UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES

Matthews International Funds

(Exact name of registrant as specified in charter)

Four Embarcadero Center, Suite 550
San Francisco, CA 94111

G. Paul Matthews, President
Four Embarcadero Center, Suite 550
San Francisco, CA 94111

Registrant’s telephone number, including area code: 415-788-6036

Date of fiscal year end: December 31

Date of reporting period: June 30, 2006

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.

It is important to keep in mind that the views expressed in this report by the Investment Advisor and its portfolio managers should not be construed as investment advice or promises, and may not be relied upon as an indication of trading intent on the part of any of the Matthews Asian Funds.

Statements of fact are from sources considered reliable, but the Investment Advisor makes no representation or guarantee as to their completeness or accuracy.

CONTENTS

Messages to Shareholders
From the Board of Trustees			2
From the Investment Advisor			3
Redemption Fee Policy and Investor Disclosure			5
Manager Commentaries, Funds At A Glance and Schedules of Investments:
Matthews Asia Pacific Fund			6
Matthews Pacific Tiger Fund			12
Matthews Asian Growth and Income Fund			18
Matthews Asian Technology Fund			26
Matthews China Fund			32
Matthews India Fund			40
Matthews Japan Fund			46
Matthews Korea Fund			52
Disclosure of Fund Expenses			58
Statements of Assets and Liabilities			60
Statements of Operations			62
Statements of Changes in Net Assets			64
Financial Highlights			68
Notes to Financial Statements			76
Submission of Matters to a Vote of Shareholders			84

MESSAGES TO SHAREHOLDERS

FROM THE BOARD OF TRUSTEES

Dear Shareholder,

With the interests of the Funds’ shareholders of utmost importance in mind, I am pleased to announce the appointment of two additional independent trustees to the Matthews Asian Funds, Geoff Bobroff and Rhoda Rossman. I am also pleased to welcome back Paul Matthews, a founding interested trustee, to the Board.

In the second quarter of 2006, the Board of Trustees recommended to shareholders via a Proxy Statement that they increase the number of trustees to seven (from the previous four), as we believe that a larger board will expand the breadth and depth of the Board by adding trustees with varied backgrounds and qualifications. We also believe that an increase in independent trustees will be beneficial to current and future shareholders. In May 2006, at a Special Meeting of Shareholders, shareholders voted overwhelmingly in support of the Board’s recommendation.

We are very pleased that Geoff and Rhoda have joined the Board as independent trustees, as they possess excellent qualifications and their skills will add dimension to the Board. Geoff brings three decades of experience in the investment management industry. Geoff ’s knowledge of fund operations is a welcome addition to the Board. Rhoda has been in the investment management industry for almost 20 years, and the Board is particularly delighted to have her portfolio management experience.

We are also pleased to welcome back Paul Matthews to the Board. With the increase in the Board’s size, we concluded that it was beneficial to have Paul, a portfolio manager for the Funds and Chief Investment Officer of Matthews International Capital Management, LLC, Investment Advisor to the Funds, return as an interested trustee.

As always, your interests remain of paramount importance to us, and we thank you for your support of the Matthews Asian Funds.

Sincerely,

Richard K. Lyons
Chairman of the Board of Trustees
Matthews Asian Funds

Richard K. Lyons has been an independent trustee of the Matthews Asian Funds since August 1994, one month prior to the Funds’ launch in September 1994, and has served as Chairman of the Board of Trustees since May 2000. Mr. Lyons is a Professor of Finance and Economics at the Haas School of Business at the University of California, Berkeley.

2       MATTHEWS ASIAN FUNDS

JUNE 30, 2006

FROM THE INVESTMENT ADVISOR

Dear Shareholder,

We are pleased to present this semi-annual report for the Matthews Asian Funds. The first half of 2006 will be remembered as a turbulent period for global financial markets—roiled by rising geopolitical tensions, oil prices and interest rates. Not surprisingly, this background has led to increased volatility in almost all Asian markets, most of which enjoyed a relatively strong first quarter followed by a very weak second quarter. While the net returns for most Asian investors for the year to date have been either modestly positive or modestly negative, the primary characteristic of the past six months has been increased volatility.

Against this background, the relatively strong performance of many mainland Chinese securities stands out and, in our opinion, reflects the continued rapid evolution of the mainland financial system, best illustrated by continued deregulation and restructuring of the major Chinese banks. While the global uncertainty that has impacted all financial markets in recent months is disconcerting, the sustained pace of economic deregulation and increased regional integration within Asia continues apace, and we remain optimistic for the region’s long-term prospects.

     The first half of 2006 will be remembered as a turbulent period for global financial markets—roiled by rising geopolitical tensions, oil prices and interest rates.

Around the region, the markets that had been strongest in 2005 have generally disappointed so far in 2006, while some of last year’s laggards have shown improving returns. Within the Matthews Asian Funds family, the Matthews China Fund was the best performer year to date, while both the Matthews Japan Fund and Matthews Korea Fund posted negative returns for the same period. Following a number of years of generally positive economic growth for the region, investors have been increasingly concerned that Asian central banks are in the early stages of a new monetary tightening cycle and, together with growing global tensions, this is weighing on market sentiment. Central banks from China to Tokyo are either raising interest rates or talking about raising interest rates—an environment that is rarely positive for equity markets in the short term.

The challenges facing central bankers in China are quite different from those affecting their counterparts in Japan: China is trying to slow its extraordinary pace of economic growth of recent years to reduce inflationary pressures and rein in speculative investment, whereas

800.789.ASIA [2742] www.matthewsfunds.com       3

MESSAGE TO SHAREHOLDERS

Japan is still struggling to convince the world that its prolonged recession is finally over. We continue to believe that the economic evolution underway in the region provides a positive long-term environment for individual companies in a wide range of industries, particularly those that are exposed to the consumer around the region—where most of our portfolios remain overweight.

During the first half of 2006, the Board of Trustees of the Matthews Asian Funds accepted our recommendation to close the Matthews Pacific Tiger Fund to most new investors. Following a significant growth in the Fund’s size in recent years, we believe that it is in the best interests of shareholders to restrict the Fund’s growth to allow its investment team to continue to focus on the all-capitalization strategy that the Fund has pursued since its inception in 1994. While the long-term trend around the Asian region is toward consolidation across borders, the current environment still favors smaller and medium-sized companies in many countries, particularly in consumer-related industries. Outside of Japan, there are currently very few listed companies in Asia that are directly focused on the consumer and that have market capitalizations in excess of $1 billion, and we believe there are many attractive long-term investments in this sector. The Matthews Pacific Tiger Fund has also benefited over the years from investment in smaller companies in the technology and finance sectors. While the Fund intends to maintain the bulk of its exposure to large and medium-sized companies, we will continue to strive to hold a significant position in smaller companies, while of course retaining selectivity.

The second half of 2006 will likely be a testing period for many financial markets, with global geo-political challenges topping the list of investor concerns. This uncertainty may lead to many Asian growth companies being sold down to valuation levels that are attractive from a historical perspective. We will certainly be watching for such opportunities in our quest for investments in reasonably priced companies with promising growth prospects.

Thank you for your continued support of the Matthews Asian Funds.

G. Paul Matthews
Chairman and Chief Investment Officer
Matthews International Capital Management, LLC

Chief Executive Officer and Portfolio Manager

Matthews International Capital Management, LLC

4       MATTHEWS ASIAN FUNDS

JUNE 30, 2006

REDEMPTION FEE POLICY

The Funds 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 longest will be redeemed first. The redemption fee does not apply to redemptions of shares held in certain omnibus accounts and retirement plans that cannot currently implement the redemption fee. While these exceptions exist, the Funds are not accepting any new accounts that cannot implement the redemption fee. In addition, the Funds are actively discussing a schedule for implementation of the fee with these providers. For more information on this policy, please see the Funds’ prospectus.

INVESTOR DISCLOSURE

Past Performance: All performance quoted in this report is past performance and is no guarantee of future results. Investment return and principal value will fluctuate with changing market conditions so that when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the returns quoted. Returns are net of the Funds’ management fee and other operating expenses. 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 1-800-789-ASIA [2742] or visit www.matthewsfunds.com.

Investment Risk: Mutual fund shares are not deposits or obligations of, or guaranteed by, any depositary institution. Shares are not insured by the FDIC, Federal Reserve Board or any government agency and are subject to investment risks, including possible loss of principal amount invested. Investing in international markets may involve additional risks, such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. In addition, single-country and sector funds may be subject to a higher degree of market risk than diversified funds because of concentration in a specific industry, sector or geographic location. Please see the Funds’ prospectus and Statement of Additional Information for more risk disclosure.

Fund Holdings: The Fund holdings shown in this report are as of June 30, 2006. 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 SEC for the first and third quarters of each fiscal year on Form N-Q. The Funds’ Form N-Q is available on the SEC’s website at www.sec.gov and may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Matthews Asian Funds publishes quarterly reports containing the information filed in the form N-Q, copies of which may be obtained by visiting the Funds’ website at www.matthewsfunds.com or by calling 1-800-789-ASIA [2742].

Proxy Voting Record: The Funds’ Statement of Additional Information containing a description of the policies and procedures that the Matthews Asian Funds use to vote proxies relating to portfolio securities, along with each Fund’s proxy voting record relating to portfolio securities held during the 12-month period ended June 30, 2006, is available upon request, at no charge, at the Funds’ website at www.matthewsfunds.com or by calling 1-800-789-ASIA [2742], or on the SEC’s website at www.sec.gov.

You should consider the investment objectives, risks, charges and expenses of the Matthews Asian Funds carefully before making an investment decision. A prospectus with this and other information about the Funds may be obtained by calling 800-789-ASIA [2742] or by visiting www.matthewsfunds.com. Please read the prospectus carefully before you invest or send money as it explains the risks associated with investing in international markets. These include risks related to social and political instability, market illiquidity and currency volatility.

The Matthews Asian Funds are distributed by PFPC Distributors, Inc., 760 Moore Road, King of Prussia, PA 19406.

800.789.ASIA [2742] www.matthewsfunds.com       5

MATTHEWS ASIA PACIFIC FUND

PORTFOLIO MANAGER COMMENTARY

Lead Manager:
Mark W. Headley

Co-Managers:
G. Paul Matthews
Richard H. Gao
Andrew T. Foster

The Matthews Asia Pacific Fund gained 2.89% in the first half of 2006, underperforming both its benchmark, the MSCI All Country Asia Pacific Index, which gained 4.45%, and the Lipper Pacific Region Funds category average, which gained 6.13%. Overall, markets continued their strong momentum seen in the previous two years until finally correcting significantly between mid-May and early June. A high level of volatility has set in as both global and local investors struggle to assess the outlook for Asia and the global economy.

During the six-month period, the Fund saw gains from its financial holdings, which included a number of the larger positions in the portfolio. The definition of financials ranges from Chinese property and insurance companies to the more-traditional Asian banks and brokerages. The portfolio has a significant commitment across the financial universe, as we believe that these companies are an important means of participating in the region’s long-term growth and development. An example is Sumitomo Trust, one of the portfolio’s largest holdings, which provides focused exposure to Japan’s rapidly evolving asset-management industry.

The Fund also saw solid returns in consumer staples, health care, industrials and telecoms. Losses tended to be concentrated in the information technology and consumer discretionary sectors. The Fund has suffered against the benchmark for some time due to a lack of commodity and materials exposure. While underperformance is always painful, we remain committed to a portfolio with the current composition of companies that are driven by organic growth rather than global commodity prices. By country, China was by far the largest contributor to positive returns, followed by Australia, Hong Kong and India. China has remained the star performer of 2006 after lagging many regional markets over the previous two years. The Fund saw modest losses in Korea and Thailand. The recent sell-off has been particularly painful in India and Japan.

Overall, Asian markets have struggled against the headwinds of rising interest rates across the globe, surging energy and commodity prices, and the lofty valuations frequently found after several years of exceptional returns. For the most part, threats to Asia have appeared to be external. Instability in the Middle East and significant concerns over the health of the U.S. economy are impacting sentiment in Asia—in our opinion, more so than any of the domestic worries that have occurred. Economic growth and corporate earnings growth have generally held up well, but it is realistic to expect slower growth in both the broad economies and at corporate levels as interest rates provide a break and energy exacts a toll similar to a large tax increase. While profit margins have been pressured at many Asian manufacturers, with increasing costs and little ability to raise prices, the portfolio has been significantly weighted toward the financials, consumer and technology industries.

A key consideration in the construction of the portfolio has been whether or not a company’s earnings were generated by global or domestic activity. For a number of years, we have had a broad bias toward domestically driven companies, as we found this to be a more pure form of participation in Asia—and such companies were relatively unknown to global investors. Over the past two years, Asian consumption has become a powerful thematic story and, in many cases, such companies have seen valuations driven to premiums over the broad market. As a result, we moved some assets back toward strong global competitors. In recent months, as markets have corrected sharply, that trend has been reversed with a modest return toward a domestic bias.

6       MATTHEWS ASIAN FUNDS

JUNE 30, 2006

The portfolio has also seen an increase in its exposure to the health care industry, where we see long-term potential in both the domestic and global arenas.

The portfolio comprises a wide range of companies representing what we consider to be the best in Asia. We are working to concentrate that exposure as much as possible with an emphasis on larger positions in our top holdings and have increased positions in some holdings. Two examples are Lenovo Group, one of the world’s leading computer manufacturers and distributors, and Advanced Info Services, Thailand’s dominant mobile phone operator. While there is uncertainty in both cases, we see long-term growth potential at reasonable valuations. The emphasis in our stock selection remains on those companies that generate their own organic growth rather than rely on the whims of global commodity markets to produce their earnings. We have also been working to increase the portfolio’s exposure to smaller companies in which many of Asia’s most interesting opportunities lie.

Overall, the current environment in Asia seems reasonably attractive, with healthy economic growth, solid corporate earnings in most areas and continued integration of Asia’s many regional economies. The bulk of the risks seem to be from external sources, whether a slow-down in U.S. demand or further spikes in global energy and commodity prices.

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MATTHEWS ASIA PACIFIC FUND

FUND AT A GLANCE

FUND DESCRIPTION		SYMBOL: MPACX

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. The Asia Pacific region includes Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand, Pakistan, Philippines, Singapore, South Korea, Taiwan and Thailand. The Fund may also invest in the convertible securities, of any duration or quality, of Asia Pacific companies. Examples of convertible securities are convertible bonds and debentures which may, under specific circumstances, be converted into the common or preferred stock of that company.

PORTFOLIO MANAGERS

Lead Manager: Mark W. Headley
Co-Managers: G. Paul Matthews, Richard H. Gao and Andrew T. Foster

PERFORMANCE AS OF JUNE 30, 2006¹

Fund Inception: 10/31/03		3 MO				YTD				1 YR				SINCE INCEPTION2
Matthews Asia Pacific Fund			–4.07	%			2.89	%			20.92	%			17.69	%
MSCI All Country Asia Pacific Index3			–2.73	%			4.45	%			30.69	%			19.38	%
Lipper Pacific Region Funds Category Average4			–3.28	%			6.13	%			34.43	%			20.23	%

OPERATING EXPENSES⁵

For the six months ended 6/30/06 (annualized)6			1.22	%
For Fiscal Year 2005			1.34	%

PORTFOLIO TURNOVER⁷

For the six months ended 6/30/06 (annualized)6			37.43	%
For Fiscal Year 2005			15.84	%

8       MATTHEWS ASIAN FUNDS

ALL DATA IS AS OF JUNE 30, 2006, UNLESS OTHERWISE NOTED

COUNTRY ALLOCATION

Japan			40.6	%
China/Hong Kong			21.3	%
South Korea			11.5	%
India			7.8	%
Singapore			4.5	%
Thailand			4.1	%
Taiwan			3.9	%
Australia			2.3	%
Indonesia			2.2	%
United Kingdom8			0.8	%
Cash and other			1.0	%

SECTOR ALLOCATION⁹

Financials			33.5	%
Consumer Discretionary			22.7	%
Information Technology			17.7	%
Consumer Staples			8.7	%
Industrials			6.3	%
Telecommunications Services			5.4	%
Health Care			4.7	%
Cash and other			1.0	%

MARKET CAP EXPOSURE

Large cap (over $5 billion)			55.8	%
Mid cap ($1–$5 billion)			29.8	%
Small cap (under $1 billion)			13.4	%
Cash and other			1.0	%

NAV		FUND ASSETS		REDEMPTION FEE		12B-1 FEES
$15.32		$397.1 million		2.00% within 90 calendar days		None

The performance data and graph do not reflect the deduction of taxes that a shareholder would pay on dividends, capital gain distributions or redemption of fund shares.

800.789.ASIA [2742] www.matthewsfunds.com       9

MATTHEWS ASIA PACIFIC FUND

SCHEDULE OF INVESTMENTS (UNAUDITED)
EQUITIES: 99.0%*

		SHARES				VALUE
JAPAN: 40.6%
The Sumitomo Trust & Banking Co., Ltd.			907,000			$	9,906,938
Yamada Denki Co., Ltd.			76,700				7,821,470
Ito En, Ltd.			211,000				7,725,358
T&D Holdings, Inc.			94,030				7,600,293
Sekisui House, Ltd.			546,000				7,495,334
Nintendo Co., Ltd.			44,100				7,398,812
Mizuho Financial Group, Inc.			866				7,332,698
Sysmex Corp.			148,800				6,865,292
Monex Beans Holdings, Inc.			6,805				6,422,055
Takeda Pharmaceutical Co., Ltd.			102,100				6,352,254
NIWS Co. HQ, Ltd.			7,374				6,301,793
Hoya Corp.			170,700				6,070,858
Ryohin Keikaku Co., Ltd.			74,000				6,065,362
Nomura Holdings, Inc.			322,000				6,035,390
Matsushita Electric Industrial Co., Ltd.			284,000				5,993,184
Toyota Motor Corp. ADR			55,600				5,815,204
Credit Saison Co., Ltd.			122,200				5,787,522
H.I.S. Co., Ltd.			193,000				5,565,362
Secom Co., Ltd.			115,000				5,436,473
Canon, Inc. ADR			72,700				5,326,729
Sharp Corp.			329,000				5,197,763
The Chiba Bank, Ltd.			553,000				5,170,482
ASKUL Corp.			231,400				5,146,042
Shimano, Inc.			137,500				4,205,260
Honda Motor Co., Ltd. ADR			103,100				3,280,642
Nidec Corp.			43,900				3,145,579
Honda Motor Co., Ltd.			34,000				1,078,469
Unicharm Petcare Corp.			9,200				393,918
Total Japan							160,936,536
CHINA/HONG KONG: 21.3%
Dah Sing Financial Holdings, Ltd.			1,234,800				9,046,794
Lenovo Group, Ltd.			23,268,000				7,714,755
Swire Pacific, Ltd. A Shares			724,000				7,471,846
China Life Insurance Co., Ltd. H Shares			3,961,000				6,247,795
NetEase.com, Inc. ADR **			249,700				5,575,801
Shangri-La Asia, Ltd.			2,784,000				5,359,154
China Mobile, Ltd. ADR			186,900				5,347,209
Hang Lung Group, Ltd.			2,373,000				5,133,255
Television Broadcasts, Ltd.			788,000				4,870,273
Bank of Communications Co., Ltd. H Shares			7,021,000				4,565,372
China Vanke Co., Ltd. B Shares			5,343,043				4,540,654
Ports Design, Ltd.			2,773,500				4,463,998
Lianhua Supermarket Holdings Co., Ltd. H Shares			3,952,000				4,223,581
SA SA International Holdings, Ltd.			10,618,000				3,759,770
Giordano International, Ltd.			7,844,000				3,711,768
ASM Pacific Technology, Ltd.			533,500				2,600,077
Total China/Hong Kong							84,632,102
SOUTH KOREA: 11.5%
Hana Financial Group, Inc.			186,340				8,759,699
Amorepacific Corp. **			14,691				6,341,107
SK Telecom Co., Ltd. ADR			261,200				6,117,304
Samsung Electronics Co., Ltd.			8,860				5,631,178
S1 Corp.			103,390				4,642,334
Kookmin Bank			44,780				3,681,518
Nong Shim Co., Ltd.			13,940				3,673,254
Kookmin Bank ADR			35,540				2,951,952
GS Home Shopping, Inc.			32,002				2,411,745
Pacific Corp. ***			8,966				1,474,251
Total South Korea							45,684,342

10       MATTHEWS ASIAN FUNDS

JUNE 30, 2006

		SHARES				VALUE
INDIA: 7.8%
Dabur India, Ltd.			1,999,312			$	6,179,455
Sun Pharmaceuticals Industries, Ltd.			318,023				5,441,067
Infosys Technologies, Ltd.			80,768				5,401,404
HDFC Bank, Ltd.			305,124				5,275,053
Nestle India, Ltd.			218,290				4,723,058
I-Flex Solutions, Ltd.			158,279				3,865,872
Total India							30,885,909
SINGAPORE: 4.5%
DBS Group Holdings, Ltd.			628,700				7,189,228
Hyflux, Ltd.			3,724,812				5,553,626
Fraser and Neave, Ltd.			1,964,000				4,963,199
Total Singapore							17,706,053
THAILAND: 4.1%
Advanced Info Service Public Co., Ltd.			4,145,300				9,786,910
Bangkok Bank Public Co., Ltd.			2,342,200				6,512,938
Total Thailand							16,299,848
TAIWAN: 3.9%
Taiwan Semiconductor Manufacturing Co., Ltd.			3,376,151				6,089,636
HON HAI Precision Industry Co., Ltd.			830,961				5,132,953
Taiwan Secom Co., Ltd.			2,414,020				4,428,779
Total Taiwan							15,651,368
AUSTRALIA: 2.3%
AXA Asia Pacific Holdings, Ltd.			1,438,839				6,703,910
Rural Press, Ltd.			324,794				2,568,018
Total Australia							9,271,928
INDONESIA: 2.2%
Bank Rakyat Indonesia			7,889,500				3,492,060
PT Ramayana Lestari Sentosa			37,330,000				3,022,509
PT Astra International			2,205,500				2,321,454
Total Indonesia							8,836,023
UNITED KINGDOM: 0.8%
Standard Chartered PLC			130,840				3,193,757
Total United Kingdom							3,193,757
TOTAL INVESTMENTS: 99.0%							393,097,866
(Cost $349,758,165****)
CASH AND OTHER ASSETS, LESS LIABILITIES: 1.0%							3,957,727
NET ASSETS: 100.0%						$	397,055,593

*		As a percentage of net assets as of June 30, 2006
**		Non–income producing security
***		Fair valued under the direction of the Board of Trustees
****		Cost of investments is $349,758,165 and net unrealized appreciation consists of:

Gross unrealized appreciation						$	56,624,476
Gross unrealized depreciation							(13,284,775	)
Net unrealized appreciation						$	43,339,701

ADR		American Depositary Receipt

See accompanying notes to financial statements.

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MATTHEWS PACIFIC TIGER FUND

Note: This fund is closed to most new investors.

PORTFOLIO MANAGER COMMENTARY

Lead Manager:
Mark W. Headley

Co-Manager:
Richard H. Gao

For the first six months of 2006, the Matthews Pacific Tiger Fund underperformed its benchmark and its peer group. The Fund gained 4.05%, while the MSCI All Country Far East ex-Japan Index gained 7.50% and the MSCI All Country Asia ex-Japan Index—which includes India—gained 7.69%. Over the same period, the Lipper Pacific ex-Japan Funds category average rose 6.33%.

The period began with a general continuation of the strong market environment seen for most of the previous three years, but a significant downturn began in mid-May. Asian markets continued to contend with rising interest rates, surging energy and commodity prices, war in the Middle East and general concern over the sustainability of consumption in the United States.

During the six-month period, the Fund saw quite varied performance across different markets, with China and Hong Kong making significant positive contributions. Singapore, Taiwan and Indonesia were also all broadly positive. India and Thailand produced the most significant negative results for the portfolio. On a sector basis, financials was the significant gainer, while consumer staples was the notably weak sector.

The Fund continues to have primary exposure to financial, consumer and technology companies, with country exposure as a secondary consideration. The lack of exposure to energy and commodity businesses in Asia hurt relative performance over the period. We continue to believe that investing in companies that create organic growth, rather than those that rely on global commodity pricing, is an appropriate long-term strategy. During the period, the Fund increased its exposure to the pharmaceuticals industry.

The Fund continues to have exposure across capitalizations, from small to larger companies, with a particular emphasis on mid-sized companies. The period saw generally strong performance from the larger companies, with broad weakness in smaller ones. Two large companies that suffered during the period were Lenovo Group, a China-based computer manufacturer and distributor, and Advanced Info Services, Thailand’s largest mobile provider. Both suffered some damage due to political issues.

Lenovo Group made a high-profile purchase of IBM’s PC business in 2006, which led to some outrage that a company with Chinese government ownership would be selling computers to the U.S. State Department. The challenges of absorbing and managing IBM’s business and becoming a true global player are very real for Lenovo, but we remain confident in management’s ability and strategy.

Advanced Info Services is a more complex situation, with the founder of the company, Thaksin Shinawatra, having become the democratically elected prime minister of Thailand, one of Asia’s more lively democracies. The sale of the family stake in the firm to Temasek Holdings, a financial arm of the Singaporean government, was used in a broad attack on Shinawatra’s leadership. In the cases of both companies, we see compelling long-term business models that have unique strengths. Lenovo remains the dominant computer firm in China with the potential to penetrate global markets using IBM’s Think Pad brand. Advanced Info Services is one of the more professionally managed businesses in Southeast Asia, with a very strong position in the domestic cellular market. We have accumulated large positions in both companies during times of price weakness.

12       MATTHEWS ASIAN FUNDS

JUNE 30, 2006

The Matthews Pacific Tiger Fund is now closed to most new investors. While the Fund faces little or no constraints investing in large and medium-sized companies, in order to maintain the long-held exposure to smaller companies across the region, a limit on growth was necessary. We have added a number of new positions in recent months and are currently looking to eliminate positions that are less compelling as long-term investments. We continue to see a wide range of attractive opportunities and welcome the recent market sell-off as chance to increase the Fund’s exposure to growth without paying too high a price.

800.789.ASIA [2742] www.matthewsfunds.com       13

MATTHEWS PACIFIC TIGER FUND

FUND AT A GLANCE

FUND DESCRIPTION		SYMBOL: MAPTX

Under normal market conditions, the 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 the Pacific Tiger countries of China, Hong Kong, India, Indonesia, Malaysia, Philippines, Singapore, South Korea, Taiwan and Thailand.

PORTFOLIO MANAGERS

Lead Manager: Mark W. Headley		Co-Manager: Richard H. Gao

PERFORMANCE AS OF JUNE 30, 2006¹

														Average Annual Total Returns
																										SINCE
Fund Inception: 9/12/94		3 MO				YTD				1 YR				3 YRS				5 YRS				10 YRS				INCEPTION
Matthews Pacific Tiger Fund			–3.51	%			4.05	%			23.58	%			29.65	%			18.98	%			8.30	%			7.95	%
MSCI All Country Far East ex-Japan Index2			–0.64	%			7.50	%			23.97	%			26.58	%			16.05	%			0.91	%			1.22	%3
MSCI All Country Asia ex-Japan Index4			–1.55	%			7.69	%			25.13	%			27.84	%			16.80	%			1.67	%			1.55	%3
Lipper Pacific ex-Japan Funds Category Avg5			–2.24	%			6.33	%			27.95	%			28.12	%			17.71	%			4.76	%			3.77	%3

1		Assumes reinvestment of all dividends and/or distributions. All performance quoted is past performance and is no guarantee of future results. Unusually high returns may not be sustainable. Investment return and principal value will fluctuate with changing market conditions so that shares, when redeemed, may be worth more or less than their original cost. 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 closure of the NYSE. Current performance may be lower or higher than the return figures quoted. Returns are net of the Funds’ management fee and other operating expenses. Returns would have been lower if certain of the Funds’ fees and expenses had not been waived. For the Funds’ most recent month-end performance please call 800-789-ASIA [2742] or visit www.matthewsfunds.com.
2		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. As of 6/30/06, 9.9% of the assets of the Matthews Pacific Tiger Fund were invested in India and 1.2% were invested in the United Kingdom, which 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 PFPC, Inc.
3		Calculated from 8/31/94.
4		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, Pakistan, Philippines, Singapore, South Korea, Taiwan, and Thailand. As of 6/30/06, 1.2% of the assets of the Matthews Pacific Tiger Fund were invested in the United Kingdom, which is 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 PFPC, Inc.
5		As of 6/30/06, the Lipper Pacific ex-Japan Funds Category Average consisted of 51 funds for the three-month, YTD and one-year periods; 48 funds for the three-year period; 44 funds for the five-year period; 25 funds for the 10-year period; and 12 funds since 8/31/94. Lipper, Inc. fund performance does not reflect sales charges and is based on total return, including reinvestment of dividends and capital gains, for the stated periods.

OPERATING EXPENSES⁶

For the six months ended 6/30/06 (annualized)7			1.19	%
For Fiscal Year 2005			1.31	%

PORTFOLIO TURNOVER⁸

For the six months ended 6/30/06 (annualized)7			13.71	%
For Fiscal Year 2005			3.03	%

6		Includes management fee, administration and shareholder services fees, waivers, reimbursements, recoupments and other expenses. Matthews Asian Funds do not charge 12b-1 fees.
7		Unaudited.
8		The lesser of fiscal year-to-date purchase costs or sales proceeds divided by the average monthly market value of long-term securities.

14       MATTHEWS ASIAN FUNDS

ALL DATA IS AS OF JUNE 30, 2006, UNLESS OTHERWISE NOTED

COUNTRY ALLOCATION

China/Hong Kong			36.4	%
South Korea			24.0	%
India9			9.9	%
Singapore			9.8	%
Taiwan			7.6	%
Thailand			6.7	%
Indonesia			3.7	%
United Kingdom9, 10			1.2	%
Philippines			0.3	%
Cash and other			0.4	%

SECTOR ALLOCATION ¹¹

Financials			29.5	%
Information Technology			20.3	%
Consumer Discretionary			15.1	%
Consumer Staples			11.6	%
Telecommunications Services			10.2	%
Industrials			7.9	%
Health Care			5.0	%
Cash and other			0.4	%

MARKET CAP EXPOSURE

Large cap (over $5 billion)			42.5	%
Mid cap ($1–$5 billion)			44.6	%
Small cap (under $1 billion)			12.5	%
Cash and other			0.4	%

9		As of 6/30/06, 9.9% of the assets of the Matthews Pacific Tiger Fund were invested in India and 1.2% were invested in the United Kingdom, which are not included in the MSCI All Country Far East ex-Japan Index.
10		As of 6/30/06, 1.2% of the assets of the Matthews Pacific Tiger Fund were invested in the United Kingdom, which is not included in the MSCI All Country Asia ex-Japan Index.
11		Please note that due to recent revisions in the accepted MSCI Global Industry Classification Standard (GICS), some sector weightings have changed appreciably from the previous quarterly report. These changes are due not only to turnover in the portfolio but also the manner in which individual companies are classified.

NAV		FUND ASSETS		REDEMPTION FEE		12B-1 FEES
$20.05		$2.74 billion		2.00% within 90 calendar days		None

GROWTH OF A $10,000 INVESTMENT

The performance data and graph do not reflect the deduction of taxes that a shareholder would pay on dividends, capital gain distributions of redemption of fund shares.

800.789.ASIA [2742] www.matthewsfunds.com      15

MATTHEWS PACIFIC TIGER FUND

SCHEDULE OF INVESTMENTS (UNAUDITED)
EQUITIES: 99.6%*

		SHARES				VALUE
CHINA/HONG KONG: 36.4%
Lenovo Group, Ltd.			284,538,000			$	94,341,623
Swire Pacific, Ltd. A Shares			7,990,500				82,463,796
Dah Sing Financial Holdings, Ltd.			10,652,800				78,048,018
Hang Lung Group, Ltd.			30,009,000				64,915,236
Television Broadcasts, Ltd.			10,362,700				64,047,178
Shangri-La Asia, Ltd.			24,654,000				47,458,545
NetEase.com, Inc. ADR **			2,105,800				47,022,514
Bank of Communications Co., Ltd. H Shares			71,393,000				46,422,962
Li Ning Co., Ltd.			45,539,000				44,563,872
China Mobile, Ltd.			6,779,217				38,756,839
Giordano International, Ltd.			81,203,000				38,425,122
COSCO Pacific, Ltd.			17,326,000				38,371,837
Integrated Distribution Services Group, Ltd.			20,569,000				36,681,644
Agile Property Holdings, Ltd.			53,502,000				32,033,826
Ping An Insurance Group Co. of China, Ltd. H Shares			10,255,500				31,098,081
SA SA International Holdings, Ltd.			84,468,000				29,909,609
China Mobile, Ltd. ADR			1,019,050				29,155,021
Dynasty Fine Wines Group, Ltd.			77,862,000				28,322,386
Dickson Concepts International, Ltd.			25,200,400				27,256,655
Dairy Farm International Holdings, Ltd.			8,203,100				25,757,734
Sun Hung Kai Properties, Ltd.			2,452,174				25,007,041
Travelsky Technology, Ltd. H Shares			20,406,000				23,384,804
NWS Holdings, Ltd.			6,449,100				11,210,338
Vitasoy International Holdings, Ltd.			25,904,750				9,339,492
SCMP Group, Ltd.			4,356,000				1,472,323
Moulin Global Eyecare Holdings **,***			16,266,000				0
Total China/Hong Kong							995,466,496
SOUTH KOREA: 24.0%
Hana Financial Group, Inc.			1,924,363				90,462,809
NHN Corp. **			207,820				72,285,217
Amorepacific Corp. **			152,635				65,880,454
SK Telecom Co., Ltd.			298,075				64,092,016
Samsung Electronics Co., Ltd.			95,713				60,832,610
Hite Brewery Co., Ltd.			507,897				50,803,083
Samsung Securities Co., Ltd.			888,160				47,836,602
Nong Shim Co., Ltd.			178,598				47,061,397
S1 Corp.			857,490				38,502,318
Kookmin Bank			335,620				27,592,474
Hanmi Pharm Co., Ltd.			267,740				26,809,275
GS Home Shopping, Inc.			234,698				17,687,386
SK Telecom Co., Ltd. ADR			680,300				15,932,626
Pacific Corp. ***			93,148				15,316,015
Kookmin Bank ADR			124,800				10,365,888
Yuhan Corp.			38,916				5,968,145
Total South Korea							657,428,315
INDIA: 9.9%
Cipla, Ltd.			11,627,459				54,551,067
Infosys Technologies, Ltd.			767,914				51,354,666
HDFC Bank, Ltd.			1,952,568				33,756,440
Hero Honda Motors, Ltd.			1,831,291				31,568,291
I-Flex Solutions, Ltd.			1,228,561				30,006,882
Titan Industries, Ltd.			2,293,978				29,638,853
Bank of Baroda			4,547,022				19,663,599
Sun Pharmaceuticals Industries, Ltd.			1,142,416				19,545,636
Total India							270,085,434
SINGAPORE: 9.8%
DBS Group Holdings, Ltd.			6,508,750				74,428,009
Fraser and Neave, Ltd.			28,332,750				71,599,330
Hyflux, Ltd.			37,706,187				56,219,226
Venture Corp., Ltd.			5,345,800				35,799,653
Parkway Holdings, Ltd.			19,321,000				30,149,964
Total Singapore							268,196,182

16       MATTHEWS ASIAN FUNDS

JUNE 30, 2006

		SHARES				VALUE
TAIWAN: 7.6%
Taiwan Semiconductor Manufacturing Co., Ltd.			48,020,144			$	86,614,977
President Chain Store Corp.			29,591,000				64,889,537
Hon Hai Precision Industry Co., Ltd.			8,873,974				54,815,684
Total Taiwan							206,320,198
THAILAND: 6.7%
Advanced Info Service Public Co., Ltd.			43,831,600				103,484,890
Bangkok Bank Public Co., Ltd.			25,657,200				71,344,785
Thai Beverage Public Co., Ltd. **			30,505,000				5,107,133
Serm Suk Public Co., Ltd.			6,979,000				3,624,979
Total Thailand							183,561,787
INDONESIA: 3.7%
PT Bank Central Asia			69,945,500				30,959,360
PT Telekomunikasi Indonesia			34,940,500				27,724,568
PT Ramayana Lestari Sentosa			277,326,000				22,454,334
PT Astra International			20,030,230				21,083,315
Total Indonesia							102,221,577
UNITED KINGDOM: 1.2%
Standard Chartered PLC			1,353,066				33,027,851
Total United Kingdom							33,027,851
PHILIPPINES: 0.3%
SM Prime Holdings, Inc.			56,072,000				8,232,302
Total Philippines							8,232,302
TOTAL INVESTMENTS: 99.6%						$	2,724,540,142
(Cost $2,248,421,120****)
CASH AND OTHER ASSETS, LESS LIABILITIES: 0.4%							10,921,361
NET ASSETS: 100.0%						$	2,735,461,503

*		As a percentage of net assets as of June 30, 2006.
**		Non–income producing security
***		Illiquid and fair valued under direction of the Board of Trustees
****		Cost of investments is $2,248,421,120 and net unrealized appreciation consists of:

Gross unrealized appreciation		$	559,740,842
Gross unrealized depreciation			(83,621,820	)
Net unrealized appreciation		$	476,119,022

ADR		American Depositary Receipt

See accompanying notes to financial statements.

800.789.ASIA [2742] www.matthewsfunds.com       17

MATTHEWS ASIAN GROWTH AND INCOME FUND

Note: This fund is closed to most new investors.

PORTFOLIO MANAGER COMMENTARY

Lead Manager:
G. Paul Matthews

Co–Manager:
Andrew T. Foster

The Matthews Asian Growth and Income Fund gained 7.10% in the first six months of the year, slightly underperforming its benchmark MSCI All Country Far East ex-Japan Index, which rose 7.50% over the same period. The Fund outperformed the Lipper Pacific ex-Japan Funds category average, which gained 6.33% over the same period.

The Fund underperformed its benchmark by a narrow margin; however, it did so during a period of pronounced volatility. Meanwhile, the Fund generated returns that were far more stable than those of the overall market. Measured on a daily basis, the volatility of the Fund’s returns from January through June were just over half that of the MSCI benchmark index.¹ In this respect, the Fund performed as intended: While the market exhibited substantial volatility, the Fund generated steadier returns. We aim to mitigate a degree of volatility inherent in the Asian markets while allowing investors to participate in the region and its growth over time.

Asian equities began the year on a strong footing, rising steadily through the end of April. Valuations for Asian stocks rose despite high prices for oil and raw materials; this was notable, particularly as the region is heavily dependent on imports of commodities to fuel economic expansion. However, the region’s strong outperformance came to an end in early May amid signs that global interest rates were poised to move higher, led principally by the U.S. Federal Reserve and the Bank of Japan. Faced with the prospect of higher interest rates, global markets slumped, with even steeper corrections occurring in emerging markets. Hardest hit among these markets were those that had seen the strongest gains and highest valuations: India was at the forefront of the decline. Conversely, China weathered the correction quite well, buoyed by several domestic factors, especially important reforms in the domestic stock market and the successful IPO of one of the country’s largest banks, the Bank of China.

Amidst the market’s volatility, the Fund’s growth-and-income characteristic demonstrated some of its relative merit. Its focus on convertible bonds and defensive dividend-paying equities initially meant that performance lagged that of the market. However, in the ensuing correction, the Fund held its ground well. As equities rallied in the final weeks of June, the Index’s year-to-date performance surpassed the Fund only on the last day of the month, finishing up 7.50%, versus the Fund’s six-month return of 7.10%.

The prospect of higher global interest rates may be the factor that weighs heaviest on markets during the second half of the year. Recent data suggests that economic activity in Asia ex-Japan remains quite strong, notably in the region’s two largest markets: China and India. As macro-economic growth has continued apace and as companies generally remain in an expansionary mode, inflationary pressures may well build in the region, prompting rates to move higher. Continued rate increases in the U.S. and elsewhere may also pressure Asian central banks to follow suit. Given the Fund’s orientation toward convertible bonds and higher-yielding instruments, it may be vulnerable to sharp movements in interest rates.

     

1		Standard deviation of dollar-based daily returns for the Matthews Asian Growth and Income Fund during the first half of 2006 was 0.68%; the corresponding figure for the MSCI All Country Far East ex-Japan Index was 1.17%. Source: Matthews International Capital Management, LLC.

18       MATTHEWS ASIAN FUNDS

JUNE 30, 2006

However, even as we have added to the Fund’s convertible bond exposure in recent months, we have also retained substantial exposure to dividend paying equities—roughly 75% of the portfolio at the end of June. Those underlying companies may better capitalize on stronger regional demand via improved pricing power. This, in turn, may improve prospects for their growth and dividends, even within an inflationary environment.

Several of the Fund’s best-performing positions in the first half of 2006 typify this idea. SK Telecom, MTR Corp, Fraser and Neave, and Hindustan Lever all are companies that generated positive double-digit returns during the period. There are few similarities among these companies: SK Telecom is South Korea’s largest mobile phone carrier; MTR Corp runs Hong Kong’s passenger railway; Fraser and Neave is a diversified conglomerate with operations across Southeast Asia; and Hindustan Lever is a joint-venture of Unilever in India. What all four companies have in common are established dividend policies, moderate but stable growth prospects, and—particularly among the latter two companies—the ability to increase prices because of growing demand.

As always, uncertainty abounds in global financial markets. The future path of interest rates remains unclear; high energy prices may be a symptom of growth, or they may become a drag on it; corporate earnings in the Asian region may suffer downward revisions if demand wanes at home or abroad. However, shareholders of the Fund can take heart in one encouraging statistic: Dividend payouts for companies held by the Fund have risen over the past year.² At the end of June 2006, the aggregate payout ratio for the Fund’s equity holdings was about 50%, versus a payout ratio of 43% at the same time last year. In the simplest terms, higher payout ratios suggest that Asian companies have made strides in their dividend policies and corporate governance. In this respect, Asian companies held by the Fund do not lag far behind their U.S. peers: Over the past 25 years, the S&P 500 has averaged a payout ratio near 50% as well.³

     

2		A “dividend payout ratio” is the ratio between a given company’s total dividend payouts to shareholders and its total earnings. A payout ratio of 100% indicates that the company has paid out all of its accounting earnings in dividends to shareholders.
3		Source: Bloomberg, Matthews International Capital Management, LLC.

800.789.ASIA [2742] www.matthewsfunds.com      19

MATTHEWS ASIAN GROWTH AND INCOME FUND

FUND AT A GLANCE

FUND DESCRIPTION		SYMBOL: MACSX

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 the convertible securities, of any duration or quality, of companies located in Asia. Asia includes China, Hong Kong, India, Indonesia, Japan, Malaysia, Pakistan, Philippines, Singapore, South Korea, Taiwan and Thailand. Examples of convertible securities are convertible bonds and debentures which may, under specific circumstances, be converted into the common or preferred stock of the issuer of the bond.

PORTFOLIO MANAGERS

Lead Manager: G. Paul Matthews		Co–Manager: Andrew T. Foster

PERFORMANCE AS OF JUNE 30, 2006¹

Fund Inception: 9/12/94														Average Annual Total Returns
																										SINCE
		3 MO				YTD				1 YR				3 YRS				5 YRS				10 YRS				INCEPTION
Matthews Asian Growth and Income Fund			0.80	%			7.10	%			18.16	%			23.76	%			19.12	%			12.92	%			11.88	%
MSCI All Country Far East ex-Japan Index2			–0.64	%			7.50	%			23.97	%			26.58	%			16.05	%			0.91	%			1.22	%3
Lipper Pacific ex-Japan Funds Category Avg4			–2.24	%			6.33	%			27.95	%			28.12	%			17.71	%			4.76	%			3.77	%3

30-DAY SEC YIELD⁵
2.12%

INCOME DISTRIBUTION YIELD⁶
2.46%

 

OPERATING EXPENSES⁷

For the six months ended 6/30/06 (annualized)8			1.19	%
For Fiscal Year 2005			1.27	%

PORTFOLIO TURNOVER⁹

For the six months ended 6/30/06 (annualized)8			25.93	%
For Fiscal Year 2005			20.16	%

 

20       MATTHEWS ASIAN FUNDS

ALL DATA IS AS OF JUNE 30, 2006, UNLESS OTHERWISE NOTED

COUNTRY ALLOCATION

China/Hong Kong			35.6	%
South Korea			16.1	%
Singapore			9.9	%
Taiwan			9.2	%
India10			6.9	%
Japan10			6.8	%
Thailand			6.0	%
Australia10			3.4	%
United Kingdom10			2.8	%
Indonesia			2.0	%
Malaysia			0.9	%
Cash and other			0.4	%

SECTOR ALLOCATION¹¹

Financials			29.9	%
Telecommunications Services			19.9	%
Consumer Discretionary			16.5	%
Industrials			9.0	%
Utilities			7.7	%
Consumer Staples			7.2	%
Energy			4.0	%
Health Care			3.6	%
Information Technology			1.5	%
Materials			0.3	%
Cash and other			0.4	%

BREAKDOWN BY SECURITY TYPE¹²

Common Equities			71.9	%
Convertible Bonds			21.5	%
Preferred Equities			3.3	%
Corporate Bonds			2.9	%
Cash and other			0.4	%

MARKET CAP EXPOSURE

Large cap (over $5 billion)			56.2	%
Mid cap ($1–$5 billion)			34.1	%
Small cap (under $1 billion)			9.3	%
Cash and other			0.4	%

NAV		FUND ASSETS		REDEMPTION FEE		12B-1 FEES
$18.13		$1.77 billion		2.00% within 90 calendar days		None

GROWTH OF A $10,000 INVESTMENT

The performance data and graph do not reflect the deduction of taxes that a shareholder would pay on dividends, capital gain distributions or redemption of fund shares.

800.789.ASIA [2742] www.matthewsfunds.com      21

MATTHEWS ASIAN GROWTH AND INCOME FUND

SCHEDULE OF INVESTMENTS (UNAUDITED)
COMMON EQUITIES: 71.9%*

		SHARES				VALUE
CHINA/HONG KONG: 26.3%
Television Broadcasts, Ltd.			5,262,000			$	32,522,050
China Netcom Group Corp. HK, Ltd.			16,023,500				28,059,642
Citic Pacific, Ltd.			9,512,000				28,047,436
CLP Holdings, Ltd.			4,775,200				27,945,462
HongKong Electric Holdings, Ltd.			5,914,500				26,768,818
Hang Lung Group, Ltd.			12,318,000				26,646,202
Hong Kong & China Gas Co., Ltd.			11,938,000				26,208,478
MTR Corp.			10,234,300				24,708,436
Café de Coral Holdings, Ltd.			16,415,100				23,355,633
Hengan International Group Co., Ltd.			13,606,000				22,161,892
Shangri-La Asia, Ltd.			11,327,400				21,805,059
Hang Seng Bank, Ltd.			1,590,900				20,177,388
PCCW, Ltd.			26,841,000				19,181,277
Wharf Holdings, Ltd.			5,142,000				18,273,721
China Life Insurance Co., Ltd. H Shares			10,979,000				17,317,481
China Travel International Investment HK, Ltd.			69,908,000				16,832,721
I-CABLE Communications, Ltd.			75,090,000				16,726,845
Hang Lung Properties, Ltd.			8,517,920				15,245,238
Cheung Kong Infrastructure Holdings, Ltd.			4,475,500				12,937,303
Giordano International, Ltd.			24,585,000				11,633,580
Vitasoy International Holdings, Ltd.			31,031,000				11,187,670
PetroChina Co., Ltd. H Shares			9,756,000				10,426,432
PetroChina Co., Ltd. ADR			64,650				6,980,261
China Hong Kong Photo Products Holdings, Ltd.			14,998,003				1,564,243
Total China/Hong Kong							466,713,268
SOUTH KOREA: 8.4%
SK Telecom Co., Ltd.			187,160				40,243,099
Hana Financial Group, Inc.			632,229				29,720,594
KT Corp.			505,730				20,868,858
Korea Electric Power Corp.			480,590				17,805,258
KT Corp. ADR			718,800				15,418,260
SK Telecom Co., Ltd. ADR			395,300				9,257,926
Daehan City Gas Co., Ltd.			280,300				6,425,850
Korea Electric Power Corp. ADR			259,750				4,924,860
GIIR, Inc.			280,240				4,135,294
Total South Korea							148,799,999
SINGAPORE: 8.1%
Fraser and Neave, Ltd.			16,069,100				40,608,017
Singapore Post, Ltd.			33,312,000				22,729,229
Singapore Press Holdings, Ltd.			8,180,500				21,293,022
Parkway Holdings, Ltd.			13,564,000				21,166,301
CapitaMall Trust REIT			13,841,900				18,539,235
StarHub, Ltd.			11,182,000				16,106,997
Yellow Pages, Ltd.			3,388,000				2,226,061
Total Singapore							142,668,862
JAPAN: 6.8%
Kao Corp.			1,138,000				29,782,506
Nippon Building Fund, Inc. REIT			2,698				26,168,997
Japan Retail Fund Investment Corp. REIT			2,860				22,492,136
Tokyu REIT, Inc.			2,543				20,887,976
Japan Real Estate Investment Corp. REIT			2,258				20,125,480
Total Japan							119,457,095

22       MATTHEWS ASIAN FUNDS

JUNE 30, 2006

		SHARES				VALUE
THAILAND: 6.0%
Advanced Info Service Public Co., Ltd.			11,059,600			$	26,111,333
PTT Public Co., Ltd.			2,998,300				17,775,860
BEC World Public Co., Ltd.			43,485,100				17,111,136
Charoen Pokphand Foods Public Co., Ltd.			110,016,100				15,584,652
Bangkok Bank Public Co., Ltd.			4,909,900				13,652,922
MCOT Public Co., Ltd.			8,848,200				8,936,404
Aeon Thana Sinsap Public Co., Ltd.			2,995,600				3,614,837
Thai Reinsurance Public Co., Ltd.			25,672,800				3,165,324
Total Thailand							105,952,468
TAIWAN: 5.6%
Chunghwa Telecom Co., Ltd. ADR			1,597,500				29,505,825
President Chain Store Corp.			11,638,000				25,520,747
Taiwan Secom Co., Ltd.			11,941,960				21,908,808
Far EasTone Telecommunications Co., Ltd.			18,917,000				21,150,348
Chunghwa Telecom Co., Ltd.			648,000				1,170,813
Total Taiwan							99,256,541
AUSTRALIA: 3.4%
Insurance Australia Group, Ltd.			6,869,921				27,312,028
AXA Asia Pacific Holdings, Ltd.			5,305,373				24,719,057
Rural Press, Ltd.			1,131,130				8,943,399
Total Australia							60,974,484
UNITED KINGDOM: 2.8%
HSBC Holdings PLC ADR			519,800				45,924,330
HSBC Holdings PLC			196,800				3,448,808
Total United Kingdom							49,373,138
INDIA: 2.5%
Hindustan Lever, Ltd.			3,394,121				16,885,826
GAIL India, Ltd.			2,532,748				14,140,810
Hero Honda Motors, Ltd.			812,300				14,002,647
Total India							45,029,283
INDONESIA: 2.0%
PT Telekomunikasi Indonesia ADR			745,500				23,930,550
PT Tempo Scan Pacific			13,944,500				10,010,895
PT Ramayana Lestari Sentosa			12,663,000				1,025,289
Total Indonesia							34,966,734
TOTAL COMMON EQUITIES
(Cost $962,797,496)							1,273,191,872

See footnotes on page 25.

800.789.ASIA [2742] www.matthewsfunds.com      23

MATTHEWS ASIAN GROWTH AND INCOME FUND

SCHEDULE OF INVESTMENTS (UNAUDITED) (continued)

PREFERRED EQUITIES: 3.3%*

		SHARES				VALUE
SOUTH KOREA: 3.3%
Hyundai Motor Co., Ltd., Pfd.			472,380			$	22,953,063
Hyundai Motor Co., Ltd., 2nd Pfd.			305,760				15,308,142
Samsung Fire & Marine Insurance Co., Ltd., Pfd.			119,550				9,122,972
LG Household & Health Care, Ltd., Pfd.			177,830				7,103,828
LG Chem Ltd., Pfd.			242,450				5,277,041
Total South Korea							59,765,046
TOTAL PREFERRED EQUITIES
(Cost $21,280,151)							59,765,046

INTERNATIONAL DOLLAR BONDS: 24.4%*

		FACE AMOUNT				VALUE
CHINA/HONG KONG: 9.3%
Hong Kong Land CB 2005, Ltd., Cnv. 2.750%, 12/21/12		$	46,800,000			$	51,714,000
PCCW Capital II, Ltd., Cnv. 1.000%, 01/29/07			33,545,000				38,830,015
CNOOC Finance 2004, Ltd., Cnv. 0.000%, 12/15/09			31,603,000				36,264,443
Shangri-La Finance, Ltd., Cnv. 0.000%, 03/15/09			16,422,000				26,193,090
BCA Finance, Ltd., Cnv. 0.000%, 11/28/08			12,170,000				12,002,662
Total China/Hong Kong							165,004,210
SOUTH KOREA: 4.4%
SK Telecom Co., Ltd., Cnv. 0.000%, 05/27/09			26,860,000				31,795,525
LG.Philips LCD Co., Ltd., Cnv. 0.000%, 04/19/10			25,550,000				26,412,312
KT Corp. 5.875%, 06/24/14			20,700,000				20,182,293
Total South Korea							78,390,130

24       MATTHEWS ASIAN FUNDS

JUNE 30, 2006

		FACE AMOUNT				VALUE
INDIA: 4.4%
Sun Pharmaceuticals Industries, Ltd., Cnv. 0.000%, 11/26/09		$	28,519,000			$	31,905,631
Housing Development Finance Corp., Cnv. 0.000%, 09/27/10			24,900,000				26,518,500
Tata Motors, Ltd., Cnv. 1.000%, 04/27/11			16,449,000				18,895,789
Total India							77,319,920
TAIWAN: 3.6%
Cathay Financial Holding Co., Ltd., Cnv. 0.000%, 05/20/07			30,706,000				44,331,788
SinoPac Financial Holdings Co., Ltd., Cnv. 0.000%, 07/12/07			15,204,000				19,309,080
Total Taiwan							63,640,868
SINGAPORE: 1.8%
DBS Bank, Ltd. 7.875%, 08/10/09			19,757,000				20,862,799
Singapore Telecommunications, Ltd. 6.375%, 12/01/11			10,606,000				10,778,666
Total Singapore							31,641,465
MALAYSIA: 0.9%
Prime Venture Labuan, Ltd., Cnv. 1.000%, 12/12/08			14,740,000				15,956,050
Total Malaysia							15,956,050

		VALUE
TOTAL INTERNATIONAL
DOLLAR BONDS
(Cost $409,494,399)		$	431,952,643
TOTAL INVESTMENTS: 99.6%			1,764,909,561
(Cost $1,393,572,046**)
CASH AND OTHER ASSETS, LESS LIABILITIES: 0.4%			6,417,916
NET ASSETS: 100.0%		$	1,771,327,477

Gross unrealized appreciation		$	400,455,518
Gross unrealized depreciation			(29,118,003	)
Net unrealized appreciation		$	371,337,515

ADR American Depositary Receipt

Cnv. Convertible

Pfd. Preferred

REIT Real Estate Investment Trust

See accompanying notes to financial statements.

806.789.ASIA [2742] www.matthewsfunds.com       25

MATTHEWS ASIAN TECHNOLOGY FUND

PORTFOLIO MANAGER COMMENTARY

Lead Manager:
J. Michael Oh

Co–Managers:
Mark W. Headley
Andrew T. Foster

In the first six months of 2006, the Matthews Asian Technology Fund gained 1.38%, outperforming both the MSCI/Matthews Asian Technology Index, which declined 0.04%, and the Lipper Science and Technology Funds category average, which declined 2.60%.

During the first three months of the year, the Asian technology sector performed strongly as positive earnings results from 2005 were announced and positive projections by some companies lifted the market. However, during the second quarter, the Asian technology sector gave up almost all of its earlier gains as higher oil prices, rising interest rates and geopolitical tensions dampened the outlook of the sector. In addition, signs of increasing inventory buildups in key consumer electronics products and declining prices in some electronic components contributed to further declines.

During the six-month period, the Fund gained most from its positions in the Internet software and services industry—one of the few bright spots in the Asian technology sector during the period. The positive performance in the industry was led by domestic demand for various Internet services such as keyword search, online gaming and online multi-media content. The Internet sector was also relatively unaffected by the global technology cycle. The second-highest sector contributor to Fund performance was telecommunications services. The volatility in the information technology sector made the defensive characteristics of telecommunications services companies attractive. However, the Fund’s underweight position in the telecommunications services sector compared to the benchmark actually hurt the Fund’s relative performance during the second quarter. The consumer electronics sector also made a positive contribution to Fund performance.

The semiconductor and semiconductor equipment industry was the worst performer in the Fund. The semiconductor industry suffered mostly from declines in memory product prices such as DRAM and flash. Flash products were the major drivers of the semiconductor industry performance last year. During the reporting period, however, the industry experienced a seasonal downturn as demand for consumer electronics products requiring flash memory products softened. The flat panel display industry also experienced a down cycle during the period. Last year, demand for flat panel display products caused a slight short supply; companies increased capital expenditures and added more capacity expecting another strong year. The demand for fl at panels, however, has not met expectations, and the industry experienced a sudden downturn. Such cycles are somewhat unavoidable in capital-intensive arenas such as memory and flat panel displays, since fixed costs are high and not easily adjustable during a downturn. The handset component industry fared relatively better than other industries in the technology hardware sector as handset manufacturing continued to shift to Asia. Global demand for handsets remained healthy, especially in emerging markets, where the penetration rate of wireless telecommunication services remains relatively low.

On a company basis, Tencent Holdings was the largest positive contributor during the six-month period. Headquartered in China, the company provides various Internet services such as instant messaging, casual gaming and personal home pages. Tencent Holdings benefited from strong demand for Internet services from the growing number of Internet users in China. China’s broadband penetration rate remains relatively low, and its overall Internet user base is expected to grow faster than other developed markets in Asia. The second-highest contributor to Fund