant effect on the economy and could adversely affect market conditions,

12

deter economic growth and the profitability of private enterprises. Some Vietnamese industries, including commercial banking, remain dominated by state-owned enterprises. To date, economic, political and legal reform has proceeded at a slow pace, and foreign direct investment remains at a developmental stage. Currently, employees and management boards hold a majority of the equity of most privatized enterprises. In addition, the government of Vietnam continues to hold, on average, more than one-third of the equity in such firms. Only a small percentage of the shares of privatized companies are held by investors. In addition, Vietnam continues to impose limitations on foreign ownership of Vietnamese companies. There can be no guarantee that Vietnam’s privatization process, or its efforts to reform its economic, political or legal systems will continue.

The development of Vietnam’s economy is dependent on export markets and is vulnerable to events in these markets. There is also a greater risk involved in currency fluctuations, currency convertibility and interest rate fluctuations. Inflation threatens long-term economic growth and may deter foreign investment in the country. Like many developing countries, Vietnamese markets have relatively low levels of liquidity, which may result in extreme volatility in the prices of Vietnamese securities.

Foreign investors in Vietnam are currently required to purchase and sell securities of Vietnamese companies through a single, pre-selected broker-dealer. This procedure decreases transparency in the market, may result in higher execution costs and limits the Funds’ ability to utilize competition amongst broker-dealers to enhance the quality of execution. This procedure may also decrease the confidentiality of the Funds’ transactions, exposing the Funds to a greater potential for front-running and similar practices.

13

Matthews Asian Growth and Income Fund

Investment Strategy

Under normal market conditions, the Matthews Asian Growth and Income 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 equity securities and convertible securities, of any duration or quality, of companies located in Asia, as defined on page 2.

The Fund attempts to offer investors a relatively stable means of participating in a portion of the Asian region’s growth prospects, while providing some downside protection, in comparison to a portfolio that invested purely in equity securities. The strategy of owning convertible bonds and dividend-paying equities is designed to help the Fund to meet its investment objective while helping to reduce the volatility of its portfolio.

Risks of Investment

Please see “Principal Risks of Investing in the Funds” on page 4. The Fund may invest in convertible securities, which have different kinds of risks than those of the ownership of common and preferred stocks. Many Asia Pacific convertible securities are not rated by rating agencies like Moody’s, S&P or Fitch, or, if they are rated, they may be rated below investment grade. These securities are commonly referred to as “junk bonds” and may have a greater risk of default. Please see page 6 for additional information. The Fund may invest in companies from different countries; each country’s size, level of economic development, and economic and political stability will have an impact on the value of those companies. For the risks associated with investments in specific countries, see pages 8 to 13.

OBJECTIVE

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

PORTFOLIO MANAGERS

Lead Manager:

Andrew T. Foster

Co-Manager:

Robert J. Horrocks, PhD

SYMBOL

MACSX

There is no guarantee that the Fund’s investment objective will be achieved or that the value of the investments of the Fund will increase.

14

Past Performance

The bar chart below shows the Fund’s performance for the past 10 years and how it has varied from year to year, reflective of the Fund’s volatility. Also shown are the best and worst quarters for this time period. The information presented is past performance and is not a prediction of future results. Both the bar chart and performance table assume reinvestment of all dividends and distributions.

ANNUAL RETURNS FOR PERIODS ENDED 12/31

The table below shows the Fund’s performance over certain periods of time, along with performance of its benchmark index. The index performance does not take into consideration fees, expenses or taxes. The Fund’s past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future.

AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2008

(1)          After-tax returns are calculated using the highest historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401 (k) plans or individual retirement accounts.

(2)          As of April 29, 2008, the primary benchmark for the Matthews Asian Growth and Income Fund became the MSCI All Country Asia ex Japan Index to reflect more closely the group of countries in which the portfolio invests. Previously, the MSCI All Country Far East ex Japan Index served as the Fund’s primary benchmark. 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 Matthews Asian Growth and Income Fund may invest in countries that are not included in the MSCI All Country Asia ex Japan Index. It is not possible to invest directly in an index. Source: Index data from Morgan Stanley Capital International; total return calculations performed by PNC Global Investment Servicing (U.S.) Inc., formerly known as PFPC Inc.

(3)          The performance of foreign indices may be based on different exchange rates than those used by the Fund and, unlike the Fund’s NAV, is not adjusted to reflect fair value at the close of regular trading on the New York Stock Exchange (generally 4:00 PM Eastern Time) on each day that the exchange is open for trading.

(4)          Calculated from 8/31/94.

(5)          The MSCI All Country Far East ex Japan Index is a free float–adjusted market capitalization–weighted index of the stock markets of China, Hong Kong, Indonesia, Malaysia, Philippines, Singapore, South Korea, Taiwan and Thailand. The Matthews Asian Growth and Income Fund may invest in countries that are not included in the MSCI All Country Far East ex Japan Index. It is not possible to invest directly in an index. Source: Index data from Morgan Stanley Capital International; total return calculations performed by PNC Global Investment Servicing (U.S.) Inc.

15

Fees and Expenses

These tables describe the fees and expenses that you may pay if you buy and hold shares of this Fund.

(1)          Redemption fees are paid directly to the Fund. Please see Market Timing Activities and Redemption Fees on page 64 for more information.  

(2)          Management fees are charged at a rate of 0.75% of average daily net assets within the Fund complex between $0 and $2 billion, 0.6834% of average daily net assets within the complex between $2 billion and $5 billion, and 0.65% of average daily net assets within the complex over $5 billion.  

(3)          The Funds pay Administration and Shareholder Servicing Fees at a rate of 0.25% of the aggregate average daily net assets of the Funds up to $2 billion, 0.1834% of the aggregate average daily net assets of the Funds between $2 billion and $5 billion, 0.15% of the aggregate average daily net assets of the Funds between $5 billion and $7.5 billion, and 0.125% of the aggregate average daily net assets of the Funds over $7.5 billion.

These operating expense figures are based on actual expenses paid by the Funds during the Fund’s last fiscal year. Any decrease in the Fund’s total assets from that period may result in higher operating expenses than are shown in the above table, and the potential increase in operating expenses may be significant.

EXAMPLE OF FUND EXPENSES

This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:

16

Financial Highlights

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

The total return represents the rate that an investor would have earned on an investment in the Fund, assuming reinvestment of all dividends and distributions.

(1)          The Matthews Asian Growth and Income Fund’s fiscal year-end changed from August 31 to December 31, effective December 31, 2004.

(2)          Calculated using the average daily shares method.

(3)          Less than $0.01 per share.

(4)          Not annualized.

(5)          Annualized.

The information for the fiscal years ending December 31, 2008 and December 31, 2007 has been derived from the Fund’s financial statements, which have been audited by PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm. Their report, along with the Fund’s financial statements, is available without charge upon request. The audited financial statements for all prior fiscal periods were performed by the Fund’s prior independent registered public accounting firm.

17

Matthews Asia Pacific Equity Income Fund

Investment Strategy

Under normal market conditions, the Matthews Asia Pacific Equity Income 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 publicly traded common stocks, preferred stocks, convertible preferred stocks and other equity-related instruments (including, for example, investment trusts and other financial instruments) of companies located in the Asia Pacific region, as defined on page 2.

The Fund seeks to provide a level of current income that is higher than the yield generally available in Asia Pacific equity markets over the long term. The Fund also intends to distribute its realized income, if any, regularly (typically quarterly in March, June, September and December). There is no guarantee that the Fund will be able to distribute its realized income, if any, regularly. If the value of the Fund’s investments declines, the NAV of the Fund will decline and investors may lose some or all of the value of their investments.

Because of the Fund’s objective of seeking total return with an emphasis on providing current income (i.e., income and capital appreciation), the Fund expects that it will primarily invest in companies that exhibit attractive dividend yields and the propensity (in Matthews’ judgment) to pay increasing dividends. Matthews believes that in addition to providing current income, growing dividend payments by portfolio companies are an important component supporting capital appreciation. Matthews expects that such companies typically will be of medium or large size, but the Fund may invest in companies of any size. Matthews measures a company’s size with respect to fundamental criteria such as, but not limited to, market capitalization, book value, revenues, profits, cash flow, dividends paid and number of employees.

Risks of Investment

Please see “Principal Risks of Investing in the Funds” on page 4. The Fund may invest in dividend-paying equities, which have different kinds of risks than those of the ownership of common and preferred stocks; for information on the associated risks, see page 7.

The Fund may invest in companies from different countries; each country’s size, level of economic development, and economic and political stability will have an impact on the value of those companies. For the risks associated with investments in specific countries, see pages 8 to 13.

OBJECTIVE

Total return with an emphasis on providing current income.

Total return includes current income (dividends and distributions paid to shareholders) and capital gains (share price appreciation). The Fund measures total return over longer periods.

PORTFOLIO MANAGERS

Lead Manager:

Jesper Madsen, CFA

Co-Manager:

Andrew T. Foster

SYMBOL

MAPIX

There is no guarantee that the Fund’s investment objective will be achieved or that the value of the investments of the Fund will increase.

18

Past Performance

The bar chart below shows the Fund’s performance for each full calendar year since its inception and how it has varied from year to year, refelective of the Fund’s volatility. Also shown are the best and worst quarters for this time period. The information presented is past performance and is not a prediction of future results. Both the bar chart and performance table assume reinvestment of all dividends and distributions.

ANNUAL RETURNS FOR PERIOD ENDED 12/31

The table below shows the Fund’s performance over certain periods of time, along with performance of its benchmark index. The index performance does not take into consideration fees, expenses or taxes. The Fund’s past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future.

AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2008

19

Fees and Expenses

These tables describe the fees and expenses that you may pay if you buy and hold shares of this Fund.

(1)          Redemption fees are paid directly to the Fund. Please see Market Timing Activities and Redemption Fees on page 64 for more information.

(2)          Management fees are charged at a rate of 0.75% of average daily net assets within the Fund complex between $0 and $2 billion, 0.6834% of average daily net assets within the complex between $2 billion and $5 billion, and 0.65% of average daily net assets within the complex over $5 billion.

(3)          The Funds pay Administration and Shareholder Servicing Fees at a rate of 0.25% of the aggregate average daily net assets of the Funds up to $2 billion, 0.1834% of the aggregate average daily net assets of the Funds between $2 billion and $5 billion, 0.15% of the aggregate average daily net assets of the Funds between $5 billion and $7.5 billion, and 0.125% of the aggregate average daily net assets of the Funds over $7.5 billion.

These operating expense figures are based on actual expenses paid by the Funds during the Fund’s last fiscal year. Any decrease in the Fund’s total assets from that period may result in higher operating expenses than are shown in the above table, and the potential increase in operating expenses may be significant.

EXAMPLE OF FUND EXPENSES

This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:

20

Financial Highlights

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

The total return represents the rate that an investor would have earned on an investment in the Fund, assuming reinvestment of all dividends and distributions.

The information for the fiscal years ending December 31, 2008 and December 31, 2007 has been derived from the Fund’s financial statements, which have been audited by PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm. Their report, along with the Fund’s financial statements, is available without charge upon request. The audited financial statements for all prior fiscal periods were performed by the Fund’s prior independent registered public accounting firm.

21

Matthews Asia Pacific Fund

Investment Strategy

Under normal market conditions, the Matthews Asia Pacific 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 the Asia Pacific region, as defined on page 2. The Fund may also invest in the convertible securities, of any duration or quality, of Asia Pacific companies.

Risks of Investment

Please see “Principal Risks of Investing in the Funds” on page 4. The Fund may invest in convertible securities, which have different kinds of risks than those of the ownership of common and preferred stocks. Many Asia Pacific convertible securities are not rated by rating agencies like Moody’s, S&P or Fitch, or, if they are rated, they may be rated below investment grade. These securities are commonly referred to as “junk bonds” and may have a greater risk of default. Please see page 6 for additional information. The Fund may invest in companies from different countries; each country’s size, level of economic development, and economic and political stability will have an impact on the value of those companies. For the risks associated with investments in specific countries, see pages 8 to 13.

OBJECTIVE

Long-term capital appreciation

PORTFOLIO MANAGERS

Lead Manager:

Taizo Ishida

Co-Manager:

Sharat Shroff, CFA

SYMBOL

MPACX

There is no guarantee that the Fund’s investment objective will be achieved or that the value of the investments of the Fund will increase.

22

Past Performance

The bar chart below shows the Fund’s performance for each full calendar year since its inception and how it has varied from year to year, reflective of the Fund’s volatility. Also shown are the best and worst quarters for this time period. The information presented is past performance and is not a prediction of future results. Both the bar chart and performance table assume reinvestment of all dividends and distributions.

ANNUAL RETURNS FOR PERIODS ENDED 12/31

The table below shows the Fund’s performance over certain periods of time, along with performance of its benchmark index. The index performance does not take into consideration fees, expenses or taxes. The Fund’s past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future.

AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2008

(1)          After-tax returns are calculated using the highest historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401 (k) plans or individual retirement accounts.

(2)          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. It is not possible to invest directly in an index. Source: Index data from Morgan Stanley Capital International; total return calculations performed by PNC Global Investment Servicing (U.S.) Inc.

(3)          The performance of foreign indices may be based on different exchange rates than those used by the Fund and, unlike the Fund’s NAV, is not adjusted to reflect fair value at the close of regular trading on the New York Stock Exchange (generally 4:00 PM Eastern Time) on each day that the exchange is open for trading.

23

Fees and Expenses

These tables describe the fees and expenses that you may pay if you buy and hold shares of this Fund.

(1)          Redemption fees are paid directly to the Fund. Please see Market Timing Activities and Redemption Fees on page 64 for more information.

(2)          Management fees are charged at a rate of 0.75% of average daily net assets within the Fund complex between $0 and $2 billion, 0.6834% of average daily net assets within the complex between $2 billion and $5 billion, and 0.65% of average daily net assets within the complex over $5 billion.

(3)          The Funds pay Administration and Shareholder Servicing Fees at a rate of 0.25% of the aggregate average daily net assets of the Funds up to $2 billion, 0.1834% of the aggregate average daily net assets of the Funds between $2 billion and $5 billion, 0.15% of the aggregate average daily net assets of the Funds between $5 billion and $7.5 billion, and 0.125% of the aggregate average daily net assets of the Funds over $7.5 billion.

These operating expense figures are based on actual expenses paid by the Funds during the Fund’s last fiscal year. Any decrease in the Fund’s total assets from that period may result in higher operating expenses than are shown in the above table, and the potential increase in operating expenses may be significant.

EXAMPLE OF FUND EXPENSES

This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:

24

Financial Highlights

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

The total return represents the rate that an investor would have earned on an investment in the Fund, assuming reinvestment of all dividends and distributions.

(1)          The Matthews Asia Pacific Fund’s fiscal year-end changed from August 31 to December 31, effective December 31, 2004.

(2)          The Matthews Asia Pacific Fund commenced operations on October 31, 2003.

(3)          Calculated using the average daily shares method.

(4)          Less than $0.01 per share.

(5)          Not annualized.

(6)          Annualized.

The information for the fiscal years ending December 31, 2008 and December 31, 2007 has been derived from the Fund’s financial statements, which have been audited by PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm. Their report, along with the Fund’s financial statements, is available without charge upon request. The audited financial statements for all prior fiscal periods were performed by the Fund’s prior independent registered public accounting firm

25

Matthews Pacific Tiger Fund

Investment Strategy

Under normal market conditions, the Matthews Pacific Tiger 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, as defined on page 2, excluding Japan.

Risks of Investment

Please see “Principal Risks of Investing in the Funds” on page 4. The Fund may invest in companies from different countries; each country’s size, level of economic development and economic and political stability will have an impact on the value of those companies. For the risks associated with investments in specific countries, see pages 8 to 13.

OBJECTIVE

Long-term capital appreciation

PORTFOLIO MANAGERS

Lead Managers:

Richard H. Gao

Sharat Shroff, CFA

Co-Manager:

Mark W. Headley

SYMBOL

MAPTX

There is no guarantee that the Fund’s investment objective will be achieved or that the value of the investments of the Fund will increase.

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Past Performance

The bar chart below shows the Fund’s performance for the past 10 years and how it has varied from year to year, reflective of the Fund’s volatility. Also shown are the best and worst quarters for this time period. The information presented is past performance and is not a prediction of future results. Both the bar chart and performance table assume reinvestment of all dividends and distributions.

ANNUAL RETURNS FOR PERIODS ENDED 12/31

The table below shows the Fund’s performance over certain periods of time, along with performance of its benchmark index. The index performance does not take into consideration fees, expenses or taxes. The Fund’s past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future.

AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2008

(1)          After-tax returns are calculated using the highest historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401 (k) plans or individual retirement accounts.

(2)          As of April 29, 2008, the primary benchmark for the Matthews Pacific Tiger Fund was changed to the MSCI All Country Asia ex Japan Index so as to more closely match the portfolio’s blend of holdings. Prior to that date, the MSCI All Country Far East ex Japan Index served as the Fund’s primary benchmark. 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 Matthews Pacific Tiger Fund may invest in countries that are not included in the MSCI All Country Asia ex Japan Index. It is not possible to invest directly in an index. Source: Index data from Morgan Stanley Capital International; total return calculations performed by PNC Global Investment Servicing (U.S.) Inc.

(3)          The performance of foreign indices may be based on different exchange rates than those used by the Fund and, unlike the Fund’s NAV, is not adjusted to reflect fair value at the close of regular trading on the New York Stock Exchange (generally 4:00 PM Eastern Time) on each day that the exchange is open for trading.

(4)          Calculated from 8/31/94.

(5)          The MSCI All Country Far East ex Japan Index is a free float–adjusted market capitalization–weighted index of the stock markets of China, Hong Kong, Indonesia, Malaysia, Philippines, Singapore, South Korea, Taiwan and Thailand. The Matthews Pacific Tiger Fund may invest in countries that are not included in the MSCI All Country Far East ex Japan Index. It is not possible to invest directly in an index. Source: Index data from Morgan Stanley Capital International; total return calculations performed by PNC Global Investment Servicing (U.S.) Inc.

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Fees and Expenses

These tables describe the fees and expenses that you may pay if you buy and hold shares of this Fund.

(1)          Redemption fees are paid directly to the Fund. Please see Market Timing Activities and Redemption Fees on page 64 for more information.

(2)          Management fees are charged at a rate of 0.75% of average daily net assets within the Fund complex between $0 and $2 billion, 0.6834% of average daily net assets within the complex between $2 billion and $5 billion, and 0.65% of average daily net assets within the complex over $5 billion.

(3)          The Funds pay Administration and Shareholder Servicing Fees at a rate of 0.25% of the aggregate average daily net assets of the Funds up to $2 billion, 0.1834% of the aggregate average daily net assets of the Funds between $2 billion and $5 billion, 0.15% of the aggregate average daily net assets of the Funds between $5 billion and $7.5 billion, and 0.125% of the aggregate average daily net assets of the Funds over $7.5 billion.

These operating expense figures are based on actual expenses paid by the Funds during the Fund’s last fiscal year. Any decrease in the Fund’s total assets from that period may result in higher operating expenses than are shown in the above table, and the potential increase in operating expenses may be significant.

EXAMPLE OF FUND EXPENSES

This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:

28

Financial Highlights

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

The total return represents the rate that an investor would have earned on an investment in the Fund, assuming reinvestment of all dividends and distributions.