Matthews Korea Active ETF NCSR Certified annual shareholder report (management investment company)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT

INVESTMENT COMPANIES

Investment Company Act file number 811-08510

Matthews International Funds

(Exact name of registrant as specified in charter)

Four Embarcadero Center, Suite 550

San Francisco, CA 94111

(Address of principal executive offices) (Zip code)

William J. Hackett, President

Four Embarcadero Center, Suite 550

San Francisco, CA 94111

(Name and address of agent for service)

Registrant’s telephone number, including area code: 415-788-7553

Date of fiscal year end: December 31

Date of reporting period: December 31, 2015

Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.

A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.

Item 1. Reports to Stockholders.

The Report to Shareholders is attached herewith.

Matthews Asia Funds | Annual Report

December 31, 2015 | matthewsasia.com

ASIA FIXED INCOME STRATEGY

Matthews Asia Strategic Income Fund

ASIA GROWTH AND INCOME STRATEGIES

Matthews Asian Growth and Income Fund

Matthews Asia Dividend Fund

Matthews China Dividend Fund

ASIA VALUE STRATEGY

Matthews Asia Value Fund

ASIA GROWTH STRATEGIES

Matthews Asia Focus Fund

Matthews Asia Growth Fund

Matthews Pacific Tiger Fund

Matthews Asia ESG Fund

Matthews Emerging Asia Fund

Matthews China Fund

Matthews India Fund

Matthews Japan Fund

Matthews Korea Fund

ASIA SMALL COMPANY STRATEGIES

Matthews Asia Small Companies Fund

Matthews China Small Companies Fund

ASIA SPECIALTY STRATEGY

Matthews Asia Science and Technology Fund

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Contents


Message from the President of the Matthews Asia Funds			4
Message to Shareholders from the Investment Advisor			5
Manager Commentaries, Fund Characteristics and Schedules of Investments:

ASIA FIXED INCOME STRATEGY
Matthews Asia Strategic Income Fund			6

ASIA GROWTH AND INCOME STRATEGIES
Matthews Asian Growth and Income Fund			11
Matthews Asia Dividend Fund			16
Matthews China Dividend Fund			21

ASIA VALUE STRATEGY
Matthews Asia Value Fund			26

ASIA GROWTH STRATEGIES
Matthews Asia Focus Fund			29
Matthews Asia Growth Fund			33
Matthews Pacific Tiger Fund			38
Matthews Asia ESG Fund			43
Matthews Emerging Asia Fund			48
Matthews China Fund			53
Matthews India Fund			58
Matthews Japan Fund			63
Matthews Korea Fund			68

ASIA SMALL COMPANY STRATEGIES
Matthews Asia Small Companies Fund			73
Matthews China Small Companies Fund			78

ASIA SPECIALTY STRATEGY
Matthews Asia Science and Technology Fund			83
Disclosures			87
Index Definitions			87
Disclosure of Fund Expenses			88
Statements of Assets and Liabilities			92
Statements of Operations			100
Statements of Changes in Net Assets			104
Financial Highlights			113
Notes to Financial Statements			130
Report of Independent Registered Public Accounting Firm			149
Tax Information			150
Approval of Investment Advisory Agreements			153
Trustees and Officers of the Funds			159

Cover photo: Karaweik palace in Yangon, Myanmar

This report has been prepared for Matthews Asia Funds shareholders. It is not authorized for distribution to prospective investors unless accompanied or preceded by a current Matthews Asia Funds prospectus, which contains more complete information about the Funds’ investment objectives, risks and expenses. Additional copies of the prospectus or summary prospectus may be obtained at matthewsasia.com. Please read the prospectus carefully before you invest or send money.

The views and opinions in this report were current as of December 31, 2015. They are not guarantees of performance or investment results and should not be taken as investment advice. Investment decisions reflect a variety of factors, and the managers reserve the right to change their views about individual stocks, sectors and the markets at any time. As a result, the views expressed should not be relied upon as a forecast of a Fund’s future investment intent. Current and future portfolio holdings are subject to risk.

Statements of fact are from sources considered reliable, but neither the Funds nor the Investment Advisor makes any representation or guarantee as to their completeness or accuracy.

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

Investor Class Performance and Expenses (December 31, 2015)


Investor Class	Average Annual Total Return								Inception Date		2015 Annual Operating Expenses			2015 Annual Operating Expenses after Fee Waiver and Expense Reimbursement			Prospectus Expense Ratios*		Prospectus Expense Ratios after Fee Waiver and Expense Reimbursement*
Investor Class	1 year		5 years		10 years		Since Inception		Inception Date		2015 Annual Operating Expenses						Prospectus Expense Ratios*
ASIA FIXED INCOME STRATEGY
Asia Strategic Income Fund (MAINX)		-0.58%		n.a.		n.a.		3.41%		11/30/11		1.28%			1.12%	¹		1.27%		1.10%	¹
ASIA GROWTH AND INCOME STRATEGIES
Asian Growth and Income Fund (MACSX)		-4.50%		2.44%		6.84%		9.42%		9/12/94		1.09%			1.09%	^2,3		1.08%		n.a.
Asia Dividend Fund (MAPIX)		3.86%		4.75%		n.a.		8.74%		10/31/06		1.06%			1.05%	³		1.06%		1.05%	³
China Dividend Fund (MCDFX)		9.54%		6.50%		n.a.		9.21%		11/30/09		1.19%			n.a.			1.19%		n.a.
ASIA VALUE STRATEGY
Asia Value Fund (MAVRX)		n.a.		n.a.		n.a.		-1.35%		11/30/15		36.42%	⁶		1.50%	^4,6		2.11%		1.45%	⁴
ASIA GROWTH STRATEGIES
Asia Focus Fund (MAFSX)		-12.07%		n.a.		n.a.		-4.12%		4/30/13		2.07%			1.50%	⁴		2.16%		1.50%	⁴
Asia Growth Fund (MPACX)		-0.05%		4.42%		6.48%		8.87%		10/31/03		1.11%			n.a.			1.11%		n.a.
Pacific Tiger Fund (MAPTX)		-1.30%		4.15%		9.19%		8.52%		9/12/94		1.09%			1.07%	³		1.09%		1.08%	³
Asia ESG Fund (MASGX)		n.a.		n.a.		n.a.		-7.30%		4/30/15		9.09%	⁶		1.44%	^4,6		2.11%		1.45%	⁴
Emerging Asia Fund (MEASX)		-2.56%		n.a.		n.a.		4.92%		4/30/13		1.75%			1.50%	⁴		1.78%		1.48%	⁴
China Fund (MCHFX)		2.41%		-1.04%		10.86%		9.37%		2/19/98		1.14%			n.a.			1.13%		n.a.
India Fund (MINDX)		0.90%		5.37%		11.10%		12.27%		10/31/05		1.11%			n.a.			1.12%		n.a.
Japan Fund (MJFOX)		20.83%		9.53%		2.16%		5.88%		12/31/98		0.99%			n.a.			1.03%		n.a.
Korea Fund (MAKOX)		15.16%		7.87%		6.31%		6.29%		1/3/95		1.10%			n.a.			1.11%		n.a.
ASIA SMALL COMPANY STRATEGIES
Asia Small Companies Fund (MSMLX)		-9.43%		1.39%		n.a.		12.29%		9/15/08		1.48%			1.47%	⁴		1.47%		n.a.
China Small Companies Fund (MCSMX)		4.07%		n.a.		n.a.		0.21%		5/31/11		2.10%			1.50%	⁵		1.90%		1.50%	⁵
ASIA SPECIALTY STRATEGY
Asia Science and Technology Fund (MATFX)		4.48%		7.88%		8.29%		2.69%		12/27/99		1.18%			n.a.			1.16%		n.a.

*	These figures are from the fund’s prospectus dated as of April 30, 2015, and may differ from the actual expense ratios for fiscal year 2015, as shown in the financial highlights section of this report.

Matthews has contractually agreed (i) to waive fees and reimburse expenses to the extent needed to limit Total Annual Fund Operating Expenses (excluding Rule 12b-1 fees, front-end or contingent deferred loads, taxes, interest, brokerage commissions, short sale dividend expenses, expenses incurred in connection with any merger or reorganization or extraordinary expenses such as litigation) of the Institutional Class to 0.90% first by waiving class specific expenses (i.e., Rule 12b-1 fees or shareholder service fees specific to a particular class) of the Institutional Class and then, to the extent necessary, by waiving non-class specific expenses of the Institutional Class, and (ii) if any Fund-wide expenses (i.e., expenses that apply to both the Institutional Class and the Investor Class) are waived for the Institutional Class to maintain the 0.90% expense limitation, to waive an equal amount (in annual percentage terms) of those same expenses for the Investor Class. The Total Annual Fund Operating Expenses After Fee Waiver and Expense Reimbursement for the Investor Class may vary from year to year and will in some years exceed 0.90%. If the operating expenses fall below the expense limitation in a year within three years after Matthews has made a waiver or reimbursement, the Fund may reimburse Matthews up to an amount that does not cause the expenses for that year to exceed the expense limitation applicable at the time of that fee waiver and/or expense reimbursement or to exceed any other agreed upon expense limitation for that year. This agreement will remain in place until April 30, 2017, may be renewed for additional periods not exceeding one year and may be terminated at any time by the Board of Trustees on behalf of the Fund on 60 days’ written notice to Matthews. Matthews may decline to renew this agreement by written notice to the Trust at least 30 days before its annual expiration date.

2	Reimbursement was below 0.01%.

Matthews has contractually agreed to waive a portion of its advisory fee and administrative and shareholder services fee if the Fund’s average daily net assets are over $3 billion, as follows: for every $2.5 billion average daily net assets of the Fund that are over $3 billion, the advisory fee rate and the administrative and shareholder services fee rate for the Fund with respect to such excess average daily net assets will be each reduced by 0.01%, in each case without reducing such fee rate below 0.00%. Any amount waived by Matthews pursuant to this agreement may not be recouped by Matthews. This agreement will remain in place until April 30, 2017, may be renewed for additional periods not exceeding one year and may be terminated at any time (i) by the Trust on behalf of the Fund or by the Board of Trustees upon 60 days’ prior written notice to Matthews; or (ii) by Matthews upon 60 days’ prior written notice to the Trust, in each case without payment of any penalty.

Matthews has contractually agreed (i) to waive fees and reimburse expenses to the extent needed to limit Total Annual Fund Operating Expenses (excluding Rule 12b-1 fees, front-end or contingent deferred loads, taxes, interest, brokerage commissions, short sale dividend expenses, expenses incurred in connection with any merger or reorganization or extraordinary expenses such as litigation) of the Institutional Class to 1.25% first by waiving class specific expenses (i.e., Rule 12b-1 fees or shareholder service fees specific to a particular class) of the Institutional Class and then, to the extent necessary, by waiving non-class specific expenses of the Institutional Class, and (ii) if any Fund-wide expenses (i.e., expenses that apply to both the Institutional Class and the Investor Class) are waived for the Institutional Class to maintain the 1.25% expense limitation, to waive an equal amount (in annual percentage terms) of those same expenses for the Investor Class. The Total Annual Fund Operating Expenses After Fee Waiver and Expense Reimbursement for the Investor Class may vary from year to year and will in some years exceed 1.25%. If the operating expenses fall below the expense limitation in a year within three years after Matthews has made a waiver or reimbursement, the Fund may reimburse Matthews up to an amount that does not cause the expenses for that year to exceed the expense limitation applicable at the time of that fee waiver and/or expense reimbursement or to exceed any other agreed upon expense limitation for that year. This agreement will remain in place until April 30, 2017 for the Asia Focus Fund, Emerging Asia Fund, Asia Small Companies Fund and Asia ESG Fund, and until April 30, 2018 for the Asia Value Fund, may be renewed for additional periods not exceeding one year and may be terminated at any time by the Board of Trustees on behalf of the Fund on 60 days’ written notice to Matthews. Matthews may decline to renew this agreement by written notice to the Trust at least 30 days before its annual expiration date.

Matthews has contractually agreed to waive fees and reimburse expenses to the extent needed to limit Total Annual Fund Operating Expenses (excluding Rule 12b-1 fees, front-end or contingent deferred loads, taxes, interest, brokerage commissions, short sale dividend expenses, expenses incurred in connection with any merger or reorganization or extraordinary expenses such as litigation) to 1.50%. If the operating expenses fall below the expense limitation in a year within three years after Matthews has made a waiver or reimbursement, the Fund may reimburse Matthews up to an amount that does not cause the expenses for that year to exceed the expense limitation applicable at the time of that fee waiver and/or expense reimbursement or to exceed any other agreed upon expense limitation for that year. This agreement will remain in place until April 30, 2017, may be renewed for additional periods not exceeding one year and may be terminated at any time by the Board of Trustees or the Trust on behalf of the Fund on 60 days’ written notice to Matthews. Matthews may decline to renew this agreement by written notice to the Trust at least 30 days before its annual expiration date.

6	Annualized expense ratios.


2		MATTHEWS ASIA FUNDS

Institutional Class Performance and Expenses (December 31, 2015)


Institutional Class	Average Annual Total Return								Inception Date		2015 Annual Operating Expenses			2015 Annual Operating Expenses after Fee Waiver and Expense Reimbursement			Prospectus Expense Ratios*		Prospectus Expense Ratios after Fee Waiver and Expense Reimbursement*
Institutional Class	1 year		5 years		10 years		Since Inception		Inception Date		2015 Annual Operating Expenses						Prospectus Expense Ratios*
ASIA FIXED INCOME STRATEGY
Asia Strategic Income Fund (MINCX)		-0.27%		n.a.		n.a.		3.61%		11/30/11		1.09%			0.90%	¹		1.07%		0.90%	¹
ASIA GROWTH AND INCOME STRATEGIES
Asian Growth and Income Fund (MICSX)		-4.33%		2.60%		n.a.		3.00%		10/29/10		0.92%			0.92%	^2,4		0.92%		n.a.
Asia Dividend Fund (MIPIX)		3.93%		4.85%		n.a.		5.28%		10/29/10		0.93%			0.92%	⁴		0.93%		n.a.
China Dividend Fund (MICDX)		9.71%		6.72%		n.a.		7.28%		10/29/10		1.00%			n.a.			1.01%		n.a.
ASIA VALUE STRATEGY
Asia Value Fund (MAVAX)		n.a.		n.a.		n.a.		-1.30%		11/30/15		36.17%	⁵		1.25%	^3,5		1.95%		1.25%	³
ASIA GROWTH STRATEGIES
Asia Focus Fund (MIFSX)		-11.96%		n.a.		n.a.		-3.89%		4/30/13		1.91%			1.25%	³		1.94%		1.25%	³
Asia Growth Fund (MIAPX)		0.24%		4.62%		n.a.		5.01%		10/29/10		0.91%			n.a.			0.91%		n.a.
Pacific Tiger Fund (MIPTX)		-1.15%		4.33%		n.a.		4.32%		10/29/10		0.91%			0.89%	⁴		0.92%		0.91%	⁴
Asia ESG Fund (MISFX)		n.a.		n.a.		n.a.		-7.14%		4/30/15		8.90%	⁵		1.25%	^3,5		1.95%		1.25%	³
Emerging Asia Fund (MIASX)		-2.33%		n.a.		n.a.		5.14%		4/30/13		1.57%			1.25%	³		1.59%		1.25%	³
China Fund (MICFX)		2.50%		-0.88%		n.a.		-1.16%		10/29/10		0.99%			n.a.			0.97%		n.a.
India Fund (MIDNX)		1.12%		5.55%		n.a.		4.95%		10/29/10		0.90%			n.a.			0.94%		n.a.
Japan Fund (MIJFX)		20.94%		9.65%		n.a.		11.59%		10/29/10		0.87%			n.a.			0.90%		n.a.
Korea Fund (MIKOX)		15.27%		8.04%		n.a.		9.47%		10/29/10		0.93%			n.a.			0.93%		n.a.
ASIA SMALL COMPANY STRATEGY
Asia Small Companies Fund (MISMX)		-9.23%		n.a.		n.a.		0.55%		4/30/13		1.30%			1.25%	³		1.25%		n.a.
ASIA SPECIALTY STRATEGY
Asia Science and Technology Fund (MITEX)		4.63%		n.a.		n.a.		14.40%		4/30/13		0.97%			n.a.			0.95%		n.a.

*	These figures are from the fund’s prospectus dated as of April 30, 2015, and may differ from the actual expense ratios for fiscal year 2015, as shown in the financial highlights section of this report.

Matthews has contractually agreed to waive fees and reimburse expenses to the extent needed to limit Total Annual Fund Operating Expenses (excluding Rule 12b-1 fees, front-end or contingent deferred loads, taxes, interest, brokerage commissions, short sale dividend expenses, expenses incurred in connection with any merger or reorganization or extraordinary expenses such as litigation) of the Institutional Class to 0.90%. If the operating expenses fall below the expense limitation in a year within three years after Matthews has made a waiver or reimbursement, the Fund may reimburse Matthews up to an amount that does not cause the expenses for that year to exceed the expense limitation applicable at the time of that fee waiver and/or expense reimbursement or to exceed any other agreed upon expense limitation for that year. This agreement will remain in place until April 30, 2017, may be renewed for additional periods not exceeding one year and may be terminated at any time by the Board of Trustees on behalf of the Fund on 60 days’ written notice to Matthews. Matthews may decline to renew this agreement by written notice to the Trust at least 30 days before its annual expiration date.

2	Reimbursement was below 0.01%.

Matthews has contractually agreed to waive fees and reimburse expenses to the extent needed to limit Total Annual Fund Operating Expenses (excluding Rule 12b-1 fees, front-end or contingent deferred loads, taxes, interest, brokerage commissions, short sale dividend expenses, expenses incurred in connection with any merger or reorganization or extraordinary expenses such as litigation) of the Institutional Class to 1.25%. If the operating expenses fall below the expense limitation in a year within three years after Matthews has made a waiver or reimbursement, the Fund may reimburse Matthews up to an amount that does not cause the expenses for that year to exceed the expense limitation applicable at the time of that fee waiver and/or expense reimbursement or to exceed any other agreed upon expense limitation for that year. This agreement will remain in place until April 30, 2017 for the Asia Focus Fund, Emerging Asia Fund, Asia Small Companies Fund and Asia ESG Fund, and until April 30, 2018 for the Asia Value Fund, may be renewed for additional periods not exceeding one year and may be terminated at any time by the Board of Trustees on behalf of the Fund on 60 days’ written notice to Matthews. Matthews may decline to renew this agreement by written notice to the Trust at least 30 days before its annual expiration date.

5	Annualized expense ratios.

Past Performance: All performance quoted in this report is past performance and is no guarantee of future results. Investment return and principal value will fluctuate with changing market conditions so that when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the returns quoted. If certain of the Funds’ fees and expenses had not been waived, returns would have been lower. For the Funds’ most recent month-end performance, please call 800.789.ASIA (2742) or visit matthewsasia.com.


matthewsasia.com \| 800.789.ASIA			3

LOGO

Message to Shareholders from the President of the Matthews Asia Funds

Dear Fellow Shareholders,

As President of the Matthews Asia Funds and CEO of Matthews International Capital Management, LLC (“Matthews Asia”), Advisor to the Matthews Asia Funds, I am delighted to offer an annual review of the Funds for the year ending 2015.

Long-Term Investing

Following a more challenging year in Asia’s financial markets, we are reminded of the volatility that is inherent in economies that are undertaking significant structural shifts. We also continue to see how monetary policy decisions that are taken far from Asia can impact the region’s economy. However, while the transformations that are taking place in the region’s economy will result in short-term volatility and drastic swings in sentiment, we firmly believe that the patient investor with conviction will be rewarded over the long term.

As we enter a new year with markets remaining volatile, I believe that we will begin to see a return to fundamental investing, and with it, a divergence between companies that will prosper and those that will struggle. It is in this environment that active managers such as ourselves have the potential to add value by seeking to identify the best opportunities for our portfolios over the long term. Taking this into account, as I look back on 2015, I can be proud of the strong relative performance that many of our portfolios achieved.

New Fund Launches

As the financial markets in Asia continue to grow and deepen, we see new opportunities to invest in the region by focusing on different styles of investing or on narrower themes that are becoming increasingly important. With this in mind, we were excited to launch two new strategies for our shareholders in 2015. The Matthews Asia ESG and Matthews Asia Value Funds were launched on April 30 and November 30, 2015, respectively. Both Funds offer a distinctive investment approach. The Matthews Asia Value Fund seeks companies that we believe trade at a discount to their intrinsic value, and are also oriented to create value for shareholders. The Matthews Asia ESG Fund is notable in that it expands on the governance aspect of our investment approach at Matthews Asia by also emphasizing environmental and social practices as part of the investment process. In a region that will benefit greatly from companies that adopt more sustainable and responsible practices, we are pleased to have launched a Fund that will place such issues front and center.

Welcoming New Trustees and a New Minority Owner

2015 also proved to be a busy and important year on the governance front. Firstly, in February I was very pleased to join the Board of Trustees for the Funds and we welcomed two new independent members to the Board of Trustees. Having spent some time this year working with Gale Caruso and Christopher Lee, I believe their knowledge of the industry and financial markets will help to ensure the interests of our shareholders always remain paramount.

In September 2015, Matthews Asia announced a new minority owner of its business. This was an exciting development that we believe will help ensure the continued long-term stability of ownership and independence for the Advisor.

Finally, I would like to thank you once again for your continued confidence in the Matthews Asia Funds, especially during what can be at times challenging markets. As always, we welcome your comments.

LOGO

William J. Hackett

President of the Matthews Asia Funds

Chief Executive Officer, Matthews Asia


4		MATTHEWS ASIA FUNDS

Message to Shareholders from the Investment Advisor

Dear Valued Investors,

A couple years ago, I expressed a concern over the chase for yield in markets and remarked, “There are times when there is actually safety in growth!” Such has been the story this year. Higher-yielding equities have struggled somewhat. Companies with faster growth profiles have done well. “Developing Asia” has outperformed “Developed Asia” and small-capitalization stocks have outperformed large-caps. In our dividend-focused portfolios, these have largely concentrated in growth in dividends, rather than yield and that has helped deal with the headwinds for such strategies. Elsewhere, our focus on high return-on-capital businesses with secular (if not always remarkable) growth has done well. Of course, we are not trying to rotate across different styles—we are convinced that both ways of looking at the region can provide good long-term, risk-adjusted returns. But the volatilities inherent in the portfolios are different, and they can suit different periods in the markets. But what is common across all our portfolios is a belief that Asia’s long-term growth prospects remain strong, and investing in businesses that grow with the development of the region’s middle-class lifestyles provides a good backdrop for returns. This year, despite all the concerns over slowing headline growth rates in China and a strengthening U.S. dollar, our conviction that Asia will continue to press for growth-oriented reforms has been further buttressed.

This has certainly been India’s year—at least according to the short-term verdict of the markets. There has been plenty of excitement generated by, first, the appointment in September of 2013, of Raghuram Rajan to be the Governor of India’s central bank. Part of India’s Achilles heel, in the eyes of foreign investors at least, has been fiscal and monetary irresponsibility. Governor Rajan, as a Chicago Booth School of Business economist, exudes the kind of sensible, apolitical expertise that reassures foreign investors. In addition, India’s politics have often appeared hopelessly divided and a clear political “win” for a single candidate has given investors further reassurance. The fact that the winner was the reform candidate has added further spice to the story. And if that wasn’t enough, India began the year at what appeared to be the turning point, i.e., the trough of a credit and earnings cycle.

All of this means that the main India market benchmarks are up about 30% year-to-date. There has surely been some earnings growth, but valuations have risen quickly. None of which is to say that the rise in India is unjustified. If we are going to be able to look back on Prime Minister Narendra Modi’s reforms as a success in about a decade’s time, the markets have not yet fully reflected this. Current valuations are surely not discounting much more than a strong rebound in short-term earnings and at least a successful start to the reform process. India remains a country where much can be achieved over the next decade to improve people’s standards of living, spending power and productivity. If it can achieve better rates of savings and more efficient mobilization of those savings into much-needed infrastructure projects, why can’t it mimic the growth of its giant neighbor China?

But it is still an open question. Now more than ever, investors interested in India should decide if they are in it for the long haul. There may be plenty of opportunities for disappointment either on the political front or in terms of short-run earnings momentum.

These days, the media would have us believe China is not for the faint of heart. Yet, China has initiated its own reform process. Its leaders have also become comfortable with the slower rates of real GDP growth demanded by the markets as a sign of responsible economic management. Have earnings in China not compounded at 12% in U.S. dollar terms since December 2010 as the markets have derated? All of this leaves China trading at the lows last seen during crises past.

Japan has also impressed with its aggressive monetary easing. There are plenty of Abenomics critics in financial circles, but for those that believe economies “can get stuck in a rut” when policy rates are at or near zero, aggressive central banking is what is needed to set the economy back on course. Neither has Abenomics always achieved great popularity in Japan, but the recent snap election seems to have boosted Abe’s mandate and at least been a vote of confidence in the monetary and other reforms that appear to be starting to show results in an improved labor market and strong profitability in corporate Japan.

The one cloud this year has been the strengthening U.S. dollar. But, as we wrote earlier this year, this does seem to have been a case of dollar strength, not Asian weakness. So, we reach the end of the year with the momentum still behind the U.S. markets in terms of rising prices and rising valuations. Asia, on the other hand, has been more listless, but has started to see better operational results as margins have stabilized and sales growth remains robust. Who knows what will happen next year, but the momentum still seems to be behind the “growthier” elements of the markets in Asia. But there is real relative value emerging in Asia, where portfolios with growth far in excess of the broad market indices in the U.S. and Europe can be had for the same valuations or even discounts of 20% or 30%. Periods of tighter money (a strong U.S. dollar) and weaker growth (e.g. China, Europe) have typically been harder times for Asia’s stock markets—and this is what we have been facing for the past year or more. But Asia’s markets have been resilient and, furthermore, continue to lay the groundwork for future growth in its reform plans. I remain optimistic based on the region’s long-term growth that can still be accessed at reasonable valuations.

It is a privilege to serve as your advisor for Asia investments.

LOGO

Robert Horrocks, PhD

Chief Investment Officer

Matthews International Capital Management, LLC


matthewsasia.com \| 800.789.ASIA			5

LOGO


PORTFOLIO MANAGERS
Teresa Kong, CFA
Lead Manager
Gerald M. Hwang, CFA				Satya Patel
Co-Manager				Co-Manager



FUND FACTS
	Investor	Institutional
Ticker	MAINX	MINCX
CUSIP	577125503	577125602
Inception	11/30/11	11/30/11
NAV	$9.96	$9.96
Initial Investment	$2,500	$3 million
Gross Expense Ratio¹	1.28%	1.09%
After Fee Waiver and Reimbursement²	1.12%	0.90%
Portfolio Statistics
Total # of Positions		42
Net Assets		$62.1 million
Modified Duration³		3.6
Portfolio Turnover⁴		50.09%
Benchmark
HSBC Asian Local Bond Index

OBJECTIVE

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

STRATEGY

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

Matthews Asia Strategic Income Fund

Portfolio Manager Commentary (unaudited)

For the year ending December 31, 2015, the Matthews Asia Strategic Income Fund returned –0.58% (Investor Class) and –0.27% (Institutional Class), while its benchmark, the HSBC Asian Bond Index (ALBI) returned –3.17%. For the fourth quarter, the Fund returned 2.61% (Investor Class), and 2.78% (Institutional Class) versus 2.32% for the benchmark.

Market Environment:

2015 was a challenging year in Asian fixed income. Currencies depreciated—in some cases dramatically—across the board. Commodity-linked currencies like the Malaysian ringgit, Australian dollar and Indonesian rupiah were hardest hit. Credit spreads also widened during the year, although credit markets were still positive on the back of high coupon returns. The top performers were, surprisingly, the frontier markets of Bangladesh and Pakistan, followed by China. There were three defaults, Kaisa Group and Shanshui Cement in China, and Berau Coal in Indonesia. This brings high yield Asia default rates slightly up from 2.0% to 2.3%. This compares favorably to U.S. high yield default rates, which have gone from 1.5% to 3.4% over the same period. Following the widest levels seen at the end of September, Asia’s credit spreads tightened to 283 basis points (2.83%) versus U.S. Treasuries at the end of the year.

The fourth quarter was one of milestone events and a modest recovery from a challenging summer. After years of debate and speculation, the U.S. Federal Reserve raised interest rates, ending its zero interest rate policy. Investors continued to debate the potential implications of policy normalization in the U.S. on Asia. The Chinese renminbi was added to the International Monetary Fund’s special drawing rights (SDR) basket, moving it closer to becoming an international reserve currency. China’s central bank also announced that it would manage the renminbi versus a basket of currencies of its largest trading partners.

Finally, as risk-aversion faded, credit spreads rebounded in the quarter. Commodity-linked corporates continued to underperform, though fundamentally strong companies performed well.

Performance Contributors and Detractors:

The biggest contributors to Fund performance for both the full year and the fourth quarter of the year were our holdings in U.S. dollar-denominated (USD) bonds. We made a deliberate reallocation away from local currency bonds into USD-denominated debt, and this allowed us to isolate attractive credit exposure while minimizing currency and interest rate risk. Within USD-denominated debt, convertible bonds, in particular, performed well. As risk aversion faded, company-specific performance drove the underlying equities of these convertible bonds higher, resulting in strong performance of our bonds.

Our investment in Ctrip.com International convertible bonds was the top contributor to Fund performance for both the fourth quarter and the year. Ctrip is a leading online travel agency in China, and the industry consolidated throughout 2015. With expectations that aggressive competition and heavy discounting will fade, Ctrip shares doubled over the course of the year, leading to strong convertible bond performance.

The biggest detractor to Fund performance was our allocation to local currency bonds. Overall, our local currency sovereign bonds performed poorly. Currencies depreciated and the outflow of capital from emerging markets led to higher rates in a number of countries, thereby dampening returns. Indonesian and South Korean bonds were the biggest detractors to local currency bond performance as coupon returns were overshadowed by negative currency and price returns in both countries.

All sectors posted gains in the fourth quarter. The biggest detractors to our performance were issuer-specific. Yum! Brands posed the largest drag on Fund performance following plans for a major corporate restructuring to involve a spin-off of its international assets and increase in debt in the U.S. entity. Sri Lankan government bonds also performed poorly given concerns about external challenges and lack of fiscal commitment. The country’s balance of payments position weakened as softer demand from Europe

(continued)

1	Actual 2015 expense ratios.

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

4	The lesser of fiscal year 2015 long-term purchase costs or sales proceeds divided by the average monthly market value of long-term securities.


6		MATTHEWS ASIA FUNDS



PERFORMANCE AS OF DECEMBER 31, 2015
					Average Annual Total Returns
	3 Months		1 Year		3 Years		Since Inception		Inception Date
Investor Class (MAINX)		2.61%		-0.58%		0.48%		3.41%		11/30/11
Institutional Class (MINCX)		2.78%		-0.27%		0.72%		3.61%		11/30/11
HSBC Asian Local Bond Index⁵		2.32%		-3.17%		-1.60%		1.10%
Lipper Emerging Markets Hard Currency Debt Category Average⁶		0.68%		-2.98%		-2.33%		2.73%

Performance assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate with market conditions so that when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the return figures quoted. Returns would have been lower if certain of the Fund’s fees and expenses had not been waived. For the Fund’s most recent month-end performance visit matthewsasia.com.



INCOME DISTRIBUTION HISTORY
	2015										2014
	Q1		Q2		Q3		Q4		Total		Q1		Q2		Q3		Q4		Total
Investor (MAINX)	$	0.00	$	0.10	$	0.08	$	0.11	$	0.29	$	0.10	$	0.09	$	0.07	$	0.10	$	0.38
Inst’l (MINCX)	$	0.01	$	0.10	$	0.09	$	0.11	$	0.31	$	0.11	$	0.10	$	0.08	$	0.11	$	0.40

Note: This table does not include capital gains distributions. Totals may differ by $0.02 due to rounding. For income distribution history, visit matthewsasia.com.

30-DAY YIELD:

Investor Class: 5.45% (5.31% excluding expense waiver)

Inst’l Class: 5.67% (5.46% excluding expense waiver)

The 30-Day Yield represents net investment income earned by the Fund over the 30-day period ended 12/31/15, expressed as an annual percentage rate based on the Fund’s share price at the end of the 30-day period. The 30-Day Yield should be regarded as an estimate of the Fund’s rate of investment income, and it may not equal the Fund’s actual income distribution rate.

Source: BNY Mellon Investment Servicing (US) Inc.

YIELD TO WORST: 6.81%

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

Source: FactSet Research Systems

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

LOGO

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

It is not possible to invest directly in an index. Source: Index data from HSBC, and Bloomberg; total return calculations performed by BNY Mellon Investment Servicing (US) Inc. Please see page 87 for index definitions.

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



TOP TEN POSITIONS
	Sector	Currency	% of Net Assets
Longfor Properties Co., Ltd., 6.875%, 10/18/2019	Financials	U.S. Dollar		4.6%
DFCC Bank PLC, 9.625%, 10/31/2018	Financials	U.S. Dollar		4.5%
Shimao Property Holdings, Ltd., 6.625%, 01/14/2020	Financials	U.S. Dollar		3.3%
Bank of Baroda, 6.625%, 05/25/2022	Financials	U.S. Dollar		3.3%
Ctrip.com International, Ltd., Cnv., 1.000%, 07/01/2020	Consumer Discretionary	U.S. Dollar		3.3%
TML Holdings Pte, Ltd., 5.750%, 05/07/2021	Consumer Discretionary	U.S. Dollar		3.3%
ICICI Bank, Ltd., 6.375%, 04/30/2022	Financials	U.S. Dollar		3.3%
PT Perusahaan Listrik Negara, 5.250%, 10/24/2042	Utilities	U.S. Dollar		3.2%
E-House China Holdings, Ltd., Cnv., 2.750%, 12/15/2018	Financials	U.S. Dollar		3.1%
Global Logistic Properties, Ltd., 3.375%, 05/11/2016	Financials	Chinese Renminbi		3.0%
% OF ASSETS IN TOP TEN				34.9%


matthewsasia.com \| 800.789.ASIA			7



CURRENCY ALLOCATION (%)^7,8
U.S. Dollar (USD)			65.7
Indian Rupee (INR)			10.2
Chinese Renminbi (CNY)			8.5
Indonesia Rupiah (IDR)			2.8
Hong Kong Dollar (HKD)			2.7
South Korean Won (KRW)			2.0
Singapore Dollar (SGD)			0.8
Philippine Peso (PHP)			0.4
Cash and Other Assets, Less Liabilities			6.9



COUNTRY ALLOCATION (%)^7,8,9,10
China/Hong Kong			32.4
India			22.7
Indonesia			14.9
Sri Lanka			10.3
Singapore			3.8
Philippines			2.2
South Korea			2.0
Australia			2.0
Vietnam			1.6
Supranational			1.2
Cash and Other Assets, Less Liabilities			6.9



SECTOR ALLOCATION (%)^7,8
Financials			50.4
Consumer Discretionary			14.7
Foreign Government Bonds			9.1
Industrials			7.8
Utilities			4.5
Consumer Staples			2.7
Information Technology			2.3
Telecommunication Services			1.6
Cash and Other Assets, Less Liabilities			6.9

Please note: Foreign Government Bonds category includes Supranationals.



ASSET TYPE BREAKDOWN (%)^7,8
Non-Convertible Corporate Bonds			68.7
Convertible Corporate Bonds			14.1
Government Bonds			9.1
Common Equities and ADRs			1.2
Cash and Other Assets, Less Liabilities			6.9

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

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

9	Not all countries where the Fund may invest are included in the benchmark index.

10	Supranational is an international organization in which member states transcend national boundaries (ex. IMF).

Matthews Asia Strategic Income Fund

Portfolio Manager Commentary (unaudited) (continued)

constrained exports and motor vehicle imports surged amidst growing private sector credit. The 2016 budget showcased the government’s populist leanings, leading to a higher projected budget deficit and a push back of medium-term fiscal targets.

Notable Portfolio Changes:

We made several notable changes to the portfolio in 2015. We increased our exposure to convertible bonds by investing in convertibles trading below their intrinsic bond value and whose equity options were deep out of the money. With companies like E-House China Holdings and China Singyes Solar Technologies, we found that the market was focused on the effects of a macro slowdown while overlooking the strength of their operations. We also sold out of our Sri Lankan rupee-denominated bonds. Sri Lanka’s long-serving president was unexpectedly defeated by a more populist candidate in his bid for a third term. Following the election, the currency was allowed to depreciate and the government transitioned from a presidential to a parliamentary system.

In the fourth quarter, the most notable change to our portfolio was the reduction in our underweight to select Asian currencies. Emerging market countries globally have seen their currencies depreciate significantly since 2013. While we think countries that are large commodity exporters have seen a real erosion in their terms of trade, we do not think many of the Asian countries deserve such severe depreciation. This includes the Indonesian rupiah, the Korean won and the Malaysian ringgit. As such, we added to our exposure to these currencies through currency forward contracts.

Outlook:

In 2016, we expect further volatility and significant tail risks.* First, there is the risk of further Asian currency weakness. In the past, rate hikes in the U.S. often marked a bottom for Asian currencies, but with rate differentials narrowing after the Fed’s hike, the U.S. dollar could continue to appreciate versus Asian currencies. This would likely unfold if the U.S. economy strengthens more, relative to the rest of the world, allowing the Fed to hike rates faster than expected.

The second major source of volatility and tail risk is China. While current data points indicate an orderly re-allocation of capital from renminbi-denominated assets to USD-denominated assets, the tail risks have increased. We think the newly adopted managed-float regime will result in substantially higher volatility than what Chinese and international investors are used to. Instead of having a fixed target (the U.S. dollar), the Chinese renminbi now needs to be managed to a moving target. This moving target can be self-reinforcing, both positively and negatively. For example, the inclusion of the Australian dollar, the Russian ruble and the Canadian dollar in the basket will induce correlation to factors like commodities, which were previously immaterial to movements in the renminbi.

Another major tail risk is the commodity cycle. Asian countries have largely benefited from lower agricultural prices as most are net importers of commodities. This is especially true of South Asia (India, Sri Lanka, Bangladesh and Pakistan), whose current and fiscal accounts have benefited substantially from low oil prices. Should the commodity cycle turn, this region, which has done remarkably well in the last year, could see weakness in its credit and currencies.

Last, and certainly not least, we are concerned about the credit cycle. Default rates have been inching up, and the macro backdrop has decidedly turned to tightening in the U.S. The U.S. dollar continues to be a material source of funding for Asian countries, so financing from this channel will likely continue to inch up for these companies. A higher base rate, in combination with wider credit spreads will increase the cost of leverage and potentially push marginal companies into distress. We believe credit spreads will likely continue to be very volatile. The good news is that while business cycles in the U.S. and Europe once drove Asia, the region is now more closely linked to China, which is slowing. In 2016, we could see policy easing in a number of countries, including China, India, Indonesia, Thailand, South Korea and Malaysia.

The silver lining here is that USD-denominated debt of Asian countries can still provide solid returns to investors with a long investment horizon. Historical data has shown that during similar spread levels buying USD-denominated debt of Asian companies had resulted in positive returns when investors had a holding period of over two years. This may mean that despite uncertainty around where we are in the credit cycle, current spreads offer a return sufficient to offset losses from defaults over the full cycle. While history may not be indicative of the future, we think U.S. dollar credit still offers good opportunities.

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

*	Tail Risk: The small statistical probability that an asset price will move more than three standard deviations from its current and/or average price level.


8		MATTHEWS ASIA FUNDS

Matthews Asia Strategic Income Fund

December 31, 2015

Schedule of Investments^a

NON-CONVERTIBLE CORPORATE BONDS: 68.7%


	Face Amount*		Value
INDIA: 22.7%
Bank of Baroda 6.625%^b, 05/25/22		2,000,000		$2,061,238
TML Holdings Pte, Ltd. 5.750%, 05/07/21		2,000,000		2,058,942
ICICI Bank, Ltd. 6.375%^b, 04/30/22		2,000,000		2,043,978
Housing Development Finance Corp., Ltd.
9.240%, 06/24/24		INR 100,000,000		1,571,613
Housing Development Finance Corp., Ltd.
8.950%, 03/21/23		INR 100,000,000		1,545,825
Delhi International Airport, Ltd. 6.125%, 02/03/22		1,400,000		1,373,788
Axis Bank, Ltd. 7.250%^b, 08/12/21		1,000,000		1,016,460
Rural Electrification Corp., Ltd. 9.340%, 08/25/24		INR 52,000,000		834,536
Power Grid Corp. of India, Ltd., Series B 9.300%, 09/04/24		INR 52,000,000		829,427
Rural Electrification Corp., Ltd. 9.020%, 06/18/19		INR 50,000,000		778,416

Total India				14,114,223


CHINA/HONG KONG: 18.3%
Longfor Properties Co., Ltd. 6.875%, 10/18/19		2,700,000		2,848,500
Shimao Property Holdings, Ltd. 6.625%, 01/14/20		2,000,000		2,079,322
MCE Finance, Ltd. 5.000%, 02/15/21		2,000,000		1,820,000
Value Success International, Ltd. 4.750%, 11/04/18		CNY 12,000,000		1,804,395
Yum! Brands, Inc. 5.350%, 11/01/43		2,000,000		1,526,628
Wynn Macau, Ltd. 5.250%, 10/15/21		1,480,000		1,302,400

Total China/Hong Kong				11,381,245


INDONESIA: 12.6%
PT Perusahaan Listrik Negara 5.250%, 10/24/42		2,500,000		1,965,750
Theta Capital Pte, Ltd. 7.000%, 05/16/19		1,500,000		1,484,540
Jababeka International BV 7.500%, 09/24/19		1,400,000		1,322,588
Alam Synergy Pte, Ltd. 6.950%, 03/27/20^c		1,500,000		1,260,000
TBG Global Pte, Ltd. 4.625%, 04/03/18^c		1,000,000		975,000
Alam Synergy Pte, Ltd. 6.950%, 03/27/20		500,000		420,000
PT Astra Sedaya Finance 8.600%, 02/21/17		IDR 5,000,000,000		359,485

Total Indonesia				7,787,363


SRI LANKA: 8.3%
DFCC Bank PLC 9.625%, 10/31/18		2,650,000		2,779,956
National Savings Bank 5.150%, 09/10/19		2,000,000		1,865,000
National Savings Bank 8.875%, 09/18/18		500,000		514,400

Total Sri Lanka				5,159,356


	Face Amount*		Value
SINGAPORE: 3.0%
Global Logistic Properties, Ltd. 3.375%, 05/11/16		CNY 12,500,000		$1,884,336

Total Singapore				1,884,336


AUSTRALIA: 2.0%
Macquarie Bank, Ltd. 6.625%, 04/07/21		1,100,000		1,232,954

Total Australia				1,232,954


PHILIPPINES: 1.8%
Alliance Global Group Cayman Islands, Inc.
6.500%, 08/18/17		1,050,000		1,094,625

Total Philippines				1,094,625


TOTAL NON-CONVERTIBLE CORPORATE BONDS				42,654,102

(Cost $45,383,565)

CONVERTIBLE CORPORATE BONDS: 14.1%
CHINA/HONG KONG: 14.1%
Ctrip.com International, Ltd., Cnv. 1.000%, 07/01/20^c		1,850,000		2,059,281
E-House China Holdings, Ltd., Cnv.
2.750%, 12/15/18^c		2,010,000		1,950,956
Biostime International Holdings, Ltd., Cnv.
0.000%, 02/20/19		HKD 14,000,000		1,689,021
China Singyes Solar Technologies Holdings, Ltd., Cnv.
5.000%, 08/08/19		CNY 12,000,000		1,581,929
Qihoo 360 Technology Co., Ltd., Cnv. 1.750%, 08/15/21		1,500,000		1,450,312

Total China/Hong Kong				8,731,499


TOTAL CONVERTIBLE CORPORATE BONDS				8,731,499

(Cost $8,702,041)

FOREIGN GOVERNMENT OBLIGATIONS: 9.1%
INDONESIA: 2.3%
Indonesia Treasury Bond 7.875%, 04/15/19		IDR 20,000,000,000		1,410,780

Total Indonesia				1,410,780


SRI LANKA: 2.0%
Sri Lanka Government Bond 6.125%, 06/03/25		1,400,000		1,243,372

Total Sri Lanka				1,243,372


SOUTH KOREA: 2.0%
Korea Treasury Bond 3.500%, 09/10/16		KRW 1,000,000,000		863,708
Korea Treasury Bond 3.500%, 03/10/24		KRW 400,000,000		377,776

Total South Korea				1,241,484


matthewsasia.com \| 800.789.ASIA			9

Matthews Asia Strategic Income Fund

December 31, 2015

Schedule of Investments^a (continued)


FOREIGN GOVERNMENT OBLIGATIONS (continued)		COMMON EQUITIES: 1.2%


	Face Amount*		Value
VIETNAM: 1.6%
Socialist Republic of Vietnam 4.800%, 11/19/24		1,055,000		$1,013,201

Total Vietnam				1,013,201


SUPRANATIONAL: 1.2%
International Finance Corp. 7.750%, 12/03/16		INR 50,000,000		758,755

Total Supranational				758,755


TOTAL FOREIGN GOVERNMENT OBLIGATIONS				5,667,592

(Cost $6,253,594)


	Shares		Value
SINGAPORE: 0.8%
Vicom, Ltd.		118,000		$500,994

Total Singapore				500,994


PHILIPPINES: 0.4%
Alliance Global Group, Inc.		780,000		265,861

Total Philippines				265,861


TOTAL COMMON EQUITIES				766,855

(Cost $1,039,054)

TOTAL INVESTMENTS: 93.1%				57,820,048
(Cost $61,378,254^d)

CASH AND OTHER ASSETS, LESS LIABILITIES: 6.9%				4,310,555


NET ASSETS: 100.0%				$62,130,603

a	Certain securities were fair valued under the valuation polices approved by the Board of Trustees (Note 2-A).

b	Variable rate security. The rate represents the rate in effect at December 31, 2015.

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

d	Cost for federal income tax purposes is $61,378,254 and net unrealized depreciation consists of:


Gross unrealized appreciation	$791,009
Gross unrealized depreciation	(4,349,215	)

Net unrealized depreciation	($3,558,206	)

*	All values are in USD unless otherwise noted.

Cnv.	Convertible

CNY	Chinese Renminbi (Yuan)

IDR	Indonesian Rupiah

INR	Indian Rupee

HKD	Hong Kong Dollar

KRW	Korean Won

USD	U.S. Dollar

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS:

Currency
Purchased

Currency Sold

Counterparty

Settlement
Date

Unrealized
Appreciation
(Depreciation)

LONG

IDR 55,822,000,000

USD 3,800,000

Deutsche Banc Alex Brown, Inc.

01/08/16

$233,735

MYR 24,068,000

USD 5,500,000

Deutsche Banc Alex Brown, Inc.

01/08/16

101,112

KRW 6,890,020,000

USD 5,900,000

Deutsche Banc Alex Brown, Inc.

01/08/16

(38,273

)

$296,574

See accompanying notes to financial statements.


10		MATTHEWS ASIA FUNDS

LOGO


PORTFOLIO MANAGERS
Robert J. Horrocks, PhD
Lead Manager
Kenneth Lowe, CFA
Lead Manager

FUND FACTS
	Investor	Institutional
Ticker	MACSX	MICSX
CUSIP	577130206	577130842
Inception	9/12/94	10/29/10
NAV	$16.03	$16.02
Initial Investment	$2,500	$3 million
Gross Expense Ratio¹	1.09%	0.92%
After Fee Waiver and Reimbursement²	1.09%	0.92%
Portfolio Statistics
Total # of Positions		57
Net Assets		$2.9 billion
Weighted Average Market Cap		$32.1 billion
Portfolio Turnover³		16.48%
Benchmark
MSCI AC Asia ex Japan Index

OBJECTIVE

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

STRATEGY

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

Matthews Asian Growth and Income Fund

Portfolio Manager Commentary (unaudited)

For the year ending December 31, 2015, the Matthews Asian Growth and Income Fund fell –4.50% (Investor Class) and –4.33% (Institutional Class), while its benchmark, the MSCI All Country Asia ex Japan Index, fell –8.90%. For the fourth quarter of the year, the Fund returned 2.87% (Investor Class) and 2.97% (Institutional Class) versus 3.87% for the Index.

Market Environment:

During 2015, the influence of central bankers and policymakers grew frustratingly ever more apparent. In the fourth quarter, the U.S. Federal Reserve finally undertook its first rate hike in over nine years, having delayed it by three months due to weakening global growth offsetting some reasonable domestic wage rises and employment data. The possibility of this rate hike has plagued emerging markets for some time, weighing on sentiment and driving capital flows out of the region. Alongside this headwind were volatile Chinese financial markets. The world’s second-largest economy has been undergoing a challenging transition from a traditional model of fixed asset investment, export and credit-led growth to one that is more “sustainable” and consumer-based. From an equity market standpoint, the year witnessed not only an astounding rally promoted by state media and fueled by retail investors and margin financing, but also a vicious pullback. This resulted in some poorly advised government-led attempts to stop the drop through stock suspensions, IPO suspensions and a state-sponsored purchase of equities. In August, there was yet more bungled policy from China as the party poorly communicated its decision to alter its exchange rate mechanism. The move to a more market-oriented structure that resulted in an instant 1.9% devaluation of the currency to the U.S. dollar, should allow the government more monetary easing firepower to support growth given the macroeconomic conundrum of the “impossible trinity.”^† Soft Chinese demand, as well as rising supply in many instances, has also resulted in a collapse in prices across the commodity complex.

With this backdrop of diverging growth patterns and rate cycles between the U.S. and emerging markets, we saw very poor performance from most indices in Asia for the year. Weak sentiment, plunging commodity prices and aggressive currency devaluations led geographies across Southeast Asia to be the region’s weakest performers. North Asia fared slightly better through the year as currencies provided greater support, but there was little cheer to be had even as markets rebounded from their lows into the festive season.

Performance Contributors and Detractors:

Despite being a challenging year across equity markets, the fourth quarter did produce some positive returns. The largest contributors for both time periods came from our holdings within consumer staples, with Vietnam Dairy Products at the top for both time periods. The leading dairy producer and brand owner within the frontier market has seen strong earnings growth from volume expansion as incomes rise, and it pushes newer high-margin categories, such as powdered milk and yogurt. Declining input costs have also helped to boost margins and the stock has been further helped by the proposed increase of a foreign ownership limit from 49%.

Hong Kong-based Vitasoy also rose as the soymilk and tea producer witnessed strong growth in China—now its largest market on account of its “go deep, go wide” strategy. A combination of execution, product innovation and declining raw material costs has helped earnings. Other Japanese consumer staples, such as Japan Tobacco and Lawson, also had solid returns through 2015.

(continued)

1	Actual 2015 expense ratios.

3	The lesser of fiscal year 2015 long-term purchase costs or sales proceeds divided by the average monthly market value of long-term securities.


matthewsasia.com \| 800.789.ASIA			11



PERFORMANCE AS OF DECEMBER 31, 2015
					Average Annual Total Returns
	3 Months		1 Year		3 Years		5 Years		10 Years		Since Inception			Inception Date
Investor Class (MACSX)		2.87%		-4.50%		-0.18%		2.44%		6.84%		9.42%			9/12/94
Institutional Class (MICSX)		2.97%		-4.33%		0.00%		2.60%		n.a.		3.00%			10/29/10
MSCI AC Asia ex Japan Index³		3.87%		-8.90%		-0.35%		0.14%		6.46%		3.50%	⁴
Lipper Pacific Region Funds Category Average⁵		5.29%		-3.12%		1.96%		2.37%		3.88%		3.65%

Performance assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate with market conditions so that when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the return figures quoted. For the Fund’s most recent month-end performance, visit matthewsasia.com.



INCOME DISTRIBUTION HISTORY
	2015						2014
	June		December		Total		June		December		Total
Investor (MACSX)	$	0.21	$	0.21	$	0.42	$	0.15	$	0.20	$	0.35
Inst’l (MICSX)	$	0.23	$	0.22	$	0.45	$	0.16	$	0.21	$	0.38

Note: This table does not include capital gains distributions. Totals may differ by $0.01 due to rounding. For income distribution history, visit matthewsasia.com.

30-DAY YIELD:

1.75% (Investor Class) 1.88% (Institutional Class)

Source: BNY Mellon Investment Servicing (US) Inc.

DIVIDEND YIELD: 3.54%

The dividend yield (trailing) for the portfolio is the weighted average sum of the dividends paid by each equity security held by the Fund over the 12 months ended 12/31/15 divided by the current price of each equity as of 12/31/15. The annualized dividend yield for the Fund is for the equity-only portion of the portfolio. Please note that this is based on gross equity portfolio holdings and does not reflect the actual yield an investor in the Fund would receive. Past yields are no guarantee of future yields.

Source: FactSet Research Systems, Bloomberg, MICM

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

LOGO

It is not possible to invest directly in an index. Source: Index data from Morgan Stanley Capital International and Bloomberg; total return calculations performed by BNY Mellon Investment Servicing (US) Inc. Please see page 87 for index definition.

Calculated from 8/31/94.

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



TOP TEN POSITIONS⁶
	Sector	Country	% of Net Assets
Taiwan Semiconductor Manufacturing Co., Ltd.	Information Technology	Taiwan		3.3%
AIA Group, Ltd.	Financials	China/Hong Kong		3.1%
Jardine Matheson Holdings, Ltd.	Industrials	China/Hong Kong		2.8%
CapitaLand, Ltd., Cnv., 1.950%, 10/17/2023	Financials	Singapore		2.8%
Yum! Brands, Inc.	Consumer Discretionary	China/Hong Kong		2.7%
Japan Tobacco, Inc.	Consumer Staples	Japan		2.5%
Vietnam Dairy Products JSC	Consumer Staples	Vietnam		2.5%
Ascendas REIT	Financials	Singapore		2.4%
Genting Malaysia BHD	Consumer Discretionary	Malaysia		2.4%
Guangdong Investment, Ltd.	Utilities	China/Hong Kong		2.3%
% OF ASSETS IN TOP TEN				26.8%

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


12		MATTHEWS ASIA FUNDS

Matthews Asian Growth and Income Fund

Portfolio Manager Commentary (unaudited) (continued)

Beyond these, a few of our Hong Kong holdings were also positive contributors for the full year, including our position in the convertible bond of Hong Kong Exchanges & Clearing. The underlying stock was up strongly through the second quarter on increasing average daily turnover as markets rose and participation increased. We used this as an opportunity to exit our position as valuations had become stretched at about 38x price-to-earnings ratio (P/E).^‡

The largest detractors to performance for the fourth quarter came from two of our telecommunications holdings, and unfortunately, for similar reasons of increasing competition. Globe Telecom in the Philippines suffered as it appears that the largest telecom player in Australia is likely to enter the market in conjunction with a local industrial conglomerate to form a third player. Advanced Info Services in Thailand was hurt as it encountered disastrous auctions for additional spectrum, with a new competitor winning these with an unpalatably high bid. This will likely structurally alter the return profile for this market.

For the full year, many of our holdings in Southeast Asia delivered poor performance, partially driven by the downward lurch in currencies. We did, however, also suffer from some stock-specific challenges. Perusahaan Gas Negara Persero was the weakest of these as the Indonesian natural gas distribution company had poor results, and also faces the prospect of a gas aggregator agency being established and favoring the company’s competition. Additionally, Thailand’s free-to-air T.V. operator BEC World Public struggled as it started to lose audience share upon the national rollout of digital channels, hurting revenues and increasing content costs.

Notable Portfolio Changes:

During the quarter, we added Norwegian-listed, but global, telecom company Telenor. The firm is now generating the majority of its earnings from Asia, and we believe it has many quality assets in countries such as Malaysia, Thailand, Bangladesh, Myanmar and India. This emerging market exposure is likely to provide above-industry growth and we expect to see improving cash flow generation. Further, the stock is attractively priced at around 13x P/E and almost a 5% dividend yield. We funded this through exiting our positions in SKY Network TV in New Zealand and BHP Billiton of Australia as we held declining conviction in both.

Outlook:

Entering 2016, there are a multitude of factors that make it challenging to become particularly constructive on equity markets. Whilst the U.S. economy appears to be reasonably resilient, growth in both real and nominal terms is hardly conducive to driving world trade volumes up to the growth rates of the preceding 20 years. In Europe, deflationary hurdles remain despite a more outspoken central banker in Mario Draghi. For Asia, this lack of export growth is accompanied by private sector debt levels that have mushroomed since the Global Financial Crisis of 2008, and debt service ratios that are continuing to spike as earnings contract and capital is removed from the region. This difficult environment has caused a structural decline in the ROE for listed businesses as competition has increased and disinflation takes hold.

All of this leads us to earnings expectations that have been cut so dramatically the market now expects a mere 5% earnings growth in 2016. Although this helps to create continued pessimism over Asian markets, it is in these environments where stock picking often bears fruit. The Matthews Asian Growth and Income portfolio has consistently attempted to provide attractive risk adjusted returns through investing in businesses that can wade through these cycles, and we remain confident that the high quality businesses within our portfolio will be able to do just that. Further, valuations for the Fund remain supportive at approximately 14x P/E.

†	The Impossible Trinity—also known as the Trilemma or Unholy Trinity—is the hypothesis in international economics that a country may choose any two, but not all of the following three policy goals—monetary independence, exchange rate stability and free movement of capital.

‡	Price-to-Earnings Ratio (P/E Ratio) is a valuation ratio of a company’s current share price compared to its per-share earnings and is calculated as the market value per share divided by the Earnings per Share (EPS).



COUNTRY ALLOCATION (%)^7,8
China/Hong Kong			35.7
Singapore			16.6
South Korea			11.4
Malaysia			6.9
Japan			6.4
Taiwan			5.0
Australia			3.7
Thailand			3.3
Indonesia			2.8
Vietnam			2.5
New Zealand			2.0
Norway			1.5
Philippines			1.2
Cash and Other Assets, Less Liabilities			1.0



SECTOR ALLOCATION (%)⁸
Financials			17.8
Consumer Discretionary			17.2
Industrials			16.8
Telecommunication Services			16.3
Consumer Staples			15.4
Information Technology			6.9
Utilities			6.5
Health Care			2.1
Cash and Other Assets, Less Liabilities			1.0



MARKET CAP EXPOSURE (%)⁸
Mega Cap (over $25B)			33.0
Large Cap ($10B–$25B)			19.9
Mid Cap ($3B–10B)			29.9
Small Cap (under $3B)			16.2
Cash and Other Assets, Less Liabilities			1.0



ASSET TYPE BREAKDOWN (%)^8,9
Common Equities and ADRs			86.2
Convertible Corporate Bonds			8.9
Preferred Equities			3.9
Cash and Other Assets, Less Liabilities			1.0

7	Not all countries where the Fund may invest are included in the benchmark index.

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

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


matthewsasia.com \| 800.789.ASIA			13

Matthews Asian Growth and Income Fund

December 31, 2015

Schedule of Investments^a

COMMON EQUITIES: 86.2%


	Shares		Value
CHINA/HONG KONG: 29.6%
AIA Group, Ltd.		14,876,000		$88,885,339
Jardine Matheson Holdings, Ltd.		1,671,900		80,966,001
Yum! Brands, Inc.		1,045,400		76,366,470
Guangdong Investment, Ltd.		47,348,000		66,866,180
Techtronic Industries Co., Ltd.		16,399,500		66,389,187
China Mobile, Ltd. ADR		1,125,500		63,399,415
CK Hutchison Holdings, Ltd.		4,400,172		59,146,797
HSBC Holdings PLC ADR		1,472,033		58,101,143
CLP Holdings, Ltd.		6,725,200		57,002,830
VTech Holdings, Ltd.		5,454,500		56,474,881
Vitasoy International Holdings, Ltd.		26,227,000		53,646,689
Hang Lung Properties, Ltd.		22,260,920		50,440,093
Café de Coral Holdings, Ltd.		14,582,000		42,733,182
Cheung Kong Property Holdings, Ltd.		4,400,172		28,464,646

Total China/Hong Kong				848,882,853


SINGAPORE: 13.8%
Ascendas REIT		43,232,800		69,287,491
United Overseas Bank, Ltd.		4,274,500		58,931,741
Singapore Technologies Engineering, Ltd.		27,351,925		57,818,910
Singapore Telecommunications, Ltd.		21,686,400		55,913,287
Singapore Post, Ltd.		38,209,000		44,111,494
SIA Engineering Co., Ltd.		15,928,900		41,495,048
Keppel Corp., Ltd.		8,410,900		38,422,467
ARA Asset Management, Ltd.		36,838,667		30,515,298

Total Singapore				396,495,736


SOUTH KOREA: 7.5%
Kangwon Land, Inc.		1,810,693		59,098,126
KT&G Corp.		559,754		49,742,613
Samsung Electronics Co., Ltd.		43,412		46,302,470
GS Home Shopping, Inc.		227,544		32,300,026
KEPCO Plant Service & Engineering Co., Ltd.		386,300		29,221,170

Total South Korea				216,664,405


MALAYSIA: 6.9%
Genting Malaysia BHD		67,607,200		68,874,046
Axiata Group BHD		33,570,123		50,027,411
British American Tobacco Malaysia BHD		3,606,800		47,042,983
Telekom Malaysia BHD		20,245,551		31,902,726

Total Malaysia				197,847,166


JAPAN: 6.4%
Japan Tobacco, Inc.		1,962,700		72,058,119
KDDI Corp.		2,270,600		58,967,925
Lawson, Inc.		634,700		51,519,222

Total Japan				182,545,266


TAIWAN: 5.0%
Taiwan Semiconductor Manufacturing Co., Ltd.		11,282,187		48,674,077
Chunghwa Telecom Co., Ltd. ADR		1,596,225		47,934,637
Taiwan Semiconductor Manufacturing Co., Ltd. ADR		2,064,424		46,965,646

Total Taiwan				143,574,360


	Shares		Value
AUSTRALIA: 3.7%
CSL, Ltd.		781,477		$59,579,403
Insurance Australia Group, Ltd.		11,324,603		45,479,627

Total Australia				105,059,030


THAILAND: 3.3%
Glow Energy Public Co., Ltd.		18,076,500		36,917,351
BEC World Public Co., Ltd.		35,030,100		29,538,863
Advanced Info Service Public Co., Ltd.		6,869,700		28,905,164

Total Thailand				95,361,378


INDONESIA: 2.8%
PT Telekomunikasi Indonesia Persero ADR		1,169,800		51,939,120
PT Perusahaan Gas Negara Persero		139,319,300		27,468,842

Total Indonesia				79,407,962


VIETNAM: 2.5%
Vietnam Dairy Products JSC		12,596,761		71,610,012

Total Vietnam				71,610,012


NEW ZEALAND: 2.0%
SKYCITY Entertainment Group, Ltd.		19,139,923		57,859,979

Total New Zealand				57,859,979


NORWAY: 1.5%
Telenor ASA		2,669,498		44,496,720

Total Norway				44,496,720


PHILIPPINES: 1.2%
Globe Telecom, Inc.		868,230		34,106,645

Total Philippines				34,106,645


TOTAL COMMON EQUITIES				2,473,911,512

(Cost $2,318,708,480)

CONVERTIBLE CORPORATE BONDS: 8.9%
	Face Amount*
CHINA/HONG KONG: 6.1%
Shine Power International, Ltd., Cnv. 0.000%, 07/28/19		HKD 446,000,000		55,677,705
Johnson Electric Holdings, Ltd., Cnv. 1.000%, 04/02/21		49,750,000		53,730,000
Hengan International Group Co., Ltd., Cnv.
0.000%, 06/27/18		HKD 339,000,000		45,710,028
PB Issuer No. 2, Ltd., Cnv. 1.750%, 04/12/16		21,820,000		21,465,425

Total China/Hong Kong				176,583,158


SINGAPORE: 2.8%
CapitaLand, Ltd., Cnv. 1.950%, 10/17/23		SGD 110,250,000		79,505,342

Total Singapore				79,505,342


TOTAL CONVERTIBLE CORPORATE BONDS				256,088,500

(Cost $266,495,743)


14		MATTHEWS ASIA FUNDS

Matthews Asian Growth and Income Fund

December 31, 2015

Schedule of Investments^a (continued)

PREFERRED EQUITIES: 3.9%


	Shares		Value
SOUTH KOREA: 3.9%
LG Household & Health Care, Ltd., Pfd.		109,088		$50,395,225
Hyundai Motor Co., Ltd., Pfd.		355,983		31,126,445
Hyundai Motor Co., Ltd., 2nd Pfd.		318,246		28,326,236

Total South Korea				109,847,906


TOTAL PREFERRED EQUITIES				109,847,906

(Cost $38,339,132)

RIGHTS: 0.0%
SINGAPORE: 0.0%
Ascendas REIT, expires 1/13/16		1,621,230		62,215

Total Singapore				62,215


TOTAL RIGHTS				62,215

(Cost $0)

TOTAL INVESTMENTS: 99.0%				2,839,910,133
(Cost $2,623,543,355^b)

CASH AND OTHER ASSETS, LESS LIABILITIES: 1.0%				29,144,236


NET ASSETS: 100.0%				$2,869,054,369

a	Certain securities were fair valued under the valuation polices approved by the Board of Trustees (Note 2-A).

b	Cost for federal income tax purposes is $2,633,461,269 and net unrealized appreciation consists of:


Gross unrealized appreciation	$455,482,353
Gross unrealized depreciation	(249,033,489	)

Net unrealized appreciation	$206,448,864

*	All values are in USD unless otherwise noted.

ADR	American Depositary Receipt

BHD

Berhad

Cnv.	Convertible

HKD	Hong Kong Dollar

JSC	Joint Stock Co.

Pfd.

Preferred

REIT	Real Estate Investment Trust

SGD	Singapore Dollar

USD	U.S. Dollar

See accompanying notes to financial statements.


matthewsasia.com \| 800.789.ASIA			15

LOGO


PORTFOLIO MANAGERS
Yu Zhang, CFA	Robert Horrocks, PhD
Lead Manager	Lead Manager
Vivek Tanneeru
Co-Manager

FUND FACTS
	Investor	Institutional
Ticker	MAPIX	MIPIX
CUSIP	577125107	577130750
Inception	10/31/06	10/29/10
NAV	$15.36	$15.35
Initial Investment	$2,500	$3 million
Gross Expense Ratio¹	1.06%	0.93%
After Fee Waiver and Reimbursement²	1.05%	0.92%
Portfolio Statistics
Total # of Positions		66
Net Assets		$4.8 billion
Weighted Average Market Cap		$28.9 billion
Portfolio Turnover³		35.98%
Benchmark
MSCI AC Asia Pacific Index

OBJECTIVE

Total return with an emphasis on providing current income.

STRATEGY

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

Matthews Asia Dividend Fund

Portfolio Manager Commentary (unaudited)

For the year ending December 31, 2015, the Matthews Asia Dividend Fund returned 3.86% (Investor Class) and 3.93% (Institutional Class) while its benchmark, the MSCI All Country Asia Pacific Index, returned –1.68%. For the fourth quarter of the year, the Fund returned 4.85% (Investor Class) and 4.81% (Institutional Class) versus 6.99% for the Index.

The Fund began 2015 with a share price of US$15.26 for both the Investor and Institutional Classes, and shareholders who were invested throughout the year would have received total distributions of approximately 0.50 cents (Investor Class) or 0.52 cents (Institutional Class) per share.

Market Environment:

Asia equity investors faced strong macroeconomic headwinds during 2015. Two events that have been unfolding—a prolonged slowing Chinese economy and a U.S. Fed interest rate hike—put significant downward pressure on both the region’s equity markets and currencies. Within the region, Japan was among the few bright spots that delivered positive U.S. dollar-adjusted market returns. A government-led, top-down push for better corporate governance standards, focused on return on equity improvements, coupled with a more aggressive asset allocation into domestic equities from Japanese pension funds and trust banks, provided support to Japan’s stock market. On the other hand, Southeast Asian stock markets, marred by weak domestic consumption, steep currency depreciation, and, in certain cases, political impasses and policy mismanagement were among the worst-performing. Markets in certain countries, such as Indonesia, Malaysia and Thailand, fell by more than 20% on a U.S. dollar-adjusted basis. Finally, as China pushed ahead with structural reforms amid a meaningful slowdown in its economy, reaction to the movements of both China A-shares and the renminbi currency increasingly became meaningful drivers behind global market volatility.

Performance Contributors and Detractors:

Among the top contributors to Fund performance during both the fourth quarter and the year were the preferred shares of lithium-ion battery maker LG Chem. This firm, a global major petrochemical producer and a tier-one battery supplier, spotted an opportunity in the electric vehicle battery market early on, and in recent years has steadily invested in new electric vehicle (EV) battery capacity. It has also done well in cultivating new relationships with global automakers. As electric vehicles become ever more critical to many global automakers, the outlook for LG Chem’s EV battery business is turning more positive and has driven its share price higher. We were initially attracted to LG Chem’s balanced business portfolio, which holds both petrochemical and non-petrochemical businesses, as we believe the firm was well-positioned with an earnings stream that was less cyclical compared with that of its peers. Furthermore, we bought the preferred share class, which was trading at a meaningful discount to common shares, giving us a significant pickup in dividend yield.

On the flip side, the Fund’s holding in Total Access Communications, a wireless telecom carrier in Thailand, was among the portfolio’s top detractors. The competitive landscape in the Thai telecom sector deteriorated significantly during the year. True Corp., the number three player by market share, was backed by a fresh injection of capital from China Mobile, which took a minority stake in the company. True became more aggressive in grabbing subscriber market share against

(continued)

1	Actual 2015 expense ratios.

3	The lesser of fiscal year 2015 long-term purchase costs or sales proceeds divided by the average monthly market value of long-term securities.


16		MATTHEWS ASIA FUNDS



PERFORMANCE AS OF DECEMBER 31, 2015
					Average Annual Total Returns
	3 Months		1 Year		3 Years		5 Years		Since Inception			Inception Date
Investor Class (MAPIX)		4.85%		3.86%		4.83%		4.75%		8.74%			10/31/06
Institutional Class (MIPIX)		4.81%		3.93%		4.95%		4.85%		5.28%			10/29/10
MSCI AC Asia Pacific Index⁴		6.99%		-1.68%		3.42%		1.96%		2.63%	⁵
Lipper Pacific Region Funds Category Average⁶		5.29%		-3.12%		1.96%		2.37%		3.33%	⁵

Performance assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate with market conditions so that when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the return figures quoted. For the Fund’s most recent month-end performance, visit matthewsasia.com.



INCOME DISTRIBUTION HISTORY
	2015										2014
	Q1		Q2		Q3		Q4		Total		Q1		Q2		Q3		Q4		Total
Investor (MAPIX)	$	0.02	$	0.18	$	0.03	$	0.04	$	0.27	$	0.03	$	0.11	$	0.17	$	0.00	$	0.30
Inst’l (MIPIX)	$	0.02	$	0.19	$	0.04	$	0.04	$	0.29	$	0.03	$	0.11	$	0.17	$	0.00	$	0.32

Note: This table does not include capital gains distributions but does include return of capital totaling $0.065 (Investor Class) and $0.068 (Institutional Class) for 2014. Totals may differ by $0.01 due to rounding. For distribution history please visit matthewsasia.com.

30-DAY YIELD:

1.55% (Investor Class) 1.66% (Institutional Class)

Source: BNY Mellon Investment Servicing (US) Inc.

DIVIDEND YIELD: 3.04%

Source: FactSet Research Systems, Bloomberg, MICM.

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

LOGO

Calculated from 10/31/06.

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



TOP TEN POSITIONS⁷
	Sector	Country	% of Net Assets
LG Chem, Ltd., Pfd.	Materials	South Korea		3.4%
Japan Tobacco, Inc.	Consumer Staples	Japan		3.4%
Shenzhou International Group Holdings, Ltd.	Consumer Discretionary	China/Hong Kong		3.3%
Suntory Beverage & Food, Ltd.	Consumer Staples	Japan		3.3%
Hoya Corp.	Health Care	Japan		3.1%
Bridgestone Corp.	Consumer Discretionary	Japan		2.9%
Kao Corp.	Consumer Staples	Japan		2.6%
Minth Group, Ltd.	Consumer Discretionary	China/Hong Kong		2.5%
Sumitomo Mitsui Financial Group, Inc.	Financials	Japan		2.4%
NTT DoCoMo, Inc.	Telecommunication Services	Japan		2.4%
% OF ASSETS IN TOP TEN				29.3%

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


matthewsasia.com \| 800.789.ASIA			17



COUNTRY ALLOCATION (%)^8,9
China/Hong Kong			33.7
Japan			30.7
South Korea			7.8
Taiwan			5.3
Indonesia			4.3
Singapore			4.0
India			2.6
Thailand			2.2
Australia			2.0
Vietnam			1.6
Luxembourg			1.5
Philippines			1.2
New Zealand			1.1
Cash and Other Assets, Less Liabilities			2.0



SECTOR ALLOCATION (%)⁹
Consumer Staples			27.9
Consumer Discretionary			16.2
Telecommunication Services			12.7
Industrials			12.1
Financials			11.8
Information Technology			5.5
Materials			4.4
Health Care			4.1
Utilities			3.3
Cash and Other Assets, Less Liabilities			2.0



MARKET CAP EXPOSURE (%)⁹
Mega Cap (over $25B)			27.8
Large Cap ($10B–$25B)			24.5
Mid Cap ($3B–10B)			23.5
Small Cap (under $3B)			22.2
Cash and Other Assets, Less Liabilities			2.0

8	Not all countries where the Fund may invest are included in the benchmark index.

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

Matthews Asia Dividend Fund

Portfolio Manager Commentary (unaudited) (continued)

larger players, including Total Access. To make matters worse, the latest 4G spectrum auctions, completed in December, saw a new entrant break into the wireless telecom business, disrupting Thailand’s three-player market structure. Total Access’ stock was severely de-rated, and we are currently monitoring the situation to assess whether the company is still able to sustain an ongoing dividend payment.

Notable Portfolio Changes:

During the last quarter, the Fund initiated a few new positions, including PT Hanjaya Mandala Sampoerna, Indonesia’s largest tobacco company, which is closely held by its parent company Philip Morris International (PMI). Regarded as the crown-jewel asset within PMI, the firm has delivered consistent market share gains with strong financial results in recent years. Because of its solid balance sheet and strong cash flow generation, PMI has also been extracting substantial cash flow from Sampoerna by adopting a maximum dividend payout policy. In November, when PMI was forced to sell down its stake in Sampoerna to comply with the local listing requirement in Indonesia, we decided to participate in this liquidity event and initiated a position in the stock.

During the fourth quarter, we also exited Primary Health Care of Australia. While our initial investment thesis rested on a potential margin uplift from Primary’s medical center business, the company’s overall business faced strong regulatory headwinds involving the curtailment of medical payments from the government. At the same time, heated competition within the medical center industry also caused more difficulties for Primary to retain and grow its doctor workforce—an essential part of the company’s growth strategy. With limited visibility for a turnaround in the business, we decided to take the loss on the stock and re-deploy capital elsewhere.

Outlook:

The market outlook for Asia today seems murky, in part as the real impact of the recent U.S. Federal Reserve rate hike on Asia is still unclear. In contrast to the U.S., Asia’s monetary policies are generally moving in the opposite direction, toward more easing. China’s headline growth figures continue to struggle and the movements of the renminbi still hold important implications to the stability of Asia’s markets. Against such a backdrop, a dividend-investing approach that balances both the yield and growth components in the underlying dividends, in our view, is an effective tool to filter out short-term market noise. Our focus is on what we consider a crucial factor for long-term investing: a company’s ability not only to generate sustainable cash flow but also its willingness to distribute it to minority shareholders in the form of stable or rising dividends.


18		MATTHEWS ASIA FUNDS

Matthews Asia Dividend Fund

December 31, 2015

Consolidated Schedule of Investments^a

COMMON EQUITIES: 94.6%


	Shares		Value
CHINA/HONG KONG: 33.7%
Shenzhou International Group Holdings, Ltd.		27,810,000		$159,373,011
Minth Group, Ltd.†		59,535,000		118,275,877
China Construction Bank Corp. H Shares		150,798,000		102,866,571
AIA Group, Ltd.		17,110,800		102,238,455
Guangdong Investment, Ltd.		66,566,000		94,006,381
China Mobile, Ltd. ADR		1,574,225		88,676,094
Kweichow Moutai Co., Ltd. A Shares		2,462,935		81,565,414
Qualcomm, Inc.		1,569,800		78,466,453
Far East Horizon, Ltd.		75,288,000		69,752,736
Yuexiu Transport Infrastructure, Ltd.†		109,322,000		68,286,284
Shanghai Lujiazui Finance & Trade Zone Development Co., Ltd. B Shares		16,413,323		66,589,820
China Power International Development, Ltd.		113,710,000		65,455,353
Shanghai International Airport Co., Ltd. A Shares^b		12,098,309		54,786,077
HKBN, Ltd.		41,566,123		53,485,199
Daqin Railway Co., Ltd. A Shares		40,506,372		52,941,772
Café de Coral Holdings, Ltd.		18,014,000		52,790,807
Fuyao Glass Industry Group Co., Ltd. H Shares^c		21,248,000		51,031,851
Greatview Aseptic Packaging Co., Ltd.†		109,030,000		49,294,621
Jiangsu Expressway Co., Ltd. H Shares		35,370,000		47,470,455
Hopewell Holdings, Ltd.		12,233,500		43,827,132
Henan Shuanghui Investment & Development Co., Ltd. A Shares^b		12,972,979		40,689,776
China Machinery Engineering Corp. H Shares†		53,811,000		39,262,849
Haitian International Holdings, Ltd.		16,566,000		24,034,963
China Mobile, Ltd.		1,248,500		14,053,248

Total China/Hong Kong				1,619,221,199


JAPAN: 30.7%
Japan Tobacco, Inc.		4,403,200		161,658,077
Suntory Beverage & Food, Ltd.		3,610,600		158,058,146
Hoya Corp.		3,676,300		150,333,400
Bridgestone Corp.		4,096,100		140,502,037
Kao Corp.		2,454,600		126,138,820
Sumitomo Mitsui Financial Group, Inc.		3,107,200		117,268,989
NTT DoCoMo, Inc.		5,677,200		116,448,460
ITOCHU Corp.		8,498,200		100,520,536
Toyo Suisan Kaisha, Ltd.		2,656,200		92,575,352
Pigeon Corp.		3,806,100		92,336,334
Skylark Co., Ltd.		5,978,700		77,251,309
Lawson, Inc.		755,300		61,308,443
Anritsu Corp.†		7,564,500		49,563,094
Dexerials Corp.		2,594,400		27,790,971

Total Japan				1,471,753,968


TAIWAN: 5.3%
Chunghwa Telecom Co., Ltd. ADR		3,324,301		99,828,759
Taiwan Semiconductor Manufacturing Co., Ltd. ADR		3,027,940		68,885,635
St. Shine Optical Co., Ltd.		2,383,000		47,693,895
Sercomm Corp.		11,111,000		29,204,348
Taiwan Semiconductor Manufacturing Co., Ltd.		2,336,469		10,080,091

Total Taiwan				255,692,728


	Shares		Value
SOUTH KOREA: 4.4%
KT&G Corp.		1,235,189		$109,765,233
BGF Retail Co., Ltd.		712,460		103,143,930

Total South Korea				212,909,163


INDONESIA: 4.3%
PT Hanjaya Mandala Sampoerna		9,048,400		61,592,150
PT United Tractors		41,221,900		50,192,321
PT Telekomunikasi Indonesia Persero ADR		1,090,634		48,424,150
PT Telekomunikasi Indonesia Persero		213,210,000		47,754,174

Total Indonesia				207,962,795


SINGAPORE: 4.0%
Singapore Technologies Engineering, Ltd.		28,460,000		60,161,256
CapitaLand Retail China Trust, REIT†		43,232,400		45,342,034
Ascendas India Trust†		53,470,700		32,808,738
ARA Asset Management, Ltd.		34,749,418		28,784,669
Super Group, Ltd.		43,809,700		25,830,328

Total Singapore				192,927,025


INDIA: 2.6%
ITC, Ltd.		13,801,000		68,243,437
Bharti Infratel, Ltd.		8,846,586		57,077,345

Total India				125,320,782


THAILAND: 2.2%
Thai Beverage Public Co., Ltd.		161,322,100		78,315,571
Total Access Communication Public Co., Ltd.		24,734,100		20,646,004
Total Access Communication Public Co., Ltd. NVDR		5,939,700		4,957,976

Total Thailand				103,919,551


AUSTRALIA: 2.0%
Breville Group, Ltd.†		10,644,019		57,515,357
Spotless Group Holdings, Ltd.		48,823,125		38,254,933

Total Australia				95,770,290


VIETNAM: 1.6%
Vietnam Dairy Products JSC		13,680,740		77,772,211

Total Vietnam				77,772,211


LUXEMBOURG: 1.5%
L’Occitane International SA		36,976,500		71,353,674

Total Luxembourg				71,353,674


PHILIPPINES: 1.2%
Globe Telecom, Inc.		1,447,730		56,871,121

Total Philippines				56,871,121


NEW ZEALAND: 1.1%
SKY Network Television, Ltd.		16,242,251		50,879,701

Total New Zealand				50,879,701


TOTAL COMMON EQUITIES				4,542,354,208

(Cost $4,136,762,599)


matthewsasia.com \| 800.789.ASIA			19

Matthews Asia Dividend Fund

December 31, 2015

Consolidated Schedule of Investments^a (continued)

PREFERRED EQUITIES: 3.4%


	Shares		Value
SOUTH KOREA: 3.4%
LG Chem, Ltd., Pfd.		786,292		$164,273,347

Total South Korea				164,273,347


TOTAL PREFERRED EQUITIES				164,273,347

(Cost $69,008,863)

TOTAL INVESTMENTS: 98.0%				4,706,627,555
(Cost $4,205,771,462^d)

CASH AND OTHER ASSETS, LESS LIABILITIES: 2.0%				96,996,128


NET ASSETS: 100.0%				$4,803,623,683

a	Certain securities were fair valued under the valuation polices approved by the Board of Trustees (Note 2-A).

b	Security held by Matthews ADF-U Series. See note 2-C.

c	Non-income producing security.

d	Cost for federal income tax purposes is $4,217,995,827 and net unrealized appreciation consists of:


Gross unrealized appreciation	$919,079,953
Gross unrealized depreciation	(430,448,225	)

Net unrealized appreciation	$488,631,728

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

ADR	American Depositary Receipt

JSC	Joint Stock Co.

NVDR	Non-voting Depositary Receipt

Pfd.

Preferred

REIT	Real Estate Investment Trust

See accompanying notes to financial statements.


20		MATTHEWS ASIA FUNDS

LOGO


PORTFOLIO MANAGERS
Yu Zhang, CFA
Lead Manager
Sherwood Zhang, CFA
Co-Manager

FUND FACTS
	Investor	Institutional
Ticker	MCDFX	MICDX
CUSIP	577125305	577130735
Inception	11/30/09	10/29/10
NAV	$13.79	$13.79
Initial Investment	$2,500	$3 million
Gross Expense Ratio¹	1.19%	1.00%
Portfolio Statistics
Total # of Positions		45
Net Assets		$180.9 million
Weighted Average Market Cap		$23.1 billion
Portfolio Turnover²		79.91%
Benchmark
MSCI China Index

OBJECTIVE

Total return with an emphasis on providing current income.

STRATEGY

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

Matthews China Dividend Fund

Portfolio Manager Commentary (unaudited)

For the year ending December 31, 2015, the Matthews China Dividend Fund returned 9.54% (Investor Class) and 9.71% (Institutional Class) while its benchmark, the MSCI China Index, returned –7.62%. For the fourth quarter of the year, the Fund returned 8.46% (Investor Class) and 8.58% (Institutional Class) versus 4.03% for the Index.

The Fund began 2015 with a share price of US$13.37 for both the Investor and Institutional Classes, and shareholders who were invested throughout the year would have received total distributions of approximately 0.88 cents (Investor Class) or 0.90 cents (Institutional Class) per share.

Market Environment:

Chinese equities staged a turnaround during the fourth quarter of 2015. To the surprise of many investors, the domestic A-share market, which trades at higher valuations, recovered more quickly than less expensive Chinese equities listed overseas. This phenomenon may be explained by the different liquidity environments among China’s domestic market and the global market, as its central bank continued to loosen monetary policy—cutting both interest rates (by 0.25%) and its required reserve rate of bank deposits by 50 basis points (0.50%) in late October.

In late November, the International Monetary Fund (IMF) announced its decision to include the Chinese currency, the renminbi, to the basket of currencies that make up the special drawing rights (SDR) starting in 2016. Although this is generally viewed as a symbolic move by the IMF, it is also taken as recognition of government reform efforts to further liberalize its financial markets to global investors.

Later in the year, 14 Chinese companies with American Depository Receipts (ADRs) listed on U.S. exchanges were added to the Fund’s benchmark, the MSCI China Index. This change brings unique challenges to us as the majority of these companies do not pay regular dividends. We expect to ask these companies to take notice of their broadened investor base and to consider regular dividends as part of their shareholder return policies.

Performance Contributors and Detractors:

In 2015, the Fund benefited from its multi-capitalization approach, as the portfolio’s small and mid-cap exposure significantly outperformed its large cap peers in the benchmark—a reversal of our experience last year. Among the remaining positions at year-end, our long-time holding Shenzhou International Group was a top performance contributor for the year. The company completed its initial capacity expansion in Vietnam, and is well-positioned to take advantage of a reduced import tariff should the Trans-Pacific Partnership agreement receive approval. New Oriental Education & Technology Group was another large contributor to Fund performance. The company can finally move past earlier concerns over its corporate governance as it has shown consistent returns to shareholders through dividends and buybacks in recent years. Another positive contributor during the year was Voltronic Power Technology, the leading OEM maker of uninterruptible power supplies.

On the flip side, Hilong Holding, an oil field equipment and service provider, was the largest detractor to Fund performance for the year. We are carefully monitoring whether it can sustain its cost advantage relative to its competitors amid this downturn. Qualcomm, a major 3G and next-generation mobile technologies firm, also posed a drag on Fund performance for the year as the company’s technology licensing practice has again been challenged in various jurisdictions. However, we believe the company has unparalleled leadership in smartphone technology.

(continued)

1	Actual 2015 expense ratios.

2	The lesser of fiscal year 2015 long-term purchase costs or sales proceeds divided by the average monthly market value of long- term securities.


matthewsasia.com \| 800.789.ASIA			21



PERFORMANCE AS OF DECEMBER 31, 2015
					Average Annual Total Returns
	3 Months		1 Year		3 Year		5 Year		Since Inception			Inception Date
Investor Class (MCDFX)		8.46%		9.54%		7.82%		6.50%		9.21%			11/30/09
Institutional Class (MICDX)		8.58%		9.71%		8.05%		6.72%		7.28%			10/29/10
MSCI China Index³		4.03%		-7.62%		1.31%		0.91%		1.61%	⁴
Lipper China Region Funds Category Average⁵		7.29%		-3.02%		2.98%		0.36%		2.86%	⁴

Performance assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate with market conditions so that when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the return figures quoted. For the Fund’s most recent month-end performance, visit matthewsasia.com.



INCOME DISTRIBUTION HISTORY
	2015						2014
	June		December		Total		June		December		Total
Investor (MCDFX)	$	0.27	$	0.01	$	0.28	$	0.16	$	0.20	$	0.36
Inst’l (MICDX)	$	0.28	$	0.03	$	0.30	$	0.17	$	0.21	$	0.38

Note: This table does not include capital gains distributions. Totals may differ by $0.01 due to rounding. For income distribution history, visit matthewsasia.com.

30-DAY YIELD:

0.97% (Investor Class) 1.25% (Institutional Class)

Source: BNY Mellon Investment Servicing (US) Inc.

DIVIDEND YIELD: 2.84%

Source: FactSet Research Systems, Bloomberg, MICM.

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

LOGO

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

Calculated from 11/30/09.

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



TOP TEN POSITIONS⁶
	Sector	% of Net Assets
New Oriental Education & Technology Group, Inc.	Consumer Discretionary		3.7%
Sercomm Corp.	Information Technology		3.3%
China Construction Bank Corp.	Financials		3.3%
AIA Group, Ltd.	Financials		3.1%
HKBN, Ltd.	Telecommunication Services		3.1%
China Merchants Bank Co., Ltd.	Financials		3.0%
Kweichow Moutai Co., Ltd.	Consumer Staples		2.9%
China Mobile, Ltd.	Telecommunication Services		2.9%
China Medical System Holdings, Ltd.	Health Care		2.7%
China Power International Development, Ltd.	Utilities		2.7%
% OF ASSETS IN TOP TEN			30.7%

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


22		MATTHEWS ASIA FUNDS

Matthews China Dividend Fund

Portfolio Manager Commentary (unaudited) (continued)

Notable Portfolio Changes:

During the quarter, we added to our educational firm holdings. China Maple Leaf Educational Systems is one of the largest private K-12 school operators in China, and has a popular and unique dual diploma it offers from both China and Canada. Its program boasts affordable tuition compared with international schools, making it attractive to Chinese families seeking a premium educational experience for their children at reasonable costs. China Distance Education Holdings is a provider of online professional education. Although its traditional area of accounting training has become more saturated and mature, the company continues to expand in areas such as law, health care and construction engineering. More importantly for us, its management is committed to paying high levels of dividends from its free cash flow.

During the fourth quarter of the year, we exited our position in energy firm PetroChina as we believed its production costs were not favorable in the current low oil price environment.

Outlook:

For those expecting a strong recovery of headline growth data, 2016 could be another challenging year for investing in Chinese equities. However, due to signs of resilient domestic consumption, Chinese policymakers can continue to focus on reforms rather than major stimulus programs. This year, we saw reform progress in China’s financial sector, such as that for domestic A-share initial public offerings (IPOs), and we expect it to continue in 2016. In addition, the current administration seems more determined than ever to clamp down on the overcapacity of many heavy industries that became bloated during the period when growth was driven by fixed asset investments.

Although investor sentiment toward China could remain lukewarm, the resulting low valuations continue to present long-term investors with great opportunities to uncover high quality businesses that are well-positioned amid the growth of China’s consumption and service sectors.



COUNTRY ALLOCATION (%)^7,8
China/Hong Kong			90.9
Taiwan			5.3
Singapore			1.6
Cash and Other Assets, Less Liabilities			2.2



SECTOR ALLOCATION (%)⁸
Consumer Discretionary			21.9
Financials			21.0
Industrials			18.1
Telecommunication Services			8.6
Information Technology			8.0
Consumer Staples			7.2
Utilities			4.7
Health Care			4.7
Materials			2.2
Energy			1.4
Cash and Other Assets, Less Liabilities			2.2



MARKET CAP EXPOSURE (%)⁸
Mega Cap (over $25B)			17.7
Large Cap ($10B–$25B)			2.3
Mid Cap ($3B–10B)			38.3
Small Cap (under $3B)			39.5
Cash and Other Assets, Less Liabilities			2.2

7	Not all countries where the Fund may invest are included in the benchmark index.

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


matthewsasia.com \| 800.789.ASIA			23

Matthews China Dividend Fund

December 31, 2015

Schedule of Investments^a

COMMON EQUITIES: 97.8%


	Shares		Value
CONSUMER DISCRETIONARY: 21.9%
Diversified Consumer Services: 7.8%
New Oriental Education & Technology Group, Inc. ADR		216,000		$6,775,920
China Maple Leaf Educational Systems, Ltd.		9,482,000		4,649,703
China Distance Education Holdings, Ltd. ADR		184,300		2,707,367

				14,132,990


Auto Components: 6.7%
Fuyao Glass Industry Group Co., Ltd. H Shares^b		1,787,600		4,293,323
Minth Group, Ltd.		1,980,000		3,933,589
Weifu High-Technology Group Co., Ltd. B Shares		824,759		2,118,773
Changzhou Xingyu Automotive Lighting Systems Co., Ltd. A Shares		309,451		1,766,561

				12,112,246


Hotels, Restaurants & Leisure: 2.8%
Café de Coral Holdings, Ltd.		1,216,000		3,563,541
Xiao Nan Guo Restaurants Holdings, Ltd.^b		19,060,000		1,470,862

				5,034,403


Textiles, Apparel & Luxury Goods: 2.6%
Shenzhou International Group Holdings, Ltd.		813,000		4,659,125


Automobiles: 2.0%
BAIC Motor Corp., Ltd. H Shares		3,613,000		3,608,225

Total Consumer Discretionary				39,546,989


FINANCIALS: 21.0%
Banks: 8.1%
China Construction Bank Corp. H Shares		8,705,000		5,938,099
China Merchants Bank Co., Ltd. H Shares		2,306,500		5,399,148
Huishang Bank Corp., Ltd. H Shares		7,058,000		3,187,925

				14,525,172


Real Estate Management & Development: 4.8%
Red Star Macalline Group Corp., Ltd. H Shares^b		3,711,200		4,513,270
Shanghai Lujiazui Finance & Trade Zone Development Co., Ltd. B Shares		1,025,379		4,160,023

				8,673,293


Capital Markets: 3.4%
China Everbright, Ltd.		1,392,000		3,179,363
China International Capital Corp., Ltd. H Shares^b		1,852,798		3,017,053

				6,196,416


Insurance: 3.1%
AIA Group, Ltd.		941,400		5,624,943


Real Estate Investment Trusts (REITS): 1.6%
CapitaLand Retail China Trust, REIT		2,766,700		2,901,708

Total Financials				37,921,532


	Shares		Value
INDUSTRIALS: 18.1%
Transportation Infrastructure: 5.3%
Yuexiu Transport Infrastructure, Ltd.		6,606,000		$4,126,335
Qingdao Port International Co., Ltd. H Shares		8,361,000		3,723,159
Shanghai International Airport Co., Ltd. A Shares		403,264		1,805,650

				9,655,144


Marine: 2.5%
SITC International Holdings Co., Ltd.		8,502,000		4,494,235


Machinery: 2.3%
Shanghai Mechanical and Electrical Industry Co., Ltd. B Shares		1,362,460		4,202,082


Road & Rail: 2.1%
Guangshen Railway Co., Ltd. H Shares		6,484,000		3,222,116
Guangshen Railway Co., Ltd. ADR		21,400		529,008

				3,751,124


Construction & Engineering: 2.0%
China Machinery Engineering Corp. H Shares		4,964,000		3,621,951


Electrical Equipment: 2.0%
Voltronic Power Technology Corp.		244,049		3,619,465


Industrial Conglomerates: 1.9%
Hopewell Holdings, Ltd.		972,500		3,484,030

Total Industrials				32,828,031


TELECOMMUNICATION SERVICES: 8.6%
Diversified Telecommunication Services: 5.7%
HKBN, Ltd.		4,332,957		5,575,431
CITIC Telecom International Holdings, Ltd.		12,437,000		4,738,511

				10,313,942


Wireless Telecommunication Services: 2.9%
China Mobile, Ltd. ADR		93,730		5,279,811

Total Telecommunication Services				15,593,753


INFORMATION TECHNOLOGY: 8.0%
Communications Equipment: 5.8%
Sercomm Corp.		2,285,000		6,005,934
Qualcomm, Inc.		89,500		4,473,658

				10,479,592


Electronic Equipment, Instruments & Components: 2.2%
Sunny Optical Technology Group Co., Ltd.		1,716,000		3,913,781

Total Information Technology				14,393,373


CONSUMER STAPLES: 7.2%
Beverages: 2.9%
Kweichow Moutai Co., Ltd. A Shares		160,803		5,325,339


Food Products: 2.3%
Vitasoy International Holdings, Ltd.		2,018,000		4,127,770


Food & Staples Retailing: 2.0%
Shanghai Bailian Group Co., Ltd. B Shares		1,876,677		3,651,021

Total Consumer Staples				13,104,130


24		MATTHEWS ASIA FUNDS

Matthews China Dividend Fund

December 31, 2015

Schedule of Investments^a (continued)

COMMON EQUITIES (continued)


	Shares		Value
UTILITIES: 4.7%
Independent Power and Renewable Electricity Producers: 2.6%
China Power International Development, Ltd.		8,349,000		$4,805,969


Water Utilities: 2.1%
Guangdong Investment, Ltd.		2,684,000		3,790,420

Total Utilities				8,596,389


HEALTH CARE: 4.7%
Pharmaceuticals: 4.7%
China Medical System Holdings, Ltd.		3,319,000		4,864,208
Tianjin ZhongXin Pharmaceutical Group Corp., Ltd. S Shares		3,333,300		3,584,991

Total Health Care				8,449,199


MATERIALS: 2.2%
Containers & Packaging: 2.2%
Greatview Aseptic Packaging Co., Ltd.		8,688,000		3,928,017

Total Materials				3,928,017


ENERGY: 1.4%
Energy Equipment & Services: 1.4%
Hilong Holding, Ltd.		14,814,000		2,554,135

Total Energy				2,554,135


TOTAL INVESTMENTS: 97.8%				176,915,548
(Cost $171,804,467^c)

CASH AND OTHER ASSETS, LESS LIABILITIES: 2.2%				4,004,443


NET ASSETS: 100.0%				$180,919,991

a	Certain securities were fair valued under the valuation polices approved by the Board of Trustees (Note 2-A).

b	Non-income producing security.

c	Cost for federal income tax purposes is $172,213,696 and net unrealized appreciation consists of:


Gross unrealized appreciation	$19,870,867
Gross unrealized depreciation	(15,169,015	)

Net unrealized appreciation	$4,701,852

ADR	American Depositary Receipt

REIT	Real Estate Investment Trust

See accompanying notes to financial statements.


matthewsasia.com \| 800.789.ASIA			25

LOGO


PORTFOLIO MANAGERS
Beini Zhou, CFA
Lead Manager
Michael B. Han, CFA	Robert Harvey, CFA
Co-Manager	Co-Manager

FUND FACTS
	Investor	Institutional
Ticker	MAVRX	MAVAX
CUSIP	577130693	577130685
Inception	11/30/15	11/30/15
NAV	$9.85	$9.83
Initial Investment	$2,500	$3 million
Gross Expense Ratio¹	36.42%	36.17%
After fee waiver and Reimbursement²	1.50%	1.25%
Portfolio Statistics
Total # of Positions		42
Net Assets		$1.7million
Weighted Average Market Cap		$22.4 billion
Portfolio Turnover³		10.80%
Benchmark
MSCI AC Asia ex Japan Index

OBJECTIVE

Long term capital appreciation.

STRATEGY

Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 80% of its net assets, which include borrowings for investment purposes, in common stock, preferred stock and other equity securities, and convertible securities of companies located in Asia. The Fund seeks to create an investable universe of value companies that it believes trade at market values with discounts to their intrinsic value, have strong financial and market positions, have strong management and are oriented to creating value for their shareholders. Matthews assesses companies within this universe according to each of these factors.

Matthews Asia Value Fund

Portfolio Manager Commentary (unaudited)

The Matthews Asia Value Fund was launched on November 30, 2015. A full commentary for the Fund will be published after a complete quarter of performance is available.

We started to see two phenomena emerging in Asia in recent years. First, equity markets in the region have matured over the years with decelerating growth across a broad swath of industries—partly driven by slowing growth in China. Such occasions may allow investors to capitalize on companies with valuation multiples that no longer reflect a high-growth stage. Second, we believe that corporate governance in Asia has generally been improving in recent years—although, perhaps still not at a pace that some foreign investors would prefer. And controlling shareholders are now more willing than ever to embrace minority shareholder-friendly corporate actions such as asset disposals or share buybacks to unlock value.

Four key attributes we seek in our portfolio holdings are: quality businesses with high incremental return on capital, shareholder-friendly management, solid balance sheets with no excessive financial leverage, and a substantially undervalued share price.

As with all our funds, we consider downside risks and permanent capital impairment. We believe that buying a collection of undervalued stocks with sound balance sheets that are run by prudent capital stewards can afford us a bigger margin of safety. We appreciate your support, and look forward to adding value to the Fund and its shareholders.

1	Annualized expense ratio.

Matthews has contractually agreed (i) to waive fees and reimburse expenses to the extent needed to limit Total Annual Fund Operating Expenses (excluding Rule 12b-1 fees, front-end or contingent deferred loads, taxes, interest, brokerage commissions, short sale dividend expenses, expenses incurred in connection with any merger or reorganization or extraordinary expenses such as litigation) of the Institutional Class to 1.25% first by waiving class specific expenses (i.e., Rule 12b-1 fees or shareholder service fees specific to a particular class) of the Institutional Class and then, to the extent necessary, by waiving non-class specific expenses of the Institutional Class, and (ii) if any Fund-wide expenses (i.e., expenses that apply to both the Institutional Class and the Investor Class) are waived for the Institutional Class to maintain the 1.25% expense limitation, to waive an equal amount (in annual percentage terms) of those same expenses for the Investor Class. The Total Annual Fund Operating Expenses After Fee Waiver and Expense Reimbursement for the Investor Class may vary from year to year and will in some years exceed 1.25%. If the operating expenses fall below the expense limitation in a year within three years after Matthews has made a waiver or reimbursement, the Fund may reimburse Matthews up to an amount that does not cause the expenses for that year to exceed the expense limitation applicable at the time of that fee waiver and/or expense reimbursement or to exceed any other agreed upon expense limitation for that year. This agreement will remain in place until April 30, 2018, may be renewed for additional periods not exceeding one year and may be terminated at any time by the Board of Trustees on behalf of the Fund on 60 days’ written notice to Matthews. Matthews may decline to renew this agreement by written notice to the Trust at least 30 days before its annual expiration date.

3	Not annualized. The lesser of fiscal year 2015 long-term purchase costs or sales proceeds divided by the average monthly market value of long-term securities.


26		MATTHEWS ASIA FUNDS



PERFORMANCE AS OF DECEMBER 31, 2015
	Actual 1 Month Total Return
	Since Inception		Inception Date
Investor Class (MAVRX)		-1.35%		11/30/15
Institutional Class (MAVAX)		-1.30%		11/30/15
MSCI AC Asia ex Japan Index⁴		-0.42%
Lipper Pacific Region Funds Category Average⁵		-0.28%

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

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



TOP TEN POSITIONS⁶
	Sector	Country	% of Net Assets
Kweichow Moutai Co., Ltd.	Consumer Staples	China/Hong Kong		5.0%
Samsung Electronics Co., Ltd., Pfd.	Information Technology	South Korea		4.5%
Shandong Weigao Group Medical Polymer Co., Ltd.	Health Care	China/Hong Kong		3.8%
CK Hutchison Holdings, Ltd.	Industrials	China/Hong Kong		3.5%
Hyundai Motor Co., Ltd., 2nd Pfd.	Consumer Discretionary	South Korea		3.0%
Daqin Railway Co., Ltd.	Industrials	China/Hong Kong		2.9%
Qualcomm, Inc.	Information Technology	China/Hong Kong		2.6%
DGB Financial Group, Inc.	Financials	South Korea		2.5%
Power Mate Technology Co., Ltd.	Industrials	Taiwan		2.2%
Genting BHD	Consumer Discretionary	Malaysia		2.1%
% OF ASSETS IN TOP TEN				32.1%

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



COUNTRY ALLOCATION (%)⁷
China/Hong Kong			26.2
South Korea			22.9
Japan			5.1
United States			4.9
Singapore			4.4
Taiwan			4.1
Malaysia			4.0
United Kingdom			1.9
Israel			1.8
Thailand			0.9
Cash and Other Assets, Less Liabilities			23.8



SECTOR ALLOCATION (%)
Consumer Discretionary			17.6
Information Technology			16.6
Industrials			12.8
Financials			12.5
Consumer Staples			8.1
Health Care			5.6
Materials			3.0
Cash and Other Assets, Less Liabilities			23.8



MARKET CAP EXPOSURE (%)⁸
Mega Cap (over $25B)			20.4
Large Cap ($10B-$25B)			3.9
Mid Cap ($3B-10B)			12.2
Small Cap (under $3B)			39.7
Cash and Other Assets, Less Liabilities			23.8

7	Not all countries where the Fund may invest are included in the benchmark index.

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


matthewsasia.com \| 800.789.ASIA			27

Matthews Asia Value Fund

December 31, 2015

Schedule of Investments^a

COMMON EQUITIES: 66.9%


	Shares		Value
CHINA/HONG KONG: 26.2%
Kweichow Moutai Co., Ltd. A Shares		2,600		$86,105
Shandong Weigao Group Medical Polymer Co., Ltd. H Shares		96,000		65,643
CK Hutchison Holdings, Ltd.		4,500		60,488
Daqin Railway Co., Ltd. A Shares		38,100		49,796
Qualcomm, Inc.		900		44,987
Goldlion Holdings, Ltd.		85,000		34,497
Clear Media, Ltd.		32,000		32,980
Fairwood Holdings, Ltd.		8,000		25,136
Greatview Aseptic Packaging Co., Ltd.		45,000		20,345
Pico Far East Holdings, Ltd.		66,000		17,884
Future Bright Holdings, Ltd.		168,000		16,831

Total China/Hong Kong				454,692


SOUTH KOREA: 13.6%
DGB Financial Group, Inc.		5,042		42,953
Shinyoung Securities Co., Ltd.		836		36,097
Kwangju Bank^b		5,317		34,657
Samyung ENC Co., Ltd.		4,616		32,507
Kukbo Design Co., Ltd.		1,633		26,685
Kunsul Chemical Industrial Co., Ltd.		495		16,788
Binggrae Co., Ltd.		278		16,161
Saeron Automotive Corp.		2,227		16,069
Hy-Lok Corp.		654		13,799

Total South Korea				235,716


JAPAN: 5.1%
Broadleaf Co., Ltd.		3,000		29,525
San-A Co., Ltd.		500		22,434
Trancom Co., Ltd.		400		22,237
Doshisha Co., Ltd.		700		14,119

Total Japan				88,315


UNITED STATES: 4.9%
News Corp. B Shares		2,400		33,504
Knowles Corp.^b		1,600		21,328
Micron Technology, Inc.^b		1,200		16,992
Expeditors International of Washington, Inc.		300		13,530

Total United States				85,354


SINGAPORE: 4.4%
ARA Asset Management, Ltd.		43,800		36,282
Vicom, Ltd.		5,400		22,927
Kulicke & Soffa Industries, Inc.^b		1,400		16,338

Total Singapore				75,547


TAIWAN: 4.1%
Power Mate Technology Co., Ltd.		21,000		38,207
Lumax International Corp., Ltd.		13,000		17,163
Yung Chi Paint & Varnish Manufacturing Co., Ltd.		7,000		14,977

Total Taiwan				70,347


MALAYSIA: 4.0%
Genting BHD		21,600		36,839
MPHB Capital BHD^b		88,500		32,701

Total Malaysia				69,540


	Shares		Value
UNITED KINGDOM: 1.9%
Standard Chartered PLC		4,000		$33,523

Total United Kingdom				33,523


ISRAEL: 1.8%
Taro Pharmaceutical Industries, Ltd.^b		200		30,910

Total Israel				30,910


THAILAND: 0.9%
Premier Marketing Public Co., Ltd.		54,800		15,956

Total Thailand				15,956


TOTAL COMMON EQUITIES				1,159,900

(Cost $1,171,412)

PREFERRED EQUITIES: 9.3%
SOUTH KOREA: 9.3%
Samsung Electronics Co., Ltd., Pfd.		84		77,649
Hyundai Motor Co., Ltd., 2nd Pfd.		576		51,268
Samsung SDI Co., Ltd., Pfd.		505		31,560

Total South Korea				160,477


TOTAL PREFERRED EQUITIES				160,477

(Cost $165,728)

TOTAL INVESTMENTS: 76.2%				1,320,377
(Cost $1,337,140^c)

CASH AND OTHER ASSETS, LESS LIABILITIES: 23.8%				412,218


NET ASSETS: 100.0%				$1,732,595

a	Certain securities were fair valued under the valuation polices approved by the Board of Trustees (Note 2-A).

b	Non-income producing security.

c	Cost for federal income tax purposes is $1,345,754 and net unrealized depreciation consists of:


Gross unrealized appreciation	$11,395
Gross unrealized depreciation	(36,772	)

Net unrealized depreciation	($25,377	)

BHD

Berhad

See accompanying notes to financial statements.


28		MATTHEWS ASIA FUNDS

LOGO


PORTFOLIO MANAGERS
Kenneth Lowe, CFA
Lead Manager
Michael J. Oh, CFA	Sharat Shroff, CFA
Co-Manager	Co-Manager

FUND FACTS
	Investor	Institutional
Ticker	MAFSX	MIFSX
CUSIP	577125701	577125800
Inception	4/30/13	4/30/13
NAV	$8.69	$8.69
Initial Investment	$2,500	$3 million
Gross Expense Ratio¹	2.07%	1.91%
After Fee Waiver and Reimbursement²	1.50%	1.25%
Portfolio Statistics
Total # of Positions		31
Net Assets		$11.2 million
Weighted Average Market Cap		$37.5 billion
Portfolio Turnover³		23.60%
Benchmark
MSCI AC Asia ex Japan Index

OBJECTIVE

Long term capital appreciation.

STRATEGY

Matthews Asia Focus Fund

Portfolio Manager Commentary (unaudited)

For the year ending December 31, 2015, the Matthews Asia Focus Fund returned –12.07% (Investor Class) and –11.96% (Institutional Class) while its benchmark, the MSCI All Country Asia ex Japan Index, returned –8.90%. For the fourth quarter of the year, the Fund returned 4.79% (Investor Class) and 4.85% (Institutional Class) versus 3.87% for the Index.

Market Environment:

2015 was a year characterized by volatility and pessimism. Emerging markets were at the forefront of this, whilst the influence of central bankers and policymakers became ever more frustrating. The year was dominated by monetary policy decisions, the continued collapse in prices across the commodity complex, an aggressive downward lurch in a number of emerging market currencies and a somewhat challenging slowdown underway in the world’s second-largest economy, China. On this first point, the fourth quarter saw the first interest rate increase by the U.S. Federal Reserve in over nine years. Despite a three-month delay (due to concerns about growth overseas and sluggish domestic inflation), reasonable employment data and a need to produce some future policy firepower gave Fed Chairwoman Janet Yellen the comfort to hike rates. Although arguably priced into markets, the continued capital outflow from regions including Asia still poses a threat worth monitoring.

Alongside this dollar strength, China continued its challenging transition toward a more consumer-led economy. Equity markets saw an aggressive rally during the early parts of the year, promoted by state media and fueled by retail investors and margin financing. However, like all rallies that are not based upon fundamentals, this inevitably suffered a vicious pullback and resulted in some poorly advised policy from the state. In August, the Communist Party also poorly communicated an alteration in its exchange rate mechanism, making it more driven by market moves. This resulted in a 1.9% currency devaluation relative to the U.S. dollar and is emblematic of the issues faced by the macroeconomic conundrum of the “impossible trinity.”*

The above factors meant that there was little joy for Asian investors as growth and earnings expectations were continually revised down and capital outflows caused markets across the region to perform poorly. Southeast Asia was the weakest set of geographies given plunges in currencies, but North Asia fared only slightly better during a tough year for the asset class.

Performance Contributors and Detractors:

Although returns for the full year were disappointing, the fourth quarter did provide some relief as markets recovered slightly. The largest contributor to returns during the quarter came from our holdings in the financials sector. Although Indonesia’s economy has suffered from weak leadership and the collapse in commodity prices, Bank Rakyat Indonesia (BRI) was particularly strong as prior concerns around the extent of nonperforming loans for BRI appear to have been misplaced as the weakening in asset quality may have peaked. Management has also done a strong job in reducing funding costs to maintain margins. The Fund’s largest holding, AIA Group, also delivered solid performance as underlying performance has been less hindered by the slowdown in China and FX movements across Southeast Asia than initially feared.

On an individual stock basis, Chinese search engine Baidu was the largest contributor to returns over the quarter, recovering some losses from earlier in the year. The stock reacted positively to news that management decided to sell their majority stake in online travel company Qunar to rival Ctrip.com International at

*	The Impossible Trinity—also known as the Trilemma or Unholy Trinity—is the hypothesis in international economics that a country may choose any two, but not all of the following three policy goals—monetary independence, exchange rate stability and free movement of capital.

(continued)


matthewsasia.com \| 800.789.ASIA			29

1	Actual 2015 expense ratios.

Matthews has contractually agreed (i) to waive fees and reimburse expenses to the extent needed to limit Total Annual Fund Operating Expenses (excluding Rule 12b-1 fees, front-end or contingent deferred loads, taxes, interest, brokerage commissions, short sale dividend expenses, expenses incurred in connection with any merger or reorganization or extraordinary expenses such as litigation) of the Institutional Class to 1.25% first by waiving class specific expenses (i.e., Rule 12b-1 fees or shareholder service fees specific to a particular class) of the Institutional Class and then, to the extent necessary, by waiving non-class specific expenses of the Institutional Class, and (ii) if any Fund-wide expenses (i.e., expenses that apply to both the Institutional Class and the Investor Class) are waived for the Institutional Class to maintain the 1.25% expense limitation, to waive an equal amount (in annual percentage terms) of those same expenses for the Investor Class. The Total Annual Fund Operating Expenses After Fee Waiver and Expense Reimbursement for the Investor Class may vary from year to year and will in some years exceed 1.25%. If the operating expenses fall below the expense limitation in a year within three years after Matthews has made a waiver or reimbursement, the Fund may reimburse Matthews up to an amount that does not cause the expenses for that year to exceed the expense limitation applicable at the time of that fee waiver and/or expense reimbursement or to exceed any other agreed upon expense limitation for that year. This agreement will remain in place until April 30, 2017, may be renewed for additional periods not exceeding one year and may be terminated at any time by the Board of Trustees on behalf of the Fund on 60 days’ written notice to Matthews. Matthews may decline to renew this agreement by written notice to the Trust at least 30 days before its annual expiration date.

3	The lesser of fiscal year 2015 long-term purchase costs or sales proceeds divided by the average monthly market value of long-term securities.



PERFORMANCE AS OF DECEMBER 31, 2015
					Average Annual Total Returns
	3 Months		1 Year		Since Inception		Inception Date
Investor Class (MAFSX)		4.79%		-12.07%		-4.12%		4/30/13
Institutional Class (MIFSX)		4.85%		-11.96%		-3.89%		4/30/13
MSCI AC Asia ex Japan Index⁴		3.87%		-8.90%		-0.89%
Lipper Pacific ex Japan Funds Category Average⁵		4.37%		-6.61%		-1.60%

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

LOGO

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

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



TOP TEN POSITIONS⁶
	Sector	Country	% of Net Assets
AIA Group, Ltd.	Financials	China/Hong Kong		6.0%
Singapore Telecommunications, Ltd.	Telecommunication Services	Singapore		4.2%
Techtronic Industries Co., Ltd.	Consumer Discretionary	China/Hong Kong		4.1%
Jardine Matheson Holdings, Ltd.	Industrials	China/Hong Kong		4.1%
Baidu, Inc.	Information Technology	China/Hong Kong		3.8%
Samsonite International SA	Consumer Discretionary	China/Hong Kong		3.8%
Taiwan Semiconductor Manufacturing Co., Ltd.	Information Technology	Taiwan		3.6%
Mead Johnson Nutrition Co.	Consumer Staples	USA		3.4%
CK Hutchison Holdings, Ltd.	Industrials	China/Hong Kong		3.3%
Tata Motors, Ltd.	Consumer Discretionary	India		3.3%
% OF ASSETS IN TOP TEN				39.6%

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


30		MATTHEWS ASIA FUNDS

Matthews Asia Focus Fund

Portfolio Manager Commentary (unaudited) (continued)

a premium. In the transaction, Baidu will maintain a 25% stake in the enlarged entity and end the price war between the two, restoring profitability. Further, consolidation in the online to offline market has also helped sentiment.

On a full-year basis, Hong Kong’s Hutchison Whampoa, an industrial conglomerate based in the city-state, was among the few outright positive contributors to Fund performance. The firm rose as it restructured the holding company in order to simplify and realize value. Power tool and floor care appliance manufacturer, Techtronic, also performed well as the company appears to still be gaining some market share due to its impressive technology within its tools. The depreciation of the renminbi also helped the stock as it likely lowers the company’s cost base and may allow further margin expansion.

During the quarter, and indeed for the full year, the largest detractors to performance came from our holdings in Thailand. Kasikornbank Public suffered as the company delivered weaker-than-expected earnings. This can be partially attributed to conservatism as management pared back loan growth amidst an environment of weakening asset quality, but it is also due to an asset impairment on IT software. More frustrating has been our holding in Intouch Holdings, the parent company of Advanced Info Services—a market leader in Thai telecoms. The stock was hurt as the firm encountered disastrous auctions for additional spectrum, with a new competitor winning these at an unpalatably high bid and Advanced missing out. This will likely structurally alter the return profile for this market.

Beyond Thailand, and as we’ve discussed throughout the year, the Fund’s holdings in Southeast Asia have been the largest detractors to performance. This can largely be attributed to currency depreciation and overall market weakness, although certain holdings such as Indofood Sukses Makmur and Jardine Matheson struggled as they failed to deliver on earnings.

Notable Portfolio Changes:

The Fund added one new name during the quarter—Korean casino Kangwon Land. The company runs the only casino that local Korean citizens can gamble in, providing it with a large and sustainable economic moat. Although restricted by the number of tables and slots that it can operate, Kangwon Land has been able to get an increase in both and this, alongside visitation increases through non-gaming activities on offer, should drive solid earnings and free cash flow growth. Further, the company maintains an incredibly strong net cash balance sheet and valuations are attractive at around 10x EV/EBITDA^† and a 2.8% dividend yield.

Outlook:

Looking ahead to 2016, equity markets are likely to remain volatile at best. In Europe, the deflationary challenges that are well-documented are still in place despite some further easing steps that have been taken by the European Central Bank. In the U.S., economic data has been reasonable, but it is unlikely that either geography will have strong enough aggregate demand to drive global trade volumes meaningfully higher and help Asian exports. It is also true that leverage has increased substantially throughout most of Asia and, although the currency mismatches of days gone by are no longer present to the same extent, we cannot ignore the risks involved with such change. Further, Asia’s historically strong driver of sustainable economic growth—productivity gains—has also been sputtering, with disappointment on this front throughout much of the region, including major economies China and India despite prior high hopes.

This somewhat gloomy backdrop has manifested itself in a contraction in the return profile for many Asian businesses, leading to a market that is now expecting just 5% growth in earnings. The other side of this equation is, of course, the valuations that one pays for this growth profile. Although bulls may argue that Asia is “cheap” at around 11x forward P/E,^‡ those of us that are scouting for quality companies to own over the long term find that many of these businesses still trade at much higher multiples and are, in fact, still fairly expensive. Despite these issues, the Fund has managed to assemble a collection of 31 companies that are currently trading at a very healthy 13.8x forward P/E^‡ for what we believe are high caliber businesses with true economic moats that can wade through such challenging times.

†	Enterprise Multiple (EV/EBITDA) is a ratio used to determine the value of a company. The enterprise multiple looks at a firm as a potential acquirer would, because it takes debt into account – an item which other multiples like the P/E ratio do not include.

‡

The P/E figures represent the Weighted Harmonic Average P/E—which measures the price/earnings ratio of the Fund’s entire portfolio, excluding negative earners—weighted by the size of the company’s position within the portfolio. P/E estimates are forward looking. There is no guarantee that portfolio composition will remain unchanged or P/E estimates will be realized.



COUNTRY ALLOCATION (%)⁷
China/Hong Kong			38.0
Singapore			9.7
Malaysia			8.5
United States			6.4
South Korea			5.7
Australia			5.7
Indonesia			5.0
Thailand			4.2
Taiwan			3.6
India			3.2
Japan			3.1
Switzerland			3.1
Cash and Other Assets, Less Liabilities			3.8



SECTOR ALLOCATION (%)
Financials			24.0
Consumer Discretionary			23.0
Information Technology			13.5
Consumer Staples			11.2
Industrials			10.1
Telecommunication Services			8.6
Health Care			5.8
Cash and Other Assets, Less Liabilities			3.8



MARKET CAP EXPOSURE (%)⁸
Mega Cap (over $25B)			42.3
Large Cap ($10B–$25B)			17.6
Mid Cap ($3B–10B)			27.8
Small Cap (under $3B)			8.5
Cash and Other Assets, Less Liabilities			3.8

7	Not all countries where the Fund may invest are included in the benchmark index.

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


matthewsasia.com \| 800.789.ASIA			31

Matthews Asia Focus Fund

December 31, 2015

Schedule of Investments^a

COMMON EQUITIES: 96.2%


	Shares		Value
CHINA/HONG KONG: 38.0%
AIA Group, Ltd.		112,200		$670,404
Techtronic Industries Co., Ltd.		113,000		457,452
Jardine Matheson Holdings, Ltd.		9,400		455,219
Baidu, Inc. ADR^b		2,237		422,882
Samsonite International SA		139,800		418,978
CK Hutchison Holdings, Ltd.		27,228		365,997
Yum! Brands, Inc.		4,950		361,597
HSBC Holdings PLC		42,400		335,240
VTech Holdings, Ltd.		31,800		329,251
Hang Lung Group, Ltd.		76,000		246,462
Cheung Kong Property Holdings, Ltd.		28,728		185,841

Total China/Hong Kong				4,249,323


SINGAPORE: 9.7%
Singapore Telecommunications, Ltd.		183,000		471,823
United Overseas Bank, Ltd.		22,500		310,203
Singapore Technologies Engineering, Ltd.		144,500		305,457

Total Singapore				1,087,483


MALAYSIA: 8.5%
Genting Malaysia BHD		333,100		339,342
Guinness Anchor BHD		100,200		308,375
Axiata Group BHD		199,100		296,706

Total Malaysia				944,423


UNITED STATES: 6.4%
Mead Johnson Nutrition Co.		4,868		384,329
ResMed, Inc.		6,100		327,509

Total United States				711,838


SOUTH KOREA: 5.7%
Samsung Electronics Co., Ltd.		329		350,905
Kangwon Land, Inc.		8,811		287,577

Total South Korea				638,482


AUSTRALIA: 5.7%
Insurance Australia Group, Ltd.		78,798		316,453
Ansell, Ltd.		20,326		314,995

Total Australia				631,448


INDONESIA: 5.0%
PT Bank Rakyat Indonesia Persero		421,400		345,843
PT Indofood Sukses Makmur		578,400		215,292

Total Indonesia				561,135


THAILAND: 4.2%
Kasikornbank Public Co., Ltd.		65,500		271,848
Intouch Holdings Public Co., Ltd. NVDR		133,900		192,845

Total Thailand				464,693


TAIWAN: 3.6%
Taiwan Semiconductor Manufacturing Co., Ltd.		94,000		405,539

Total Taiwan				405,539


	Shares		Value
INDIA: 3.2%
Tata Motors, Ltd.^b		61,471		$363,328

Total India				363,328


JAPAN: 3.1%
Japan Tobacco, Inc.		9,500		348,781

Total Japan				348,781


SWITZERLAND: 3.1%
Cie Financiere Richemont SA		4,793		343,049

Total Switzerland				343,049


TOTAL INVESTMENTS: 96.2%				10,749,522
(Cost $12,210,811^c)

CASH AND OTHER ASSETS, LESS LIABILITIES: 3.8%				425,326


NET ASSETS: 100.0%				$11,174,848

a	Certain securities were fair valued under the valuation polices approved by the Board of Trustees (Note 2-A).

b	Non-income producing security.

c	Cost for federal income tax purposes is $12,283,228 and net unrealized depreciation consists of:


Gross unrealized appreciation	$361,319
Gross unrealized depreciation	(1,895,025	)

Net unrealized depreciation	($1,533,706	)

ADR	American Depositary Receipt

BHD

Berhad

NVDR	Non-voting Depositary Receipt

See accompanying notes to financial statements.


32		MATTHEWS ASIA FUNDS

LOGO


PORTFOLIO MANAGERS
Taizo Ishida
Lead Manager
Sharat Shroff, CFA
Co-Manager

FUND FACTS
	Investor	Institutional
Ticker	MPACX	MIAPX
CUSIP	577130867	577130776
Inception	10/31/03	10/29/10
NAV	$21.09	$21.24
Initial Investment	$2,500	$3 million
Gross Expense Ratio¹	1.11%	0.91%
Portfolio Statistics
Total # of Positions		57
Net Assets		$776.9 million
Weighted Average Market Cap		$18.8 billion
Portfolio Turnover²		29.51%
Benchmark
MSCI AC Asia Pacific Index

OBJECTIVE

Long-term capital appreciation.

STRATEGY

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

Matthews Asia Growth Fund

Portfolio Manager Commentary (unaudited)

For the year ending December 31, 2015, the Matthews Asia Growth Fund returned –0.05% (Investor Class) and 0.24% (Institutional Class) while its benchmark, the MSCI All Country Asia Pacific Index, returned –1.68%. For the fourth quarter of the year, the Fund returned 11.35% (Investor Class) and 11.50% (Institutional Class) versus 6.99% for the Index.

Market Environment:

From the beginning of the fourth quarter, Asia’s stock markets produced some positive returns with good macroeconomic data coming out of China, and with expectations over an “early” U.S. Federal Reserve rate hike having subsided. These factors relieved some concerns over global emerging markets. Indonesia, one of the hardest-hit markets, recovered strongly in October due in part to an improved perception of President Joko “Jokowi” Widodo’s administration. The president had struggled in his first year in office. The Indonesian rupiah also rallied 6.3% during the period. This strong market rally was not limited to emerging Asia. We also saw developed areas of Asia, such as Japan and Australia, do well.

Performance Contributors and Detractors:

In the fourth quarter, the top contributors to Fund performance were a mix of year-long laggards—Chinese e-commerce firms Baidu and Alibaba and in Indonesia, Bank Rakyat (Indonesian Bank) and Ace Hardware—alongside firms that performed solidly throughout 2015, such as Japanese medical device maker Sysmex.

Among the top detractors to Fund performance were some of our Indian holdings, including two major generic drug makers Sun Pharmaceutical Industries and Lupin. Both firms suffered after falling short of earnings expectations. They stumbled as a result of a deterioration in the U.S. market, the largest source of income for both companies. Another Indian holding, beauty and health care product maker Emami, also suffered a setback in the fourth quarter due to a slowdown in sales and rising operating cost. However, the firm benefited Fund performance for the one-year period.

Notable Portfolio Changes:

We initiated a position in Square Pharmaceuticals, Bangladesh’s largest pharmaceutical company, in the fourth quarter. In terms of growth and profitability, we believe the company is among the best drug companies in Asia with very reasonable valuations. Another notable portfolio change late in the year was our decision to exit Sands China, a developer and operator of resorts and casinos in Macau, which had been a portfolio holding since 2010. We had patiently awaited a turnaround in Macau as we expect it to transform from a market driven by VIP gamblers to one more driven by mass market tourists. While we do believe this is occurring and will continue to occur, the transition has been rocky in part due to mainland China’s swift and sudden anticorruption measures. Ultimately, we decided to exit the position to deploy funds for better opportunities elsewhere.

Outlook:

The negative macroeconomic forces held over from 2015—a strong U.S. dollar, weak commodity prices, slow global economy and rising debt—appear likely to continue into 2016. A silver lining could be cheap oil prices, which may continue to support trade balance for most Asian countries. Lower commodity and food prices should keep inflation low, while GDP could still rise in developing parts of Asia. Japan is still struggling to shed its decades-long deflation, yet the tight labor market with improved corporate profits is likely to push up wages and private capital spending. In the absence of strong growth anywhere, the focus once again

(continued)

1	Actual 2015 expense ratios.

2	The lesser of fiscal year 2015 long-term purchase costs or sales proceeds divided by the average monthly market value of long-term securities.


matthewsasia.com \| 800.789.ASIA			33



PERFORMANCE AS OF DECEMBER 31, 2015
					Average Annual Total Returns
	3 Months		1 Year		3 Years		5 Years		10 Years		Since Inception			Inception Date
Investor Class (MPACX)		11.35%		-0.05%		6.58%		4.42%		6.48%		8.87%			10/31/03
Institutional Class (MIAPX)		11.50%		0.24%		6.81%		4.62%		n.a.		5.01%			10/29/10
MSCI AC Asia Pacific Index³		6.99%		-1.68%		3.42%		1.96%		3.37%		6.44%	⁴
Lipper Pacific Region Funds Category Average⁵		5.29%		-3.12%		1.96%		2.37%		3.88%		6.67%	⁴

Performance assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate with market conditions so that when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the return figures quoted. For the Fund’s most recent month-end performance, visit matthewsasia.com.

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

LOGO

Calculated from 10/31/03.

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



TOP TEN POSITIONS⁶
	Sector	Country	% of Net Assets
Sysmex Corp.	Health Care	Japan		4.5%
Omron Corp.	Information Technology	Japan		3.5%
Shenzhou International Group Holdings, Ltd.	Consumer Discretionary	China/Hong Kong		3.5%
Baidu, Inc.	Information Technology	China/Hong Kong		3.4%
PT Bank Rakyat Indonesia Persero	Financials	Indonesia		3.3%
Emami, Ltd.	Consumer Staples	India		3.0%
Kakaku.com, Inc.	Information Technology	Japan		3.0%
ORIX Corp.	Financials	Japan		2.7%
M3, Inc.	Health Care	Japan		2.6%
Daikin Industries, Ltd.	Industrials	Japan		2.6%
% OF ASSETS IN TOP TEN				32.1%

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


34		MATTHEWS ASIA FUNDS

Matthews Asia Growth Fund

Portfolio Manager Commentary (unaudited) (continued)

should be strictly on company fundamentals. One major trend we are seeing today—on both factory floors and in the service industry—is a move toward automation, which provides us with a good place to look for new growth areas for this strategy.



COUNTRY ALLOCATION (%)⁷^,8
Japan			45.8
China/Hong Kong			11.4
India			11.2
Indonesia			9.6
Philippines			5.2
Australia			3.6
Sri Lanka			2.8
Vietnam			1.6
Taiwan			1.5
Thailand			1.5
South Korea			1.2
Pakistan			1.0
Malaysia			1.0
Bangladesh			0.5
Cash and Other Assets, Less Liabilities			2.1



SECTOR ALLOCATION (%)⁸
Consumer Staples			20.3
Consumer Discretionary			18.0
Health Care			15.6
Financials			14.4
Information Technology			13.7
Industrials			12.1
Materials			2.2
Energy			1.6
Cash and Other Assets, Less Liabilities			2.1



MARKET CAP EXPOSURE (%)⁸
Mega Cap (over $25B)			16.7
Large Cap ($10B–$25B)			25.0
Mid Cap ($3B–10B)			30.7
Small Cap (under $3B)			25.5
Cash and Other Assets, Less Liabilities			2.1

7	Not all countries where the Fund may invest are included in the benchmark index.

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


matthewsasia.com \| 800.789.ASIA			35

Matthews Asia Growth Fund

December 31, 2015

Schedule of Investments^a

COMMON EQUITIES: 97.9%


	Shares		Value
JAPAN: 45.8%
Sysmex Corp.		549,900		$35,273,163
Omron Corp.		824,800		27,504,534
Kakaku.com, Inc.		1,183,400		23,277,009
ORIX Corp.		1,497,500		21,007,625
M3, Inc.		966,900		20,047,883
Daikin Industries, Ltd.		274,000		19,953,141
Toyota Motor Corp.		302,900		18,652,285
Nitto Denko Corp.		233,500		17,046,827
Nidec Corp.		218,800		15,866,499
Seven & I Holdings Co., Ltd.		340,800		15,603,378
Komatsu, Ltd.		925,100		15,136,904
Glory, Ltd.		480,100		14,739,886
Pigeon Corp.		503,400		12,212,530
COOKPAD, Inc.		570,600		12,112,926
Rinnai Corp.		132,100		11,704,521
Start Today Co., Ltd.		358,300		11,534,113
Ariake Japan Co., Ltd.		201,700		11,158,782
Calbee, Inc.		263,500		11,127,354
Benefit One, Inc.		433,800		10,141,703
FANUC Corp.		53,000		9,131,363
Unicharm Corp.		384,800		7,858,260
Daiken Medical Co., Ltd.		911,500		7,764,108
Dexerials Corp.		631,700		6,766,712

Total Japan				355,621,506


CHINA/HONG KONG: 11.4%
Shenzhou International Group Holdings, Ltd.		4,792,000		27,461,901
Baidu, Inc. ADR^b		139,000		26,276,560
China Lodging Group, Ltd. ADS		366,800		11,466,168
Luk Fook Holdings International, Ltd.		3,713,000		7,842,876
Autohome, Inc. ADR^b		202,400		7,067,808
Shanghai Haohai Biological Technology Co., Ltd. H Shares^b		734,500		4,811,513
Alibaba Group Holding, Ltd. ADR^b		45,100		3,665,277

Total China/Hong Kong				88,592,103


INDIA: 11.2%
Emami, Ltd.		1,551,001		23,366,154
HDFC Bank, Ltd.		1,102,893		18,013,151
Lupin, Ltd.		635,783		17,590,774
ITC, Ltd.		2,970,516		14,688,662
Sun Pharmaceutical Industries, Ltd.		666,500		8,244,756
Multi Commodity Exchange of India, Ltd.		342,565		4,775,030

Total India				86,678,527


INDONESIA: 9.6%
PT Bank Rakyat Indonesia Persero		31,353,900		25,732,158
PT Astra International		43,107,700		18,568,752
PT Indofood CBP Sukses Makmur		14,320,100		13,853,380
PT Ace Hardware Indonesia		194,172,500		11,548,629
PT Arwana Citramulia		145,017,700		5,229,812

Total Indonesia				74,932,731


	Shares		Value
PHILIPPINES: 5.2%
Vista Land & Lifescapes, Inc.		117,224,100		$12,870,202
Universal Robina Corp.		2,873,600		11,339,325
Jollibee Foods Corp.		2,007,890		9,321,019
Emperador, Inc.		37,942,500		7,216,775

Total Philippines				40,747,321


AUSTRALIA: 3.6%
CSL, Ltd.		203,098		15,484,087
Oil Search, Ltd.		2,632,693		12,814,215

Total Australia				28,298,302


SRI LANKA: 2.8%
Sampath Bank PLC		7,897,235		13,577,222
Lanka Orix Leasing Co. PLC^b		12,121,473		7,898,915

Total Sri Lanka				21,476,137


VIETNAM: 1.6%
Vietnam Dairy Products JSC		2,164,300		12,303,603

Total Vietnam				12,303,603


TAIWAN: 1.5%
St. Shine Optical Co., Ltd.		412,000		8,245,860
Sinmag Equipment Corp.		1,220,674		3,850,265

Total Taiwan				12,096,125


THAILAND: 1.5%
Major Cineplex Group Public Co., Ltd.		11,921,000		11,641,461

Total Thailand				11,641,461


SOUTH KOREA: 1.2%
Orion Corp.		9,402		9,286,943

Total South Korea				9,286,943


PAKISTAN: 1.0%
Habib Bank, Ltd.		4,001,000		7,644,819

Total Pakistan				7,644,819


MALAYSIA: 1.0%
7-Eleven Malaysia Holdings BHD		21,204,100		7,605,523

Total Malaysia				7,605,523


BANGLADESH: 0.5%
Square Pharmaceuticals, Ltd.		1,200,000		3,879,776

Total Bangladesh				3,879,776


TOTAL INVESTMENTS: 97.9%				760,804,877
(Cost $625,650,734^c)

CASH AND OTHER ASSETS, LESS LIABILITIES: 2.1%				16,050,886


NET ASSETS: 100.0%				$776,855,763


36		MATTHEWS ASIA FUNDS

Matthews Asia Growth Fund

December 31, 2015

Schedule of Investments^a (continued)

a	Certain securities were fair valued under the valuation polices approved by the Board of Trustees (Note 2-A).

b	Non-income producing security.

c	Cost for federal income tax purposes is $631,416,920 and net unrealized appreciation consists of:


Gross unrealized appreciation	$184,661,011
Gross unrealized depreciation	(55,273,054	)

Net unrealized appreciation	$129,387,957

ADR	American Depositary Receipt

ADS	American Depositary Share

BHD

Berhad

JSC	Joint Stock Co.

See accompanying notes to financial statements.


matthewsasia.com \| 800.789.ASIA			37

LOGO


PORTFOLIO MANAGERS
Sharat Shroff, CFA
Lead Manager
Rahul Gupta
Co-Manager

FUND FACTS
	Investor	Institutional
Ticker	MAPTX	MIPTX
CUSIP	577130107	577130834
Inception	9/12/94	10/29/10
NAV	$23.54	$23.52
Initial Investment	$2,500	$3 million
Gross Expense Ratio¹	1.09%	0.91%
After Fee Waiver and Reimbursement²	1.07%	0.89%
Portfolio Statistics
Total # of Positions		62
Net Assets		$6.7 billion
Weighted Average Market Cap		$30.6 billion
Portfolio Turnover³		12.56%
Benchmark
MSCI AC Asia ex Japan Index

OBJECTIVE

Long-term capital appreciation.

STRATEGY

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

Matthews Pacific Tiger Fund

Portfolio Manager Commentary (unaudited)

For the year ending December 31, 2015, the Matthews Pacific Tiger Fund returned –1.30% (Investor Class) and –1.15% (Institutional Class), outperforming its benchmark, the MSCI All Country Asia ex Japan Index, which returned –8.90%. For the fourth quarter of the year, performance rose 8.36% (Investor Class) and 8.39% (Institutional Class) versus 3.87% for the Index.

Market Environment:

The weak Asian equity performance in 2015 reflected growing investor concerns over leverage in the region, weak outlook for growth and the status of structural reforms by policymakers aiming to boost productivity. China continued to be the “poster child” for high levels of leverage—credit as a proportion of its economy has continued to increase, and while the pace of new loans is decelerating, it isn’t decelerating quickly enough. The decision by the People’s Bank of China (PBOC) to change the mechanism for setting the exchange rate for the renminbi ignited concerns over a widespread devaluation of other Asian currencies, and the resulting negative impact on the ability of corporations to meet their foreign currency liabilities.

As a consequence, the currencies of Malaysia, Indonesia, and Thailand depreciated significantly against the U.S. dollar. While Malaysia and Thailand face the brunt of slowing growth and high leverage, the Indonesian economy’s reliance on the U.S. dollar has not decreased in the past few years. And with slowing commodity exports, investors have raised concerns about the funding of its current account deficit.

Among the few Asian markets to finish the year on a positive note was Vietnam, led by an improving growth outlook, and efforts at structural reforms like privatizing some of the state owned enterprises (SOE).

Amid significant macro-induced volatility, the outcome of stocks seemed to be guided by fundamental factors. The returns on equity for the health care sector expanded and hence it saw some of the best-performing stocks in the region while energy-related stocks were among the worst performing.

Performance Contributors and Detractors:

Perhaps the most notable aspect of the operating performance of Asian companies in 2015 was the growing divergence in economic fortunes of companies across different countries and sectors—even between companies operating in the same country and sector. The Chinese consumption story continues to get better as it is starting to broaden out from the eastern seaboard to interior parts of the country, helped by sustained increases in income and better availability of goods through e-commerce. Some of the portfolio’s holdings, like South Korean cosmetics maker Amorepacific and confectionery maker Orion, are well-positioned to participate in this trend, and were among important contributors to Fund performance.

The portfolio also benefited from a trend of privatizations affecting holdings like Keppel Land and WuXi PharmaTech, which perhaps reflects the view that the market was not appropriately valuing these businesses.

By far, the biggest drag on Fund performance came from our utilities holdings in India and Indonesia. These firms were relatively more exposed to the drop in oil prices, and the uncertainty stemming from the regulatory tariff on natural gas.

(continued)

1	Actual 2015 expense ratios.

3	The lesser of fiscal year 2015 long-term purchase costs or sales proceeds divided by the average monthly market value of long-term securities.


38		MATTHEWS ASIA FUNDS



PERFORMANCE AS OF DECEMBER 31, 2015
	3 Months		1 Year		Average Annual Total Returns									Inception Date
	3 Months		1 Year		3 Years		5 Years		10 Years		Since Inception			Inception Date
Investor Class (MAPTX)		8.36%		-1.30%		4.57%		4.15%		9.19%		8.52%			9/12/94
Institutional Class (MIPTX)		8.39%		-1.15%		4.74%		4.33%		n.a.		4.32%			10/29/10
MSCI AC Asia ex Japan Index⁴		3.87%		-8.90%		-0.35%		0.14%		6.46%		3.50%	⁵
Lipper Pacific ex Japan Funds Category Average⁶		4.37%		-6.61%		-0.13%		0.80%		6.06%		5.54%	⁵

Performance assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate with market conditions so that when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the return figures quoted. For the Fund’s most recent month-end performance, visit matthewsasia.com.

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

LOGO

Calculated from 8/31/94.

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



TOP TEN POSITIONS⁷
	Sector	Country	% of Net Assets
Naver Corp.	Information Technology	South Korea		3.5%
Baidu, Inc.	Information Technology	China/Hong Kong		3.1%
Orion Corp.	Consumer Staples	South Korea		3.0%
Dongbu Insurance Co., Ltd.	Financials	South Korea		2.9%
Kotak Mahindra Bank, Ltd.	Financials	India		2.7%
DKSH Holding, Ltd.	Industrials	Switzerland		2.6%
Central Pattana Public Co., Ltd.	Financials	Thailand		2.6%
Ping An Insurance Group Co. of China, Ltd.	Financials	China/Hong Kong		2.5%
Tata Power Co., Ltd.	Utilities	India		2.5%
Amorepacific Corp.	Consumer Staples	South Korea		2.4%
% OF ASSETS IN TOP TEN				27.8%

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


matthewsasia.com \| 800.789.ASIA			39



COUNTRY ALLOCATION (%)⁸^,9
China/Hong Kong			32.2
India			19.8
South Korea			17.0
Indonesia			6.4
Taiwan			5.8
Thailand			5.1
Malaysia			3.6
Philippines			2.8
Switzerland			2.6
Vietnam			2.4
United States			1.2
Singapore			0.3
Cash and Other Assets, Less Liabilities			0.8



SECTOR ALLOCATION (%)⁹
Financials			27.5
Consumer Staples			20.4
Information Technology			18.4
Health Care			8.5
Consumer Discretionary			8.3
Utilities			5.5
Industrials			5.3
Telecommunication Services			3.6
Materials			1.7
Cash and Other Assets, Less Liabilities			0.8



MARKET CAP EXPOSURE (%)⁹
Mega Cap (over $25B)			25.5
Large Cap ($10B–$25B)			31.3
Mid Cap ($3B–10B)			33.5
Small Cap (under $3B)			8.9
Cash and Other Assets, Less Liabilities			0.8

8	Not all countries where the Fund may invest are included in the benchmark index.

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

Matthews Pacific Tiger Fund

Portfolio Manager Commentary (unaudited) (continued)

Notable Portfolio Changes:

The activity levels in the portfolio were a bit elevated in 2015, led by shareholder redemptions. In order to meet these redemptions, securities that had been long held in the portfolio had to be sold, generating distributions that are higher than is typical for the Fund. There were a few positions that were eliminated during the quarter for a variety of reasons. Some of the activity was dictated by privatizations, however in other cases, like that of Dongfeng Motors, we exited the holding in order to replace it with automotive glass supplier Fuyao Glass, which in our view has an opportunity to claim significant market share, both domestically and globally. In a similar vein, we decided to replace South Korea health care firm Yuhan with Tasly Pharmaceuticals, a firm that is trying to introduce traditional Chinese medicine in more contemporary forms to domestic and international markets.

Last year also marked a foray into A-share investment for the portfolio. While we acknowledge the higher volatility and uneven liquidity in the market, the range of businesses, especially in sectors like consumer services and health care, is much more. We anticipate that the portfolio’s exposure to A-shares is likely to be modest, and should be looked at as another means of accessing services-led growth in China.

Outlook:

The macro headwinds for Asian economies, especially for investment spending, have not yet begun to abate. Partly, this is reflective of weak global demand, which may not return in a hurry due to long-term structural changes in the global economy. Furthermore, the biggest economy in the region, China, is undoubtedly slowing. But the nature of that growth is also shifting as there is an attempt by the authorities to facilitate better allocation of capital, which will require a willingness by the authorities to further liberate its financial markets. After deregulation of land and labor, this is perhaps the final and most difficult frontier for the authorities in China. For all its gaffes, the PBOC has fully liberalized interest rates, and has also abandoned the U.S. dollar peg in favor of a more flexible trade-weighted basket. Even with good intentions, the country is bound to face considerable risks in managing the transition to free and open markets, which are further exacerbated by the poor communication from the Chinese regulators.

While the macro picture in China may remain unclear, our interaction with businesses in China causes us to be more optimistic. It has become ever more noticeable that the progressive management teams are starting to think about factors like management incentive plans, quality of products, branding, environmental safety and rising competition—all ingredients for building better service-oriented franchises. Unlike in the past, there is much more of a multidisciplinary approach to building stronger businesses that are exactly the sort of changes that we like to see.

Meanwhile in the rest of the region, several of the regulators and policymakers—especially in countries like India and Indonesia—have been trying to build the right kind of institutions and policy frameworks. Efforts to curb inflation at the expense of growth, for example, were much-desired and have achieved the right kind of results. Much more needs to be done, however. At current valuations, investors do not seem to be expecting a sharp recovery in growth or a huge upside from policymaking.


40		MATTHEWS ASIA FUNDS

Matthews Pacific Tiger Fund

December 31, 2015

Schedule of Investments^a

COMMON EQUITIES: 99.2%


	Shares		Value
CHINA/HONG KONG: 32.2%
Baidu, Inc. ADR^b		1,081,800		$204,503,472
Ping An Insurance Group Co. of China, Ltd. H Shares		30,743,000		169,538,574
Hengan International Group Co., Ltd.		16,483,500		154,749,309
Sinopharm Group Co., Ltd. H Shares		36,984,400		147,650,035
Lenovo Group, Ltd.		138,394,000		139,666,324
China Resources Land, Ltd.		47,814,000		138,359,478
China Mobile, Ltd. ADR		2,215,026		124,772,414
Tencent Holdings, Ltd.		5,886,500		115,257,589
AIA Group, Ltd.		18,640,800		111,380,332
Alibaba Group Holding, Ltd. ADR^b		1,291,700		104,976,459
Dairy Farm International Holdings, Ltd.		15,954,946		96,800,620
China Resources Beer Holdings Co., Ltd.		43,802,000		93,459,685
Yum! Brands, Inc.		1,174,410		85,790,651
China Vanke Co., Ltd. H Shares^c		28,247,704		82,848,600
Fuyao Glass Industry Group Co., Ltd. H Shares^b†		31,836,000		76,461,314
Inner Mongolia Yili Industrial Group Co., Ltd. A Shares		28,190,596		70,300,362
Hang Lung Group, Ltd.		21,553,000		69,894,596
Hong Kong Exchanges and Clearing, Ltd.		2,603,000		66,310,879
Swire Pacific, Ltd. A Share Class		4,513,000		50,410,760
Tasly Pharmaceutical Group Co., Ltd. A Shares		8,120,247		50,406,148

Total China/Hong Kong				2,153,537,601


INDIA: 19.8%
Kotak Mahindra Bank, Ltd.		16,873,409		182,763,452
Tata Power Co., Ltd.†		165,620,436		169,173,116
Sun Pharmaceutical Industries, Ltd.		12,078,258		149,410,790
Titan Co., Ltd.		24,797,915		129,646,093
GAIL India, Ltd.		22,282,108		125,991,021
Container Corp. of India, Ltd.		5,471,996		108,455,075
Housing Development Finance Corp., Ltd.		5,435,685		103,385,866
HDFC Bank, Ltd.		6,223,409		101,644,678
ITC, Ltd.		18,735,000		92,641,170
Dabur India, Ltd.		21,117,482		88,233,214
Thermax, Ltd.		5,310,034		72,636,281

Total India				1,323,980,756


SOUTH KOREA: 17.0%
Naver Corp.		417,316		232,711,838
Orion Corp.		203,080		200,594,798
Dongbu Insurance Co., Ltd.		3,249,119		194,399,593
Amorepacific Corp.		463,182		162,543,169
Green Cross Corp.†		846,872		131,010,777
Samsung Electronics Co., Ltd.		101,105		107,836,802
Cheil Worldwide, Inc.^b†		6,154,297		107,636,527

Total South Korea				1,136,733,504


	Shares		Value
INDONESIA: 6.4%
PT Indofood CBP Sukses Makmur		106,261,300		$102,798,035
PT Telekomunikasi Indonesia Persero		446,304,300		99,961,977
PT Bank Central Asia		100,580,000		96,363,608
PT Astra International		132,745,900		57,180,636
PT Perusahaan Gas Negara Persero		274,985,100		54,217,343
PT Telekomunikasi Indonesia Persero ADR		364,070		16,164,708

Total Indonesia				426,686,307


TAIWAN: 5.8%
Delta Electronics, Inc.		31,251,182		146,992,518
President Chain Store Corp.		22,836,608		142,528,329
Synnex Technology International Corp.†		98,191,354		95,267,555

Total Taiwan				384,788,402


THAILAND: 5.1%
Central Pattana Public Co., Ltd.		131,488,800		170,851,051
The Siam Cement Public Co., Ltd.		8,872,950		112,906,200
Kasikornbank Public Co., Ltd.		10,015,900		41,569,495
Kasikornbank Public Co., Ltd. NVDR		3,561,800		14,782,718

Total Thailand				340,109,464


MALAYSIA: 3.6%
Genting BHD		54,370,200		92,729,209
IHH Healthcare BHD		47,676,300		73,066,276
Public Bank BHD		12,771,594		55,030,456
IHH Healthcare BHD		11,543,000		17,119,436

Total Malaysia				237,945,377


PHILIPPINES: 2.8%
GT Capital Holdings, Inc.		3,897,540		109,191,837
SM Prime Holdings, Inc.		176,670,771		81,244,034

Total Philippines				190,435,871


SWITZERLAND: 2.6%
DKSH Holding, Ltd.		2,738,062		172,209,114

Total Switzerland				172,209,114


VIETNAM: 2.4%
Vietnam Dairy Products JSC		28,359,837		161,219,878

Total Vietnam				161,219,878


UNITED STATES: 1.2%
Cognizant Technology Solutions Corp. Class A^b		1,382,600		82,983,652

Total United States				82,983,652


SINGAPORE: 0.3%
Hyflux, Ltd.†		43,084,530		17,101,875

Total Singapore				17,101,875


TOTAL COMMON EQUITIES				6,627,731,801

(Cost $5,207,648,607)


matthewsasia.com \| 800.789.ASIA			41

Matthews Pacific Tiger Fund

December 31, 2015

Schedule of Investments^a (continued)

WARRANTS: 0.0%


	Shares		Value
MALAYSIA: 0.0%
Genting BHD, expires 12/18/18		12,253,875		$2,425,945

Total Malaysia				2,425,945


TOTAL WARRANTS				2,425,945

(Cost $5,593,674)

TOTAL INVESTMENTS: 99.2%				6,630,157,746
(Cost $5,213,242,281^d)

CASH AND OTHER ASSETS, LESS LIABILITIES : 0.8%				55,257,608


NET ASSETS: 100.0%				$6,685,415,354

a	Certain securities were fair valued under the valuation polices approved by the Board of Trustees (Note 2-A).

b	Non-income producing security.

c	Illiquid security, trading was halted at December 31, 2015.

d	Cost for federal income tax purposes is $5,215,373,095 and net unrealized appreciation consists of:


Gross unrealized appreciation	$1,946,904,242
Gross unrealized depreciation	(532,119,591	)

Net unrealized appreciation	$1,414,784,651

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

ADR	American Depositary Receipt

BHD

Berhad

JSC	Joint Stock Co.

NVDR	Non-voting Depositary Receipt

See accompanying notes to financial statements.


42		MATTHEWS ASIA FUNDS

LOGO


PORTFOLIO MANAGERS
Vivek Tanneeru
Lead Manager
Winnie Chwang
Co-Manager

FUND FACTS
	Investor	Institutional
Ticker	MASGX	MISFX
CUSIP	577130727	577130719
Inception	4/30/15	4/30/15
NAV	$9.23	$9.17
Initial Investment	$2,500	$3 million
Gross Expense Ratio¹	9.09%	8.90%
After Fee Waiver and Reimbursement²	1.44%	1.25%
Portfolio Statistics
Total # of Positions		54
Net Assets		$4.9 million
Weighted Average Market Cap		$12.7 billion
Portfolio Turnover³		21.72%
Benchmark
MSCI AC Asia ex Japan Index

OBJECTIVE

Long term capital appreciation.

STRATEGY

Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 80% of its total assets, which include borrowings for investment purposes, in the common and preferred stocks of companies of any market capitalization located in Asia that Matthews believes satisfy one or more of its environmental, social and governance (“ESG”) standards. Asia consists of all countries and markets in Asia and includes developed, emerging, and frontier countries and markets in the Asia region. The Fund may also invest in convertible securities and fixed-income securities, of any duration or quality, including high yield securities of Asian companies.

Matthews Asia ESG Fund

Portfolio Manager Commentary (unaudited)

The Matthews Asia ESG Fund was launched on April 30, 2015. From inception to December 31, 2015, the Fund returned –7.30% (Investor Class) and –7.14% (Institutional Class) while its benchmark, the MSCI All Country Asia ex Japan Index, returned –19.02%. For the fourth quarter of the year, the Fund returned 4.63% (Investor Class) and 4.69% (Institutional Class) versus 3.87% for the Index.

Market Environment:

Asia’s markets bounced sharply off the lows of the third quarter and posted positive returns in October, but ultimately “treaded water” for the remainder of 2015. Indonesia’s rupiah was the best-performing currency in the region in the fourth quarter, recouping some of the losses from earlier quarters in the year. Malaysia’s ringgit also recouped some of the losses toward the end of the year, but lost 17% since the Fund’s April inception, making it the worst-performing currency in Asia.

Both offshore and onshore renminbi were the worst-performing currencies during the fourth quarter in part due to renewed worries about the state of the Chinese economy and potential capital outflows. Market reaction was exacerbated by the inability of China’s central bank to effectively communicate its policy shift of measuring renminbi (RMB) against a trade-weighted currency basket of 13 currencies, and not solely against the U.S. dollar as has historically been done.

Performance Contributors and Detractors:

By country, China/Hong Kong was the biggest contributor to Fund performance during the fourth quarter while Thailand detracted most. Total Access Communication, which provides cellular mobile telephone services, was the biggest detractor during the quarter as an auction for cellular spectrum in December saw the entrance of a fourth player into the Thai telecom market. Industry dynamics have clearly deteriorated considering the increased competitive intensity along with the recapitalization of the industry’s number three player. The firm, commonly known as DTAC, has enough wireless spectrum to compete effectively for the next two years until its next spectrum renewal deadline. We believe current valuations more than adequately reflect this risk.

Korean company Hanon Systems was the biggest contributor to performance in the fourth quarter. The firm is the world’s third-largest climate control system company. In addition, the company has a fast-growing thermal management systems business, which addresses the growing need for increased vehicle fuel efficiency. In 2015, the company underwent a change in majority ownership, and its new private equity owner created a well-incentivized new management team with a strong focus on cost control that has potential upside for margins and dividend payout ratios.

Notable Portfolio Changes:

The Fund initiated a position in Phison Electronics, a Taiwanese fabless technology company that specializes in designing memory controllers. The company is benefiting from the trend of increased controller outsourcing from memory companies. The company is a strong cash flow generator with solid return metrics and offers a good

(continued)

1	Annualized expense ratios.

Matthews has contractually agreed (i) to waive fees and reimburse expenses to the extent needed to limit Total Annual Fund Operating Expenses (excluding Rule 12b-1 fees, front-end or contingent deferred loads, taxes, interest, brokerage commissions, short sale dividend expenses, expenses incurred in connection with any merger or reorganization or extraordinary expenses such as litigation) of the Institutional Class to 1.25%, and (ii) if any Fund-wide expenses (i.e., expenses that apply to both the Institutional Class and the Investor Class) are waived for the Institutional Class to maintain the 1.25% expense limitation, to waive an equal amount (in annual percentage terms) of those same expenses for the Investor Class. The Total Annual Fund Operating Expenses After Fee Waiver and Expense Reimbursement for the Investor Class may vary from year to year and will in some years exceed 1.25%. If the operating expenses fall below the expense limitation in a year within three years after Matthews has made a waiver or reimbursement, the Fund may reimburse Matthews up to an amount that does not cause the expenses for that year to exceed the expense limitation applicable at the time of that fee waiver and/or expense reimbursement or to exceed any other agreed upon expense limitation for that year. This agreement will remain in place until April 30, 2017, may be renewed for additional periods not exceeding one year and may be terminated at any time by the Board of Trustees or the Trust on behalf of the Fund on 60 days’ written notice to Matthews. Matthews may decline to renew this agreement by written notice to the Trust at least 30 days before its annual expiration date.

3	Not annualized. The lesser of fiscal year 2015 long-term purchase costs or sales proceeds divided by the average monthly market value of long-term securities.


matthewsasia.com \| 800.789.ASIA			43



PERFORMANCE AS OF DECEMBER 31, 2015
	Actual Returns, Not Annualized
	3 Months		Since Inception		Inception Date
Investor Class (MASGX)		4.63%		-7.30%		4/30/15
Institutional Class (MISFX)		4.69%		-7.14%		4/30/15
MSCI AC Asia ex Japan Index⁴		3.87%		-19.02%
Lipper Pacific Funds Category Average⁵		5.29%		-17.22%

Performance assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate with market conditions so that when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the return figures quoted. Returns would have been lower if certain of the Fund’s fees and expenses had not been waived. For the Fund’s most recent month-end performance visit matthewsasia.com.

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

LOGO

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

It is not possible to invest directly in an index. Source: Index data from Morgan Stanley Capital International; total return calculations performed by BNY Mellon Investment Servicing (US) Inc. Please see page 87 for index definition.

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



TOP TEN POSITIONS⁶
	Sector	Country	% of Net Assets
Total Access Communication Public Co., Ltd. NVDR	Telecommunication Services	Thailand		4.2%
Taiwan Semiconductor Manufacturing Co., Ltd.	Information Technology	Taiwan		3.9%
Sino Biopharmaceutical, Ltd.	Health Care	China/Hong Kong		3.2%
Bharti Infratel, Ltd.	Telecommunication Services	India		3.2%
JD.com, Inc.	Consumer Discretionary	China/Hong Kong		3.1%
Bata India, Ltd.	Consumer Discretionary	India		3.1%
Inner Mongolia Yili Industrial Group Co., Ltd.	Consumer Staples	China/Hong Kong		3.1%
MTR Corp., Ltd.	Industrials	China/Hong Kong		3.1%
CSPC Pharmaceutical Group, Ltd.	Health Care	China/Hong Kong		2.8%
Puregold Price Club, Inc.	Consumer Staples	Philippines		2.7%
% OF ASSETS IN TOP TEN				32.4%

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


44		MATTHEWS ASIA FUNDS

Matthews Asia ESG Fund

Portfolio Manager Commentary (unaudited) (continued)

dividend yield. After a sell-off that came in the third quarter, the stock was attractively valued. Phison has improving ESG performance, driven by better human capital management, and is also improving its environmental and social disclosures.

The Fund exited two small positions during the fourth quarter. The first was Bumrungrad Hospital in Thailand, which grew expensive after a very good run. We also exited Sensata Technologies, a sensor company with strong exposure to increasing sensor content in diesel engines. Our expectations for the firm’s business outlook deteriorated after an emissions scandal involving Volkswagen Group.

Outlook:

Looking ahead, market volatility may continue amid an uncertain macroeconomic environment in China and the potential for sustained U.S. Federal Reserve rate hikes. But Asian consumers are increasingly focusing on products and services that have a positive environmental and social impact, while Asian governments and regulators are pushing companies to strive for better environmental and governance standards. Such a push provides an encouraging backdrop in which to pursue ESG-focused investing in Asia.

We employ a fundamental, bottom-up investment process in managing the portfolio of companies that make positive environmental, social and economic impact while generating profitable growth. Valuations in Asia appear attractive to us now and times like these often present the opportunity to buy very high-quality companies with best-in-class ESG attributes at reasonable prices. Therefore, we continue to remain very excited about the prospects of identifying and engaging attractive ESG investment opportunities in Asia.



COUNTRY ALLOCATION (%)⁷
China/Hong Kong			27.8
India			18.0
Taiwan			13.6
South Korea			8.5
Japan			6.1
Philippines			5.1
Thailand			4.2
Singapore			3.3
Pakistan			2.5
Indonesia			2.4
Sri Lanka			1.8
Australia			1.8
Luxembourg			1.8
Bangladesh			1.2
Cash and Other Assets, Less Liabilities			1.9



SECTOR ALLOCATION (%)
Health Care			19.6
Consumer Discretionary			17.1
Industrials			15.4
Information Technology			10.2
Financials			10.1
Telecommunication Services			8.5
Consumer Staples			8.3
Utilities			7.6
Materials			1.3
Cash and Other Assets, Less Liabilities			1.9



MARKET CAP EXPOSURE (%)⁸
Mega Cap (over $25B)			14.3
Large Cap ($10B–$25B)			14.1
Mid Cap ($3B–10B)			14.8
Small Cap (under $3B)			54.9
Cash and Other Assets, Less Liabilities			1.9

7	Not all countries are included in the benchmark index.

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


matthewsasia.com \| 800.789.ASIA			45

Matthews Asia ESG Fund

December 31, 2015

Schedule of Investments^a

COMMON EQUITIES: 98.1%


	Shares		Value
CHINA/HONG KONG: 27.8%
Sino Biopharmaceutical, Ltd.		175,000		$158,220
JD.com, Inc. ADR^b		4,800		154,872
Inner Mongolia Yili Industrial Group Co., Ltd. A Shares		61,900		154,363
MTR Corp., Ltd.		31,000		153,072
CSPC Pharmaceutical Group, Ltd.		134,000		136,614
Beijing Urban Construction Design & Development Group Co., Ltd. H Shares		150,000		96,817
AIA Group, Ltd.		16,000		95,601
Haier Electronics Group Co., Ltd.		47,000		94,870
Towngas China Co., Ltd.		159,000		92,115
Guangdong Investment, Ltd.		44,000		62,138
China Conch Venture Holdings, Ltd.		28,500		58,962
HKBN, Ltd.		41,500		53,400
CIMC Enric Holdings, Ltd.		54,000		31,461
Weifu High-Technology Group Co., Ltd. B Shares		11,100		28,515

Total China/Hong Kong				1,371,020


INDIA: 18.0%
Bharti Infratel, Ltd.		24,157		155,859
Bata India, Ltd.		19,639		154,684
Ipca Laboratories, Ltd.		10,779		120,403
Infosys, Ltd.		6,516		108,580
Lupin, Ltd.		3,763		104,114
Power Grid Corp. of India, Ltd.		36,402		77,465
Sanofi India, Ltd.		1,010		66,651
SKS Microfinance, Ltd.^b		7,343		55,208
KPIT Technologies, Ltd.		17,348		44,066

Total India				887,030


TAIWAN: 13.6%
Taiwan Semiconductor Manufacturing Co., Ltd.		45,000		194,141
Merida Industry Co., Ltd.		13,000		69,721
CHC Resources Corp.		35,000		63,591
KD Holding Corp.		13,000		63,399
Sporton International, Inc.		10,077		61,482
Greatek Electronics, Inc.		56,000		60,815
St. Shine Optical Co., Ltd.		3,000		60,043
Lumax International Corp., Ltd.		41,000		54,130
Phison Electronics Corp.		6,000		42,138

Total Taiwan				669,460


SOUTH KOREA: 8.5%
Hanon Systems		2,784		122,262
iMarketKorea, Inc.		4,900		105,140
DGB Financial Group, Inc.		11,265		95,967
KT Skylife Co., Ltd.		6,446		94,524

Total South Korea				417,893


JAPAN: 6.1%
Tsukui Corp.		10,600		116,652
Daikin Industries, Ltd.		1,600		116,515
Koito Manufacturing Co., Ltd.		900		36,907
Ain Holdings, Inc.		700		33,375

Total Japan				303,449


	Shares		Value
PHILIPPINES: 5.1%
Puregold Price Club, Inc.		184,000		$135,688
Energy Development Corp.		864,300		113,525

Total Philippines				249,213


THAILAND: 4.2%
Total Access Communication Public Co., Ltd. NVDR		251,200		209,681

Total Thailand				209,681


SINGAPORE: 3.3%
Parkway Life REIT		67,600		110,956
Vicom, Ltd.		12,800		54,345

Total Singapore				165,301


PAKISTAN: 2.5%
Abbott Laboratories Pakistan, Ltd.		11,800		71,542
Bank Alfalah, Ltd.		195,500		53,796

Total Pakistan				125,338


INDONESIA: 2.4%
PT Bank Rakyat Indonesia Persero		104,300		85,599
PT Perusahaan Gas Negara Persero		166,400		32,808

Total Indonesia				118,407


SRI LANKA: 1.8%
Nestle Lanka PLC		6,205		87,968

Total Sri Lanka				87,968


AUSTRALIA: 1.8%
Ansell, Ltd.		4,505		69,815
Tox Free Solutions, Ltd.		8,829		17,919

Total Australia				87,734


LUXEMBOURG: 1.8%
L’Occitane International SA		44,750		86,354

Total Luxembourg				86,354


BANGLADESH: 1.2%
Square Pharmaceuticals, Ltd.		19,040		61,559

Total Bangladesh				61,559


TOTAL INVESTMENTS: 98.1%				4,840,407
(Cost $4,959,486^c)

CASH AND OTHER ASSETS, LESS LIABILITIES: 1.9%				93,944


NET ASSETS: 100.0%				$4,934,351


46		MATTHEWS ASIA FUNDS

Matthews Asia ESG Fund

December 31, 2015

Schedule of Investments^a (continued)

a	Certain securities were fair valued under the valuation polices approved by the Board of Trustees (Note 2-A).

b	Non-income producing security.

c	Cost for federal income tax purposes is $4,982,515 and net unrealized depreciation consists of:


Gross unrealized appreciation	$292,233
Gross unrealized depreciation	(434,341	)

Net unrealized depreciation	($142,108	)

ADR	American Depositary Receipt

NVDR	Non-voting Depositary Receipt

REIT	Real Estate Investment Trust

See accompanying notes to financial statements.


matthewsasia.com \| 800.789.ASIA			47

LOGO


PORTFOLIO MANAGERS
Taizo Ishida	Robert Harvey, CFA
Lead Manager	Co-Manager

FUND FACTS
	Investor	Institutional
Ticker	MEASX	MIASX
CUSIP	577125883	577125875
Inception	4/30/13	4/30/13
NAV	$11.27	$11.29
Initial Investment	$2,500	$3 million
Gross Expense Ratio¹	1.75%	1.57%
After Fee Waiver and Reimbursement²	1.50%	1.25%
Portfolio Statistics
Total # of Positions		81
Net Assets		$169.9 million
Weighted Average Market Cap		$4.7 billion
Portfolio Turnover³		12.14%
Benchmark
MSCI Emerging Markets Asia Index
Redemption Fee
2% within first 90 calendar days of purchase

OBJECTIVE

Long term capital appreciation.

STRATEGY

Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 80% of its total assets, which include borrowings for investment purposes, in the common and preferred stocks of companies located in Asia excluding Japan, South Korea, Hong Kong and Singapore. The Fund may also invest in the convertible securities, of any duration or quality of companies located in Asia excluding Japan, South Korea, Hong Kong and Singapore. Once fully invested and under normal market conditions, the Fund is expected to invest a substantial portion of its net assets in the emerging countries and markets in the Asian region, including, but not limited to, Bangladesh, Cambodia, China (including Taiwan, but excluding Hong Kong), India, Indonesia, Laos, Malaysia, Mongolia, Myanmar, Pakistan, Papua New Guinea, Philippines, Sri Lanka, Thailand, and Vietnam.

Matthews Emerging Asia Fund

Portfolio Manager Commentary (unaudited)

For the year ending December 31, 2015, the Matthews Emerging Asia Fund returned –2.56% (Investor Class) and –2.33% (Institutional Class) while its benchmark, the MSCI Emerging Markets Asia Index returned –9.47%. For the fourth quarter of the year, the Fund advanced 4.76% (Investor Class) and 4.81% (Institutional Class) versus 3.53% for the benchmark.

Market Environment:

Looking back at 2015, it was a trying year for equity investors—especially for those invested in commodities and global emerging markets. A strong U.S. dollar, prospects of interest rates rising in the U.S. and feeble global growth weighed on investor sentiment. To add to this were concerns over a flagging China, weak emerging market currencies and continued declines in commodities including oil, which all ultimately impacted market returns. The year 2015 saw Asia’s emerging markets (expressed as the MSCI Emerging Markets Asia Index) initially rise early on by almost 15% (by late April)—driven by relatively strong performances from Chinese and Korean markets in response to European Central Bank commentary and the postponement of any U.S. Federal Reserve rate hike. Sentiment then broadly started to sour as investors grew concerned about faltering growth in China and once again about the prospects for a U.S. interest rate rise. The index declined from the April high to a low of –16% in late August—a swing from peak to trough of almost 30 percentage points in less than six months. Concerns over Chinese and global growth generally continued to weigh on emerging equity markets for the remainder of the year.

Performance Contributors and Detractors:

The single biggest contributor to Fund performance in the fourth quarter and for the year was Pakistan’s The Searle Company, which returned about 23% and 96%, respectively. For the first half of the year, the company delivered strong earnings growth on the back of increased volumes and new product launches. And in recent years its management team has worked to restructure and refocus the business, maximizing domestic opportunities. Given some drug policy reforms and a growing focus on export markets, we remain optimistic about the company’s prospects. The second-biggest contributor to Fund performance for the year was PC Jeweller of India, which rose sharply on the back of solid earnings growth, mainly driven by store expansions. Looking at the top five individual contributors in the year, they come from Pakistan, India, China, Bangladesh and Vietnam respectively. Geographically, Pakistan and Bangladesh were the two biggest contributors by country for the one-year period, realizing a total return of 11.8% and 13.6%, respectively against the MSCI Emerging Markets Asia Index return of –9.5%. The relatively heavier weighting in Pakistan made it our top contributor in the quarter.

The biggest detractor was China/Hong Kong with a –16.9% return for the year. In Hong Kong, weak tourist arrivals, especially among mainland Chinese travelers materially impacted local retail sales. The result was a collapse in many domestic share prices including our position in Luk Fook Holdings; a Hong Kong-based jewelry retailer with stores in Macau, Hong Kong and China. The only name to post even weaker returns was Future Bright, which ranked as our worst performer

(continued)

1	Actual 2015 expense ratios.

Matthews has contractually agreed (i) to waive fees and reimburse expenses to the extent needed to limit Total Annual Fund Operating Expenses (excluding Rule 12b-1 fees, front-end or contingent deferred loads, taxes, interest, brokerage commissions, short sale dividend expenses, expenses incurred in connection with any merger or reorganization or extraordinary expenses such as litigation) of the Institutional Class to 1.25% first by waiving class specific expenses (i.e., Rule 12b-1 fees or shareholder service fees specific to a particular class) of the Institutional Class and then, to the extent necessary, by waiving non-class specific expenses of the Institutional Class, and (ii) if any Fund-wide expenses (i.e., expenses that apply to both the Institutional Class and the Investor Class) are waived for the Institutional Class to maintain the 1.25% expense limitation, to waive an equal amount (in annual percentage terms) of those same expenses for the Investor Class. The Total Annual Fund Operating Expenses After Fee Waiver and Expense Reimbursement for the Investor Class may vary from year to year and will in some years exceed 1.25%. If the operating expenses fall below the expense limitation in a year within three years after Matthews has made a waiver or reimbursement, the Fund may reimburse Matthews up to an amount that does not cause the expenses for that year to exceed the expense limitation applicable at the time of that fee waiver and/or expense reimbursement or to exceed any other agreed upon expense limitation for that year. This agreement will remain in place until April 30, 2017, may be renewed for additional periods not exceeding one year and may be terminated at any time by the Board of Trustees on behalf of the Fund on 60 days’ written notice to Matthews. Matthews may decline to renew this agreement by written notice to the Trust at least 30 days before its annual expiration date.

3	The lesser of fiscal year 2015 long-term purchase costs or sales proceeds divided by the average monthly market value of long-term securities.


48		MATTHEWS ASIA FUNDS



PERFORMANCE AS OF DECEMBER 31, 2015
					Average Annual Total Return
	3 Months		1 Year		Since Inception		Inception Date
Investor Class (MEASX)		4.76%		-2.56%		4.92%		4/30/13
Institutional Class (MIASX)		4.81%		-2.33%		5.14%		4/30/13
MSCI Emerging Markets Asia Index⁴		3.53%		-9.47%		-1.01%
Lipper Emerging Markets Funds Category Average⁵		0.54%		-14.08%		-7.13%

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

LOGO

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

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



TOP TEN POSITIONS⁶
	Sector	Country	% of Net Assets
The Searle Company, Ltd.	Health Care	Pakistan		5.1%
British American Tobacco Bangladesh Co., Ltd.	Consumer Staples	Bangladesh		2.9%
Olympic Industries, Ltd.	Consumer Staples	Bangladesh		2.8%
PT Gudang Garam	Consumer Staples	Indonesia		2.8%
PC Jeweller, Ltd.	Consumer Discretionary	India		2.8%
Square Pharmaceuticals, Ltd.	Health Care	Bangladesh		2.7%
Sampath Bank PLC	Financials	Sri Lanka		2.5%
K-Electric, Ltd.	Utilities	Pakistan		2.4%
Shenzhou International Group Holdings, Ltd.	Consumer Discretionary	China/Hong Kong		2.3%
PT Matahari Department Store	Consumer Discretionary	Indonesia		2.3%
% OF ASSETS IN TOP TEN				28.6%

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


matthewsasia.com \| 800.789.ASIA			49



COUNTRY ALLOCATION (%)^7,8
Pakistan			19.9
Bangladesh			13.9
Vietnam			12.5
India			11.2
Indonesia			9.8
China/Hong Kong			9.6
Sri Lanka			8.5
Philippines			5.9
Thailand			2.8
Singapore			1.1
Cambodia			1.1
Australia			1.0
Cash and Other Assets, Less Liabilities			2.7



SECTOR ALLOCATION (%)⁸
Consumer Staples			25.4
Consumer Discretionary			20.7
Financials			17.5
Health Care			12.6
Industrials			9.6
Materials			4.6
Information Technology			2.5
Utilities			2.4
Energy			2.0
Cash and Other Assets, Less Liabilities			2.7



MARKET CAP EXPOSURE (%)⁸
Mega Cap (over $25B)			1.5
Large Cap ($10B–$25B)			1.5
Mid Cap ($3B–10B)			13.5
Small Cap (under $3B)			80.8
Cash and Other Assets, Less Liabilities			2.7

7	Not all countries where the Fund may invest are included in the benchmark index.

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

Matthews Emerging Asia Fund

Portfolio Manager Commentary (unaudited) (continued)

for the year, with its value declining almost 67%. Disappointingly since we first initiated a position, it has collapsed in line with VIP gambling activity in Macau. The lack of ‘high-rollers’ materially impacted profitability of the Group’s high end restaurants. They also incurred material startup costs on the new ‘souvenir food’ business along with extraordinary costs associated with closing a food-hall in a Zhuhai shopping mall. Needless to say, we believe the company is now very cheap and long-term prospects for the restaurants and properties in Macau are positive.

Notable Portfolio Changes:

Late in the year, we initiated a new position in Shifa International Hospitals in Pakistan. We like this business as it is one that balances its commitment to the community-at-large (offering pro-bono services to those in need) while also generating attractive returns on capital. Looking forward, the management team has an opportunity to expand capacity and offer new services. We also added to our position in Indonesian cigarette producer Gudang Garam after substantial price weakness earlier in the year following concerns over the weakness in Indonesia’s rupiah. We also disposed of RFM in the Philippines as we have been disappointed with the strategic direction of this diversified food and beverage firm, as well as its lack of tangible operational progress.

Outlook:

The outlook is always challenging and impossible to foretell, especially as fickle investor sentiment can drive the market in the shorter term. In the medium term, high debt levels globally remain a concern and a headwind to growth while ongoing tensions in the Middle East also remain a serious concern, especially as a sharp sustained rise in oil prices will be negative for Emerging Asian economies.

Looking ahead, it seems quite possible that as Asia’s frontier markets continue to attract foreign direct investment, create new manufacturing jobs, receive growing remittance flows and grow their share of global exports off a low base, a relatively bright future could be in store for patient investors.


50		MATTHEWS ASIA FUNDS

Matthews Emerging Asia Fund

December 31, 2015

Schedule of Investments^a

COMMON EQUITIES: 97.3%


	Shares		Value
PAKISTAN: 19.9%
The Searle Company, Ltd.		2,304,593		$8,677,972
K-Electric, Ltd.^b		56,269,000		3,992,544
PAK Suzuki Motor Co., Ltd.		688,600		3,250,634
Habib Bank, Ltd.		1,508,100		2,881,567
GlaxoSmithKline Pakistan, Ltd.		1,021,540		2,143,199
Abbott Laboratories Pakistan, Ltd.		347,100		2,104,440
ICI Pakistan, Ltd.		452,600		2,086,362
Shifa International Hospitals, Ltd.		689,800		2,013,017
Hum Network, Ltd.		15,552,000		1,943,016
Pakistan Petroleum, Ltd.		1,487,800		1,732,254
Engro Foods, Ltd.^b		1,237,100		1,731,479
National Foods, Ltd.		429,700		1,300,526

Total Pakistan				33,857,010


BANGLADESH: 13.9%
British American Tobacco Bangladesh Co., Ltd.		132,990		5,003,565
Olympic Industries, Ltd.		1,432,434		4,731,276
Square Pharmaceuticals, Ltd.		1,421,741		4,596,697
United Commercial Bank, Ltd.		11,765,239		3,193,368
Marico Bangladesh, Ltd.		161,759		2,944,127
Berger Paints Bangladesh, Ltd.		69,450		1,690,345
Bata Shoe Co. Bangladesh, Ltd.		75,700		1,271,104
Apex Footwear, Ltd.		55,836		247,037

Total Bangladesh				23,677,519


VIETNAM: 12.5%
Phu Nhuan Jewelry JSC		2,007,863		3,830,879
Tien Phong Plastic JSC		1,292,517		3,460,508
Vinh Hoan Corp.		2,579,760		3,346,995
National Seed JSC		554,535		2,342,932
Mobile World Investment Corp.^b		632,587		2,203,152
Dinh Vu Port Investment & Development JSC		517,550		1,438,598
Nam Long Investment Corp.		1,386,590		1,406,015
DHG Pharmaceutical JSC		436,320		1,290,428
Masan Group Corp.^b		273,360		941,532
Saigon Securities, Inc.^b		820,828		809,423
Phuoc Hoa Rubber JSC		304,000		220,378

Total Vietnam				21,290,840


INDIA: 11.2%
PC Jeweller, Ltd.		801,621		4,689,501
Supreme Industries, Ltd.		223,468		2,296,000
Emami, Ltd.		126,978		1,912,950
Praj Industries, Ltd.		1,224,447		1,700,344
Info Edge India, Ltd.		124,174		1,599,986
VST Industries, Ltd.		49,694		1,270,563
GRUH Finance, Ltd.		304,007		1,253,251
Shalimar Paints, Ltd.^b		525,830		1,139,983
Shriram Transport Finance Co., Ltd.		83,544		1,080,177
Shriram City Union Finance, Ltd.		41,454		992,592
Cipla India, Ltd.		60,053		588,691
Multi Commodity Exchange of India, Ltd.		32,155		448,210

Total India				18,972,248


	Shares		Value
INDONESIA: 9.8%
PT Gudang Garam		1,184,800		$4,702,376
PT Matahari Department Store		3,032,600		3,839,072
PT Mayora Indah		1,179,600		2,599,369
PT Bank Mandiri Persero		3,728,900		2,476,139
PT Sumber Alfaria Trijaya		38,533,300		1,621,278
PT Indofood CBP Sukses Makmur		1,301,700		1,259,275
PT Electronic City Indonesia		2,591,700		159,807

Total Indonesia				16,657,316


CHINA/HONG KONG: 9.6%
Shenzhou International Group Holdings, Ltd.		689,000		3,948,508
CIMC Enric Holdings, Ltd.		4,378,000		2,550,638
Luk Fook Holdings International, Ltd.		1,200,000		2,534,730
Playmates Toys, Ltd.		8,756,000		2,204,598
Tencent Holdings, Ltd.		88,700		1,736,745
Future Bright Holdings, Ltd.		9,948,000		996,615
Haitian International Holdings, Ltd.		618,000		896,632
Alibaba Group Holding, Ltd. ADR^b		10,300		837,081
Louis XIII Holdings, Ltd.^b		1,923,000		520,530

Total China/Hong Kong				16,226,077


SRI LANKA: 8.5%
Sampath Bank PLC		2,483,749		4,270,154
National Development Bank PLC		2,515,196		3,385,668
Hemas Holdings PLC		5,038,636		3,244,986
Aitken Spence Hotel Holdings PLC		1,973,457		930,295
Chevron Lubricants Lanka PLC		260,863		621,708
Ceylon Tobacco Co. PLC		85,424		587,753
Ceylinco Insurance Co. PLC		51,393		529,286
Expolanka Holdings PLC		9,348,946		524,967
Lanka Orix Leasing Co. PLC^b		573,466		373,697

Total Sri Lanka				14,468,514


PHILIPPINES: 5.9%
Puregold Price Club, Inc.		4,214,000		3,107,551
Universal Robina Corp.		505,710		1,995,549
Vista Land & Lifescapes, Inc.		18,094,100		1,986,577
Emperador, Inc.		9,273,800		1,763,904
GT Capital Holdings, Inc.		40,630		1,138,273

Total Philippines				9,991,854


THAILAND: 2.8%
SNC Former Public Co., Ltd.		5,111,700		1,938,085
Srisawad Power 1979 Public Co., Ltd.		1,283,568		1,690,430
Beauty Community Public Co., Ltd.		7,142,000		1,133,697

Total Thailand				4,762,212


SINGAPORE: 1.1%
Yoma Strategic Holdings, Ltd.^b		5,491,766		1,787,119

Total Singapore				1,787,119


CAMBODIA: 1.1%
NagaCorp, Ltd.		2,828,000		1,781,353

Total Cambodia				1,781,353


matthewsasia.com \| 800.789.ASIA			51

Matthews Emerging Asia Fund

December 31, 2015

Schedule of Investments^a (continued)

COMMON EQUITIES (continued)


	Shares		Value
AUSTRALIA: 1.0%
Oil Search, Ltd.		349,221		$1,699,778

Total Australia				1,699,778


TOTAL COMMON EQUITIES				165,171,840

(Cost $158,973,147)

RIGHTS: 0.0%
PAKISTAN: 0.0%
Shifa International Hospitals, Ltd., expires 1/29/16^b		55,184		24,050

Total Pakistan				24,050


TOTAL RIGHTS				24,050

(Cost $0)

WARRANTS: 0.0%
THAILAND: 0.0%
Srisawad Power 1979 Public Co., Ltd., expires 6/11/20^b		50,336		17,485

Total Thailand				17,485


TOTAL WARRANTS				17,485

(Cost $0)

TOTAL INVESTMENTS: 97.3%				165,213,375
(Cost $158,973,147^c)

CASH AND OTHER ASSETS, LESS LIABILITIES: 2.7%				4,655,120


NET ASSETS: 100.0%				$169,868,495

a	Certain securities were fair valued under the valuation polices approved by the Board of Trustees (Note 2-A).

b	Non-income producing security.

c	Cost for federal income tax purposes is $158,973,147 and net unrealized appreciation consists of:


Gross unrealized appreciation	$25,659,723
Gross unrealized depreciation	(19,419,495	)

Net unrealized appreciation	$6,240,228

ADR	American Depositary Receipt

JSC	Joint Stock Co.

See accompanying notes to financial statements.


52		MATTHEWS ASIA FUNDS

LOGO


PORTFOLIO MANAGERS
Andrew Mattock, CFA
Lead Manager
Henry Zhang, CFA		Winnie Chwang
Co-Manager		Co-Manager



FUND FACTS
	Investor	Institutional
Ticker	MCHFX	MICFX
CUSIP	577130701	577130818
Inception	2/19/98	10/29/10
NAV	$18.42	$18.39
Initial Investment	$2,500	$3 million
Gross Expense Ratio¹	1.14%	0.99%
Portfolio Statistics
Total # of Positions		43
Net Assets		$734.0 million
Weighted Average Market Cap		$49.3 billion
Portfolio Turnover²		66.22%
Benchmark
MSCI China Index

OBJECTIVE

Long-term capital appreciation.

STRATEGY

Matthews China Fund

Portfolio Manager Commentary (unaudited)

For the year ending December 31, 2015, the Matthews China Fund returned 2.41% (Investor Class) and 2.50% (Institutional Class) while its benchmark, the MSCI China Index, returned –7.62%. For the fourth quarter of the year, the Fund returned 10.33% (Investor and Institutional Class) versus 4.03% for the Index.

Market Environment:

After a strong start to the year, associated with a rally in mainland indices, China’s equity market environment turned extremely negative. The heavy-handed approach used by authorities in attempting to stabilize this decline also prompted investor concern. Amid this turmoil, Chinese authorities, to the dismay of global markets, suddenly adjusted the mechanism for the daily setting of exchange rates. This change was not well-communicated and created much confusion. However, we ultimately consider the move to be a long-term positive development. The confusion regarding the currency intensified during the year as fears of capital flight reappeared. Onshore foreign exchange deposits in China have not increased with any significance, which may suggest a healthy adjustment is taking place. Another thing to note is that most of the foreign exchange reserve depletion occurred during the third quarter, and the run rate since has narrowed, which perhaps implies that a one-off balance sheet adjustment, rather than consistent capital outflows, is taking place. We believe the initial loss in reserves is a U.S. dollar adjustment in working capital by Chinese corporates, both onshore and offshore. Finally, China is receiving a US$500 to US$600 billion trade surplus annually. As commodity prices weaken, this should provide a buffer for continued outflows. We anticipate flows to moderate significantly. On the economic front, the lack of sequential growth momentum in China continues due to a decline in property market investment, and a slowing of the fixed asset investment in manufacturing. Our central case is that 2016 will be similar to 2015 in that we believe the economy should continue to shed excess capacity in some industries and associated nonperforming loans will be recognized. So far, this adjustment has been orderly, and we believe this will continue to be the case. The end of this down-cycle will be indicated by a moderation of write-offs at Chinese banks, and we are watching for this. The timing of this moderation, we feel, is uncertain and may well be a 2017 event. Meanwhile, the government refrains from launching large-scale stimulus programs to spur short-term economic growth, instead continuing with its approach to help stimulate only targeted areas and continue with structural long-term reform.

Performance Contributors and Detractors:

During the year, the health care sector was among the biggest contributors to relative Fund performance. Health care companies overall reported strong earnings, showing continued growth momentum. The year ahead will be more difficult for these companies as more intense pricing pressure and competition increases. Among our health care holdings, Jiangsu Hengrui Medicine was a top contributor to Fund performance, and the drug maker is typical of health care companies we favor as it has a strong diversified product pipeline and is committed to moving up the value chain, away from pure generics.

During the fourth quarter, financials sector holdings also contributed to Fund performance. Tier one property developers continue to take market share in a consolidating industry where overall trends are flat at best. In particular, China Vanke and China Resources Land contributed outsized returns. The Internet space was also another bright spot for the Fund. NetEase, a gaming company that develops most of its games in-house, further enhanced its mobile gaming platform and was a strong performer. ANTA Sports Products, a branded sportswear company that has benefited from an improvement in brand perception through focused

(continued)

1	Actual 2015 expense ratios.

2	The lesser of fiscal year 2015 long-term purchase costs or sales proceeds divided by the average monthly market value of long-term securities.


matthewsasia.com \| 800.789.ASIA			53



PERFORMANCE AS OF DECEMBER 31, 2015
	3 Months		1 Year		Average Annual Total Returns									Inception Date
	3 Months		1 Year		3 Years		5 Years		10 Years		Since Inception			Inception Date
Investor Class (MCHFX)		10.33%		2.41%		1.50%		-1.04%		10.86%		9.37%			2/19/98
Institutional Class (MICFX)		10.33%		2.50%		1.65%		-0.88%		n.a.		-1.16%			10/29/10
MSCI China Index³		4.03%		-7.62%		1.31%		0.91%		10.31%		3.27%	⁴
Lipper China Region Funds Category Average⁵		7.29%		-3.02%		2.98%		0.36%		7.97%		6.82%	⁴

Performance assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate with market conditions so that when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the return figures quoted. For the Fund’s most recent month-end performance, visit matthewsasia.com.

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

LOGO

Calculated from 2/28/98.

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



TOP TEN POSITIONS⁶
	Sector	% of Net Assets
Tencent Holdings, Ltd.	Information Technology		8.2%
Ping An Insurance Group Co. of China, Ltd.	Financials		5.5%
China Construction Bank Corp.	Financials		4.3%
China Life Insurance Co., Ltd.	Financials		3.6%
China Overseas Land & Investment, Ltd.	Financials		3.3%
China Resources Land, Ltd.	Financials		3.3%
China State Construction International Holdings, Ltd.	Industrials		3.1%
JD.com, Inc.	Consumer Discretionary		2.9%
NetEase, Inc.	Information Technology		2.8%
China Vanke Co., Ltd.	Financials		2.8%
% OF ASSETS IN TOP TEN			39.8%

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


54		MATTHEWS ASIA FUNDS

Matthews China Fund

Portfolio Manager Commentary (unaudited) (continued)

advertisement, also did well. It has shown prowess in managing its inventory cycle in recent years.

Performance in the industrial space was among the biggest detractors to Fund performance. Among our industrials holdings, Air China, despite weak oil prices, was a poor performer. Sentiment around excessive RMB depreciation on Air China’s USD debt offset the strong consumer travel story.

It must be highlighted that being thorough in our bottom-up approach helped the Fund in tough conditions during 2015. Minimizing stock selection mistakes and staying away from companies where the outlook was particularly uncertain ensured the Fund had a good year relative to its benchmark.

Notable Portfolio Changes:

During the quarter, we increased our positions in the life insurance industry, which significantly boosted our financials weighting. Although life insurers are classified within the financials sector, we tend to view such businesses as consumer discretionary holdings in China. Sales of life insurance policies are showing very positive operating trends as companies continue to penetrate China’s untapped regions. We believe Chinese life insurance policy design and the reduction in the interest rate environment in China have boosted the appetite for such sales. Our holdings here include AIA, Ping An and China Life. The insurance industry has strong competitive dynamics in which the big companies dominate and there is real strength in economies of scale in the ability to attract agency workforce.

During the year, we exited instant noodle producer Tingyi as we believed the barriers to entry and competition in its core noodle business continued unabated. We also sold Golden Eagle, Tsingtao Brewery, Sun Art Retail and Belle, the women’s shoe retail store operator, as over-supply and Internet channels continue to pose margin and sales issues in the traditional retail space. Market conditions in 2015 allowed us to re-evaluate Fund positions, and we took the opportunity to replace some holdings with securities that were previously too expensive. These changes resulted in unusually high turnover for the portfolio, which caused a higher distribution than is typical for this Fund. We expect turnover to moderate significantly in 2016 as we completed portfolio restructuring by the third quarter of 2015.

Outlook:

Looking forward, we expect the central government to continue to achieve a balance between non-intervention and major stimulus programs. Targeted accommodative policies have been adopted to prevent the economy from further slowing. The government has been making efforts to accelerate the reform process by encouraging and supporting the private sector economy, and increasing the role of market forces. Capital market reform is also high on the agenda. This area of reform should not be underestimated, and we anticipate seeing further reforms over the next 12 months. In particular, capital account reforms in relation to the currency and opening up of equity and bond markets will provide short-term volatility as the market tends to react negatively to big changes and uncertainty of outcome. The government, we believe, has the firepower to manage this transition. The last point to note on capital account reform is it is massively underrepresented in Chinese assets, bonds, equity and cash. Any signs of an improvement in the underlying nature of the Chinese economy could facilitate a sizable reallocation into a market that remains underrepresented in global portfolios. At current valuations, we see the risk-to-reward ratio as extremely attractive, despite the skepticism on China’s growth transition away from heavy industry. We believe the determination of the government to achieve this objective is clear. Despite valuations being cheap, we expect volatility should present us with attractive alpha-generating ideas. The reform agenda in place may be slower than the market would like, but it must be remembered that the changes taking place are very significant and something we have not seen since China’s World Trade Organization deal was signed.



SECTOR ALLOCATION⁷
Financials			38.5
Consumer Discretionary			17.7
Information Technology			16.8
Industrials			15.4
Health Care			5.3
Consumer Staples			2.7
Utilities			2.4
Energy			1.0
Cash and Other Assets, Less Liabilities			0.2



MARKET CAP EXPOSURE (%)⁷
Mega Cap (over $25B)			45.8
Large Cap ($10B–$25B)			24.4
Mid Cap ($3B–10B)			22.7
Small Cap (under $3B)			6.9
Cash and Other Assets, Less Liabilities			0.2

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


matthewsasia.com \| 800.789.ASIA			55

Matthews China Fund

December 31, 2015

Consolidated Schedule of Investments^a

COMMON EQUITIES: CHINA/HONG KONG: 99.8%


	Shares		Value
FINANCIALS: 38.5%
Insurance: 11.6%
Ping An Insurance Group Co. of China, Ltd. H Shares		7,304,500		$40,282,162
China Life Insurance Co., Ltd. H Shares		8,199,000		26,320,418
AIA Group, Ltd.		3,048,400		18,214,444

				84,817,024


Real Estate Management & Development: 11.4%
China Overseas Land & Investment, Ltd.		6,896,000		24,007,477
China Resources Land, Ltd.		8,280,000		23,959,855
China Vanke Co., Ltd. H Shares^b		6,993,268		20,510,781
Shanghai Lujiazui Finance & Trade Zone Development Co., Ltd. B Shares		3,735,686		15,155,899

				83,634,012


Banks: 9.5%
China Construction Bank Corp. H Shares		46,063,660		31,422,239
China Merchants Bank Co., Ltd. H Shares		6,738,643		15,774,088
Chongqing Rural Commercial Bank Co., Ltd. H Shares		24,695,000		14,832,333
BOC Hong Kong Holdings, Ltd.		2,583,000		7,860,125

				69,888,785


Capital Markets: 4.0%
CITIC Securities Co., Ltd. H Shares		6,437,500		14,916,650
China Galaxy Securities Co., Ltd. H Shares		16,092,500		14,625,430

				29,542,080


Diversified Financial Services: 2.0%
Hong Kong Exchanges and Clearing, Ltd.		563,400		14,352,497

Total Financials				282,234,398


CONSUMER DISCRETIONARY: 17.7%
Internet & Catalog Retail: 6.1%
JD.com, Inc. ADR^c		650,600		20,991,609
Vipshop Holdings, Ltd. ADR^c		905,729		13,830,482
Ctrip.com International, Ltd. ADR^c		220,700		10,225,031

				45,047,122


Household Durables: 3.5%
Gree Electric Appliances, Inc. of Zhuhai A Shares^d		3,824,278		13,102,936
Haier Electronics Group Co., Ltd.		6,170,000		12,454,212

				25,557,148


Textiles, Apparel & Luxury Goods: 2.4%
ANTA Sports Products, Ltd.		6,436,000		17,595,152


Auto Components: 2.1%
Fuyao Glass Industry Group Co., Ltd. A Shares^d		6,640,207		15,484,948


Media: 1.8%
Shanghai Oriental Pearl Media Co., Ltd. A Shares		2,316,008		13,283,532


Automobiles: 1.8%
Chongqing Changan Automobile Co., Ltd. B Shares		5,827,934		12,831,424

Total Consumer Discretionary				129,799,326


	Shares		Value
INFORMATION TECHNOLOGY: 16.8%
Internet Software & Services: 12.9%
Tencent Holdings, Ltd.		3,079,800		$60,302,441
NetEase, Inc. ADR		113,600		20,588,864
Baidu, Inc. ADR^c		73,000		13,799,920

				94,691,225


Electronic Equipment, Instruments & Components: 2.1%
Hangzhou Hikvision Digital Technology Co., Ltd. A Shares^d		2,915,459		15,408,886


Communications Equipment: 1.8%
ZTE Corp. H Shares		5,927,164		13,455,192

Total Information Technology				123,555,303


INDUSTRIALS: 15.4%
Commercial Services & Supplies: 3.1%
China Everbright International, Ltd.		10,219,000		13,066,815
Dongjiang Environmental Co., Ltd. H Shares		5,715,600		9,659,264

				22,726,079


Construction & Engineering: 3.1%
China State Construction International Holdings, Ltd.		12,992,000		22,467,209


Transportation Infrastructure: 2.7%
China Merchants Holdings International Co., Ltd.		4,308,581		13,627,483
Qingdao Port International Co., Ltd. H Shares		14,043,000		6,253,358

				19,880,841


Electrical Equipment: 1.9%
Boer Power Holdings, Ltd.		7,745,000		13,914,473


Airlines: 1.8%
Air China, Ltd. H Shares		16,949,900		13,293,749


Air Freight & Logistics: 1.8%
Sinotrans, Ltd. H Shares		24,822,000		13,213,014


Marine: 1.0%
SITC International Holdings Co., Ltd.		13,886,000		7,340,266

Total Industrials				112,835,631


HEALTH CARE: 5.3%
Pharmaceuticals: 3.3%
Jiangsu Hengrui Medicine Co., Ltd. A Shares^d		1,799,919		13,572,325
Sino Biopharmaceutical, Ltd.		12,317,000		11,136,006

				24,708,331


Health Care Providers & Services: 2.0%
Sinopharm Group Co., Ltd. H Shares		3,625,600		14,474,210

Total Health Care				39,182,541


CONSUMER STAPLES: 2.7%
Beverages: 2.7%
Kweichow Moutai Co., Ltd. A Shares^d		584,779		19,586,079

Total Consumer Staples				19,586,079


56		MATTHEWS ASIA FUNDS

Matthews China Fund

December 31, 2015

Consolidated Schedule of Investments^a (continued)

COMMON EQUITIES: CHINA/HONG KONG (continued)


	Shares		Value
UTILITIES: 2.4%
Water Utilities: 2.4%
Beijing Enterprises Water Group, Ltd.		25,054,000		$17,474,787

Total Utilities				17,474,787


ENERGY: 1.0%
Oil, Gas & Consumable Fuels: 1.0%
China Shenhua Energy Co., Ltd. H Shares		4,891,500		7,638,084

Total Energy				7,638,084


TOTAL INVESTMENTS: 99.8%				732,306,149
(Cost $657,904,382^e)

CASH AND OTHER ASSETS, LESS LIABILITIES: 0.2%				1,736,934


NET ASSETS: 100.0%				$734,043,083

a	Certain securities were fair valued under the valuation polices approved by the Board of Trustees (Note 2-A).

b	Illiquid security, trading was halted at December 31, 2015.

c	Non-income producing security.

d	Security held by Matthews CF-U Series. See note 2-C.

e	Cost for federal income tax purposes is $659,256,884 and net unrealized appreciation consists of:


Gross unrealized appreciation	$111,959,009
Gross unrealized depreciation	(38,909,744	)

Net unrealized appreciation	$73,049,265

ADR	American Depositary Receipt

See accompanying notes to financial statements.


matthewsasia.com \| 800.789.ASIA			57

LOGO


PORTFOLIO MANAGERS
Sunil Asnani
Lead Manager
Sharat Shroff, CFA
Co-Manager

FUND FACTS
	Investor	Institutional
Ticker	MINDX	MIDNX
CUSIP	577130859	577130768
Inception	10/31/05	10/29/10
NAV	$26.43	$26.49
Initial Investment	$2,500	$3 million
Gross Expense Ratio¹	1.11%	0.90%
Portfolio Statistics
Total # of Positions		48
Net Assets		$1.5 billion
Weighted Average Market Cap		$9.6 billion
Portfolio Turnover²		9.51%
Benchmark
S&P Bombay Stock Exchange 100 Index

OBJECTIVE

Long-term capital appreciation.

STRATEGY

Matthews India Fund

Portfolio Manager Commentary (unaudited)

For the year ending December 31, 2015, the Matthews India Fund returned 0.90% (Investor Class) and 1.12% (Institutional Class) while its benchmark, the S&P Bombay Stock Exchange 100 Index, declined –6.41%. For the fourth quarter of the year, the Fund returned –1.26% (Investor Class) and –1.23% (Institutional Class) versus –0.65% for the Index.

Market Environment:

Investor sentiment over Indian equities in 2015 was largely negative following consecutive quarters of dismal earnings growth. However, in the fourth quarter India’s stock markets were marginally positive, possibly suggesting more optimism over earnings growth. In 2015, there was a notable disconnect between moderate GDP growth and flat-to-marginally negative corporate earnings growth. This may partly be explained by different sector composition between the economy and the capital markets, which are represented by varying sectors. Another plausible explanation may be the difference between India’s declining wholesale price index and the consumer price index, which in general has grown recently by mid-single digits.

A lack of progress in economic reforms continues to be a disappointment. Parliamentary sessions during the second half of the year ended without much movement on the reform agenda, and a deadlock continued to delay a high-profile proposed Goods & Service Tax (GST) bill. However, Indian stock markets were marginally positive during the fourth quarter, which might suggest that investors had recalibrated expectations over the timing of economic reforms. During the fourth quarter, the energy, utilities, and materials sectors performed relatively better than more defensive sectors, such as consumer staples, health care and information technology after underperforming them for most of the year.

India’s central bank was quite active during the year. The Reserve Bank of India (RBI) provided some support to the market by reducing interest rates by 100 basis points (1.0%) in 2015. RBI’s engagement with private and public sector banks during the year also led to faster transmission of interest rate cuts in the economy.

Despite the year’s headwinds, the rupee depreciated only 4.5% and held up much better against the U.S. dollar versus other emerging market currencies. High real interest rates in India coupled with a lower current account deficit for India led investors to prefer rupee-denominated assets in 2015.

Performance Contributors and Detractors:

The outperformance of the portfolio during the year could be explained by our limited exposure to macro-dependent sectors, such as state-owned banks and metals, and higher exposure to relatively defensive and secular sectors, such as information technology, consumer staples and health care. Our portfolio has historically been positioned to be light on commodity-dependent sectors, and also underweight on companies particularly dependent on policy tailwinds, with limited control over their own destinies. This strategy helped us in 2015, when much-anticipated investment and banking reforms failed to emerge. While moderating economic growth adversely affected consumer stocks, the drop in input prices was able to sustain earnings growth. Our health care and information technology holdings actually benefited from India’s weakening rupee, even though our rationale for these holdings are company-specific.

Notable Portfolio Changes:

During the year, we exited a few positions and added to new positions across sectors such as technology, health care and consumer discretionary. One such

(continued)

1	Actual 2015 expense ratios.

2	The lesser of fiscal year 2015 long-term purchase costs or sales proceeds divided by the average monthly market value of long-term securities.


58		MATTHEWS ASIA FUNDS



PERFORMANCE AS OF DECEMBER 31, 2015
					Average Annual Total Returns
	3 Months		1 Year		3 Years		5 Years		10 Years		Since Inception			Inception Date
Investor Class (MINDX)		-1.26%		0.90%		15.84%		5.37%		11.10%		12.27%			10/31/05
Institutional Class (MIDNX)		-1.23%		1.12%		16.04%		5.55%		n.a.		4.95%			10/29/10
S&P Bombay Stock Exchange 100 Index³		-0.65%		-6.41%		5.43%		-1.00%		8.20%		9.95%	⁴
Lipper India Region Funds Category Average⁵		-0.36%		-3.85%		7.61%		-1.34%		6.77%		8.22%	⁴

Performance assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate with market conditions so that when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the return figures quoted. For the Fund’s most recent month-end performance, visit matthewsasia.com.

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

LOGO

Calculated from 10/31/05.

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



TOP TEN POSITIONS⁶
	Sector	% of Net Assets
Taro Pharmaceutical Industries, Ltd.	Health Care		5.1%
ITC, Ltd.	Consumer Staples		4.8%
IndusInd Bank, Ltd.	Financials		4.7%
Shriram City Union Finance, Ltd.	Financials		4.6%
eClerx Services, Ltd.	Information Technology		4.5%
Cognizant Technology Solutions Corp.	Information Technology		4.3%
Mindtree, Ltd.	Information Technology		4.1%
Kotak Mahindra Bank, Ltd.	Financials		4.1%
Ajanta Pharma, Ltd.	Health Care		4.0%
Housing Development Finance Corp., Ltd.	Financials		3.7%
% OF ASSETS IN TOP TEN			43.9%

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


matthewsasia.com \| 800.789.ASIA			59



SECTOR ALLOCATION (%)⁷
Financials			26.9
Consumer Staples			18.2
Information Technology			16.8
Health Care			14.9
Industrials			9.7
Consumer Discretionary			8.2
Materials			5.4
Liabilities in Excess of Cash and Other Assets			-0.1



MARKET CAP EXPOSURE (%)⁷
Mega Cap (over $25B)			17.4
Large Cap ($10B–$25B)			5.3
Mid Cap ($3B–10B)			26.3
Small Cap (under $3B)			51.1
Liabilities in Excess of Cash and Other Assets			-0.1

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

Matthews India Fund

Portfolio Manager Commentary (unaudited) (continued)

addition was Just Dial, which began as a firm in the space of online local classifieds, and is now trying to capture more online business. The company’s economic moat lies in its ability to enlist millions of businesses, which attract over 100 million search requests. The challenge for Just Dial is to remain relevant to customers while also maintaining profitability.

Outlook:

Toward the end of 2015, inflation in India accelerated to a 14-month high. While reported inflation has remained in line with central bank expectations, it seems unlikely there will be further monetary policy easing anytime soon. We believe RBI’s focus going forward may remain on interest rate transmission.

The central bank has also been active in trying to resolve the issue of stressed assets that have been plaguing large bank balance sheets. The central government introduced a bankruptcy bill in 2015, aimed at offering changes to help the current situation. We believe these efforts should help improve credit availability in the economy.

During the year, infrastructure projects related to highways, railways and water sanitation have seen substantial improvement over last year. Mobilization of resources and labor associated with these projects is expected to gather momentum in coming months, which should improve job creation for the country’s rural economy.

While opposition continues to stall Prime Minister Narendra Modi’s government reform agenda, incremental steps are consistently being taken. Recently, the central government has announced steps to rationalize and to implement the direct transfer of fuel price subsidies. These steps would reduce the fiscal burden and make funds available for infrastructure investment.


60		MATTHEWS ASIA FUNDS

Matthews India Fund

December 31, 2015

Schedule of Investments^a

COMMON EQUITIES: 100.1%


	Shares		Value
FINANCIALS: 26.9%
Banks: 12.7%
IndusInd Bank, Ltd.		4,875,934		$71,166,711
Kotak Mahindra Bank, Ltd.		5,697,258		61,709,554
HDFC Bank, Ltd.		2,030,165		33,157,947
HDFC Bank, Ltd. ADR		206,922		12,746,395
IDFC Bank, Ltd.^b		13,050,467		12,003,717

				190,784,324


Consumer Finance: 5.4%
Shriram City Union Finance, Ltd.		2,870,154		68,724,176
Sundaram Finance, Ltd.		588,318		12,196,857

				80,921,033


Thrifts & Mortgage Finance: 4.9%
Housing Development Finance Corp., Ltd.		2,958,810		56,276,097
GRUH Finance, Ltd.		4,421,238		18,226,297

				74,502,394


Diversified Financial Services: 3.8%
CRISIL, Ltd.		1,527,723		45,292,068
IDFC, Ltd.		13,050,467		9,481,647
Multi Commodity Exchange of India, Ltd.		168,101		2,343,168

				57,116,883


Real Estate Management & Development: 0.1%
Ascendas India Trust		1,966,800		1,206,796

Total Financials				404,531,430


CONSUMER STAPLES: 18.2%
Personal Products: 9.9%
Emami, Ltd.		3,520,577		53,038,228
Bajaj Corp., Ltd. ^b		5,759,447		36,857,511
Dabur India, Ltd.		8,332,176		34,813,557
Marico, Ltd.		7,362,328		25,130,114

				149,839,410


Tobacco: 6.9%
ITC, Ltd.		14,617,949		72,283,101
VST Industries, Ltd.†		1,215,704		31,082,796

				103,365,897


Food Products: 1.4%
Zydus Wellness, Ltd.		1,670,471		21,813,810

Total Consumer Staples				275,019,117


INFORMATION TECHNOLOGY: 16.8%
IT Services: 12.9%
eClerx Services, Ltd.†		3,135,581		67,149,179
Cognizant Technology Solutions Corp. Class A^b		1,082,700		64,983,654
Mindtree, Ltd.		2,888,292		62,378,571

				194,511,404


Internet Software & Services: 3.9%
Info Edge India, Ltd.		3,072,208		39,585,498
Just Dial, Ltd.		1,528,000		19,379,275

				58,964,773

Total Information Technology				253,476,177


	Shares		Value
HEALTH CARE: 14.9%
Pharmaceuticals: 14.1%
Taro Pharmaceutical Industries, Ltd.^b		501,466		$77,501,570
Ajanta Pharma, Ltd.		2,992,072		59,956,701
Sun Pharma Advanced Research Co., Ltd.^b		4,651,736		23,793,898
Sun Pharmaceutical Industries, Ltd.		1,867,725		23,104,182
Alembic Pharmaceuticals, Ltd.		2,042,940		21,461,581
Caplin Point Laboratories, Ltd.		264,872		5,635,653

				211,453,585


Health Care Equipment & Supplies: 0.8%
Poly Medicure, Ltd.		2,076,732		12,449,811

Total Health Care				223,903,396


INDUSTRIALS: 9.7%
Machinery: 5.1%
AIA Engineering, Ltd.		3,107,467		41,780,911
Thermax, Ltd.		1,501,877		20,544,268
Ashok Leyland, Ltd.		11,106,152		14,693,261

				77,018,440


Air Freight & Logistics: 1.8%
Blue Dart Express, Ltd.		261,973		26,707,715


Road & Rail: 1.6%
Container Corp. of India, Ltd.		1,191,324		23,612,067


Transportation Infrastructure: 1.2%
Gujarat Pipavav Port, Ltd.^b		8,578,564		18,221,810

Total Industrials				145,560,032


CONSUMER DISCRETIONARY: 8.2%
Textiles, Apparel & Luxury Goods: 5.0%
Titan Co., Ltd.		7,860,467		41,095,343
Page Industries, Ltd.		107,100		21,614,593
Kewal Kiran Clothing, Ltd.		266,781		8,887,424
Vaibhav Global, Ltd.^b		500,000		3,769,485

				75,366,845


Household Durables: 3.2%
Symphony, Ltd.		1,166,560		40,630,679
LA Opala RG, Ltd.		746,323		7,171,775

				47,802,454

Total Consumer Discretionary				123,169,299


MATERIALS: 5.4%
Chemicals: 3.5%
Supreme Industries, Ltd.		1,988,965		20,435,426
Asian Paints, Ltd.		1,379,000		18,370,639
Castrol India, Ltd.		2,139,063		14,246,267

				53,052,332


Metals & Mining: 1.9%
NMDC, Ltd.		21,023,892		28,457,932

Total Materials				81,510,264


matthewsasia.com \| 800.789.ASIA			61

Matthews India Fund

December 31, 2015

Schedule of Investments^a (continued)


	Value
TOTAL INVESTMENTS: 100.1%		$1,507,169,715
(Cost $1,264,551,439^c)

LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS: (0.1%)		(1,342,721	)


NET ASSETS: 100.0%		$1,505,826,994

a	Certain securities were fair valued under the valuation polices approved by the Board of Trustees (Note 2-A).

b	Non-income producing security.

c	Cost for federal income tax purposes is $1,264,693,757 and net unrealized appreciation consists of:


Gross unrealized appreciation	$331,685,282
Gross unrealized depreciation	(89,209,324	)

Net unrealized appreciation	$242,475,958

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

ADR	American Depositary Receipt

See accompanying notes to financial statements.


62		MATTHEWS ASIA FUNDS

LOGO


PORTFOLIO MANAGERS
Kenichi Amaki
Lead Manager
Taizo Ishida
Co-Manager

FUND FACTS
	Investor	Institutional
Ticker	MJFOX	MIJFX
CUSIP	577130800	577130792
Inception	12/31/98	10/29/10
NAV	$18.97	$19.00
Initial Investment	$2,500	$3 million
Gross Expense Ratio¹	0.99%	0.87%
Portfolio Statistics
Total # of Positions		61
Net Assets		$1.9 billion
Weighted Average Market Cap		$16.0 billion
Portfolio Turnover²		24.19%
Benchmark
MSCI Japan Index

OBJECTIVE

Long-term capital appreciation.

STRATEGY

Matthews Japan Fund

Portfolio Manager Commentary (unaudited)

For the year ending December 31, 2015, the Matthews Japan Fund returned 20.83% (Investor Class) and 20.94% (Institutional Class) outperforming its benchmark, the MSCI Japan Index, which returned 9.90%. For the fourth quarter of the year, the Fund returned 10.42% (Investor Class) and 10.47% (Institutional Class) versus 9.38% for the Index.

Market Environment:

Japanese equities finally delivered in 2015—marking the first time since 2010 that the MSCI Japan Index, which gained 9.90%, outperformed the S&P 500 Index, which gained 1.37%, in U.S. dollar terms. While investors cheered robust corporate earnings and rising shareholder returns, markets were also supported by outsized purchases by the Bank of Japan and government pension funds. In fact, 2015 was a rare year in which market gains were not driven by overseas fund inflows. Japan’s currency, the yen, remained within a tight range throughout the year and had little impact on equity performance.

However, it was a disappointing year for the economy, which continued to stagnate due to weak consumption and capital expenditures. Higher product prices, particularly in food, apparel and other daily necessities, somewhat curtailed consumer spending. Wage growth has not been sufficient enough to improve consumer sentiment.

Performance and Contributors:

The consumer discretionary sector was the leading contributor to Fund performance in 2015. Names we added during the year, such as hotel and dormitory operator Kyoritsu Maintenance and retailer Ryohin Keikaku were some top performers. Both benefited from rising household incomes in China as inbound tourism pushed up hotel occupancy in Japan and Ryohin Keikaku saw robust sales growth for its MUJI brand stores in China. The top absolute contributor was Asahi Intecc, a medical device company. We have held Asahi Intecc for more than five years, and the firm continues to exceed expectations in terms of both regional expansions as well as new product launches.

On the other hand, among the worst-performing holdings was telecom operator SoftBank. Turning around Softbank’s U.S. subsidiary, Sprint, proved to be a far larger challenge than SoftBank had expected. Intervention by the Japanese government to lower telecom tariffs has also weighed on SoftBank’s share price. We decided to exit SoftBank as we believe government intervention in the telecom sector may continue, and that it would limit SoftBank’s ability to generate sufficient cash flow to fund its many ventures, including Sprint.

Notable Portfolio Changes:

Over the course of the year, we have increased exposure to service-oriented businesses. Business activity in Japan remains robust while labor is becoming harder to find and gradually more expensive. Given such an environment, we believe service companies that can provide a means for businesses to be more productive have an opportunity to grow their presence. In the past quarter, we added MISUMI Group, a company that sells machine tool and automation components online. Our focus on more service-oriented firms also puts us more in line with the actual composition of Japan’s increasingly service-oriented economy, while the benchmark remains dominated by large-scale manufacturing businesses.

Outlook:

From a top-down perspective, we expect Japan’s GDP growth to continue to stagnate in 2016. Weak consumption continues to be a drag on growth. Hourly wages

(continued)

1	Actual 2015 expense ratios.

2	The lesser of fiscal year 2015 long-term purchase costs or sales proceeds divided by the average monthly market value of long-term securities.


matthewsasia.com \| 800.789.ASIA			63



PERFORMANCE AS OF DECEMBER 31, 2015
	3 Months		1 Year		Average Annual Total Returns									Inception Date
	3 Months		1 Year		3 Years		5 Years		10 Years		Since Inception			Inception Date
Investor Class (MJFOX)		10.42%		20.83%		16.41%		9.53%		2.16%		5.88%			12/31/98
Institutional Class (MIJFX)		10.47%		20.94%		16.56%		9.65%		n.a.		11.59%			10/29/10
MSCI Japan Index³		9.38%		9.90%		10.45%		4.61%		1.08%		2.93%	⁴
Lipper Japanese Funds Category Average⁵		8.97%		12.03%		11.65%		5.95%		0.63%		4.01%	⁴

Performance assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate with market conditions so that when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the return figures quoted. For the Fund’s most recent month-end performance, visit matthewsasia.com.

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

LOGO

Calculated from 12/31/98.

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



TOP TEN POSITIONS⁶
	Sector	% of Net Assets
Kao Corp.	Consumer Staples		3.0%
Toyota Motor Corp.	Consumer Discretionary		2.6%
Tokio Marine Holdings, Inc.	Financials		2.5%
Pigeon Corp.	Consumer Staples		2.5%
Asahi Intecc Co., Ltd.	Health Care		2.4%
Nihon M&A Center, Inc.	Industrials		2.3%
Keyence Corp.	Information Technology		2.2%
Ryohin Keikaku Co., Ltd.	Consumer Discretionary		2.2%
Hoya Corp.	Health Care		2.2%
COOKPAD, Inc.	Information Technology		2.2%
% OF ASSETS IN TOP TEN			24.1%

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


64		MATTHEWS ASIA FUNDS

Matthews Japan Fund

Portfolio Manager Commentary (unaudited) (continued)

have seen consistent growth of approximately 1% year-over-year but so far have not resulted in increased consumption. Productivity gains remain benign and businesses have not undertaken sufficient investment to boost productivity going forward.

On the other hand, we believe the bottom-up picture looks fine. Though we expect profit growth in Japan to slow in 2016, such growth should still be higher on a relative basis compared to other major markets. Valuations also remain attractive on a relative basis despite the gains seen in 2015.

The most notable event for investors in 2015 was the implementation of Japan’s Corporate Governance Code. Dividends paid out by listed firms have increased substantially on the back of strong earnings. Major banks have announced detailed plans to further dispose of cross shareholdings.¹ Though we do not expect a quick and drastic change in Japan’s corporate culture, we believe these developments may bring about a gradual improvement in return on equity for listed Japanese companies. These improvements may prompt a further market re-rating of Japanese equities over the long term, and as such, we remain optimistic on the outlook for Japanese equities.

1	Cross Shareholdings: A situation in which a publicly traded corporation owns stock in another listed entity.



SECTOR ALLOCATION (%)⁷
Industrials			25.2
Consumer Discretionary			16.5
Consumer Staples			14.9
Health Care			13.3
Information Technology			12.8
Financials			10.5
Materials			2.3
Cash and Other Assets, Less Liabilities			4.5



MARKET CAP EXPOSURE (%)⁷
Mega Cap (over $25B)			16.5
Large Cap ($10B–$25B)			18.7
Mid Cap ($3B–10B)			18.6
Small Cap (under $3B)			41.7
Cash and Other Assets, Less Liabilities			4.5

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


matthewsasia.com \| 800.789.ASIA			65

Matthews Japan Fund

December 31, 2015

Schedule of Investments^a

COMMON EQUITIES: JAPAN: 95.5%


	Shares		Value
INDUSTRIALS: 25.2%
Professional Services: 7.6%
Nihon M&A Center, Inc.		923,500		$44,463,081
TechnoPro Holdings, Inc.		1,380,700		40,295,867
Nomura Co., Ltd.		1,945,400		29,894,675
Benefit One, Inc.		889,800		20,802,414
Recruit Holdings Co., Ltd.		432,200		12,703,995

				148,160,032


Machinery: 7.2%
Komatsu, Ltd.		2,270,100		37,144,401
Mitsubishi Heavy Industries, Ltd.		8,421,000		36,820,838
Harmonic Drive Systems, Inc.		1,553,200		33,591,409
SMC Corp.		128,600		33,401,781

				140,958,429


Electrical Equipment: 3.7%
Mabuchi Motor Co., Ltd.		691,600		37,481,205
Nidec Corp.		472,500		34,263,806

				71,745,011


Building Products: 2.8%
Daikin Industries, Ltd.		402,200		29,288,880
Aica Kogyo Co., Ltd.		1,298,500		25,516,059

				54,804,939


Trading Companies & Distributors: 2.1%
MISUMI Group, Inc.		2,954,100		40,806,916


Road & Rail: 1.2%
Trancom Co., Ltd.		429,400		23,872,140


Air Freight & Logistics: 0.6%
AIT Corp.†		1,130,300		10,956,219

Total Industrials				491,303,686


CONSUMER DISCRETIONARY: 16.5%
Specialty Retail: 4.7%
VT Holdings Co., Ltd.		5,401,800		32,130,902
United Arrows, Ltd.		636,100		27,422,983
Sac’s Bar Holdings, Inc.		1,480,350		21,595,166
Workman Co., Ltd.		171,000		11,110,684

				92,259,735


Automobiles: 2.6%
Toyota Motor Corp.		831,000		51,172,166


Multiline Retail: 2.2%
Ryohin Keikaku Co., Ltd.		213,500		43,236,189


Hotels, Restaurants & Leisure: 2.0%
Kyoritsu Maintenance Co., Ltd.		457,900		39,269,339


Internet & Catalog Retail: 2.0%
Start Today Co., Ltd.		1,198,100		38,568,297


Distributors: 1.7%
Doshisha Co., Ltd.		1,643,200		33,144,176


Auto Components: 1.3%
Nifco, Inc.		519,200		24,046,911

Total Consumer Discretionary				321,696,813


	Shares		Value
CONSUMER STAPLES: 14.9%
Food & Staples Retailing: 5.5%
Seven & I Holdings Co., Ltd.		938,500		$42,968,810
San-A Co., Ltd.		800,600		35,921,167
Cosmos Pharmaceutical Corp.		187,600		29,574,254

				108,464,231


Household Products: 3.5%
Pigeon Corp.		1,993,900		48,372,197
Unicharm Corp.		969,200		19,792,687

				68,164,884


Personal Products: 3.0%
Kao Corp.		1,134,800		58,315,951


Food Products: 2.9%
Calbee, Inc.		837,600		35,371,049
Ariake Japan Co., Ltd.		377,400		20,879,150

				56,250,199

Total Consumer Staples				291,195,265


HEALTH CARE: 13.3%
Health Care Equipment & Supplies: 8.7%
Asahi Intecc Co., Ltd.		1,004,200		46,147,002
Hoya Corp.		1,052,900		43,055,800
Sysmex Corp.		629,400		40,372,666
CYBERDYNE, Inc.^b		1,537,800		25,909,319
Daiken Medical Co., Ltd.†		1,755,200		14,950,699

				170,435,486


Health Care Technology: 2.2%
M3, Inc.		2,020,800		41,899,640


Pharmaceuticals: 1.5%
Rohto Pharmaceutical Co., Ltd.		1,476,300		29,453,157


Health Care Providers & Services: 0.9%
N Field Co., Ltd.†		1,006,400		10,682,592
WIN-Partners Co., Ltd.		432,600		6,195,423

				16,878,015

Total Health Care				258,666,298


INFORMATION TECHNOLOGY: 12.8%
Electronic Equipment, Instruments & Components: 7.1%
Keyence Corp.		79,600		43,748,572
Murata Manufacturing Co., Ltd.		270,200		38,876,725
Omron Corp.		915,400		30,525,765
Anritsu Corp.		2,275,900		14,911,844
Dexerials Corp.		1,013,800		10,859,731

				138,922,637


Internet Software & Services: 3.3%
COOKPAD, Inc.		2,025,300		42,993,881
Kakaku.com, Inc.		1,093,500		21,508,711

				64,502,592


Software: 1.4%
NSD Co., Ltd.		1,335,700		19,325,232
Broadleaf Co., Ltd.		753,800		7,418,647

				26,743,879


66		MATTHEWS ASIA FUNDS

Matthews Japan Fund

December 31, 2015

Schedule of Investments^a (continued)

COMMON EQUITIES : JAPAN (continued)


	Shares		Value
Semiconductors & Semiconductor Equipment: 1.0%
Rohm Co., Ltd.		366,600		$18,568,608

Total Information Technology				248,737,716


FINANCIALS: 10.5%
Diversified Financial Services: 6.0%
ORIX Corp.		3,025,800		42,447,326
Zenkoku Hosho Co., Ltd.		950,100		31,384,948
Financial Products Group Co., Ltd.		3,258,800		25,434,936
eGuarantee, Inc.†		841,800		18,101,879

				117,369,089


Insurance: 2.5%
Tokio Marine Holdings, Inc.		1,259,400		48,643,856


Banks: 2.0%
Sumitomo Mitsui Financial Group, Inc.		1,012,900		38,227,909

Total Financials				204,240,854


MATERIALS: 2.3%
Chemicals: 2.3%
Shin-Etsu Chemical Co., Ltd.		643,200		34,968,121
MORESCO Corp.†		774,500		10,886,881

Total Materials				45,855,002


TOTAL INVESTMENTS: 95.5%				1,861,695,634
(Cost $1,692,361,025^c)

CASH AND OTHER ASSETS, LESS LIABILITIES: 4.5%				87,631,036


NET ASSETS: 100.0%				$1,949,326,670

a	Certain securities were fair valued under the valuation polices approved by the Board of Trustees (Note 2-A).

b	Non-income producing security.

c	Cost for federal income tax purposes is $1,696,489,403 and net unrealized appreciation consists of:


Gross unrealized appreciation	$228,342,366
Gross unrealized depreciation	(63,136,135	)

Net unrealized appreciation	$165,206,231

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

See accompanying notes to financial statements.


matthewsasia.com \| 800.789.ASIA			67

LOGO


PORTFOLIO MANAGERS
Michael J. Oh, CFA
Lead Manager
Michael B. Han, CFA
Co-Manager

FUND FACTS
	Investor	Institutional
Ticker	MAKOX	MIKOX
CUSIP	577130305	577130826
Inception	1/3/95	10/29/10
NAV	$6.15	$6.18
Initial Investment	$2,500	$3 million
Gross Expense Ratio¹	1.10%	0.93%
Portfolio Statistics
Total # of Positions		54
Net Assets		$207.7 million
Weighted Average Market Cap		$22.1 billion
Portfolio Turnover²		20.36%
Benchmark
Korea Composite Stock Price Index

OBJECTIVE

Long-term capital appreciation.

STRATEGY

Matthews Korea Fund

Portfolio Manager Commentary (unaudited)

For the year ending December 31, 2015, the Matthews Korea Fund returned 15.16% (Investor Class) and 15.27% (Institutional Class) outperforming its benchmark, the Korea Composite Stock Price Index*, which fell –4.61%. For the fourth quarter of the year, the Fund returned 4.27% (Investor Class) and 4.43% (Institutional Class) versus 0.55% for the Index.

Market Environment:

During the year, South Korea’s trade surplus reached US$90 billion—an all-time high—as declining commodity prices precipitated a slowdown in imports that outpaced its export decline. Nonetheless, the Korean won depreciated more than 7% against the U.S. dollar. Despite taking a toll on the industrials sector amid a global slowdown in investment, falling commodity pricing became a boon for Korean consumers. Consumption indicators, such as outbound travel, were strong. The outbreak of the Middle East Respiratory Syndrome (“MERS”) had hampered overall tourism and consumption data early in the summer, but abated late in the season.

Performance Contributors and Detractors:

During the fourth quarter, LG Household & Health Care and LG Chem were two top contributors to Fund performance. The former performed strongly as its beverage business saw a turnaround and its sales of cosmetics among Chinese tourists and consumers soared. The latter, LG Chem, is one of only a few major battery makers for electric vehicles globally, and the increasing popularity in electric cars has benefited the company, which added Tesla as a new client during the quarter.

For the quarter, key detractors to Fund performance included Hotel Shilla and BGF Retail. Hotel Shilla, an operator of luxury hotels and duty free shops, saw its share price decline following increased competition among duty free stores and a bidding race for licenses to run such stores. The MERS outbreak also negatively affected the company’s performance as inbound tourism slowed. For BGF Retail, a major convenience store company, we believe that there was significant profit-taking activity as the stock was strong earlier in the year. Despite the setback in the fourth quarter, BGF Retail remained the top contributor to Fund performance for the calendar year.

Notable Portfolio Changes:

During the quarter, we initiated a position in the preferred shared class of Samsung SDI, a lithium-ion battery manufacturer. In recent years, the firm underwent a series of restructuring. After selling off its petrochemical operations business to Hanwha Chemical during the quarter, the company’s remaining units were centered on the lithium-ion battery business and electric material business along with its stake in certain affiliates. In our view, the company was able to sell its commodity business at a premium at the peak of the market cycle. When we added Samsung SDI, its preferred shares were trading at more than a 40% discount to common shares.

Among our existing holdings, we trimmed E-Mart as we are concerned that the company is facing increased competition from e-commerce players. We switched some of our common shares of Amorepacific, LG Household & Health Care and Hotel Shilla into preferred shares to take advantage of more attractive valuations.

Outlook:

Overall valuations for the Korean market remain attractive, especially compared with other developed markets in the world. We are seeing encouraging signs that

*	Korea Composite Stock Price Index performance data may be readjusted periodically by the Korea Exchange due to certain factors, including the declaration of dividends.

(continued)

1	Actual 2015 expense ratios.

2	The lesser of fiscal year 2015 long-term purchase costs or sales proceeds divided by the average monthly market value of long-term securities.


68		MATTHEWS ASIA FUNDS



PERFORMANCE AS OF DECEMBER 31, 2015
					Average Annual Total Returns
	3 Months		1 Year		3 Years		5 Years		10 Years		Since Inception			Inception Date
Investor Class (MAKOX)		4.27%		15.16%		7.97%		7.87%		6.31%		6.29%			1/3/95
Institutional Class (MIKOX)		4.43%		15.27%		8.06%		8.04%		n.a.		9.47%			10/29/10
Korea Composite Stock Price Index³		0.55%		-4.61%		-2.95%		-0.66%		3.39%		2.64%	⁴
Lipper Pacific ex Japan Funds Category Average⁵		4.37%		-6.61%		-0.13%		0.80%		6.06%		5.92%	⁴

Performance assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate with market conditions so that when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the return figures quoted. For the Fund’s most recent month-end performance, visit matthewsasia.com.

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

LOGO

Korea Composite Stock Price Index performance data may be readjusted periodically by the Korea Exchange due to certain factors, including the declaration of dividends. It is not possible to invest directly in an index. Source: Index data from Morgan Stanley Capital International and Bloomberg; total return calculations performed by BNY Mellon Investment Servicing (US) Inc. Please see page 87 for index definition.

Calculated from 1/3/95.

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



TOP TEN POSITIONS⁶
	Sector	% of Net Assets
LG Household & Health Care, Ltd., Pfd.	Consumer Staples		4.2%
BGF Retail Co., Ltd.	Consumer Staples		3.9%
Amorepacific Corp., Pfd.	Consumer Staples		3.7%
Samsung Electronics Co., Ltd., Pfd.	Information Technology		3.7%
Samsung Electronics Co., Ltd.	Information Technology		3.5%
Shinhan Financial Group Co., Ltd.	Financials		3.5%
Orion Corp.	Consumer Staples		3.1%
Samsung Fire & Marine Insurance Co., Ltd., Pfd.	Financials		3.1%
Dongbu Insurance Co., Ltd.	Financials		2.9%
Naver Corp.	Information Technology		2.8%
% OF ASSETS IN TOP TEN			34.4%

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


matthewsasia.com \| 800.789.ASIA			69



SECTOR ALLOCATION (%)⁷
Consumer Staples			26.9
Consumer Discretionary			21.8
Financials			15.8
Information Technology			12.7
Materials			5.0
Industrials			4.7
Telecommunication Services			3.6
Health Care			3.4
Energy			3.0
Cash and Other Assets, Less Liabilities			3.1



MARKET CAP EXPOSURE (%)⁷
Mega Cap (over $25B)			9.5
Large Cap ($10B–$25B)			36.6
Mid Cap ($3B–10B)			23.7
Small Cap (under $3B)			27.1
Cash and Other Assets, Less Liabilities			3.1

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

Matthews Korea Fund

Portfolio Manager Commentary (unaudited) (continued)

dividend payout ratios should continue to improve in South Korea as companies continue to announce more shareholder-friendly policies. A currency risk remains as the currently strong U.S. dollar could further weaken the won in 2016. We believe that attractive valuations, along with increasing dividends, can provide a nice tailwind to the Korean equity market going forward. We maintain a long-term approach in seeking to identify high quality companies led by capable management teams that stand to benefit from Korea’s long-term secular trends.


70		MATTHEWS ASIA FUNDS

Matthews Korea Fund

December 31, 2015

Schedule of Investments^a

COMMON EQUITIES: SOUTH KOREA: 75.1%


	Shares		Value
CONSUMER DISCRETIONARY: 19.1%
Hotels, Restaurants & Leisure: 5.8%
Kangwon Land, Inc.		136,640		$4,459,711
Modetour Network, Inc.		154,085		4,401,187
Shinsegae Food Co., Ltd.		21,316		3,119,226

				11,980,124


Auto Components: 4.7%
Hyundai Mobis Co., Ltd.		23,876		4,995,565
Hankook Tire Co., Ltd.		119,816		4,778,955

				9,774,520


Automobiles: 2.7%
Kia Motors Corp.		124,232		5,539,502


Media: 2.1%
CJ CGV Co., Ltd.		29,234		3,106,907
Cheil Worldwide, Inc.^b		79,016		1,381,963

				4,488,870


Specialty Retail: 1.7%
Hotel Shilla Co., Ltd.		54,569		3,573,132


Multiline Retail: 1.3%
Hyundai Department Store Co., Ltd.		24,494		2,625,203


Internet & Catalog Retail: 0.8%
NS Shopping Co., Ltd.		10,422		1,641,358

Total Consumer Discretionary				39,622,709


CONSUMER STAPLES: 18.9%
Food Products: 8.7%
Orion Corp.		6,503		6,423,419
Ottogi Corp.		5,434		5,631,571
Daesang Corp.		112,977		3,107,768
Binggrae Co., Ltd.		48,495		2,819,156

				17,981,914


Food & Staples Retailing: 7.3%
BGF Retail Co., Ltd.		56,179		8,133,120
Hyundai Greenfood Co., Ltd.		192,083		4,034,740
E-Mart, Inc.		18,489		2,966,737

				15,134,597


Household Products: 1.9%
LG Household & Health Care, Ltd.		4,509		4,003,915


Personal Products: 1.0%
Amorepacific Corp.		6,180		2,168,730

Total Consumer Staples				39,289,156


FINANCIALS: 12.8%
Banks: 5.5%
Shinhan Financial Group Co., Ltd.		213,636		7,176,409
KB Financial Group, Inc.		82,672		2,329,185
DGB Financial Group, Inc.		224,584		1,913,238

				11,418,832


Insurance: 4.2%
Dongbu Insurance Co., Ltd.		100,190		5,994,516
Samsung Fire & Marine Insurance Co., Ltd.		10,355		2,706,862

				8,701,378


	Shares		Value
Capital Markets: 3.1%
Shinyoung Securities Co., Ltd.		80,699		$3,484,427
Kiwoom Securities Co., Ltd.		55,912		2,919,728

				6,404,155

Total Financials				26,524,365


INFORMATION TECHNOLOGY: 8.4%
Technology Hardware, Storage & Peripherals: 3.5%
Samsung Electronics Co., Ltd.		6,830		7,284,757


Internet Software & Services: 2.8%
Naver Corp.		10,510		5,860,790


Semiconductors & Semiconductor Equipment: 1.6%
SK Hynix, Inc.		64,368		1,662,816
Koh Young Technology, Inc.		47,439		1,550,794

				3,213,610


Electronic Equipment, Instruments & Components: 0.5%
Bixolon Co., Ltd.		84,519		1,075,175

Total Information Technology				17,434,332


INDUSTRIALS: 4.7%
Commercial Services & Supplies: 1.5%
KEPCO Plant Service & Engineering Co., Ltd.		41,246		3,120,001


Professional Services: 1.2%
SaraminHR Co., Ltd.		120,621		2,353,145


Machinery: 1.0%
Hy-Lok Corp.		100,845		2,127,792


Trading Companies & Distributors: 1.0%
iMarketKorea, Inc.		98,161		2,106,244

Total Industrials				9,707,182


TELECOMMUNICATION SERVICES: 3.6%
Wireless Telecommunication Services: 2.2%
SK Telecom Co., Ltd. ADR		226,600		4,565,990


Diversified Telecommunication Services: 1.4%
KT Corp. ADR^b		241,200		2,872,692

Total Telecommunication Services				7,438,682


HEALTH CARE: 3.4%
Pharmaceuticals: 3.4%
Yuhan Corp.		13,026		3,004,996
Dong-A ST Co., Ltd.		23,987		2,971,798
DongKook Pharmaceutical Co., Ltd.		24,611		1,218,992

Total Health Care				7,195,786


MATERIALS: 2.2%
Chemicals: 2.2%
LG Chem, Ltd.		13,283		3,667,213
KPX Chemical Co., Ltd.		21,148		868,648

Total Materials				4,535,861


ENERGY: 2.0%
Oil, Gas & Consumable Fuels: 2.0%
SK Innovation Co., Ltd.^b		23,026		2,525,284
S-Oil Corp.		24,496		1,640,896

Total Energy				4,166,180


TOTAL COMMON EQUITIES				155,914,253

(Cost $108,872,054)


matthewsasia.com \| 800.789.ASIA			71

Matthews Korea Fund

December 31, 2015

Schedule of Investments^a (continued)

PREFERRED EQUITIES: SOUTH KOREA: 21.8%


	Shares		Value
CONSUMER STAPLES: 8.0%
Household Products: 4.2%
LG Household & Health Care, Ltd., Pfd.		18,986		$8,770,935


Personal Products: 3.8%
Amorepacific Corp., Pfd.		39,808		7,757,450

Total Consumer Staples				16,528,385


INFORMATION TECHNOLOGY: 4.3%
Technology Hardware, Storage & Peripherals: 3.7%
Samsung Electronics Co., Ltd., Pfd.		8,351		7,719,565


Electronic Equipment, Instruments & Components: 0.6%
Samsung SDI Co., Ltd., Pfd.		20,284		1,267,646

Total Information Technology				8,987,211


FINANCIALS: 3.0%
Insurance: 3.0%
Samsung Fire & Marine Insurance Co., Ltd., Pfd.		39,526		6,346,051

Total Financials				6,346,051


MATERIALS: 2.8%
Chemicals: 2.8%
LG Chem, Ltd., Pfd.		27,910		5,831,001

Total Materials				5,831,001


CONSUMER DISCRETIONARY: 2.7%
Automobiles: 2.3%
Hyundai Motor Co., Ltd., 2nd Pfd.		53,516		4,763,318


Specialty Retail: 0.4%
Hotel Shilla Co., Ltd., Pfd.		18,549		777,704

Total Consumer Discretionary				5,541,022


ENERGY: 1.0%
Oil, Gas & Consumable Fuels: 1.0%
S-Oil Corp., Pfd.		51,498		2,030,053

Total Energy				2,030,053


TOTAL PREFERRED EQUITIES				45,263,723

(Cost $25,859,805)

TOTAL INVESTMENTS: 96.9%				201,177,976
(Cost $134,731,859^c)

CASH AND OTHER ASSETS, LESS LIABILITIES: 3.1%				6,489,066


NET ASSETS: 100.0%				$207,667,042

a	Certain securities were fair valued under the valuation polices approved by the Board of Trustees (Note 2-A).

b	Non-income producing security.

c	Cost for federal income tax purposes is $137,871,194 and net unrealized appreciation consists of:


Gross unrealized appreciation	$70,679,353
Gross unrealized depreciation	(7,372,571	)

Net unrealized appreciation	$63,306,782

ADR	American Depositary Receipt

Pfd.

Preferred

See accompanying notes to financial statements.


72		MATTHEWS ASIA FUNDS

LOGO


PORTFOLIO MANAGERS
Lydia So, CFA
Lead Manager
Kenichi Amaki	Beini Zhou, CFA
Co-Manager	Co-Manager

FUND FACTS
	Investor	Institutional
Ticker	MSMLX	MISMX
CUSIP	577125206	577125867
Inception	9/15/08	4/30/13
NAV	$19.41	$19.40
Initial Investment	$2,500	$3 million
Gross Expense Ratio¹	1.48%	1.30%
After Fee Waiver and Reimbursement²	1.47%	1.25%
Portfolio Statistics
Total # of Positions		76
Net Assets		$609.9 million
Weighted Average Market Cap		$1.2 billion
Portfolio Turnover³		48.29%
Benchmark
MSCI AC Asia ex Japan Small Cap Index
Redemption Fee
2% within first 90 calendar days of purchase

OBJECTIVE

Long-term capital appreciation.

STRATEGY

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

Matthews Asia Small Companies Fund

Portfolio Manager Commentary (unaudited)

For the year ending December 31, 2015, the Matthews Asia Small Companies Fund returned –9.43% (Investor Class) and –9.23% (Institutional Class), while its benchmark, the MSCI All Country Asia ex Japan Small Cap Index, returned –3.28%. For the fourth quarter of the year, the Fund returned 3.55% (Investor Class) and 3.62% (Institutional Class), versus 4.83% for the Index.

Market Environment:

Asia’s equity markets stabilized somewhat in the fourth quarter of 2015, after earlier anxieties that had rocked emerging markets abated. However, underlying concerns persisted over the effects of depressed commodity prices, weak emerging market currencies and the implications of the U.S. Federal Reserve interest rate hike on further capital outflows. China’s sluggish economic growth continued to have spillover effects on the rest of Asia, especially for commodity export-dependent countries. Late in the year, the International Monetary Fund (IMF) included China’s currency, the renminbi, in the basket of currencies that make up the IMF’s Special Drawing Right, or SDR. This development should be constructive for the continued internationalization of the currency. Finally, toward the end of the year, the U.S. Federal Reserve hiked interest rates for the first time since 2006 as long-anticipated by the market.

Performance Contributors and Detractors:

Holdings leveraged to Chinese industrial and capital expenditure investment activities were the portfolio’s main performance detractors during the year. Some Indonesian holdings performed poorly because of stock-specific operational issues as well as macroeconomic headwinds.

During the fourth quarter of 2015, holdings that sustained growth momentum and were less sensitive to macroeconomic factors performed relatively better. Vitasoy International, a Hong Kong-based beverage manufacturer, was a major contributor to performance. Its China operations registered robust volume growth and operating efficiency as prudent expansion and investments from past years bore fruit. China Biologic Products, a Chinese biopharmaceutical company, also performed strongly as demand for its blood plasma products remained robust. On the other hand, subdued industrial activities globally hampered share price and valuation multiples for our Korean holding Hy-Lok. The firm suffered as the trajectory for demand of its precision fitting products turned more uncertain toward the second half of the year.

Notable Portfolio Changes:

During the quarter, we adjusted the portfolio, exiting many holdings in various industries for company-specific reasons. One company we shed was Tisco Financial Group, a Thai consumer finance company. Despite being well-managed, slowing demand in auto-related loans as well as certain asset quality issues may persist longer than expected. We initiated positions in fast-growing companies that operate in industries that are beneficiaries of structural shifts. For example, we added KCE Electronics, a printed circuit board manufacturer based in Thailand, as the

(continued)

1	Actual 2015 expense ratios.

Matthews has contractually agreed (i) to waive fees and reimburse expenses to the extent needed to limit Total Annual Fund Operating Expenses (excluding Rule 12b-1 fees, front-end or contingent deferred loads, taxes, interest, brokerage commissions, short sale dividend expenses, expenses incurred in connection with any merger or reorganization or extraordinary expenses such as litigation) of the Institutional Class to 1.25% first by waiving class specific expenses (i.e., Rule 12b-1 fees or shareholder service fees specific to a particular class) of the Institutional Class and then, to the extent necessary, by waiving non-class specific expenses of the Institutional Class, and (ii) if any Fund-wide expenses (i.e., expenses that apply to both the Institutional Class and the Investor Class) are waived for the Institutional Class to maintain the 1.25% expense limitation, to waive an equal amount (in annual percentage terms) of those same expenses for the Investor Class. The Total Annual Fund Operating Expenses After Fee Waiver and Expense Reimbursement for the Investor Class may vary from year to year and will in some years exceed 1.25%. If the operating expenses fall below the expense limitation in a year within three years after Matthews has made a waiver or reimbursement, the Fund may reimburse Matthews up to an amount that does not cause the expenses for that year to exceed the expense limitation applicable at the time of that fee waiver and/or expense reimbursement or to exceed any other agreed upon expense limitation for that year. This agreement will remain in place until April 30, 2017, may be renewed for additional periods not exceeding one year and may be terminated at any time by the Board of Trustees on behalf of the Fund on 60 days’ written notice to Matthews. Matthews may decline to renew this agreement by written notice to the Trust at least 30 days before its annual expiration date.

3	The lesser of fiscal year 2015 long-term purchase costs or sales proceeds divided by the average monthly market value of long-term securities.


matthewsasia.com \| 800.789.ASIA			73



PERFORMANCE AS OF DECEMBER 31, 2015
					Average Annual Total Returns
	3 Months		1 Year		3 Years		5 Years		Since Inception			Inception Date
Investor Class (MSMLX)		3.55%		-9.43%		2.64%		1.39%		12.29%			9/15/2008
Institutional Class (MISMX)		3.62%		-9.23%		n.a.		n.a.		0.55%			4/30/2013
MSCI AC Asia ex Japan Small Cap Index³		4.83%		-3.28%		2.06%		-0.87%		7.95%	⁴
Lipper Pacific ex Japan Funds Category Average⁵		4.37%		-6.61%		-0.13%		0.80%		7.14%	⁶

Performance assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate with market conditions so that when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the return figures quoted. For the Fund’s most recent month-end performance, visit matthewsasia.com.

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

LOGO

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

Calculated from 9/15/08.

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

Calculated from 9/30/08.



TOP TEN POSITIONS⁷
	Sector	Country	% of Net Assets
Vitasoy International Holdings, Ltd.	Consumer Staples	China/Hong Kong		3.3%
Fairwood Holdings, Ltd.	Consumer Discretionary	China/Hong Kong		2.4%
Kerry Logistics Network, Ltd.	Industrials	China/Hong Kong		2.4%
PChome Online, Inc.	Information Technology	Taiwan		2.2%
Lee’s Pharmaceutical Holdings, Ltd.	Health Care	China/Hong Kong		2.2%
Karex BHD	Consumer Staples	Malaysia		2.1%
Clear Media, Ltd.	Consumer Discretionary	China/Hong Kong		1.9%
i-SENS, Inc.	Health Care	South Korea		1.9%
Interpark Corp.	Consumer Discretionary	South Korea		1.9%
Lifetech Scientific Corp.	Health Care	China/Hong Kong		1.8%
% OF ASSETS IN TOP TEN				22.1%

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


74		MATTHEWS ASIA FUNDS

Matthews Asia Small Companies Fund

Portfolio Manager Commentary (unaudited) (continued)

company had demonstrated the ability to gain market share while improving profitability. We believe that the company is well-positioned to benefit from the ongoing global trend we have seen of more electronic components being used in automobiles.

Outlook:

With China’s ongoing structural reform efforts over capital markets and its economic rebalancing, we believe there will inevitably be some painful adjustments resulting in slower growth rates over the medium term. Looking across the region, some governments had struggled to deliver constructive policies on infrastructure investments to spur growth because of country-specific political constraints. Given the challenging economic backdrop, companies might face an increasingly tough operating environment as corporate and consumer demands remain tepid. As prospects for a broad-based economic growth pick-up in the region remain uncertain, we continue to favor companies that are financially sound and better-positioned to withstand cyclical downturns. As investors driven by bottom-up fundamentals, we remain constructive on selecting entrepreneurial companies within the vast Asia small-cap universe that are disciplined capital allocators and focused on executing their respective corporate strategies over the long term.

Investing in small- and mid-size companies is more risky than investing in large companies as they may be more volatile and less liquid than larger companies.



COUNTRY ALLOCATION (%)^8,9
China/Hong Kong			31.7
Taiwan			16.5
India			15.1
South Korea			7.8
Singapore			6.5
Thailand			5.6
Indonesia			5.0
Malaysia			4.1
Philippines			4.1
Vietnam			0.5
Cash and Other Assets, Less Liabilities			3.1



SECTOR ALLOCATION (%)⁹
Industrials			19.8
Consumer Discretionary			16.8
Consumer Staples			16.2
Information Technology			16.0
Health Care			13.6
Financials			10.3
Materials			2.6
Utilities			1.6
Cash and Other Assets, Less Liabilities			3.1



MARKET CAP EXPOSURE (%)^9,10
Mega Cap (over $25B)			0.0
Large Cap ($10B–$25B)			0.0
Mid Cap ($3B–10B)			2.2
Small Cap (under $3B)			94.7
Cash and Other Assets, Less Liabilities			3.1

8	Not all countries where the Fund may invest are included in the benchmark index.

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

10	The Fund defines Small Companies as companies with market capitalization generally between $100 million and $3 billion or the largest company included in the Fund’s primary benchmark, the MSCI All Country Asia ex Japan Small Cap Index.


matthewsasia.com \| 800.789.ASIA			75

Matthews Asia Small Companies Fund

December 31, 2015

Schedule of Investments^a

COMMON EQUITIES: 96.9%


	Shares		Value
CHINA/HONG KONG: 31.7%
Vitasoy International Holdings, Ltd.		9,920,000		$20,291,118
Fairwood Holdings, Ltd.		4,710,000		14,798,782
Kerry Logistics Network, Ltd.		10,117,000		14,716,122
Lee’s Pharmaceutical Holdings, Ltd.		10,582,500		13,207,425
Clear Media, Ltd.		11,162,000		11,503,859
Lifetech Scientific Corp.^b		58,136,000		11,019,491
Qingdao Port International Co., Ltd. H Shares		23,146,000		10,306,931
Sunny Optical Technology Group Co., Ltd.		4,416,000		10,071,829
Towngas China Co., Ltd.		17,006,000		9,852,225
China Distance Education Holdings, Ltd. ADR		655,399		9,627,811
Minth Group, Ltd.		4,676,000		9,289,628
51job, Inc. ADR^b		300,800		8,861,568
Bitauto Holdings, Ltd. ADR^b		303,200		8,574,496
Phoenix New Media, Ltd. ADR^b		1,349,556		8,124,327
China Biologic Products, Inc.^b		55,354		7,885,731
eHi Car Services, Ltd. ADR^b		617,235		7,770,989
Convenience Retail Asia, Ltd.		15,896,000		7,137,771
Regina Miracle International Holdings, Ltd.^b		4,476,052		6,526,330
YGM Trading, Ltd.		5,708,000		3,682,557

Total China/Hong Kong				193,248,990


TAIWAN: 16.5%
PChome Online, Inc.		1,347,241		13,392,859
Merida Industry Co., Ltd.		2,040,000		10,940,832
Voltronic Power Technology Corp.		702,848		10,423,866
Sporton International, Inc.		1,692,094		10,323,799
Aerospace Industrial Development Corp.		8,310,000		10,132,531
Adlink Technology, Inc.		3,907,811		8,989,297
Addcn Technology Co., Ltd.		1,098,500		8,905,442
TSC Auto ID Technology Co., Ltd.		893,100		8,642,251
FineTek Co., Ltd.†		3,192,920		7,205,664
Sinmag Equipment Corp.		2,037,517		6,426,761
Sunny Friend Environmental Technology Co., Ltd.		1,329,000		5,169,130

Total Taiwan				100,552,432


INDIA: 15.1%
Bajaj Corp., Ltd.^b		1,527,896		9,777,752
GRUH Finance, Ltd.		2,156,236		8,888,958
Mindtree, Ltd.		403,256		8,709,138
Berger Paints India, Ltd.		2,124,515		8,611,922
Ipca Laboratories, Ltd.		713,883		7,974,158
Supreme Industries, Ltd.		708,293		7,277,287
AIA Engineering, Ltd.		505,689		6,799,154
CRISIL, Ltd.		228,579		6,776,631
Page Industries, Ltd.		33,163		6,692,855
LA Opala RG, Ltd.		582,275		5,595,359
Emami, Ltd.		355,325		5,353,045
Just Dial, Ltd.		402,786		5,108,443
Gujarat Pipavav Port, Ltd.^b		2,278,002		4,838,726

Total India				92,403,428


	Shares		Value
SOUTH KOREA: 7.8%
i-SENS, Inc.^b		398,104		$11,476,050
Interpark Corp.		588,879		11,406,020
Medy-Tox, Inc.		21,781		9,411,956
NICE Holdings Co., Ltd.		420,475		7,750,587
Hy-Lok Corp.		366,921		7,741,897

Total South Korea				47,786,510


SINGAPORE: 6.5%
ARA Asset Management, Ltd.		12,768,318		10,576,632
Raffles Medical Group, Ltd.		3,218,200		9,434,759
iFAST Corp., Ltd.		7,011,500		6,654,808
Super Group, Ltd.		10,898,000		6,425,493
Petra Foods, Ltd.		3,616,200		5,350,905
ISEC Healthcare, Ltd.		6,930,800		1,173,617

Total Singapore				39,616,214


THAILAND: 5.6%
KCE Electronics Public Co., Ltd.		4,590,300		8,872,981
Bangkok Chain Hospital Public Co., Ltd.		33,672,475		8,434,445
Supalai Public Co., Ltd.		13,225,600		6,656,056
Aeon Thana Sinsap Thailand Public Co., Ltd.		2,234,400		5,962,882
Plan B Media Public Co., Ltd. F Shares^b		12,394,400		2,431,733
Forth Smart Service Public Co., Ltd.		4,031,300		1,718,011
Aeon Thana Sinsap Thailand Public Co., Ltd. NVDR		88,700		236,711

Total Thailand				34,312,819


INDONESIA: 5.0%
PT Sumber Alfaria Trijaya		172,892,000		7,274,382
PT Selamat Sempurna		20,489,400		7,075,049
PT Bank Tabungan Pensiunan Nasional^b		33,715,400		5,850,557
PT Ultrajaya Milk Industry & Trading Co.^b		17,446,900		4,974,616
PT Wismilak Inti Makmur		89,261,900		2,766,739
PT Astra Otoparts		22,315,625		2,576,679

Total Indonesia				30,518,022


MALAYSIA: 4.1%
Karex BHD		13,389,050		12,857,218
7-Eleven Malaysia Holdings BHD		25,278,100		9,066,793
GD Express Carrier BHD		7,266,100		2,917,511

Total Malaysia				24,841,522


PHILIPPINES: 4.1%
Security Bank Corp.		3,375,367		10,155,255
Concepcion Industrial Corp.		7,812,030		7,138,822
RFM Corp.		51,834,200		4,351,187
Philippine Seven Corp.		1,454,751		3,091,597

Total Philippines				24,736,861


VIETNAM: 0.5%
DHG Pharmaceutical JSC		995,900		2,945,401

Total Vietnam				2,945,401


TOTAL COMMON EQUITIES				590,962,199

(Cost $560,865,373)


76		MATTHEWS ASIA FUNDS

Matthews Asia Small Companies Fund

December 31, 2015

Schedule of Investments^a (continued)

RIGHTS: 0.0%


	Shares		Value
TAIWAN: 0.0%
Adlink Technology, Inc., expires 1/11/16^b		220,240		$77,505

Total Taiwan				77,505


TOTAL RIGHTS				77,505

(Cost $0)

TOTAL INVESTMENTS: 96.9%				591,039,704
(Cost $560,865,373^c)

CASH AND OTHER ASSETS, LESS LIABILITIES: 3.1%				18,875,004


NET ASSETS: 100.0%				$609,914,708

a	Certain securities were fair valued under the valuation polices approved by the Board of Trustees (Note 2-A).

b	Non-income producing security.

c	Cost for federal income tax purposes is $561,290,826 and net unrealized appreciation consists of:


Gross unrealized appreciation	$109,047,063
Gross unrealized depreciation	(79,298,185	)

Net unrealized appreciation	$29,748,878

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

ADR	American Depositary Receipt

BHD

Berhad

JSC	Joint Stock Co.

NVDR	Non-voting Depositary Receipt

See accompanying notes to financial statements.


matthewsasia.com \| 800.789.ASIA			77

LOGO


PORTFOLIO MANAGERS
Tiffany Hsiao, CFA
Lead Manager
Henry Zhang, CFA		Kenichi Amaki
Co-Manager		Co-Manager

FUND FACTS
		Investor Class
Ticker		MCSMX
CUSIP		577125404
Inception		5/31/11
NAV		$8.79
Initial Investment		$2,500
Gross Expense Ratio¹		2.10%
After Fee Waiver and Reimbursement²		1.50%
Portfolio Statistics
Total # of Positions		47
Net Assets		$21.5 million
Weighted Average Market Cap		$1.5 billion
Portfolio Turnover³		72.49%
Benchmark
MSCI China Small Cap Index
Redemption Fee
2% within first 90 calendar days of purchase

OBJECTIVE

Long-term capital appreciation.

STRATEGY

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

Matthews China Small Companies Fund

Portfolio Manager Commentary (unaudited)

For the year ending December 31, 2015, the Matthews China Small Companies Fund returned 4.07%, while its benchmark, the MSCI China Small Cap Index, returned 3.48%. For the fourth quarter of the year, the Fund returned 11.06%, versus 10.33% for the Index.

Market Environment:

As we had anticipated, the fourth quarter of 2015 was much less volatile for China’s stock markets than the previous two quarters. This was likely a result of the market digesting the generally weak first half earnings data and refocusing on growth drivers for the new year. A number of key events during the quarter also helped stabilize sentiment by assuaging uncertainty going into 2016. These key events include: the International Monetary Fund’s agreement to include the Chinese renminbi into its reserve currency basket; the Chinese Ministry of Finance’s announcement of a new basket approach toward the renminbi valuation; the Chinese government’s annual central economic work conference, which set an accommodative policy direction for the new year; and the first U.S. Federal Reserve rate hike since 2006. Economic data announced toward the end of the quarter reflected a Chinese economy that is stabilizing as evidenced by the moderating deceleration of trade data, resilience of retail sales and stable fixed asset investments.

Performance Contributors and Detractors:

During the fourth quarter of 2015, positive stock selection in the health care and financials sectors were the biggest contributors to the Fund’s relative outperformance versus the benchmark. On the other hand, the technology sector posed a large drag on relative Fund performance, in part due to some holdings that pulled back following a strong third quarter.

Two of our best-performing stocks were China Biologic Products, the largest overseas-listed Chinese blood plasma collection and product maker, and Vitasoy International, a leading brand in the Greater China soy milk and tea drinks segment. China Biologic Products continues to gain market share through superior execution, and it benefits from increasing usage of blood plasma products in various therapeutic fields. Vitasoy also continues to gain share by its methodical process of expanding its presence in China.

Our top detractors during the quarter were both technology companies: TK Group Holdings and Adlink Technology—both suffered near-term setbacks as their customers scaled back on orders toward year-end. Over the long run, we believe both companies still hold a significant edge in their technology, and should benefit from upgrades related to the next phase of advanced manufacturing known as Industry 4.0. This includes a significant growth in the commercial applications for devices and embedded computing sensors that collect and exchange real-time data known as “The Internet of Things.”

Notable Portfolio Changes:

During the year, the Fund saw unusually high turnover as market conditions resulted in elevated shareholder redemptions. In order to meet these redemptions, securities that had been long held in the portfolio had to be sold. In many cases, these holdings had significantly appreciated and once sold, resulted in a higher distribution than is typical for this Fund.

During the fourth quarter, we initiated a position in Wuxi Little Swan, the second-largest washing machine maker in China. We have been impressed with the company’s supply chain transformation, which has allowed it to increase sales and lower costs at the same time. The majority of the company’s products are now produced only after an order has been placed and can be delivered to the customer within three weeks. This significantly improves cash flows through lower working capital, and it boosts sales by being more responsive to trends in the market.

(continued)

1	Actual 2015 expense ratios.

Matthews has contractually agreed to waive fees and reimburse expenses to the extent needed to limit Total Annual Fund Operating Expenses (excluding Rule 12b-1 fees, front-end or contingent deferred loads, taxes, interest, brokerage commissions, short sale dividend expenses, expenses incurred in connection with any merger or reorganization or extraordinary expenses such as litigation) to 1.50%. If the operating expenses fall below the expense limitation in a year within three years after Matthews has made a waiver or reimbursement, the Fund may reimburse Matthews up to an amount that does not cause the expenses for that year to exceed the expense limitation applicable at the time of that fee waiver and/or expense reimbursement or to exceed any other agreed upon expense limitation for that year. This agreement will remain in place until April 30, 2017, may be renewed for additional periods not exceeding one year and may be terminated at any time by the Board of Trustees on behalf of the Fund on 60 days’ written notice to Matthews. Matthews may decline to renew this agreement by written notice to the Trust at least 30 days before its annual expiration date.

3	The lesser of fiscal year 2015 long-term purchase costs or sales proceeds divided by the average monthly market value of long-term securities.


78		MATTHEWS ASIA FUNDS



PERFORMANCE AS OF DECEMBER 31, 2015
					Average Annual Total Returns
	3 Months		1 Year		3 Years		Since Inception		Inception date
Investor Class (MCSMX)		11.06%		4.07%		9.03%		0.21%		5/31/2011
MSCI China Small Cap Index⁴		10.33%		3.48%		6.97%		-0.47%
Lipper China Region Funds Category Average⁵		7.29%		-3.02%		2.98%		-0.11%

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

LOGO

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

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



TOP TEN POSITIONS⁶
	Sector	% of Net Assets
China Biologic Products, Inc.	Health Care		5.5%
Voltronic Power Technology Corp.	Industrials		4.4%
Lee’s Pharmaceutical Holdings, Ltd.	Health Care		4.3%
SITC International Holdings Co., Ltd.	Industrials		3.9%
Sunny Optical Technology Group Co., Ltd.	Information Technology		3.6%
KWG Property Holding, Ltd.	Financials		3.5%
Boer Power Holdings, Ltd.	Industrials		3.2%
Yuexiu Transport Infrastructure, Ltd.	Industrials		3.0%
Sporton International, Inc.	Industrials		3.0%
China Distance Education Holdings, Ltd.	Consumer Discretionary		2.9%
% OF ASSETS IN TOP TEN			37.3%

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


matthewsasia.com \| 800.789.ASIA			79



COUNTRY ALLOCATION (%)⁷
China/Hong Kong			85.8
Taiwan			12.3
Cash and Other Assets, Less Liabilities			1.9



SECTOR ALLOCATION (%)⁷
Industrials			33.7
Consumer Discretionary			17.4
Health Care			16.1
Information Technology			12.8
Financials			10.9
Consumer Staples			5.1
Utilities			2.1
Cash and Other Assets, Less Liabilities			1.9



MARKET CAP EXPOSURE (%)^7,8
Mega Cap (over $25B)			0.0
Large Cap ($10B–$25B)			0.0
Mid Cap ($3B–10B)			11.2
Small Cap (under $3B)			86.9
Cash and Other Assets, Less Liabilities			1.9

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

8	The Fund defines Small Companies as companies with market capitalization generally between $100 million and $3 billion or the largest company included in the Fund’s primary benchmark, the MSCI China Small Cap Index.

Matthews China Small Companies Fund

Portfolio Manager Commentary (unaudited) (continued)

Outlook:

Despite the continuing trend of decelerating growth in the Chinese economy, we believe the generally accommodative and constructive government policies should improve the quality of growth going forward. Furthermore, if plans such as the reform of state-owned enterprises and tax reform are executed well, small companies should benefit over the long run as they are generally more innovative, efficient and competitive. For the time being, we will continue to focus on companies with sustainable quality earnings streams that can better weather uncertain economic conditions. We still find sectors, such as industrial automation and health care, to be among the most attractive from a secular growth perspective.

Investing in small- and mid-size companies is more risky than investing in large companies as they may be more volatile and less liquid than larger companies.


80		MATTHEWS ASIA FUNDS

Matthews China Small Companies Fund

December 31, 2015

Schedule of Investments^a

COMMON EQUITIES: 98.1%


	Shares		Value
INDUSTRIALS: 33.7%
Electrical Equipment: 8.4%
Voltronic Power Technology Corp.		64,261		$953,048
Boer Power Holdings, Ltd.		384,000		689,885
FineTek Co., Ltd.		72,420		163,435

				1,806,368


Transportation Infrastructure: 6.7%
Yuexiu Transport Infrastructure, Ltd.		1,042,000		650,869
Shenzhen International Holdings, Ltd.		226,000		415,863
Qingdao Port International Co., Ltd. H Shares		832,000		370,490

				1,437,222


Professional Services: 5.8%
Sporton International, Inc.		106,113		647,416
51job, Inc. ADR^b		20,324		598,745

				1,246,161


Marine: 3.9%
SITC International Holdings Co., Ltd.		1,608,000		850,003


Machinery: 3.6%
TK Group Holdings, Ltd.		1,602,000		452,688
CIMC Enric Holdings, Ltd.		574,000		334,414

				787,102


Road & Rail: 2.5%
eHi Car Services, Ltd. ADR^b		42,600		536,334


Air Freight & Logistics: 2.2%
Kerry Logistics Network, Ltd.		321,500		467,652


Commercial Services & Supplies: 0.6%
Sunny Friend Environmental Technology Co., Ltd.		34,000		132,243

Total Industrials				7,263,085


CONSUMER DISCRETIONARY: 17.4%
Diversified Consumer Services: 5.0%
China Distance Education Holdings, Ltd. ADR		42,660		626,675
TAL Education Group ADR^b		9,600		446,112

				1,072,787


Auto Components: 3.7%
Minth Group, Ltd.		294,000		584,078
Hu Lane Associate, Inc.		53,000		211,185

				795,263


Hotels, Restaurants & Leisure: 3.6%
Fairwood Holdings, Ltd.		162,000		509,003
Homeinns Hotel Group ADR^b		7,550		257,908

				766,911


Household Durables: 2.0%
Wuxi Little Swan Co., Ltd. B Shares		179,417		427,186


Media: 1.8%
Clear Media, Ltd.		385,000		396,791


Textiles, Apparel & Luxury Goods: 1.3%
Best Pacific International Holdings, Ltd. H Shares		334,000		159,457
Regina Miracle International Holdings, Ltd.^b		83,000		121,019

				280,476

Total Consumer Discretionary				3,739,414


	Shares		Value
HEALTH CARE: 16.1%
Biotechnology: 7.3%
China Biologic Products, Inc.^b		8,300		$1,182,418
Shanghai Haohai Biological Technology Co., Ltd. H Shares^b		60,800		398,285

				1,580,703


Pharmaceuticals: 6.1%
Lee’s Pharmaceutical Holdings, Ltd.		739,500		922,928
SSY Group, Ltd.		1,521,022		390,573

				1,313,501


Health Care Equipment & Supplies: 1.7%
Lifetech Scientific Corp.^b		1,972,000		373,786


Life Sciences Tools & Services: 1.0%
Genscript Biotech Corp.^b		1,222,000		208,133

Total Health Care				3,476,123


INFORMATION TECHNOLOGY: 12.8%
Electronic Equipment, Instruments & Components: 7.8%
Sunny Optical Technology Group Co., Ltd.		341,000		777,739
PAX Global Technology, Ltd.		553,000		567,361
Technovator International, Ltd.^b		512,000		325,018
China High Precision Automation Group, Ltd.^b,c		195,000		7,548

				1,677,666


Technology Hardware, Storage & Peripherals: 2.5%
Adlink Technology, Inc.		234,777		540,067


Software: 1.4%
Chanjet Information Technology Co., Ltd. H Shares		141,400		308,965


Internet Software & Services: 1.1%
Phoenix New Media, Ltd. ADR^b		39,400		237,188

Total Information Technology				2,763,886


FINANCIALS: 10.9%
Real Estate Management & Development: 7.0%
KWG Property Holding, Ltd.		1,031,500		760,385
Beijing Properties Holdings, Ltd.^b		4,646,000		381,004
China Jinmao Holdings Group, Ltd.		1,078,000		367,193

				1,508,582


Capital Markets: 2.5%
Value Partners Group, Ltd.		469,000		545,142


Diversified Financial Services: 1.4%
China Merchants China Direct Investments, Ltd.		178,000		294,370

Total Financials				2,348,094


CONSUMER STAPLES: 5.1%
Food Products: 5.1%
Vitasoy International Holdings, Ltd.		288,000		589,097
Tenwow International Holdings, Ltd.		936,000		305,785
China Modern Dairy Holdings, Ltd.		784,000		202,568

Total Consumer Staples				1,097,450


matthewsasia.com \| 800.789.ASIA			81

Matthews China Small Companies Fund

December 31, 2015

Schedule of Investments^a (continued)

COMMON EQUITIES (continued)


	Shares		Value
UTILITIES: 2.1%
Gas Utilities: 2.1%
Towngas China Co., Ltd.		770,000		$446,090

Total Utilities				446,090


TOTAL COMMON EQUITIES				21,134,142

(Cost $20,492,099)

RIGHTS: 0.0%
INFORMATION TECHNOLOGY: 0.0%
Technology Hardware, Storage & Peripherals: 0.0%
Adlink Technology, Inc., expires 1/11/16^b		13,091		4,607

Total Information Technology				4,607


TOTAL RIGHTS				4,607

(Cost $0)

TOTAL INVESTMENTS: 98.1%				21,138,749
(Cost $20,492,099^d)

CASH AND OTHER ASSETS, LESS LIABILITIES: 1.9%				407,253


NET ASSETS: 100.0%				$21,546,002

a	Certain securities were fair valued under the valuation polices approved by the Board of Trustees (Note 2-A).

b	Non-income producing security.

c	Illiquid security, trading was halted at December 31, 2015.

d	Cost for federal income tax purposes is $20,538,503 and net unrealized appreciation consists of:


Gross unrealized appreciation	$3,195,820
Gross unrealized depreciation	(2,595,574	)

Net unrealized appreciation	$600,246

ADR	American Depositary Receipt

See accompanying notes to financial statements.


82		MATTHEWS ASIA FUNDS

LOGO


PORTFOLIO MANAGERS
Michael J. Oh, CFA
Lead Manager
Lydia So, CFA
Co-Manager

FUND FACTS
	Investor	Institutional
Ticker	MATFX	MITEX
CUSIP	577130883	577125859
Inception	12/27/99	4/30/13
NAV	$12.32	$12.34
Initial Investment	$2,500	$3 million
Gross Expense Ratio¹	1.18%	0.97%
Portfolio Statistics
Total # of Positions		46
Net Assets		$166.5 million
Weighted Average Market Cap		$25.5 billion
Portfolio Turnover²		72.85%
Benchmark
MSCI AC Asia Index
MSCI AC Asia Information Technology Index

OBJECTIVE

Long-term capital appreciation.

STRATEGY

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

Matthews Asia Science and Technology Fund

Portfolio Manager Commentary (unaudited)

For the year ending December 31, 2015, the Matthews Asia Science and Technology Fund returned 4.48% (Investor Class) and 4.63% (Institutional Class) while its benchmark, the MSCI All Country Asia Index, fell –0.36%. For the fourth quarter of the year, the Fund returned 15.33% (Investor Class) and 15.39% (Institutional Class) versus 6.54% for the Index.

Market Environment:

China’s Internet sector recovered late in 2015 and performed well during the fourth quarter of the year following some consolidation. We were very encouraged by this ongoing trend of consolidation in the sector as we saw another major merger and acquisition, this time in China’s online travel industry. This was the third major merger and acquisition deal to come out of China’s Internet industry in 2015. The first was a deal between China’s two biggest ride-sharing and taxi hailing app companies, Didi and Kuaidi, in February. Then in October came the merger between two of the country’s biggest online local services providers, Dianping and Meituan. The most recent merger, in November, was in the online travel industry between Ctrip.com International and Qunar. We believe that such developments are quite positive as they improve efficiency and profitability in their respective industries.

Performance Contributors and Detractors:

Chinese Internet companies performed well during the fourth quarter as most companies reported better-than-expected earnings. Ctrip.com was among the biggest contributors to Fund performance during the fourth quarter. The stock surged when the firm announced it would combine its products and services with that of Qunar, the second-biggest online player. Both Ctrip.com and Qunar have benefited from strong growth in China’s rapidly developing travel and tourism industry. NetEase, an online and mobile game operator in China, also performed well on the back of strong revenue growth. As China continues to restructure its economy from an export-driven model to a consumption-driven one, we believe Internet companies should be well-positioned to benefit. Chinese Internet companies have become some of the most innovative companies, not just in China but across the region, and continue to reshape how consumers acquire and consume services and products in China.

Lupin, an India-based pharmaceutical company, was among the detractors during the quarter as its earnings fell below expectation. However, we still believe that the long-term growth outlook for Lupin has not changed despite short-term volatility in earnings and we continue to maintain the position.

Notable Portfolio Changes:

During the fourth quarter, we added Shandong Weigao Group Medical Polymer, a China-based health care company that manufactures medical consumables. The company has dominant share and positioning in China’s competitive medical consumables market. Its valuations had become attractive due to price-cuts driven by government policies, but the company maintains healthy growth rates and we believe its growth potential in the overall market is still intact. The Fund also added LG Chem, a maker of lithium batteries used in electronic cars. We believe that the electronic car industry is well-poised to grow in the region as consumers become more environmentally conscious and as pollution becomes a bigger issue across Asia. Overall, we continued to increase our exposure to services industries while reducing exposure to the technology hardware industry.

(continued)

1	Actual 2015 expense ratios.

2	The lesser of fiscal year 2015 long-term purchase costs or sales proceeds divided by the average monthly market value of long-term securities.


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PERFORMANCE AS OF DECEMBER 31, 2015
					Average Annual Total Returns
	3 Months		1 Year		3 Years		5 Years		10 Years		Since Inception			Inception Date
Investor Class (MATFX)		15.33%		4.48%		15.67%		7.88%		8.29%		2.69%			12/27/1999
Institutional Class (MITEX)		15.39%		4.63%		n.a.		n.a.		n.a.		14.40%			4/30/2013
MSCI AC Asia Index³		6.54%		-0.36%		4.53%		2.23%		2.95%		1.76%	⁴
MSCI AC Asia Information Technology Index³		7.88%		-2.45%		7.19%		3.33%		3.44%		-1.54%	⁴
Lipper Global Science and Technology Funds Category Average⁵		11.17%		6.65%		16.65%		10.52%		9.48%		1.66%	⁴

Performance assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate with market conditions so that when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the return figures quoted. For the Fund’s most recent month-end performance, visit matthewsasia.com.

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

LOGO

Calculated from 12/31/99.

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



TOP TEN POSITIONS⁶
	Sector	Country	% of Net Assets
Baidu, Inc.	Information Technology	China/Hong Kong		8.5%
Ctrip.com International, Ltd.	Consumer Discretionary	China/Hong Kong		4.9%
JD.com, Inc.	Consumer Discretionary	China/Hong Kong		4.8%
LG Household & Health Care, Ltd., Pfd.	Consumer Staples	South Korea		4.0%
NetEase, Inc.	Information Technology	China/Hong Kong		3.4%
China Biologic Products, Inc.	Health Care	China/Hong Kong		2.9%
Naver Corp.	Information Technology	South Korea		2.9%
Info Edge India, Ltd.	Information Technology	India		2.9%
Qunar Cayman Islands, Ltd.	Consumer Discretionary	China/Hong Kong		2.7%
CITIC Telecom International Holdings, Ltd.	Telecommunication Services	China/Hong Kong		2.5%
% OF ASSETS IN TOP TEN				39.5%

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


84		MATTHEWS ASIA FUNDS

Matthews Asia Science and Technology Fund

Portfolio Manager Commentary (unaudited) (continued)

Outlook:

We anticipate an ongoing transition in China toward an economy more geared toward consumption, and believe this could create attractive buying opportunities. We will continue to seek to identify innovative companies that are creating new markets or gaining market share within existing sectors. Our focus will remain on secular growth industries, such as the Internet, health care and services industries, and we will maintain a long-term approach.



COUNTRY ALLOCATION (%)⁷
China/Hong Kong			43.7
South Korea			15.5
Japan			11.0
India			9.6
Taiwan			7.1
Singapore			2.3
United States			1.9
Thailand			1.9
Indonesia			1.5
Vietnam			0.8
Cash and Other Assets, Less Liabilities			4.7



SECTOR ALLOCATION (%)
Information Technology			36.7
Consumer Discretionary			22.2
Health Care			16.0
Industrials			7.9
Telecommunication Services			5.6
Consumer Staples			5.3
Materials			1.6
Cash and Other Assets, Less Liabilities			4.7



MARKET CAP EXPOSURE (%)⁸
Mega Cap (over $25B)			24.0
Large Cap ($10B–$25B)			29.6
Mid Cap ($3B–10B)			14.8
Small Cap (under $3B)			26.9
Cash and Other Assets, Less Liabilities			4.7

7	Not all countries are included in the benchmark index(es).

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


matthewsasia.com \| 800.789.ASIA			85

Matthews Asia Science and Technology Fund

December 31, 2015

Schedule of Investments^a

COMMON EQUITIES: 88.2%


	Shares		Value
CHINA/HONG KONG: 43.7%
Baidu, Inc. ADR^b		74,900		$14,159,096
Ctrip.com International, Ltd. ADR^b		176,600		8,181,878
JD.com, Inc. ADR^b		249,200		8,040,438
NetEase, Inc. ADR		31,000		5,618,440
China Biologic Products, Inc.^b		34,400		4,900,624
Qunar Cayman Islands, Ltd. ADR^b		86,200		4,546,188
CITIC Telecom International Holdings, Ltd.		10,732,000		4,088,904
Tencent Holdings, Ltd.		203,800		3,990,401
CAR, Inc.^b		2,421,000		3,989,431
Shandong Weigao Group Medical Polymer Co., Ltd. H Shares		5,752,000		3,933,092
CSPC Pharmaceutical Group, Ltd.		3,292,000		3,356,221
Zhaopin, Ltd. ADR^b		215,063		3,294,765
Vipshop Holdings, Ltd. ADR^b		164,242		2,507,975
PAX Global Technology, Ltd.		2,083,000		2,137,094

Total China/Hong Kong				72,744,547


JAPAN: 11.0%
Olympus Corp.		95,800		3,771,519
Hoya Corp.		88,200		3,606,726
Shimano, Inc.		18,600		2,856,189
Kao Corp.		44,500		2,286,799
Murata Manufacturing Co., Ltd.		14,200		2,043,114
Keyence Corp.		3,700		2,033,539
Asahi Intecc Co., Ltd.		37,500		1,723,275

Total Japan				18,321,161


INDIA: 9.6%
Info Edge India, Ltd.		371,814		4,790,835
Lupin, Ltd.		113,328		3,135,547
Bharti Infratel, Ltd.		423,901		2,734,970
Blue Dart Express, Ltd.		22,300		2,273,448
Just Dial, Ltd.		125,653		1,593,628
Mindtree, Ltd.		65,378		1,411,972

Total India				15,940,400


SOUTH KOREA: 8.4%
Naver Corp.		8,733		4,869,865
Modetour Network, Inc.		134,153		3,831,862
SaraminHR Co., Ltd.		94,539		1,844,322
iMarketKorea, Inc.		80,846		1,734,716
Samsung Electronics Co., Ltd.		1,554		1,657,469

Total South Korea				13,938,234


TAIWAN: 7.1%
PChome Online, Inc.		307,525		3,057,091
Delta Electronics, Inc.		591,511		2,782,221
Merida Industry Co., Ltd.		477,000		2,558,224
Ennoconn Corp.		181,000		2,039,371
Largan Precision Co., Ltd.		21,000		1,436,921

Total Taiwan				11,873,828


	Shares		Value
SINGAPORE: 2.3%
Raffles Medical Group, Ltd.		751,600		$2,203,457
iFAST Corp., Ltd.		1,802,100		1,710,423

Total Singapore				3,913,880


UNITED STATES: 1.9%
Cognizant Technology Solutions Corp. Class A^b		53,300		3,199,066

Total United States				3,199,066


THAILAND: 1.9%
Major Cineplex Group Public Co., Ltd.		3,261,900		3,185,411

Total Thailand				3,185,411


INDONESIA: 1.5%
PT Telekomunikasi Indonesia Persero ADR		55,100		2,446,440

Total Indonesia				2,446,440


VIETNAM: 0.8%
Mobile World Investment Corp.^b		375,365		1,307,308

Total Vietnam				1,307,308


TOTAL COMMON EQUITIES				146,870,275

(Cost $110,517,307)

PREFERRED EQUITIES: 7.1%
SOUTH KOREA: 7.1%
LG Household & Health Care, Ltd., Pfd.		14,270		6,592,291
LG Chem, Ltd., Pfd.		12,492		2,609,848
Samsung Electronics Co., Ltd., Pfd.		2,796		2,584,589

Total South Korea				11,786,728


TOTAL PREFERRED EQUITIES				11,786,728

(Cost $9,227,414)

TOTAL INVESTMENTS: 95.3%				158,657,003
(Cost $119,744,721^c)

CASH AND OTHER ASSETS, LESS LIABILITIES: 4.7%				7,875,538


NET ASSETS: 100.0%				$166,532,541

a	Certain securities were fair valued under the valuation polices approved by the Board of Trustees (Note 2-A).

b	Non-income producing security.

c	Cost for federal income tax purposes is $119,778,528 and net unrealized appreciation consists of:


Gross unrealized appreciation	$43,617,145
Gross unrealized depreciation	(4,738,670	)

Net unrealized appreciation	$38,878,475

ADR	American Depositary Receipt

Pfd.

Preferred

See accompanying notes to financial statements.


86		MATTHEWS ASIA FUNDS

Disclosures

Fund Holdings: The Fund holdings shown in this report are as of December 31, 2015. Holdings are subject to change at any time, so holdings shown in this report may not reflect current Fund holdings. The Funds file complete schedules of portfolio holdings with the Securities and Exchange Commission (the “SEC”) for the first and third quarters of each fiscal year on Form N-Q. The Funds’ Form N-Q is filed with the SEC within 60 days of the end of the quarter to which it relates, and is available on the SEC’s website at www.sec.gov. It may also be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800.SEC.0330. Complete schedules of investments are also available without charge, upon request, from the Funds by calling us at 800.789.ASIA (2742).

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

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

Redemption Fee Policy: Currently, a 2.00% redemption fee will be assessed on the sale or exchange of shares of the Matthews Emerging Asia Fund, Matthews Asia Small Companies Fund and Matthews China Small Companies Fund (collectively, the “Covered Funds”) within 90 days after the date an investor purchases shares of the Covered Funds. Effective April 30, 2015, Funds other than the Covered Funds discontinued the assessment of a 2.00% redemption fee, as approved by the Board of Trustees. The imposition of redemption fees pursuant to the Funds’ Short-Term Trading Redemption Fee Policy for the Covered Funds may assist the Covered Funds in discouraging market timing activity.

The redemption fee is also imposed to discourage short-term buying and selling of shares of the Covered Funds, which can disrupt the management of the Covered Funds’ investment portfolios and may have detrimental effects on the Covered Funds and other shareholders, and to allocate the costs the Covered Funds incur as a result of short-term trading and market timing. This fee is payable directly to the Covered Funds.

To determine whether the redemption fee applies, the Covered Funds do not count the day that you purchased your shares, and first redeem the shares that you have held the longest.

The Covered Funds may grant exemptions from the redemption fee in certain circumstances. For more information on this policy, please see the Funds’ prospectus.

Index Definitions

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

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

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

The MSCI Emerging Markets (EM) Asia Index is a free float-adjusted market capitalization weighted index of the stock markets of China, India, Indonesia, Korea, Malaysia, the Philippines, Taiwan and Thailand.

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

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

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

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

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

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

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

The MSCI All Country Asia Information Technology Index is a free float–adjusted market capitalization–weighted index designed to measure the combined equity market performance of companies in the information technology sector of developed and emerging markets countries in Asia. Component companies include those of software and services, technology hardware and equipment, and semiconductors and semiconductor equipment.


matthewsasia.com \| 800.789.ASIA			87

Disclosure of Fund Expenses (unaudited)

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

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

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

$8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your fund in the first line under the heading entitled “Operating Expenses Paid During Period.”

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

Please note that the operating expenses shown in the table are meant to highlight and help you compare your ongoing costs only and do not reflect any transactional costs such as sales charges (loads), redemption fees, or exchange fees.

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


88		MATTHEWS ASIA FUNDS

December 31, 2015


	INVESTOR CLASS								INSTITUTIONAL CLASS
	Beginning Account Value 7/1/15		Ending Account Value 12/31/15		Expense Ratio¹		Operating Expenses Paid During Period 7/1/15– 12/31/15²		Beginning Account Value 7/1/2015		Ending Account Value 12/31/15		Expense Ratio¹			Operating Expenses Paid During Period 7/1/15– 12/31/15²
ASIA FIXED INCOME STRATEGY
Matthews Asia Strategic Income Fund
Actual Fund Return		$1,000.00		$990.50		1.12%		$5.62		$1,000.00		$992.60		0.90%			$4.52
Hypothetical 5% Return		$1,000.00		$1,019.56		1.12%		$5.70		$1,000.00		$1,020.67		0.90%			$4.58
ASIA GROWTH AND INCOME STRATEGIES
Matthews Asian Growth and Income Fund
Actual Fund Return		$1,000.00		$923.10		1.09%		$5.28		$1,000.00		$924.00		0.92%			$4.46
Hypothetical 5% Return		$1,000.00		$1,019.71		1.09%		$5.55		$1,000.00		$1,020.57		0.92%			$4.69
Matthews Asia Dividend Fund
Actual Fund Return		$1,000.00		$922.00		1.05%		$5.09		$1,000.00		$922.00		0.92%			$4.46
Hypothetical 5% Return		$1,000.00		$1,019.91		1.05%		$5.35		$1,000.00		$1,020.57		0.92%			$4.69
Matthews China Dividend Fund
Actual Fund Return		$1,000.00		$892.50		1.26%		$6.01		$1,000.00		$893.50		1.01%			$4.82
Hypothetical 5% Return		$1,000.00		$1,018.85		1.26%		$6.41		$1,000.00		$1,020.11		1.01%			$5.14
ASIA VALUE STRATEGY
Matthews Asia Value Fund*
Actual Fund Return		$1,000.00		$1,013.50		1.50%		$1.28		$1,000.00		$1,013.00		1.25%	³		$1.07
Hypothetical 5% Return		$1,000.00		$1,017.64		1.50%		$7.63		$1,000.00		$1,018.90		1.25%	³		$6.36
ASIA GROWTH STRATEGIES
Matthews Asia Focus Fund
Actual Fund Return		$1,000.00		$887.30		1.51%		$7.18		$1,000.00		$888.40		1.25%			$5.95
Hypothetical 5% Return		$1,000.00		$1,017.59		1.51%		$7.68		$1,000.00		$1,018.90		1.25%			$6.36
Matthews Asia Growth Fund
Actual Fund Return		$1,000.00		$956.40		1.14%		$5.62		$1,000.00		$958.00		0.91%			$4.49
Hypothetical 5% Return		$1,000.00		$1,019.46		1.14%		$5.80		$1,000.00		$1,020.62		0.91%			$4.63
Matthews Pacific Tiger Fund
Actual Fund Return		$1,000.00		$912.80		1.09%		$5.26		$1,000.00		$913.80		0.90%			$4.34
Hypothetical 5% Return		$1,000.00		$1,019.71		1.09%		$5.55		$1,000.00		$1,020.67		0.90%			$4.58
Matthews Asia ESG Fund
Actual Fund Return		$1,000.00		$942.10		1.44%		$7.05		$1,000.00		$943.70		1.25%			$6.12
Hypothetical 5% Return		$1,000.00		$1,017.95		1.44%		$7.32		$1,000.00		$1,018.90		1.25%			$6.36
Matthews Emerging Asia Fund
Actual Fund Return		$1,000.00		$976.90		1.53%		$7.62		$1,000.00		$977.60		1.22%			$6.08
Hypothetical 5% Return		$1,000.00		$1,017.49		1.53%		$7.78		$1,000.00		$1,019.06		1.22%			$6.21
Matthews China Fund
Actual Fund Return		$1,000.00		$866.00		1.15%		$5.41		$1,000.00		$866.30		1.00%			$4.70
Hypothetical 5% Return		$1,000.00		$1,019.41		1.15%		$5.85		$1,000.00		$1,020.16		1.00%			$5.09
Matthews India Fund
Actual Fund Return		$1,000.00		$947.70		1.15%		$5.65		$1,000.00		$948.90		0.91%			$4.47
Hypothetical 5% Return		$1,000.00		$1,019.41		1.15%		$5.85		$1,000.00		$1,020.62		0.91%			$4.63
Matthews Japan Fund
Actual Fund Return		$1,000.00		$988.00		0.99%		$4.96		$1,000.00		$988.50		0.86%			$4.31
Hypothetical 5% Return		$1,000.00		$1,020.21		0.99%		$5.04		$1,000.00		$1,020.87		0.86%			$4.38
Matthews Korea Fund
Actual Fund Return		$1,000.00		$994.90		1.11%		$5.58		$1,000.00		$995.10		0.93%			$4.68
Hypothetical 5% Return		$1,000.00		$1,019.61		1.11%		$5.65		$1,000.00		$1,020.52		0.93%			$4.74

*	Commenced operations on November 30, 2015.

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

2	Operating expenses are equal to the Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by 184 days, then divided by 365.

3	Operating expenses are equal to the Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by 31 days, then divided by 365.


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Disclosure of Fund Expenses (unaudited) (continued)


	INVESTOR CLASS								INSTITUTIONAL CLASS
	Beginning Account Value 7/1/15		Ending Account Value 12/31/15		Expense Ratio¹		Operating Expenses Paid During Period 7/1/15– 12/31/15²		Beginning Account Value 7/1/2015		Ending Account Value 12/31/15		Expense Ratio¹		Operating Expenses Paid During Period 7/1/15– 12/31/15²
ASIA SMALL COMPANY STRATEGIES
Matthews Asia Small Companies Fund
Actual Fund Return		$1,000.00		$854.70		1.48%		$6.92		$1,000.00		$855.90		1.26%		$5.89
Hypothetical 5% Return		$1,000.00		$1,017.74		1.48%		$7.53		$1,000.00		$1,018.85		1.26%		$6.41
Matthews China Small Companies Fund
Actual Fund Return		$1,000.00		$893.20		1.50%		$7.16
Hypothetical 5% Return		$1,000.00		$1,017.64		1.50%		$7.63
ASIA SPECIALTY STRATEGY
Matthews Asia Science and Technology Fund
Actual Fund Return		$1,000.00		$960.80		1.22%		$6.03		$1,000.00		$961.50		0.99%		$4.89
Hypothetical 5% Return		$1,000.00		$1,019.06		1.22%		$6.21		$1,000.00		$1,020.21		0.99%		$5.04

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

2	Operating expenses are equal to the Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by 184 days, then divided by 365.


90		MATTHEWS ASIA FUNDS

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matthewsasia.com \| 800.789.ASIA			91

Statements of Assets and Liabilities


	Matthews Asia Strategic Income Fund		Matthews Asian Growth and Income Fund		Matthews Asia Dividend Fund¹			Matthews China Dividend Fund
ASSETS:
Investments at value (A) (Note 2-A and 7):
Unaffiliated issuers		$57,820,048		$2,839,910,133		$4,246,278,701	��		$176,915,548
Affiliated issuers		—		—		460,348,854			—
Total investments		57,820,048		2,839,910,133		4,706,627,555			176,915,548
Cash		1,608,926		6,104,823		61,871,524			4,038,241
Segregated foreign currency at value (B)		—		—		71,382			—
Foreign currency at value (B) (Note 2-C)		1,511,573		1,103,933		9,364,043			—
Dividends, interest and other receivable—Unaffiliated issuers		1,051,189		10,932,068		13,083,878			111,818
Dividends receivable—Affiliated issuers		—		—		—			—
Receivable for securities sold		—		22,760,359		3,290,580			427,477
Receivable for capital shares sold		63,041		9,309,902		23,075,250			650,585
Due from Advisor (Note 5)		—		—		—			—
Deferred offering costs (Note 2-E)		—		—		—			—
Unrealized appreciation on forward foreign currency exchange contracts		334,847		—		—			—
Prepaid expenses and other assets		20,755		146,552		35,329			42,055
TOTAL ASSETS		62,410,379		2,890,267,770		4,817,419,541			182,185,724
LIABILITIES:
Payable for securities purchased		—		—		38,788			444,749
Payable for capital shares redeemed		171,980		18,060,703		9,226,361			640,940
Unrealized depreciation on forward foreign currency exchange contracts		38,273		—		—			—
Deferred foreign capital gains tax liability (Note 2-G)		965		—		—			—
Due to Advisor (Note 5)		24,744		1,678,948		2,643,275			100,258
Administration and accounting fees payable		843		41,960		63,859			2,380
Administration and shareholder servicing fees payable		7,573		363,191		560,495			21,691
Custodian fees payable		389		147,847		152,083			—
Intermediary service fees payable (Note 5)		9,573		719,565		716,070			33,042
Professional fees payable		20,555		42,915		54,074			18,730
Transfer agent fees payable		385		11,003		72,177			1,626
Printing fees payable		—		147,269		158,649			2,317
Offering costs (Note 2-E)		—		—		—			—
Trustees fees payable		—		—		—			—
Accrued other expenses payable		4,496		—		110,027			—
TOTAL LIABILITIES		279,776		21,213,401		13,795,858			1,265,733
NET ASSETS		$62,130,603		$2,869,054,369		$4,803,623,683			$180,919,991
NET ASSETS:
Investor Class		$51,129,598		$2,045,435,360		$2,757,910,393			$165,514,383
Institutional Class		11,001,005		823,619,009		2,045,713,290			15,405,608
TOTAL		$62,130,603		$2,869,054,369		$4,803,623,683			$180,919,991
SHARES OUTSTANDING:
(shares of beneficial interest issued and outstanding, respectively, unlimited number of shares authorized with a $0.001 par value)
Investor Class		5,131,212		127,568,587		179,605,293			12,005,469
Institutional Class		1,104,785		51,418,285		133,264,411			1,117,428
TOTAL		6,235,997		178,986,872		312,869,704			13,122,897

1	Consolidated Statements of Assets and Liabilities. See Note 2-C.

See accompanying notes to financial statements.


92		MATTHEWS ASIA FUNDS

December 31, 2015



Matthews Asia Value Fund		Matthews Asia Focus Fund		Matthews Asia Growth Fund		Matthews Pacific Tiger Fund		Matthews Asia ESG Fund


	$1,320,377		$10,749,522		$760,804,877		$6,033,506,582		$4,840,407
	—		—		—		596,651,164		—
	1,320,377		10,749,522		760,804,877		6,630,157,746		4,840,407
	417,745		450,099		13,970,217		61,486,309		102,974
	—		—		—		—		—
	4,285		11,902		75,103		3,029,378		2
	4,564		33,906		469,903		6,491,425		8,720
	—		—		—		753,846		—
	—		—		4,797,671		—		6,448
	11,950		50,529		1,452,334		13,105,785		5,418
	40,508		10,178		—		—		71,990
	87,206		—		—		—		26,229
	—		—		—		—		—
	—		15,739		60,704		46,648		—
	1,886,635		11,321,875		781,630,809		6,715,071,137		5,062,188

	41,413		—		—		—		2
	—		136,680		3,848,419		23,395,883		300
	—		—		—		—		—
	—		—		141,754		—		9,835
	—		—		439,511		3,673,742		—
	9		157		10,541		90,093		72
	167		1,395		95,164		762,734		643
	2,727		—		38,390		463,699		4,730
	198		—		149,364		957,249		—
	12,729		8,558		26,941		70,838		12,723
	41		219		3,691		71,738		42
	499		18		13,177		124,862		10,417
	95,134		—		—		—		78,686
	20		—		—		—		555
	1,103		—		8,094		44,945		9,832
	154,040		147,027		4,775,046		29,655,783		127,837
	$1,732,595		$11,174,848		$776,855,763		$6,685,415,354		$4,934,351

	$1,589,491		$5,474,349		$526,969,427		$2,720,868,577		$3,247,953
	143,104		5,700,499		249,886,336		3,964,546,777		1,686,398
	$1,732,595		$11,174,848		$776,855,763		$6,685,415,354		$4,934,351



	161,338		629,805		24,981,689		115,582,909		351,982
	14,560		655,863		11,767,259		168,553,810		183,975
	175,898		1,285,668		36,748,948		284,136,719		535,957


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Statements of Assets and Liabilities (continued)


	Matthews Asia Strategic Income Fund			Matthews Asian Growth and Income Fund			Matthews Asia Dividend Fund¹			Matthews China Dividend Fund
NET ASSET VALUE:
Investor Class, offering price and redemption price		$9.96			$16.03			$15.36			$13.79
Institutional Class, offering price and redemption price		$9.96			$16.02			$15.35			$13.79
NET ASSETS CONSIST OF:
Capital paid-in		$67,075,877			$2,622,477,980			$4,348,200,631			$175,660,361
Undistributed (distributions in excess of) net investment income (loss)		(141,570	)		(9,981,676	)		(4,689,915	)		(367,605	)
Undistributed/accumulated net realized gain (loss) on investments, financial futures contracts, and foreign currency related transactions		(1,535,531	)		40,251,822			(40,485,123	)		516,116
Net unrealized appreciation (depreciation) on investments, financial futures contracts, foreign currency translations and deferred foreign capital gains taxes		(3,268,173	)		216,306,243			500,598,090			5,111,119
NET ASSETS		$62,130,603			$2,869,054,369			$4,803,623,683			$180,919,991
(A) Investments at cost:
Unaffiliated issuers		$61,378,254			$2,623,543,355			$3,741,066,074			$171,804,467
Affiliated issuers		—			—			464,705,388			—
Total investments at cost		$61,378,254			$2,623,543,355			$4,205,771,462			$171,804,467
(B) Foreign currency at cost		$1,511,573			$1,103,933			$9,613,953			$—

1	Consolidated Statements of Assets and Liabilities. See Note 2-C.

See accompanying notes to financial statements.


94		MATTHEWS ASIA FUNDS

December 31, 2015



Matthews Asia Value Fund			Matthews Asia Focus Fund			Matthews Asia Growth Fund			Matthews Pacific Tiger Fund		Matthews Asia ESG Fund


	$9.85			$8.69			$21.09			$23.54		$9.23

	$9.83			$8.69			$21.24			$23.52		$9.17

	$1,741,569			$13,265,385			$661,074,198			$5,255,153,512		$5,088,649
	7,772			80,691			278,925			—		26,705
	—			(709,662	)		(19,506,204	)		13,364,607		(52,070	)
	(16,746	)		(1,461,566	)		135,008,844			1,416,897,235		(128,933	)
	$1,732,595			$11,174,848			$776,855,763			$6,685,415,354		$4,934,351

	$1,337,140			$12,210,811			$625,650,734			$4,467,455,485		$4,959,486
	—			—			—			745,786,796		—
	$1,337,140			$12,210,811			$625,650,734			$5,213,242,281		$4,959,486
	$4,274			$11,902			$75,103			$3,029,224		$2


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Statements of Assets and Liabilities (continued)



	Matthews Emerging Asia Fund		Matthews China Fund¹		Matthews India Fund
ASSETS:
Investments at value (A) (Note 2-A and 7):
Unaffiliated issuers		$165,213,375		$732,306,149		$1,408,937,740
Affiliated issuers		—		—		98,231,975
Total investments		165,213,375		732,306,149		1,507,169,715
Cash		4,285,963		—		—
Segregated foreign currency at value (B)		—		72,494		—
Foreign currency at value (B)		2,253,794		1,652,644		10,906,448
Dividends, interest and other receivable—Unaffiliated issuers		181,630		—		372,989
Dividends receivable—Affiliated issuers		—		—		—
Receivable for securities sold		—		11,904,467		8,792,539
Receivable for capital shares sold		379,326		514,290		3,036,003
Prepaid expenses and other assets		13,480		39,727		46,111
TOTAL ASSETS		172,327,568		746,489,771		1,530,323,805
LIABILITIES:
Payable for securities purchased		389,880		7,474,674		—
Payable for capital shares redeemed		177,718		3,838,369		6,328,274
Cash overdraft		—		273,630		14,780,558
Deferred foreign capital gains tax liability (Note 2-G)		1,660,502		—		1,942,487
Foreign capital gains tax payable (Note 2-G)		72,437		—		—
Due to Advisor (Note 5)		68,510		417,735		841,513
Administration and accounting fees payable		2,174		10,275		20,054
Administration and shareholder servicing fees payable		19,696		90,362		182,336
Intermediary service fees payable (Note 5)		30,705		160,710		248,331
Professional fees payable		8,651		24,787		30,216
Transfer agent fees payable		763		12,555		12,653
Accrued other expenses payable		28,037		143,591		110,389
TOTAL LIABILITIES		2,459,073		12,446,688		24,496,811
NET ASSETS		$169,868,495		$734,043,083		$1,505,826,994
NET ASSETS:
Investor Class		$114,590,180		$709,766,606		$1,151,948,121
Institutional Class		55,278,315		24,276,477		353,878,873
TOTAL		$169,868,495		$734,043,083		$1,505,826,994
SHARES OUTSTANDING:
(shares of beneficial interest issued and outstanding, respectively, unlimited number of shares authorized with a $0.001 par value)
Investor Class		10,170,853		38,536,969		43,588,611
Institutional Class		4,896,422		1,320,026		13,358,512
TOTAL		15,067,275		39,856,995		56,947,123

¹	Consolidated Statements of Assets and Liabilities. See Note 2-C.

See accompanying notes to financial statements.


96		MATTHEWS ASIA FUNDS

December 31, 2015


Matthews Japan Fund		Matthews Korea Fund		Matthews Asia Small Companies Fund		Matthews China Small Companies Fund		Matthews Asia Science and Technology Fund


	$1,796,117,364		$201,177,976		$583,834,040		$21,138,749		$158,657,003
	65,578,270		—		7,205,664		—		—
	1,861,695,634		201,177,976		591,039,704		21,138,749		158,657,003
	83,456,343		4,694,850		20,764,878		635,285		6,694,239
	—		—		—		—		—
	4		—		619,715		8,361		900,633
	1,339,933		2,085,503		253,252		—		263,828
	37,679		—		—		—		—
	1,399,096		—		3,135,379		—		—
	22,270,200		118,618		1,646,581		111,600		321,800
	47,506		15,013		32,830		6,313		18,318
	1,970,246,395		208,091,960		617,492,339		21,900,308		166,855,821

	17,771,298		—		600,789		327,970		—
	1,770,046		230,441		6,105,618		—		149,488
	—		—		—		—		—
	—		—		56,811		—		—
	—		—		—		—		—
	1,010,736		114,290		494,674		5,180		90,794
	23,026		2,761		8,455		282		2,148
	219,075		24,749		75,124		2,560		19,654
	82,326		17,862		141,132		—		23,454
	13,122		18,853		37,057		17,909		25,935
	13,992		2,858		2,562		405		2,238
	16,104		13,104		55,409		—		9,569
	20,919,725		424,918		7,577,631		354,306		323,280
	$1,949,326,670		$207,667,042		$609,914,708		$21,546,002		$166,532,541

	$1,330,743,379		$147,684,772		$387,746,960		$21,546,002		$129,762,540
	618,583,291		59,982,270		222,167,748		—		36,770,001
	$1,949,326,670		$207,667,042		$609,914,708		$21,546,002		$166,532,541



	70,167,096		24,015,280		19,975,837		2,452,395		10,531,982
	32,562,867		9,707,828		11,454,086		—		2,979,461
	102,729,963		33,723,108		31,429,923		2,452,395		13,511,443


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Statements of Assets and Liabilities (continued)



	Matthews Emerging Asia Fund			Matthews China Fund¹			Matthews India Fund
NET ASSET VALUE:
Investor Class, offering price and redemption price		$11.27			$18.42			$26.43
Institutional Class, offering price and redemption price		$11.29			$18.39			$26.49
NET ASSETS CONSIST OF:
Capital paid-in		$166,108,210			$644,211,368			$1,254,222,667
Undistributed (distributions in excess of) net investment income (loss)		276,735			(32,868	)		(50,865	)
Undistributed/accumulated net realized gain (loss) on investments and foreign currency related transactions		(1,095,848	)		15,479,406			11,096,759
Net unrealized appreciation (depreciation) on investments, foreign currency translations and deferred foreign capital gains taxes		4,579,398			74,385,177			240,558,433
NET ASSETS		$169,868,495			$734,043,083			$1,505,826,994
(A) Investments at cost:
Unaffiliated issuers		$158,973,147			$657,904,382			$1,181,426,322
Affiliated issuers		—			—			83,125,117
Total investments at cost		$158,973,147			$657,904,382			$1,264,551,439
(B) Foreign currency at cost		$2,253,808			$1,669,467			$10,906,448

¹	Consolidated Statements of Assets and Liabilities. See Note 2-C.

See accompanying notes to financial statements.


98		MATTHEWS ASIA FUNDS

December 31, 2015


Matthews Japan Fund			Matthews Korea Fund			Matthews Asia Small Companies Fund			Matthews China Small Companies Fund		Matthews Asia Science and Technology Fund

	$18.97			$6.15			$19.41			$8.79		$12.32
	$19.00			$6.18			$19.40			$—		$12.34

	$1,846,206,894			$135,013,532			$591,767,216			$20,196,514		$117,221,520

	1,177,791			(93,408	)		1,244,170			1,346		—

	(67,394,578	)		6,305,654			(13,195,238	)		701,492		10,405,773

	169,336,563			66,441,264			30,098,560			646,650		38,905,248
	$1,949,326,670			$207,667,042			$609,914,708			$21,546,002		$166,532,541

	$1,622,203,732			$134,731,859			$546,539,760			$20,492,099		$119,744,721
	70,157,293			—			14,325,613			—		—
	$1,692,361,025			$134,731,859			$560,865,373			$20,492,099		$119,744,721
	$4			$—			$619,657			$8,361		$907,082


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Statements of Operations


	Matthews Asia Strategic Income Fund			Matthews Asian Growth and Income Fund			Matthews Asia Dividend Fund¹			Matthews China Dividend Fund
INVESTMENT INCOME:
Dividends—Unaffiliated Issuers		$54,553			$128,462,695			$144,206,511			$5,903,655
Dividends—Affiliated Issuers (Note 7)		—			—			22,043,241			—
Interest		3,871,629			4,802,504			1,114			57,688
Foreign withholding tax		(85,447	)		(7,461,719	)		(12,948,537	)		(371,441	)
TOTAL INVESTMENT INCOME		3,840,735			125,803,480			153,302,329			5,589,902
EXPENSES:
Investment advisory fees (Note 5)		438,698			25,621,034			35,306,056			1,183,701
Administration and accounting fees (Note 5)		5,399			308,810			506,832			14,287
Administration and shareholder servicing fees (Note 5)		94,329			5,389,839			7,429,497			248,951
Accounting out-of-pocket fees		34,791			46,081			54,353			34,070
Custodian fees		25,422			1,170,751			1,457,267			112,502
Insurance fees		19,391			19,391			25,925			722
Intermediary service fees (Note 5)		125,127			6,884,522			6,800,053			350,742
Printing fees		6,466			427,492			405,884			21,602
Professional fees		47,692			105,255			213,542			44,905
Registration fees		35,183			73,516			75,540			37,533
Transfer agent fees		3,225			90,241			583,595			12,220
Trustees fees		2,538			50,063			193,470			11,126
Offering costs (Note 2-E)		—			—			96,561			—
Other expenses		4,828			103,522			116,236			17,455
TOTAL EXPENSES		843,089			40,290,517			53,264,811			2,089,816
Advisory fees waived and expenses waived or reimbursed (Note 5)		(113,621	)		(86,260	)		(244,805	)		—
Administration fees waived (Note 5)		—			(86,260	)		(244,805	)		—
NET EXPENSES		729,468			40,117,997			52,775,201			2,089,816
NET INVESTMENT INCOME (LOSS)		3,111,267			85,685,483			100,527,128			3,500,086
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FINANCIAL FUTURES CONTRACTS, FOREIGN CURRENCY RELATED TRANSACTIONS AND DEFERRED CAPITAL GAINS TAXES:
Net realized gain (loss) on investments—Unaffiliated Issuers		226,884			161,549,914			256,519,653			10,318,680
Net realized gain (loss) on investments—Affiliated Issuers		—			—			3,642,992			—
Net realized gain (loss) on financial futures contracts		(88,422	)		—			—			—
Net realized foreign capital gains tax		—			—			(216,219	)		—
Net realized gain (loss) on foreign currency related transactions		(1,438,110	)		(1,287,301	)		(1,974,507	)		(48,778	)
Net change in unrealized appreciation/depreciation on investments		(2,508,426	)		(408,123,551	)		(204,821,506	)		(6,469,661	)
Net change in deferred foreign capital gains taxes on unrealized appreciation		18,403			—			7,302,449			—
Net change in unrealized appreciation/depreciation on financial futures contracts		(12,891	)		—			—			—
Net change in unrealized appreciation/depreciation on foreign currency related translations		299,762			(107,432	)		(327,104	)		77
Net realized and unrealized gain (loss) on investments, financial futures contracts, foreign currency related transactions and deferred capital gains taxes		(3,502,800	)		(247,968,370	)		60,125,758			3,800,318

NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS		($391,533	)		($162,282,887	)		$160,652,886			$7,300,404

*	Matthews Asia Value Fund commenced operations on November 30, 2015.

**	Matthews Asia ESG Fund commenced operations on April 30, 2015.

¹	Consolidated Statements of Operations. See Note 2-C.

See accompanying notes to financial statements.


100		MATTHEWS ASIA FUNDS

Year Ended December 31, 2015



Matthews Asia Value Fund*			Matthews Asia Focus Fund			Matthews Asia Growth Fund			Matthews Pacific Tiger Fund			Matthews Asia ESG Fund**

	$5,785			$382,131			$16,027,429			$205,047,908			$50,346
	—			—			—			16,268,632			—
	—			5			89			160			—
	(880	)		(13,719	)		(1,445,364	)		(12,503,194	)		(7,045	)
	4,905			368,417			14,582,154			208,813,506			43,301

	771			95,048			5,989,698			54,519,201			15,886
	9			1,146			72,251			657,337			192
	167			19,988			1,260,375			11,459,861			3,397
	201			25,500			43,424			57,369			24,418
	2,727			21,248			386,187			3,163,638			45,376
	—			19,391			4,347			41,746			—
	266			23,862			1,376,500			9,006,250			2,940
	500			2,221			68,303			344,136			10,828
	29,326			42,957			69,621			222,833			53,961
	1,048			27,895			62,652			72,523			4,180
	40			1,795			30,118			454,792			257
	20			1,048			33,463			343,024			599
	7,928			—			—			—			52,457
	20			3,362			20,761			177,322			2,459
	43,023			285,461			9,417,700			80,520,032			216,950
	(41,279	)		(87,252	)		—			(857,693	)		(183,985	)
	—			—			—			(857,693	)		—
	1,744			198,209			9,417,700			78,804,646			32,965
	3,161			170,208			5,164,454			130,008,860			10,336

	—			(609,861	)		13,899,209			685,636,391			(52,070	)
	—			—			—			(19,396,677	)		—
	—			—			—			—			—
	—			—			—			—			—
	(988	)		(1,014	)		(5,751	)		(763,754	)		1,317
	(16,763	)		(1,483,528	)		(31,519,028	)		(1,050,830,850	)		(119,079	)
	—			982			120,781			5,827,625			(9,835	)
	—			—			—			—			—
	17			(133	)		3,699			(47,224	)		(19	)

	(17,734	)		(2,093,554	)		(17,501,090	)		(379,574,489	)		(179,686	)

	($14,573	)		($1,923,346	)		($12,336,636	)		($249,565,629	)		($169,350	)


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Statements of Operations (continued)



	Matthews Emerging Asia Fund			Matthews China Fund¹			Matthews India Fund
INVESTMENT INCOME:
Dividends—Unaffiliated Issuers		$3,365,820			$19,903,318			$11,718,335
Dividends—Affiliated Issuers (Note 7)		—			—			2,578,272
Interest		—			15			13,816
Foreign withholding tax		(297,602	)		(839,714	)		—
TOTAL INVESTMENT INCOME		3,068,218			19,063,619			14,310,423
EXPENSES:
Investment advisory fees (Note 5)		1,661,519			6,216,536			10,143,432
Administration and accounting fees (Note 5)		13,297			151,438			122,373
Administration and shareholder servicing fees (Note 5)		232,258			1,306,491			2,137,111
Accounting out-of-pocket fees		49,003			37,930			38,505
Custodian fees		396,277			331,247			772,169
Intermediary service fees (Note 5)		314,340			1,916,570			2,785,784
Printing fees		22,413			172,392			135,425
Professional fees		47,780			130,093			68,903
Registration fees		42,816			39,856			78,724
Transfer agent fees		6,281			118,552			100,498
Trustees fees		4,739			40,385			54,654
Offering costs (Note 2-E)		—			96,561			—
Other expenses		26,073			35,353			43,501
TOTAL EXPENSES		2,816,796			10,593,404			16,481,079
Advisory fees waived and expenses waived or reimbursed (Note 5)		(452,048	)		—			—
NET EXPENSES		2,364,748			10,593,404			16,481,079
NET INVESTMENT INCOME (LOSS)		703,470			8,470,215			(2,170,656	)
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FOREIGN CURRENCY RELATED TRANSACTIONS AND DEFERRED CAPITAL GAINS TAXES:
Net realized gain (loss) on investments—Unaffiliated Issuers		(883,817	)		131,493,138			24,512,494
Net realized gain (loss) on investments—Affiliated Issuers		—			—			251,540
Net realized foreign capital gains tax		(124,875	)		—			—
Net realized gain (loss) on foreign currency related transactions		(82,987	)		(273,081	)		(917,224	)
Net change in unrealized appreciation/depreciation on investments		(4,198,765	)		(106,942,414	)		(62,169,687	)
Net change in deferred foreign capital gains taxes on unrealized appreciation		(730,548	)		4,990			6,684,572
Net change in unrealized appreciation/depreciation on foreign currency related translations		951			11,673			(13,669	)
Net realized and unrealized gain (loss) on investments, foreign currency related transactions and deferred capital gains taxes		(6,020,041	)		24,294,306			(31,651,974	)

NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS		($5,316,571	)		$32,764,521			($33,822,630	)

¹	Consolidated Statements of Operations. See Note 2-C.

See accompanying notes to financial statements.


102		MATTHEWS ASIA FUNDS

Year Ended December 31, 2015


Matthews Japan Fund			Matthews Korea Fund			Matthews Asia Small Companies Fund			Matthews China Small Companies Fund			Matthews Asia Science and Technology Fund

	$14,613,800			$3,085,707			$12,405,821			$529,669			$1,664,237
	882,727			—			368,679			—			—
	—			—			84			—			12
	(1,547,684	)		(509,194	)		(1,137,342	)		(15,720	)		(175,988	)
	13,948,843			2,576,513			11,637,242			513,949			1,488,261

	7,785,999			1,359,009			7,188,942			223,822			1,174,937
	94,121			16,399			57,520			1,791			14,165
	1,647,371			286,380			1,003,109			31,234			247,195
	49,637			37,526			47,901			42,579			32,089
	189,668			72,195			419,003			38,680			106,712
	1,054,987			244,868			1,270,374			58,767			273,619
	78,766			16,540			53,346			3,258			21,020
	58,211			42,776			79,328			42,596			56,910
	63,843			34,125			52,700			18,298			31,812
	115,354			23,567			20,831			3,281			17,952
	30,834			7,913			42,292			1,724			8,337
	—			—			—			—			—
	31,745			12,186			22,712			3,003			10,136
	11,200,536			2,153,484			10,258,058			469,033			1,994,884
	—			—			(113,037	)		(133,327	)		—
	11,200,536			2,153,484			10,145,021			335,706			1,994,884
	2,748,307			423,029			1,492,221			178,243			(506,623	)


	24,814,680			13,748,671			(7,719,282	)		3,457,528			27,270,960
	142,916			—			(32,275	)		—			—
	—			—			—			—			—
	(340,642	)		(99,064	)		(249,073	)		863			(112,049	)
	124,627,217			10,801,565			(74,035,599	)		(3,135,949	)		(18,069,368	)

	—			—			378,114			—			—

	1,512			(46,204	)		(1,417	)		(826	)		(8,955	)

	149,245,683			24,404,968			(81,659,532	)		321,616			9,080,588

	$151,993,990			$24,827,997			($80,167,311	)		$499,859			$8,573,965


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Statements of Changes in Net Assets


MATTHEWS ASIA STRATEGIC INCOME FUND	Year Ended December 31, 2015			Year Ended December 31, 2014
OPERATIONS:
Net investment income (loss)		$3,111,267			$2,549,890
Net realized gain (loss) on investments and foreign currency related transactions		(1,299,648	)		(1,349,144	)
Net change in unrealized appreciation/depreciation on investments and foreign currency related translations		(2,208,664	)		(188,122	)
Net change on deferred foreign capital gains taxes on unrealized appreciation		18,403			(15,022	)
Net change in unrealized appreciation/depreciation on financial futures contracts		(12,891	)		(52,031	)
Net increase (decrease) in net assets resulting from operations		(391,533	)		945,571
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Investor Class		(1,574,263	)		(1,819,452	)
Institutional Class		(350,781	)		(294,936	)
Net decrease in net assets resulting from distributions		(1,925,044	)		(2,114,388	)
CAPITAL SHARE TRANSACTIONS (net) (Note 4)		(1,988,782	)		21,884,520
REDEMPTION FEES		1,288			6,087
Total increase (decrease) in net assets		(4,304,071	)		20,721,790
NET ASSETS:
Beginning of year		66,434,674			45,712,884
End of year (including undistributed/distributions in excess of net investment income of ($141,570) and ($241,167), respectively)		$62,130,603			$66,434,674

MATTHEWS ASIAN GROWTH AND INCOME FUND	Year Ended December 31, 2015			Year Ended December 31, 2014
OPERATIONS:
Net investment income (loss)		$85,685,483			$92,607,652
Net realized gain (loss) on investments and foreign currency related transactions		160,262,613			117,898,875
Net change in unrealized appreciation/depreciation on investments and foreign currency related translations		(408,230,983	)		(247,572,282	)
Net increase (decrease) in net assets resulting from operations		(162,282,887	)		(37,065,755	)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Investor Class		(60,473,615	)		(58,176,498	)
Institutional Class		(25,646,657	)		(24,675,840	)
Realized gains on investments:
Investor Class		(99,500,383	)		(73,703,258	)
Institutional Class		(38,663,330	)		(28,748,112	)
Net decrease in net assets resulting from distributions		(224,283,985	)		(185,303,708	)
CAPITAL SHARE TRANSACTIONS (net) (Note 4)		(979,815,420	)		58,477,140
REDEMPTION FEES		181,880			343,294
Total increase (decrease) in net assets		(1,366,200,412	)		(163,549,029	)
NET ASSETS:
Beginning of year		4,235,254,781			4,398,803,810
End of year (including distributions in excess of net investment income of ($9,981,676) and ($13,412,958), respectively)		$2,869,054,369			$4,235,254,781

See accompanying notes to financial statements.


104		MATTHEWS ASIA FUNDS


MATTHEWS ASIA DIVIDEND FUND	Year Ended December 31, 2015¹			Year Ended December 31, 2014¹
OPERATIONS:
Net investment income (loss)		$100,527,128			$103,460,502
Net realized gain (loss) on investments and foreign currency related transactions		257,971,919			116,243,335
Net change in unrealized appreciation/depreciation on investments and foreign currency related translations		(205,148,610	)		(236,016,208	)
Net change on deferred foreign capital gains taxes on unrealized appreciation		7,302,449			(5,021,270	)
Net increase (decrease) in net assets resulting from operations		160,652,886			(21,333,641	)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Investor Class		(50,178,458	)		(47,911,397	)
Institutional Class		(42,940,313	)		(32,066,176	)
Realized gains on investments:
Investor Class		(40,978,371	)		—
Institutional Class		(30,690,700	)		—
Return of Capital:
Investor Class		—			(13,172,130	)
Institutional Class		—			(8,815,853	)
Net decrease in net assets resulting from distributions		(164,787,842	)		(101,965,556	)
CAPITAL SHARE TRANSACTIONS (net) (Note 4)		(217,935,493	)		(645,503,365	)
REDEMPTION FEES		95,389			497,372
Total increase (decrease) in net assets		(221,975,060	)		(768,305,190	)
NET ASSETS:
Beginning of year		5,025,598,743			5,793,903,933
End of year (including distributions in excess of net investment income of ($4,689,915) and ($55,629,552), respectively)		$4,803,623,683			$5,025,598,743

1 Consolidated Statements of Changes in Net Assets. See Note 2-C.

MATTHEWS CHINA DIVIDEND FUND	Year Ended December 31, 2015			Year Ended December 31, 2014
OPERATIONS:
Net investment income (loss)		$3,500,086			$2,671,693
Net realized gain (loss) on investments and foreign currency related transactions		10,269,902			2,594,721
Net change in unrealized appreciation/depreciation on investments and foreign currency related translations		(6,469,584	)		(5,177,012	)
Net increase (decrease) in net assets resulting from operations		7,300,404			89,402
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Investor Class		(3,549,297	)		(2,935,482	)
Institutional Class		(479,873	)		(817,023	)
Realized gains on investments:
Investor Class		(7,116,965	)		(1,191,973	)
Institutional Class		(673,526	)		(314,911	)
Net decrease in net assets resulting from distributions		(11,819,661	)		(5,259,389	)
CAPITAL SHARE TRANSACTIONS (net) (Note 4)		37,808,908			1,987,255
REDEMPTION FEES		13,497			45,150
Total increase (decrease) in net assets		33,303,148			(3,137,582	)
NET ASSETS:
Beginning of year		147,616,843			150,754,425
End of year (including distributions in excess of net investment income of ($367,605) and ($1,285,165), respectively)		$180,919,991			$147,616,843

See accompanying notes to financial statements.


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Statements of Changes in Net Assets (continued)


MATTHEWS ASIA VALUE FUND				Period Ended December 31, 2015¹
OPERATIONS:
Net investment income (loss)					$3,161
Net realized gain (loss) on investments and foreign currency related transactions					(988	)
Net change in unrealized appreciation/depreciation on investments and foreign currency related translations					(16,746	)
Net increase (decrease) in net assets resulting from operations					(14,573	)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Investor Class					(1,748	)
Institutional Class					(581	)
Net decrease in net assets resulting from distributions					(2,329	)
CAPITAL SHARE TRANSACTIONS (net) (Note 4)					1,749,497
Total increase (decrease) in net assets					1,732,595
NET ASSETS:
Beginning of period					—
End of period (including undistributed net investment income of $7,772)					$1,732,595

1 Matthews Asia Value commenced operations on November 30, 2015.

MATTHEWS ASIA FOCUS FUND	Year Ended December 31, 2015			Year Ended December 31, 2014
OPERATIONS:
Net investment income (loss)		$170,208			$93,078
Net realized gain (loss) on investments and foreign currency related transactions		(610,875	)		90,648
Net change in unrealized appreciation/depreciation on investments and foreign currency related translations		(1,483,661	)		65,598
Net change on deferred foreign capital gains taxes on unrealized appreciation		982			8,519
Net increase (decrease) in net assets resulting from operations		(1,923,346	)		257,843
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Investor Class		(43,929	)		(55,443	)
Institutional Class		(68,121	)		(57,082	)
Realized gains on investments:
Investor Class		(30,710	)		—
Institutional Class		(30,458	)		—
Net decrease in net assets resulting from distributions		(173,218	)		(112,525	)
CAPITAL SHARE TRANSACTIONS (net) (Note 4)		(1,717,388	)		6,463,284
REDEMPTION FEES		1,869			2,548
Total increase (decrease) in net assets		(3,812,083	)		6,611,150
NET ASSETS:
Beginning of year		14,986,931			8,375,781
End of year (including undistributed net investment income of $80,691 and $1,023, respectively)		$11,174,848			$14,986,931

See accompanying notes to financial statements.


106		MATTHEWS ASIA FUNDS


MATTHEWS ASIA GROWTH FUND	Year Ended December 31, 2015			Year Ended December 31, 2014
OPERATIONS:
Net investment income (loss)		$5,164,454			$4,953,601
Net realized gain (loss) on investments and foreign currency related transactions		13,893,458			15,349,737
Net change in unrealized appreciation/depreciation on investments and foreign currency related translations		(31,515,329	)		(9,391,211	)
Net change on deferred foreign capital gains taxes on unrealized appreciation		120,781			(262,534	)
Net increase (decrease) in net assets resulting from operations		(12,336,636	)		10,649,593
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Investor Class		—			(10,002,000	)
Institutional Class		—			(5,438,617	)
Net decrease in net assets resulting from distributions		—			(15,440,617	)
CAPITAL SHARE TRANSACTIONS (net) (Note 4)		(60,027,645	)		67,553,705
REDEMPTION FEES		36,064			162,173
Total increase (decrease) in net assets		(72,328,217	)		62,924,854
NET ASSETS:
Beginning of year		849,183,980			786,259,126
End of year (including undistributed/(distributions in excess of) net investment income of $278,925 and ($11,816,062), respectively)		$776,855,763			$849,183,980

MATTHEWS PACIFIC TIGER FUND	Year Ended December 31, 2015			Year Ended December 31, 2014
OPERATIONS:
Net investment income (loss)		$130,008,860			$47,931,459
Net realized gain (loss) on investments and foreign currency related transactions		665,475,960			301,174,040
Net change in unrealized appreciation/depreciation on investments and foreign currency related translations		(1,050,878,074	)		479,195,485
Net change on deferred foreign capital gains taxes on unrealized appreciation		5,827,625			(4,638,516	)
Net increase (decrease) in net assets resulting from operations		(249,565,629	)		823,662,468
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Investor Class		(44,786,496	)		(14,427,716	)
Institutional Class		(72,239,388	)		(32,970,946	)
Realized gains on investments:
Investor Class		(237,860,447	)		(134,989,408	)
Institutional Class		(343,244,442	)		(226,070,336	)
Net decrease in net assets resulting from distributions		(698,130,773	)		(408,458,406	)
CAPITAL SHARE TRANSACTIONS (net) (Note 4)		(463,729,788	)		48,148,464
REDEMPTION FEES		121,959			220,012
Total increase (decrease) in net assets		(1,411,304,231	)		463,572,538
NET ASSETS:
Beginning of year		8,096,719,585			7,633,147,047
End of year (including undistributed net investment income of $0 and $12,414, respectively)		$6,685,415,354			$8,096,719,585

See accompanying notes to financial statements.


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Statements of Changes in Net Assets (continued)


MATTHEWS ASIA ESG FUND				Period Ended December 31, 2015¹
OPERATIONS:
Net investment income (loss)					$10,336
Net realized gain (loss) on investments and foreign currency related transactions					(50,753	)
Net change in unrealized appreciation/depreciation on investments and foreign currency related translations					(119,098	)
Net change on deferred foreign capital gains taxes on unrealized appreciation					(9,835	)
Net increase (decrease) in net assets resulting from operations					(169,350	)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Investor Class					(16,506	)
Institutional Class					(20,899	)
Net decrease in net assets resulting from distributions					(37,405	)
CAPITAL SHARE TRANSACTIONS (net) (Note 4)					5,141,106
Total increase (decrease) in net assets					4,934,351
NET ASSETS:
Beginning of period					—
End of period (including undistributed net investment income of $26,705)					$4,934,351

1 Matthews Asia ESG Fund commenced operations on April 30, 2015.

MATTHEWS EMERGING ASIA FUND	Year Ended December 31, 2015			Year Ended December 31, 2014
OPERATIONS:
Net investment income (loss)		$703,470			$282,110
Net realized gain (loss) on investments and foreign currency related transactions		(1,091,679	)		520,478
Net change in unrealized appreciation/depreciation on investments and foreign currency related translations		(4,197,814	)		9,875,738
Net change on deferred foreign capital gains taxes on unrealized appreciation		(730,548	)		(757,162	)
Net increase (decrease) in net assets resulting from operations		(5,316,571	)		9,921,164
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Investor Class		(35,327	)		(518,224	)
Institutional Class		(46,163	)		(105,103	)
Realized gains on investments:
Investor Class		(300,074	)		—
Institutional Class		(132,999	)		—
Net decrease in net assets resulting from distributions		(514,563	)		(623,327	)
CAPITAL SHARE TRANSACTIONS (net) (Note 4)		43,937,018			82,361,403
REDEMPTION FEES		49,908			14,452
Total increase (decrease) in net assets		38,155,792			91,673,692
NET ASSETS:
Beginning of year		131,712,703			40,039,011
End of year (including undistributed/(distributions in excess of) net investment income of $276,735 and ($349,313), respectively)		$169,868,495			$131,712,703

See accompanying notes to financial statements.


108		MATTHEWS ASIA FUNDS


MATTHEWS CHINA FUND	Year Ended December 31, 2015¹			Year Ended December 31, 2014¹
OPERATIONS:
Net investment income (loss)		$8,470,215			$12,670,620
Net realized gain (loss) on investments and foreign currency related transactions		131,220,057			19,391,086
Net change in unrealized appreciation/depreciation on investments and foreign currency related translations		(106,930,741	)		(96,779,181	)
Net change on deferred foreign capital gains taxes on unrealized appreciation		4,990			(4,990	)
Net increase (decrease) in net assets resulting from operations		32,764,521			(64,722,465	)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Investor Class		(7,271,979	)		(11,939,433	)
Institutional Class		(292,369	)		(897,946	)
Realized gains on investments:
Investor Class		(112,695,199	)		(4,591,640	)
Institutional Class		(3,998,950	)		(303,495	)
Net decrease in net assets resulting from distributions		(124,258,497	)		(17,732,514	)
CAPITAL SHARE TRANSACTIONS (net) (Note 4)		(174,745,783	)		(321,454,659	)
REDEMPTION FEES		64,297			141,324
Total increase (decrease) in net assets		(266,175,462	)		(403,768,314	)
NET ASSETS:
Beginning of year		1,000,218,545			1,403,986,859
End of year (including undistributed/(distributions in excess of) net investment income of ($32,868) and $73,913, respectively)		$734,043,083			$1,000,218,545

1 Consolidated Statements of Changes in Net Assets. See Note 2-C.

MATTHEWS INDIA FUND	Year Ended December 31, 2015			Year Ended December 31, 2014
OPERATIONS:
Net investment income (loss)		($2,170,656	)		$2,121,302
Net realized gain (loss) on investments and foreign currency related transactions		23,846,810			6,119,604
Net change in unrealized appreciation/depreciation on investments and foreign currency related translations		(62,183,356	)		298,047,926
Net change on deferred foreign capital gains taxes on unrealized appreciation		6,684,572			(8,627,059	)
Net increase (decrease) in net assets resulting from operations		(33,822,630	)		297,661,773
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Investor Class		(1,210,919	)		(1,672,358	)
Institutional Class		(713,191	)		(176,254	)
Realized gains on investments:
Investor Class		(10,496,814	)		(5,267,446	)
Institutional Class		(3,018,487	)		(320,352	)
Net decrease in net assets resulting from distributions		(15,439,411	)		(7,436,410	)
CAPITAL SHARE TRANSACTIONS (net) (Note 4)		469,778,771			362,428,175
REDEMPTION FEES		1,141,560			420,708
Total increase (decrease) in net assets		421,658,290			653,074,246
NET ASSETS:
Beginning of year		1,084,168,704			431,094,458
End of year (including undistributed/(distributions in excess of) net investment income of ($50,865) and $1,797,278, respectively)		$1,505,826,994			$1,084,168,704

See accompanying notes to financial statements.


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Statements of Changes in Net Assets (continued)


MATTHEWS JAPAN FUND	Year Ended December 31, 2015			Year Ended December 31, 2014
OPERATIONS:
Net investment income (loss)		$2,748,307			$1,903,581
Net realized gain (loss) on investments and foreign currency related transactions		24,616,954			13,363,795
Net change in unrealized appreciation/depreciation on investments and foreign currency related translations		124,628,729			(29,305,954	)
Net increase (decrease) in net assets resulting from operations		151,993,990			(14,038,578	)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Investor Class		—			(2,432,405	)
Institutional Class		—			(893,149	)
Net decrease in net assets resulting from distributions		—			(3,325,554	)
CAPITAL SHARE TRANSACTIONS (net) (Note 4)		1,174,685,964			267,055,762
REDEMPTION FEES		42,911			221,547
Total increase (decrease) in net assets		1,326,722,865			249,913,177
NET ASSETS:
Beginning of year		622,603,805			372,690,628
End of year (including undistributed/(distributions in excess of) net investment income of $1,177,791 and ($3,723,660), respectively)		$1,949,326,670			$622,603,805

MATTHEWS KOREA FUND	Year Ended December 31, 2015			Year Ended December 31, 2014
OPERATIONS:
Net investment income (loss)		$423,029			$550,797
Net realized gain (loss) on investments and foreign currency related transactions		13,649,607			5,707,881
Net change in unrealized appreciation/depreciation on investments and foreign currency related translations		10,755,361			(9,305,293	)
Net increase (decrease) in net assets resulting from operations		24,827,997			(3,046,615	)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Investor Class		(299,912	)		—
Institutional Class		(230,197	)		—
Realized gains on investments:
Investor Class		(7,587,708	)		(5,528,243	)
Institutional Class		(3,214,060	)		(4,268,341	)
Net decrease in net assets resulting from distributions		(11,331,877	)		(9,796,584	)
CAPITAL SHARE TRANSACTIONS (net) (Note 4)		(25,043,885	)		80,886,069
REDEMPTION FEES		10,431			48,449
Total increase (decrease) in net assets		(11,537,334	)		68,091,319
NET ASSETS:
Beginning of year		219,204,376			151,113,057
End of year (including undistributed/(distributions in excess of) net investment income of ($93,408) and $342,932, respectively)		$207,667,042			$219,204,376

See accompanying notes to financial statements.


110		MATTHEWS ASIA FUNDS


MATTHEWS ASIA SMALL COMPANIES FUND	Year Ended December 31, 2015			Year Ended December 31, 2014
OPERATIONS:
Net investment income (loss)		$1,492,221			$2,628,989
Net realized gain (loss) on investments and foreign currency related transactions		(8,000,630	)		2,692,424
Net change in unrealized appreciation/depreciation on investments and foreign currency related translations		(74,037,016	)		48,527,175
Net change on deferred foreign capital gains taxes on unrealized appreciation		378,114			458,859
Net increase (decrease) in net assets resulting from operations		(80,167,311	)		54,307,447
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Investor Class		(527,668	)		(2,240,054	)
Institutional Class		(972,889	)		(425,758	)
Net decrease in net assets resulting from distributions		(1,500,557	)		(2,665,812	)
CAPITAL SHARE TRANSACTIONS (net) (Note 4)		15,106,280			172,402,487
REDEMPTION FEES		226,015			85,734
Total increase (decrease) in net assets		(66,335,573	)		224,129,856
NET ASSETS:
Beginning of year		676,250,281			452,120,425
End of year (including undistributed net investment income of $1,244,170 and $1,500,466, respectively)		$609,914,708			$676,250,281

MATTHEWS CHINA SMALL COMPANIES FUND	Year Ended December 31, 2015			Year Ended December 31, 2014
OPERATIONS:
Net investment income (loss)		$178,243			$32,748
Net realized gain (loss) on investments and foreign currency related transactions		3,458,391			725,842
Net change in unrealized appreciation/depreciation on investments and foreign currency related translations		(3,136,775	)		(1,527,785	)
Net increase (decrease) in net assets resulting from operations		499,859			(769,195	)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Investor Class		(146,067	)		(50,571	)
Realized gains on investments:
Investor Class		(1,644,128	)		—
Return of Capital:
Investor Class		—			(828,820	)
Net decrease in net assets resulting from distributions		(1,790,195	)		(879,391	)
CAPITAL SHARE TRANSACTIONS (net) (Note 4)		743,769			(2,960,536	)
REDEMPTION FEES		24,657			2,817
Total increase (decrease) in net assets		(521,910	)		(4,606,305	)
NET ASSETS:
Beginning of year		22,067,912			26,674,217
End of year (including undistributed/(distributions in excess of) net investment income of $1,346 and ($38,540), respectively)		$21,546,002			$22,067,912

See accompanying notes to financial statements.


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Statements of Changes in Net Assets (continued)


MATTHEWS ASIA SCIENCE AND TECHNOLOGY FUND	Year Ended December 31, 2015			Year Ended December 31, 2014
OPERATIONS:
Net investment income (loss)		($506,623	)		$87,025
Net realized gain (loss) on investments and foreign currency related transactions		27,158,911			15,185,277
Net change in unrealized appreciation/depreciation on investments and foreign currency related translations		(18,078,323	)		(362,764	)
Net change on deferred foreign capital gains taxes on unrealized appreciation		—			201,559
Net increase (decrease) in net assets resulting from operations		8,573,965			15,111,097
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Investor Class		—			(545,161	)
Institutional Class		—			(384,106	)
Realized gains on investments:
Investor Class		(17,188,079	)		(769,763	)
Institutional Class		(4,989,441	)		(372,799	)
Net decrease in net assets resulting from distributions		(22,177,520	)		(2,071,829	)
CAPITAL SHARE TRANSACTIONS (net) (Note 4)		(6,569,665	)		12,612,113
REDEMPTION FEES		5,577			61,504
Total increase (decrease) in net assets		(20,167,643	)		25,712,885
NET ASSETS:
Beginning of year		186,700,184			160,987,299
End of year (including distributions in excess of net investment income of $0 and ($787), respectively)		$166,532,541			$186,700,184

See accompanying notes to financial statements.


112		MATTHEWS ASIA FUNDS

Financial Highlights

Matthews Asia Strategic Income Fund

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


	Year Ended Dec. 31												Period Ended Dec. 31, 2011¹
INVESTOR CLASS	2015			2014			2013			2012			Period Ended Dec. 31, 2011¹
Net Asset Value, beginning of period		$10.31			$10.42			$10.84			$9.93			$10.00
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)²		0.47			0.46			0.40			0.37			0.02
Net realized gain (loss) and unrealized appreciation/depreciation on investments, financial futures contracts and foreign currency		(0.53	)		(0.19	)		(0.48	)		0.95			(0.07	)
Total from investment operations		(0.06	)		0.27			(0.08	)		1.32			(0.05	)
LESS DISTRIBUTIONS FROM:
Net investment income		(0.29	)		(0.38	)		(0.35	)		(0.42	)		(0.02	)
Net realized gains on investments		—			—			(0.01	)		—			—
Total distributions		(0.29	)		(0.38	)		(0.36	)		(0.42	)		(0.02	)
Paid-in capital from redemption fees (Note 4)		—	³		—	³		0.02			0.01			—
Net Asset Value, end of period		$9.96			$10.31			$10.42			$10.84			$9.93
TOTAL RETURN		(0.58%	)		2.54%			(0.50%	)		13.62%			(0.52%	)⁴

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000’s)		$51,130			$58,594			$38,051			$29,479			$7,746
Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 5)		1.28%			1.27%			1.28%			1.85%			3.20%	⁵
Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator		1.12%			1.13%			1.20%			1.17%			1.00%	⁵
Ratio of net investment income (loss) to average net assets		4.57%			4.36%			3.75%			3.58%			2.06%	⁵
Portfolio turnover⁶		50.09%			34.28%			48.71%			18.45%			3.66%	⁴

	Year Ended Dec. 31												Period Ended Dec. 31, 2011¹
INSTITUTIONAL CLASS	2015			2014			2013			2012			Period Ended Dec. 31, 2011¹
Net Asset Value, beginning of period		$10.30			$10.42			$10.83			$9.93			$10.00
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)²		0.49			0.48			0.42			0.39			0.02
Net realized gain (loss) and unrealized appreciation/depreciation on investments, financial futures contracts, and foreign currency		(0.52	)		(0.20	)		(0.46	)		0.94			(0.07	)
Total from investment operations		(0.03	)		0.28			(0.04	)		1.33			(0.05	)
LESS DISTRIBUTIONS FROM:
Net investment income		(0.31	)		(0.40	)		(0.38	)		(0.44	)		(0.02	)
Net realized gains on investments		—			—			(0.01	)		—			—
Total distributions		(0.31	)		(0.40	)		(0.39	)		(0.44	)		(0.02	)
Paid-in capital from redemption fees (Note 4)		—	³		—	³		0.02			0.01			—
Net Asset Value, end of period		$9.96			$10.30			$10.42			$10.83			$9.93
TOTAL RETURN		(0.27%	)		2.64%			(0.20%	)		13.74%			(0.52%	)⁴

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000’s)		$11,001			$7,840			$7,662			$6,205			$5,266
Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 5)		1.09%			1.07%			1.09%			1.70%			3.20%	⁵
Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator		0.90%			0.93%			1.00%			1.00%			1.00%	⁵
Ratio of net investment income (loss) to average net assets		4.81%			4.55%			3.99%			3.70%			1.96%	⁵
Portfolio turnover⁶		50.09%			34.28%			48.71%			18.45%			3.66%	⁴

1	Commencement of operations on November 30, 2011.

2	Calculated using the average daily shares method.

3	Less than $0.01 per share.

4	Not annualized.

5	Annualized.

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

See accompanying notes to financial statements.


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Financial Highlights (continued)

Matthews Asian Growth and Income Fund

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


	Year Ended Dec. 31
INVESTOR CLASS	2015			2014			2013			2012			2011
Net Asset Value, beginning of year		$18.01			$18.91			$18.61			$15.07			$18.04
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)¹		0.39			0.39			0.41			0.43			0.47
Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency		(1.19	)		(0.50	)		0.47			3.58			(2.36	)
Total from investment operations		(0.80	)		(0.11	)		0.88			4.01			(1.89	)
LESS DISTRIBUTIONS FROM:
Net investment income		(0.42	)		(0.35	)		(0.46	)		(0.47	)		(0.47	)
Net realized gains on investments		(0.76	)		(0.44	)		(0.12	)		—			(0.61	)
Total distributions		(1.18	)		(0.79	)		(0.58	)		(0.47	)		(1.08	)
Paid-in capital from redemption fees (Note 4)²		—			—			—			—			—
Net Asset Value, end of year		$16.03			$18.01			$18.91			$18.61			$15.07
TOTAL RETURN		(4.50%	)		(0.65%	)		4.83%			26.90%			(10.62%	)

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000’s)		$2,045,435			$3,052,565			$3,278,586			$3,214,984			$2,340,606
Ratio of expenses to average net assets before any reimbursement or waiver or recapture of expenses by Advisor and Administrator (Note 5)		1.09%			1.08%			1.08%			1.11%			1.12%
Ratio of expenses to average net assets after any reimbursement or waiver or recapture of expenses by Advisor and Administrator		1.09%			1.08%			1.08%			1.11%			1.12%
Ratio of net investment income (loss) to average net assets		2.17%			2.03%			2.14%			2.52%			2.71%
Portfolio turnover³		16.48%			16.79%			15.27%			17.43%			16.54%

	Year Ended Dec. 31
INSTITUTIONAL CLASS	2015			2014			2013			2012			2011
Net Asset Value, beginning of year		$18.00			$18.90			$18.60			$15.06			$18.04
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)¹		0.42			0.42			0.44			0.45			0.52
Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency		(1.19	)		(0.50	)		0.48			3.58			(2.39	)
Total from investment operations		(0.77	)		(0.08	)		0.92			4.03			(1.87	)
LESS DISTRIBUTIONS FROM:
Net investment income		(0.45	)		(0.38	)		(0.50	)		(0.49	)		(0.50	)
Net realized gains on investments		(0.76	)		(0.44	)		(0.12	)		—			(0.61	)
Total distributions		(1.21	)		(0.82	)		(0.62	)		(0.49	)		(1.11	)
Paid-in capital from redemption fees (Note 4)²		—			—			—			—			—
Net Asset Value, end of year		$16.02			$18.00			$18.90			$18.60			$15.06
TOTAL RETURN		(4.33%	)		(0.48%	)		5.04%			27.09%			(10.54%	)

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000’s)		$823,619			$1,182,690			$1,120,218			$856,876			$531,493
Ratio of expenses to average net assets before any reimbursement or waiver or recapture of expenses by Advisor and Administrator (Note 5)		0.92%			0.92%			0.93%			0.97%			0.99%
Ratio of expenses to average net assets after any reimbursement or waiver or recapture of expenses by Advisor and Administrator		0.92%			0.92%			0.93%			0.97%			0.99%
Ratio of net investment income (loss) to average net assets		2.34%			2.19%			2.30%			2.69%			3.05%
Portfolio turnover³		16.48%			16.79%			15.27%			17.43%			16.54%

1	Calculated using the average daily shares method.

2	Less than $0.01 per share.

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

See accompanying notes to financial statements.


114		MATTHEWS ASIA FUNDS

Matthews Asia Dividend Fund

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


	Year Ended Dec. 31
INVESTOR CLASS	2015¹			2014¹			2013			2012			2011
Net Asset Value, beginning of year		$15.26			$15.60			$14.58			$12.48			$14.33
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)²		0.29			0.30			0.32			0.36			0.36
Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency		0.31			(0.34	)		1.30			2.30			(1.78	)
Total from investment operations		0.60			(0.04	)		1.62			2.66			(1.42	)
LESS DISTRIBUTIONS FROM:
Net investment income		(0.27	)		(0.23	)		(0.60	)		(0.56	)		(0.37	)
Return of capital		—			(0.07	)		—			—			—
Net realized gains on investments		(0.23	)		—			—			—			(0.06	)
Total distributions		(0.50	)		(0.30	)		(0.60	)		(0.56	)		(0.43	)
Paid-in capital from redemption fees (Note 4)³		—			—			—			—			—
Net Asset Value, end of year		$15.36			$15.26			$15.60			$14.58			$12.48
TOTAL RETURN		3.86%			(0.32%	)		11.27%			21.63%			(10.02%	)

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000’s)		$2,757,910			$2,918,228			$3,669,690			$2,780,043			$1,930,363
Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 5)		1.06%			1.06%			1.06%			1.09%			1.10%
Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator		1.05%			1.05%			1.06%			1.09%			1.10%
Ratio of net investment income (loss) to average net assets		1.82%			1.89%			2.04%			2.65%			2.61%
Portfolio turnover⁴		35.98%			20.06%			14.06%			9.17%			16.48%

	Year Ended Dec. 31
INSTITUTIONAL CLASS	2015¹			2014¹			2013			2012			2011
Net Asset Value, beginning of year		$15.26			$15.59			$14.57			$12.48			$14.33
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)²		0.32			0.32			0.34			0.37			0.41
Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency		0.29			(0.33	)		1.30			2.29			(1.82	)
Total from investment operations		0.61			(0.01	)		1.64			2.66			(1.41	)
LESS DISTRIBUTIONS FROM:
Net investment income		(0.29	)		(0.25	)		(0.62	)		(0.57	)		(0.38	)
Return of capital		—			(0.07	)		—			—			—
Net realized gains on investments		(0.23	)		—			—			—			(0.06	)
Total distributions		(0.52	)		(0.32	)		(0.62	)		(0.57	)		(0.44	)
Paid-in capital from redemption fees (Note 4)³		—			—			—			—			—
Net Asset Value, end of year		$15.35			$15.26			$15.59			$14.57			$12.48
TOTAL RETURN		3.93%			(0.18%	)		11.43%			21.70%			(9.93%	)

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000’s)		$2,045,713			$2,107,371			$2,124,214			$922,561			$344,502
Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 5)		0.93%			0.93%			0.93%			0.97%			1.00%
Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator		0.92%			0.93%			0.93%			0.97%			1.00%
Ratio of net investment income (loss) to average net assets		1.98%			2.02%			2.17%			2.72%			3.03%
Portfolio turnover⁴		35.98%			20.06%			14.06%			9.17%			16.48%

1	Consolidated Financial Highlights. See Note 2-C.

2	Calculated using the average daily shares method.

3	Less than $0.01 per share.

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

See accompanying notes to financial statements.


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Financial Highlights (continued)

Matthews China Dividend Fund

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


	Year Ended Dec. 31
INVESTOR CLASS	2015			2014			2013			2012			2011
Net Asset Value, beginning of year		$13.37			$13.74			$12.35			$10.06			$12.17
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)¹		0.29			0.25			0.25			0.25			0.29
Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency		1.01			(0.12	)		1.35			2.49			(2.04	)
Total from investment operations		1.30			0.13			1.60			2.74			(1.75	)
LESS DISTRIBUTIONS FROM:
Net investment income		(0.28	)		(0.36	)		(0.23	)		(0.46	)		(0.35	)
Net realized gains on investments		(0.60	)		(0.14	)		—			—			(0.02	)
Total distributions		(0.88	)		(0.50	)		(0.23	)		(0.46	)		(0.37	)
Paid-in capital from redemption fees (Note 4)		—	²		—	²		0.02			0.01			0.01
Net Asset Value, end of year		$13.79			$13.37			$13.74			$12.35			$10.06
TOTAL RETURN		9.54%			0.93%			13.35%			27.81%			(14.44%	)

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000’s)		$165,514			$116,954			$125,965			$59,535			$26,467
Ratio of expenses to average net assets before any reimbursement or waiver or recapture of expenses by Advisor and Administrator (Note 5)		1.19%			1.19%			1.24%			1.47%			1.52%
Ratio of expenses to average net assets after any reimbursement or waiver or recapture of expenses by Advisor and Administrator		1.19%			1.19%			1.34%			1.50%			1.50%
Ratio of net investment income (loss) to average net assets		1.97%			1.88%			1.94%			2.24%			2.47%
Portfolio turnover³		79.91%			25.43%			20.52%			21.40%			22.31%

	Year Ended Dec. 31
INSTITUTIONAL CLASS	2015			2014			2013			2012			2011
Net Asset Value, beginning of year		$13.37			$13.74			$12.34			$10.06			$12.17
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)¹		0.28			0.28			0.33			0.22			0.30
Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency		1.04			(0.13	)		1.32			2.53			(2.01	)
Total from investment operations		1.32			0.15			1.65			2.75			(1.71	)
LESS DISTRIBUTIONS FROM:
Net investment income		(0.30	)		(0.38	)		(0.26	)		(0.48	)		(0.38	)
Net realized gains on investments		(0.60	)		(0.14	)		—			—			(0.02	)
Total distributions		(0.90	)		(0.52	)		(0.26	)		(0.48	)		(0.40	)
Paid-in capital from redemption fees (Note 4)		—	²		—	²		0.01			0.01			—	²
Net Asset Value, end of year		$13.79			$13.37			$13.74			$12.34			$10.06
TOTAL RETURN		9.71%			1.11%			13.72%			27.90%			(14.22%	)

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000’s)		$15,406			$30,662			$24,790			$201			$12
Ratio of expenses to average net assets		1.00%			1.01%			1.08%			1.29%			1.31%
Ratio of net investment income (loss) to average net assets		1.89%			2.06%			2.54%			1.87%			2.61%
Portfolio turnover³		79.91%			25.43%			20.52%			21.40%			22.31%

1	Calculated using the average daily shares method.

2	Less than $0.01 per share.

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

See accompanying notes to financial statements.


116		MATTHEWS ASIA FUNDS

Matthews Asia Value Fund

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


INVESTOR CLASS	Period Ended Dec. 31, 2015¹
Net Asset Value, beginning of period		$10.00
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)²		0.02
Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency		(0.16	)
Total from investment operations		(0.14	)
LESS DISTRIBUTIONS FROM:
Net investment income		(0.01	)
Total distributions		(0.01	)
Paid-in capital from redemption fees (Note 4)		—
Net Asset Value, end of period		$9.85
TOTAL RETURN		(1.35%	)³

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000’s)		$1,589
Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 5)		36.42%	⁴
Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator		1.50%	⁴
Ratio of net investment income (loss) to average net assets		2.70%	⁴
Portfolio turnover⁵		10.80%	³

INSTITUTIONAL CLASS	Period Ended Dec. 31, 2015¹
Net Asset Value, beginning of period		$10.00
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)²		0.02
Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency		(0.15	)
Total from investment operations		(0.13	)
LESS DISTRIBUTIONS FROM:
Net investment income		(0.04	)
Total distributions		(0.04	)
Paid-in capital from redemption fees (Note 4)		—
Net Asset Value, end of period		$9.83
TOTAL RETURN		(1.30%	)³

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000’s)		$143
Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 5)		36.17%	⁴
Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator		1.25%	⁴
Ratio of net investment income (loss) to average net assets		2.41%	⁴
Portfolio turnover⁵		10.80%	³

1	Commenced operations on November 30, 2015.

2	Calculated using the average daily shares method.

3	Not annualized.

4	Annualized.

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

See accompanying notes to financial statements.


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Financial Highlights (continued)

Matthews Asia Focus Fund

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


	Year Ended Dec. 31						Period Ended Dec. 31, 2013¹
INVESTOR CLASS	2015			2014			Period Ended Dec. 31, 2013¹
Net Asset Value, beginning of period		$10.01			$9.66			$10.00
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)²		0.11			0.09			0.04
Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency		(1.31	)		0.33			(0.30	)
Total from investment operations		(1.20	)		0.42			(0.26	)
LESS DISTRIBUTIONS FROM:
Net investment income		(0.07	)		(0.07	)		(0.08	)
Net realized gains on investments		(0.05	)		—			—
Total distributions		(0.12	)		(0.07	)		(0.08	)
Paid-in capital from redemption fees (Note 4)³		—			—			—
Net Asset Value, end of period		$8.69			$10.01			$9.66
TOTAL RETURN		(12.07%	)		4.38%			(2.63%	)⁴

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000’s)		$5,474			$7,839			$6,258
Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 5)		2.07%			2.16%			3.50%	⁵
Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator		1.50%			1.57%			1.71%	⁵
Ratio of net investment income (loss) to average net assets		1.08%			0.87%			0.64%	⁵
Portfolio turnover⁶		23.60%			24.12%			16.23%	⁴

	Year Ended Dec. 31						Period Ended Dec. 31, 2013¹
INSTITUTIONAL CLASS	2015			2014			Period Ended Dec. 31, 2013¹
Net Asset Value, beginning of period		$10.04			$9.66			$10.00
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)²		0.13			0.10			0.05
Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency		(1.33	)		0.36			(0.30	)
Total from investment operations		(1.20	)		0.46			(0.25	)
LESS DISTRIBUTIONS FROM:
Net investment income		(0.10	)		(0.08	)		(0.09	)
Net realized gains on investments		(0.05	)		—			—
Total distributions		(0.15	)		(0.08	)		(0.09	)
Paid-in capital from redemption fees (Note 4)³		—			—			—
Net Asset Value, end of period		$8.69			$10.04			$9.66
TOTAL RETURN		(11.96%	)		4.77%			(2.48%	)⁴

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000’s)		$5,700			$7,148			$2,118
Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 5)		1.91%			1.94%			3.32%	⁵
Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator		1.25%			1.31%			1.50%	⁵
Ratio of net investment income (loss) to average net assets		1.30%			0.96%			0.79%	⁵
Portfolio turnover⁶		23.60%			24.12%			16.23%	⁴

1	Commenced operations on April 30, 2013.

2	Calculated using the average daily shares method.

3	Less than $0.01 per share.

4	Not annualized.

5	Annualized.

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

See accompanying notes to financial statements.


118		MATTHEWS ASIA FUNDS

Matthews Asia Growth Fund

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


	Year Ended Dec. 31
INVESTOR CLASS	2015			2014			2013			2012			2011
Net Asset Value, beginning of year		$21.10			$21.17			$18.02			$15.34			$17.97
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)¹		0.11			0.12			0.11			0.15			0.11
Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency		(0.12	)		0.19			3.37			2.53			(2.41	)
Total from investment operations		(0.01	)		0.31			3.48			2.68			(2.30	)
LESS DISTRIBUTIONS FROM:
Net investment income		—			(0.38	)		(0.33	)		—			(0.35	)
Total distributions		—			(0.38	)		(0.33	)		—			(0.35	)
Paid-in capital from redemption fees (Note 4)		—	²		—	²		—	²		—	²		0.02
Net Asset Value, end of year		$21.09			$21.10			$21.17			$18.02			$15.34
TOTAL RETURN		(0.05%	)		1.49%			19.35%			17.47%			(12.70%	)

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000’s)		$526,969			$561,922			$558,407			$276,884			$259,166
Ratio of expenses to average net assets		1.11%			1.11%			1.12%			1.16%			1.19%
Ratio of net investment income (loss) to average net assets		0.49%			0.55%			0.55%			0.92%			0.63%
Portfolio turnover³		29.51%			22.24%			10.77%			44.76%			28.06%

	Year Ended Dec. 31
INSTITUTIONAL CLASS	2015			2014			2013			2012			2011
Net Asset Value, beginning of year		$21.19			$21.26			$18.08			$15.37			$17.98
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)¹		0.16			0.16			0.15			0.17			0.14
Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency		(0.11	)		0.19			3.39			2.54			(2.42	)
Total from investment operations		0.05			0.35			3.54			2.71			(2.28	)
LESS DISTRIBUTIONS FROM:
Net investment income		—			(0.42	)		(0.36	)		—			(0.35	)
Total distributions		—			(0.42	)		(0.36	)		—			(0.35	)
Paid-in capital from redemption fees (Note 4)		—	²		—	²		—	²		—	²		0.02
Net Asset Value, end of year		$21.24			$21.19			$21.26			$18.08			$15.37
TOTAL RETURN		0.24%			1.63%			19.63%			17.63%			(12.58%	)

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000’s)		$249,886			$287,262			$227,852			$147,142			$84,302
Ratio of expenses to average net assets		0.91%			0.91%			0.93%			0.98%			1.03%
Ratio of net investment income (loss) to average net assets		0.72%			0.74%			0.73%			1.02%			0.84%
Portfolio turnover³		29.51%			22.24%			10.77%			44.76%			28.06%

1	Calculated using the average daily shares method.

2	Less than $0.01 per share.

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

See accompanying notes to financial statements.


matthewsasia.com \| 800.789.ASIA			119

Financial Highlights (continued)

Matthews Pacific Tiger Fund

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


	Year Ended Dec. 31
INVESTOR CLASS	2015			2014			2013			2012			2011
Net Asset Value, beginning of year		$26.57			$24.99			$24.42			$20.33			$23.44
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)¹		0.42			0.14			0.17			0.18			0.10
Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency		(0.82	)		2.80			0.72			4.09			(2.78	)
Total from investment operations		(0.40	)		2.94			0.89			4.27			(2.68	)
LESS DISTRIBUTIONS FROM:
Net investment income		(0.42	)		(0.13	)		(0.16	)		(0.16	)		(0.11	)
Net realized gains on investments		(2.21	)		(1.23	)		(0.16	)		(0.02	)		(0.33	)
Total distributions		(2.63	)		(1.36	)		(0.32	)		(0.18	)		(0.44	)
Paid-in capital from redemption fees (Note 4)		—	²		—	²		—	²		—	²		0.01
Net Asset Value, end of year		$23.54			$26.57			$24.99			$24.42			$20.33
TOTAL RETURN		(1.30%	)		11.79%			3.63%			21.00%			(11.41%	)

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000’s)		$2,720,869			$3,047,077			$2,954,108			$2,994,026			$2,780,640
Ratio of expenses to average net assets before any reimbursement or waiver or recapture of expenses by Advisor and Administrator (Note 5)		1.09%			1.09%			1.09%			1.11%			1.11%
Ratio of expenses to average net assets after any reimbursement or waiver or recapture of expenses by Advisor and Administrator		1.07%			1.08%			1.09%			1.11%			1.11%
Ratio of net investment income (loss) to average net assets		1.53%			0.52%			0.67%			0.82%			0.44%
Portfolio turnover³		12.56%			11.38%			7.73%			6.53%			10.51%

	Year Ended Dec. 31
INSTITUTIONAL CLASS	2015			2014			2013			2012			2011
Net Asset Value, beginning of year		$26.56			$24.97			$24.41			$20.32			$23.44
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)¹		0.44			0.18			0.21			0.21			0.23
Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency		(0.80	)		2.82			0.71			4.10			(2.87	)
Total from investment operations		(0.36	)		3.00			0.92			4.31			(2.64	)
LESS DISTRIBUTIONS FROM:
Net investment income		(0.47	)		(0.18	)		(0.20	)		(0.20	)		(0.15	)
Net realized gains on investments		(2.21	)		(1.23	)		(0.16	)		(0.02	)		(0.33	)
Total distributions		(2.68	)		(1.41	)		(0.36	)		(0.22	)		(0.48	)
Paid-in capital from redemption fees (Note 4)²		—			—			—			—			—
Net Asset Value, end of year		$23.52			$26.56			$24.97			$24.41			$20.32
TOTAL RETURN		(1.15%	)		12.03%			3.78%			21.24%			(11.28%	)

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000’s)		$3,964,547			$5,049,643			$4,679,039			$3,770,568			$2,029,091
Ratio of expenses to average net assets before any reimbursement or waiver or recapture of expenses by Advisor and Administrator (Note 5)		0.91%			0.92%			0.92%			0.95%			0.95%
Ratio of expenses to average net assets after any reimbursement or waiver or recapture of expenses by Advisor and Administrator		0.89%			0.91%			0.92%			0.95%			0.95%
Ratio of net investment income (loss) to average net assets		1.61%			0.68%			0.83%			0.95%			1.03%
Portfolio turnover³		12.56%			11.38%			7.73%			6.53%			10.51%

1	Calculated using the average daily shares method.

2	Less than $0.01 per share.

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

See accompanying notes to financial statements.


120		MATTHEWS ASIA FUNDS

Matthews Asia ESG Fund

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


INVESTOR CLASS	Period Ended Dec. 31, 2015¹
Net Asset Value, beginning of period		$10.00
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)²		0.02
Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency		(0.75	)
Total from investment operations		(0.73	)
LESS DISTRIBUTIONS FROM:
Net investment income		(0.04	)
Total distributions		(0.04	)
Paid-in capital from redemption fees (Note 4)		—
Net Asset Value, end of period		$9.23
TOTAL RETURN		(7.30%	)³

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000’s)		$3,248
Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 5)		9.09%	⁴
Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator		1.44%	⁴
Ratio of net investment income (loss) to average net assets		0.25%	⁴
Portfolio turnover⁵		21.72%	³

INSTITUTIONAL CLASS	Period Ended Dec. 31, 2015¹
Net Asset Value, beginning of period		$10.00
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)²		0.05
Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency		(0.77	)
Total from investment operations		(0.72	)
LESS DISTRIBUTIONS FROM:
Net investment income		(0.11	)
Total distributions		(0.11	)
Paid-in capital from redemption fees (Note 4)		—
Net Asset Value, end of period		$9.17
TOTAL RETURN		(7.14%	)³

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000’s)		$1,686
Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 5)		8.90%	⁴
Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator		1.25%	⁴
Ratio of net investment income (loss) to average net assets		0.75%	⁴
Portfolio turnover⁵		21.72%	³

¹	Commenced operations on April 30, 2015.

²	Calculated using the average daily shares method.

³	Not annualized.

⁴	Annualized.

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

See accompanying notes to financial statements.


matthewsasia.com \| 800.789.ASIA			121

Financial Highlights (continued)

Matthews Emerging Asia Fund

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


	Year Ended Dec. 31						Period Ended Dec. 31, 2013¹
INVESTOR CLASS	2015			2014			Period Ended Dec. 31, 2013¹
Net Asset Value, beginning of period		$11.60			$9.93			$10.00
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)²		0.04			0.04			(0.01	)
Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency		(0.34	)		1.69			(0.05	)
Total from investment operations		(0.30	)		1.73			(0.06	)
LESS DISTRIBUTIONS FROM:
Net investment income		—	³		(0.06	)		—	³
Return of capital		—			—			(0.01	)
Net realized gains on investments		(0.03	)		—			—
Total distributions		(0.03	)		(0.06	)		(0.01	)
Paid-in capital from redemption fees (Note 4)³		—			—			—
Net Asset Value, end of period		$11.27			$11.60			$9.93
TOTAL RETURN		(2.56%	)		17.39%			(0.61%	)⁴

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000’s)		$114,590			$110,363			$38,022
Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 5)		1.75%			1.78%			2.39%	⁵
Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator		1.50%			1.58%			1.98%	⁵
Ratio of net investment income (loss) to average net assets		0.33%			0.34%			(0.08%	)⁵
Portfolio turnover⁶		12.14%			8.21%			1.66%	⁴

	Year Ended Dec. 31						Period Ended Dec. 31, 2013¹
INSTITUTIONAL CLASS	2015			2014			Period Ended Dec. 31, 2013¹
Net Asset Value, beginning of period		$11.60			$9.92			$10.00
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)²		0.07			0.06			0.01
Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency		(0.34	)		1.69			(0.07	)
Total from investment operations		(0.27	)		1.75			(0.06	)
LESS DISTRIBUTIONS FROM:
Net investment income		(0.01	)		(0.07	)		—	³
Return of capital		—			—			(0.02	)
Net realized gains on investments		(0.03	)		—			—
Total distributions		(0.04	)		(0.07	)		(0.02	)
Paid-in capital from redemption fees (Note 4)³		—			—			—
Net Asset Value, end of period		$11.29			$11.60			$9.92
TOTAL RETURN		(2.33%	)		17.68%			(0.55%	)⁴

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000’s)		$55,278			$21,350			$2,017
Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 5)		1.57%			1.59%			2.21%	⁵
Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator		1.25%			1.33%			1.75%	⁵
Ratio of net investment income (loss) to average net assets		0.65%			0.55%			0.19%	⁵
Portfolio turnover⁶		12.14%			8.21%			1.66%	⁴

¹	Commenced operations on April 30, 2013.

²	Calculated using the average daily shares method.

³	Less than $0.01 per share.

⁴	Not annualized.

⁵	Annualized.

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

See accompanying notes to financial statements.


122		MATTHEWS ASIA FUNDS

Matthews China Fund

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


INVESTOR CLASS	Year Ended Dec. 31
INVESTOR CLASS	2015¹			2014¹			2013			2012			2011
Net Asset Value, beginning of year		$21.46			$22.84			$23.47			$21.51			$29.36
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)²		0.20			0.24			0.25			0.30			0.26
Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency		0.30			(1.25	)		1.33			2.26			(5.78	)
Total from investment operations		0.50			(1.01	)		1.58			2.56			(5.52	)
LESS DISTRIBUTIONS FROM:
Net investment income		(0.21	)		(0.27	)		(0.26	)		(0.35	)		(0.28	)
Net realized gains on investments		(3.33	)		(0.10	)		(1.95	)		(0.25	)		(2.06	)
Total distributions		(3.54	)		(0.37	)		(2.21	)		(0.60	)		(2.34	)
Paid-in capital from redemption fees (Note 4)		—	³		—	³		—	³		—	³		0.01
Net Asset Value, end of year		$18.42			$21.46			$22.84			$23.47			$21.51
TOTAL RETURN		2.41%			(4.42%	)		6.84%			11.96%			(18.93%	)

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000’s)		$709,767			$947,740			$1,286,309			$1,642,090			$1,836,333
Ratio of expenses to average net assets		1.14%			1.11%			1.08%			1.12%			1.13%
Ratio of net investment income (loss) to average net assets		0.89%			1.09%			1.06%			1.33%			0.93%
Portfolio turnover⁴		66.22%			10.23%			6.29%			9.61%			8.43%

INSTITUTIONAL CLASS	Year Ended Dec. 31
INSTITUTIONAL CLASS	2015¹			2014¹			2013			2012			2011
Net Asset Value, beginning of year		$21.44			$22.81			$23.45			$21.49			$29.36
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)²		0.25			0.28			0.26			0.36			0.26
Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency		0.27			(1.25	)		1.36			2.25			(5.73	)
Total from investment operations		0.52			(0.97	)		1.62			2.61			(5.47	)
LESS DISTRIBUTIONS FROM:
Net investment income		(0.24	)		(0.30	)		(0.31	)		(0.40	)		(0.34	)
Net realized gains on investments		(3.33	)		(0.10	)		(1.95	)		(0.25	)		(2.06	)
Total distributions		(3.57	)		(0.40	)		(2.26	)		(0.65	)		(2.40	)
Paid-in capital from redemption fees (Note 4)³		—			—			—			—			—
Net Asset Value, end of year		$18.39			$21.44			$22.81			$23.45			$21.49
TOTAL RETURN		2.50%			(4.22%	)		6.97%			12.22%			(18.80%	)

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000’s)		$24,276			$52,478			$117,678			$390,744			$288,277
Ratio of expenses to average net assets		0.99%			0.95%			0.91%			0.91%			0.96%
Ratio of net investment income (loss) to average net assets		1.09%			1.27%			1.13%			1.58%			0.99%
Portfolio turnover⁴		66.22%			10.23%			6.29%			9.61%			8.43%

¹	Consolidated Financial Highlights. See Note 2-C.

²	Calculated using the average daily shares method.

³	Less than $0.01 per share.

⁴	The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of share issued.

See accompanying notes to financial statements.


matthewsasia.com \| 800.789.ASIA			123

Financial Highlights (continued)

Matthews India Fund

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


INVESTOR CLASS	Year Ended Dec. 31
INVESTOR CLASS	2015			2014			2013			2012			2011
Net Asset Value, beginning of year		$26.46			$16.28			$17.51			$13.59			$21.49
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)¹		(0.05	)		0.07			0.08			0.11			0.11
Net realized gain (loss) and unrealized appreciation/ depreciation on investments and foreign currency		0.26			10.29			(1.13	)		4.17			(7.96	)
Total from investment operations		0.21			10.36			(1.05	)		4.28			(7.85	)
LESS DISTRIBUTIONS FROM:
Net investment income		(0.03	)		(0.05	)		(0.18	)		(0.09	)		(0.07	)
Net realized gains on investments		(0.23	)		(0.14	)		(0.01	)		(0.27	)		—
Total distributions		(0.26	)		(0.19	)		(0.19	)		(0.36	)		(0.07	)
Paid-in capital from redemption fees (Note 4)		0.02			0.01			0.01			—	²		0.02
Net Asset Value, end of year		$26.43			$26.46			$16.28			$17.51			$13.59
TOTAL RETURN		0.90%			63.71%			(5.90%	)		31.54%			(36.48%	)

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000’s)		$1,151,948			$974,838			$427,861			$607,800			$559,337
Ratio of expenses to average net assets		1.11%			1.12%			1.13%			1.18%			1.18%
Ratio of net investment income (loss) to average net assets		(0.17%	)		0.32%			0.48%			0.65%			0.58%
Portfolio turnover³		9.51%			14.86%			8.70%			7.03%			3.51%

INSTITUTIONAL CLASS	Year Ended Dec. 31
INSTITUTIONAL CLASS	2015			2014			2013			2012			2011
Net Asset Value, beginning of year		$26.49			$16.31			$17.53			$13.61			$21.48
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)¹		0.01			0.09			0.10			0.14			0.16
Net realized gain (loss) and unrealized appreciation/ depreciation on investments and foreign currency		0.26			10.29			(1.11	)		4.17			(7.96	)
Total from investment operations		0.27			10.38			(1.01	)		4.31			(7.80	)
LESS DISTRIBUTIONS FROM:
Net investment income		(0.06	)		(0.08	)		(0.21	)		(0.12	)		(0.07	)
Net realized gains on investments		(0.23	)		(0.14	)		(0.01	)		(0.27	)		—
Total distributions		(0.29	)		(0.22	)		(0.22	)		(0.39	)		(0.07	)
Paid-in capital from redemption fees (Note 4)		0.02			0.02			0.01			—	²		—	²
Net Asset Value, end of year		$26.49			$26.49			$16.31			$17.53			$13.61
TOTAL RETURN		1.12%			63.80%			(5.67%	)		31.74%			(36.35%	)

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000’s)		$353,879			$109,331			$3,234			$36,166			$26,920
Ratio of expenses to average net assets		0.90%			0.94%			0.95%			0.98%			0.99%
Ratio of net investment income (loss) to average net assets		0.02%			0.38%			0.61%			0.87%			0.86%
Portfolio turnover³		9.51%			14.86%			8.70%			7.03%			3.51%

¹	Calculated using the average daily shares method.

²	Less than $0.01 per share.

³	The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of shares issued.

See accompanying notes to financial statements.


124		MATTHEWS ASIA FUNDS

Matthews Japan Fund

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


INVESTOR CLASS	Year Ended Dec. 31
INVESTOR CLASS	2015			2014			2013			2012			2011
Net Asset Value, beginning of year		$15.70			$16.20			$12.27			$11.34			$12.53
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)¹		0.04			0.05			0.03			0.10			0.07
Net realized gain (loss) and unrealized appreciation/ depreciation on investments and foreign currency		3.23			(0.48	)		4.12			0.84			(1.06	)
Total from investment operations		3.27			(0.43	)		4.15			0.94			(0.99	)
LESS DISTRIBUTIONS FROM:
Net investment income		—			(0.08	)		(0.24	)		(0.01	)		(0.22	)
Total distributions		—			(0.08	)		(0.24	)		(0.01	)		(0.22	)
Paid-in capital from redemption fees (Note 4)		—	²		0.01			0.02			—	²		0.02
Net Asset Value, end of year		$18.97			$15.70			$16.20			$12.27			$11.34
TOTAL RETURN		20.83%			(2.60%	)		34.03%			8.32%			(7.72%	)

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000’s)		$1,330,743			$467,854			$312,988			$82,463			$101,369
Ratio of expenses to average net assets		0.99%			1.03%			1.10%			1.20%			1.22%
Ratio of net investment income (loss) to average net assets		0.22%			0.32%			0.19%			0.81%			0.54%
Portfolio turnover³		24.19%			42.52%			22.72%			48.58%			34.94%

INSTITUTIONAL CLASS	Year Ended Dec. 31
INSTITUTIONAL CLASS	2015			2014			2013			2012			2011
Net Asset Value, beginning of year		$15.71			$16.20			$12.26			$11.34			$12.53
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)¹		0.05			0.09			0.06			0.12			0.06
Net realized gain (loss) and unrealized appreciation/ depreciation on investments and foreign currency		3.24			(0.50	)		4.12			0.84			(1.04	)
Total from investment operations		3.29			(0.41	)		4.18			0.96			(0.98	)
LESS DISTRIBUTIONS FROM:
Net investment income		—			(0.09	)		(0.26	)		(0.04	)		(0.22	)
Total distributions		—			(0.09	)		(0.26	)		(0.04	)		(0.22	)
Paid-in capital from redemption fees (Note 4)		—	²		0.01			0.02			—	²		0.01
Net Asset Value, end of year		$19.00			$15.71			$16.20			$12.26			$11.34
TOTAL RETURN		20.94%			(2.47%	)		34.27%			8.47%			(7.72%	)

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000’s)		$618,583			$154,750			$59,702			$22,233			$30,302
Ratio of expenses to average net assets		0.87%			0.90%			0.96%			1.04%			1.07%
Ratio of net investment income (loss) to average net assets		0.28%			0.58%			0.41%			0.99%			0.46%
Portfolio turnover³		24.19%			42.52%			22.72%			48.58%			34.94%

¹	Calculated using the average daily shares method.

²	Less than $0.01 per share.

³	The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of shares issued.

See accompanying notes to financial statements.


matthewsasia.com \| 800.789.ASIA			125

Financial Highlights (continued)

Matthews Korea Fund

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


INVESTOR CLASS	Year Ended Dec. 31
INVESTOR CLASS	2015			2014			2013			2012			2011
Net Asset Value, beginning of year		$5.65			$5.95			$5.64			$4.59			$5.14
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)¹		0.01			—	²		—	²		—	²		(0.01	)
Net realized gain (loss) and unrealized appreciation/ depreciation on investments and foreign currency		0.83			(0.05	)		0.57			1.10			(0.31	)
Total from investment operations		0.84			(0.05	)		0.57			1.10			(0.32	)
LESS DISTRIBUTIONS FROM:
Net investment income		(0.01	)		—			(0.02	)		—			(0.01	)
Net realized gains on investments		(0.33	)		(0.25	)		(0.24	)		(0.05	)		(0.22	)
Total distributions		(0.34	)		(0.25	)		(0.26	)		(0.05	)		(0.23	)
Paid-in capital from redemption fees (Note 4)²		—			—			—			—			—
Net Asset Value, end of year		$6.15			$5.65			$5.95			$5.64			$4.59
TOTAL RETURN		15.16%			(0.73%	)		10.11%			24.05%			(6.45%	)

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000’s)		$147,685			$127,774			$138,830			$141,247			$141,590
Ratio of expenses to average net assets		1.10%			1.11%			1.13%			1.16%			1.18%
Ratio of net investment income (loss) to average net assets		0.18%			0.04%			0.02%			0.01%			(0.18%	)
Portfolio turnover³		20.36%			17.37%			46.20%			34.84%			30.13%

INSTITUTIONAL CLASS	Year Ended Dec. 31
INSTITUTIONAL CLASS	2015			2014			2013			2012			2011
Net Asset Value, beginning of year		$5.68			$5.96			$5.67			$4.61			$5.14
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)¹		0.02			0.05			—	²		—	²		0.17
Net realized gain (loss) and unrealized appreciation/ depreciation on investments and foreign currency		0.83			(0.08	)		0.56			1.11			(0.47	)
Total from investment operations		0.85			(0.03	)		0.56			1.11			(0.30	)
LESS DISTRIBUTIONS FROM:
Net investment income		(0.02	)		—			(0.03	)		—			(0.01	)
Net realized gains on investments		(0.33	)		(0.25	)		(0.24	)		(0.05	)		(0.22	)
Total distributions		(0.35	)		(0.25	)		(0.27	)		(0.05	)		(0.23	)
Paid-in capital from redemption fees (Note 4)²		—			—			—			—			—
Net Asset Value, end of year		$6.18			$5.68			$5.96			$5.67			$4.61
TOTAL RETURN		15.27%			(0.39%	)		9.87%			24.16%			(6.05%	)

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000’s)		$59,982			$91,431			$12,283			$8,597			$15,109
Ratio of expenses to average net assets		0.93%			0.93%			0.97%			1.00%			1.07%
Ratio of net investment income (loss) to average net assets		0.28%			0.87%			(0.03%	)		(0.07%	)		3.37%
Portfolio turnover³		20.36%			17.37%			46.20%			34.84%			30.13%

1	Calculated using the average daily shares method.

2	Less than $0.01 per share.

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

See accompanying notes to financial statements.


126		MATTHEWS ASIA FUNDS

Matthews Asia Small Companies Fund

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


INVESTOR CLASS	Year Ended Dec. 31
INVESTOR CLASS	2015			2014			2013			2012			2011
Net Asset Value, beginning of year		$21.46			$19.34			$18.13			$14.77			$21.16
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)¹		0.02			0.09			0.11			0.17			0.15
Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency		(2.05	)		2.11			1.19			3.36			(4.35	)
Total from investment operations		(2.03	)		2.20			1.30			3.53			(4.20	)
LESS DISTRIBUTIONS FROM:
Net investment income		(0.03	)		(0.08	)		(0.09	)		(0.09	)		(0.17	)
Net realized gains on investments		—			—			—			(0.08	)		(2.04	)
Total distributions		(0.03	)		(0.08	)		(0.09	)		(0.17	)		(2.21	)
Paid-in capital from redemption fees (Note 4)		0.01			—	²		—	²		—	²		0.02
Net Asset Value, end of year		$19.41			$21.46			$19.34			$18.13			$14.77
TOTAL RETURN		(9.43%	)		11.39%			7.19%			23.92%			(20.03%	)

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000’s)		$387,747			$599,082			$407,352			$366,753			$258,944
Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 5)		1.48%			1.47%			1.47%			1.50%			1.52%
Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator		1.47%			1.47%			1.47%			1.50%			1.52%
Ratio of net investment income (loss) to average net assets		0.08%			0.44%			0.58%			1.06%			0.76%
Portfolio turnover		48.29%	³		21.70%	³		37.01%	³		27.95%			19.97%

							Year Ended Dec. 31						Period Ended Dec. 31, 2013⁴
INSTITUTIONAL CLASS							2015			2014			Period Ended Dec. 31, 2013⁴
Net Asset Value, beginning of period								$21.46			$19.33			$19.44
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)¹								0.11			0.15			0.18
Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency								(2.10	)		2.10			(0.16	)
Total from investment operations								(1.99	)		2.25			0.02
LESS DISTRIBUTIONS FROM:
Net investment income								(0.08	)		(0.12	)		(0.13	)
Net realized gains on investments								—			—			—
Total distributions								(0.08	)		(0.12	)		(0.13	)
Paid-in capital from redemption fees (Note 4)								0.01			—	²		—	²
Net Asset Value, end of period								$19.40			$21.46			$19.33
TOTAL RETURN								(9.23%	)		11.65%			0.13%	⁵

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000’s)								$222,168			$77,168			$44,769
Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 5)								1.30%			1.27%			1.25%	⁶
Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator								1.25%			1.26%			1.25%	⁶
Ratio of net investment income (loss) to average net assets								0.53%			0.70%			1.39%	⁶
Portfolio turnover³								48.29%			21.70%			37.01%	⁵

1	Calculated using the average daily shares method.

2	Less than $0.01 per share.

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

4	Institutional Class commenced operations on April 30, 2013.

5	Not annualized.

6	Annualized.

See accompanying notes to financial statements.


matthewsasia.com \| 800.789.ASIA			127

Financial Highlights (continued)

Matthews China Small Companies Fund

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


	Year Ended Dec. 31												Period Ended Dec. 31, 2011¹
INVESTOR CLASS	2015			2014			2013			2012			Period Ended Dec. 31, 2011¹
Net Asset Value, beginning of period		$9.21			$9.89			$7.76			$7.04			$10.00
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)²		0.08			0.01			0.02			0.03			(0.02	)
Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency		0.27			(0.33	)		2.22			0.68			(2.96	)
Total from investment operations		0.35			(0.32	)		2.24			0.71			(2.98	)
LESS DISTRIBUTIONS FROM:
Net investment income		(0.06	)		(0.02	)		(0.11	)		(0.02	)		(0.01	)
Return of capital		—			(0.34	)		—			—			—
Net realized gains on investments		(0.72	)		—			—			—			—
Total distributions		(0.78	)		(0.36	)		(0.11	)		(0.02	)		(0.01	)
Paid-in capital from redemption fees (Note 4)		0.01			—	³		—	³		0.03			0.03
Net Asset Value, end of period		$8.79			$9.21			$9.89			$7.76			$7.04
TOTAL RETURN		4.07%			(3.33%	)		28.85%			10.53%			(29.51%	)⁴

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000’s)		$21,546			$22,068			$26,674			$10,266			$4,493
Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 5)		2.10%			1.90%			2.04%			3.26%			5.32%	⁵
Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator		1.50%			1.67%			2.00%			2.00%			2.00%	⁵
Ratio of net investment income (loss) to average net assets		0.80%			0.14%			0.17%			0.40%			(0.53%	)⁵
Portfolio turnover		72.49%			32.42%			10.28%			34.01%			6.08%	⁴

¹	Investor Class commenced operations on May 31, 2011.

²	Calculated using the average daily shares method.

³	Less than $0.01 per share.

⁴	Not annualized.

⁵	Annualized.

See accompanying notes to financial statements.


128		MATTHEWS ASIA FUNDS

Matthews Asia Science and Technology Fund

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


	Year Ended Dec. 31
INVESTOR CLASS	2015			2014			2013			2012			2011
Net Asset Value, beginning of year		$13.61			$12.59			$9.29			$8.16			$9.89
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)¹		(0.05	)		—	²		0.01			0.03			0.02
Net realized gain (loss) and unrealized appreciation/ depreciation on investments and foreign currency		0.64			1.16			3.30			1.12			(1.74	)
Total from investment operations		0.59			1.16			3.31			1.15			(1.72	)
LESS DISTRIBUTIONS FROM:
Net investment income		—			(0.06	)		(0.01	)		(0.02	)		(0.02	)
Net realized gains on investments		(1.88	)		(0.08	)		—			—			—
Total distributions		(1.88	)		(0.14	)		(0.01	)		(0.02	)		(0.02	)
Paid-in capital from redemption fees (Note 4)		—	²		—	²		—	²		—	²		0.01
Net Asset Value, end of year		$12.32			$13.61			$12.59			$9.29			$8.16
TOTAL RETURN		4.48%			9.24%			35.61%			14.11%			(17.26%	)

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000’s)		$129,763			$125,612			$111,751			$131,629			$153,349
Ratio of expenses to average net assets		1.18%			1.16%			1.18%			1.18%			1.21%
Ratio of net investment income (loss) to average net assets		(0.33%	)		(0.02%	)		0.07%			0.30%			0.23%
Portfolio turnover		72.85%	³		62.99%	³		62.04%	³		45.76%			65.47%



	Year Ended Dec. 31						Period Ended Dec. 31, 2013⁴
INSTITUTIONAL CLASS	2015			2014			Period Ended Dec. 31, 2013⁴
Net Asset Value, beginning of period		$13.61			$12.58			$10.09
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)¹		(0.02	)		0.03			0.04
Net realized gain (loss) and unrealized appreciation/ depreciation on investments and foreign currency		0.63			1.17			2.48
Total from investment operations		0.61			1.20			2.52
LESS DISTRIBUTIONS FROM:
Net investment income		—			(0.09	)		(0.03	)
Net realized gains on investments		(1.88	)		(0.08	)		—
Total distributions		(1.88	)		(0.17	)		(0.03	)
Paid-in capital from redemption fees (Note 4)²		—			—			—
Net Asset Value, end of period		$12.34			$13.61			$12.58
TOTAL RETURN		4.63%			9.54%			24.99%	⁵

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000’s)		$36,770			$61,088			$49,236
Ratio of expenses to average net assets		0.97%			0.95%			1.00%	⁶
Ratio of net investment income (loss) to average net assets		(0.16%	)		0.21%			0.56%	⁶
Portfolio turnover³		72.85%			62.99%			62.04%	⁵

¹	Calculated using the average daily shares method.

²	Less than $0.01 per share.

³	The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of shares issued.

⁴	Institutional Class commenced operations on April 30, 2013.

⁵	Not annualized.

⁶	Annualized.

See accompanying notes to financial statements.


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Notes to Financial Statements

1.	ORGANIZATION

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

2.	SIGNIFICANT ACCOUNTING POLICIES

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

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

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

The books and records of the Funds are maintained in U.S. dollars. Transactions, portfolio securities, and assets and liabilities denominated in a foreign currency are translated and recorded in U.S. dollars at the prevailing exchange rate as of the close of trading on the NYSE. Translation gains or losses resulting from changes in the exchange rate during the reporting period and realized gains and losses on the settlement of foreign currency transactions are reported in the results of operations for the current period. The Funds do not isolate that portion of gains and losses on investments in equity securities that is due to changes in foreign exchange rate from that which is due to changes in market prices of securities.

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

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

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

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

Level 3: Significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments and derivative financial instruments).

Level 3 securities consisted of equities that, as of December 31, 2015, were suspended from trading. As described in Note 2-A, these securities are valued based on their fair value as determined under the direction of the Board. The significant unobservable inputs, the methodology used for valuing such securities, and the characterization of such securities as Level 3 securities are not necessarily an indication of liquidity, or the risk associated with investing in these securities. A significant change in the unobservable inputs could result in a significantly lower or higher value in such Level 3 securities and could impact overall Fund performance. Level 2 equity securities consist primarily of securities that have been fair valued by third-party pricing services (see Note 2-A).


130		MATTHEWS ASIA FUNDS

The summary of inputs used to determine the fair valuation of the Fund’s investments as of December 31, 2015 is as follows:


	Matthews Asia Strategic Income Fund		Matthews Asian Growth and Income Fund		Matthews Asia Dividend Fund		Matthews Asia Value Fund		Matthews Asia Focus Fund		Matthews Asia Growth Fund
Assets:
Investments:
Level 1: Quoted Prices
China/Hong Kong		$—		$197,867,028		$167,142,547		$62,871		$784,479		$48,475,813
Indonesia		—		51,939,120		48,424,150		—		—		—
Israel		—		—		—		30,910		—		—
Malaysia		—		—		—		—		—		7,605,523
Pakistan		—		—		—		—		—		7,644,819
Philippines		—		—		—		—		—		7,216,775
Singapore		500,994		—		32,808,738		39,265		—		—
Sri Lanka		—		—		—		—		—		21,476,137
Taiwan		—		94,900,283		168,714,394		—		—		—
United States		—		—		—		85,354		711,838		—
Level 2: Other Significant Observable Inputs
Foreign Government Obligations^a		5,667,592		—		—		—		—		—
Non-Convertible Corporate Bonds^a		42,654,102		—		—		—		—		—
Convertible Corporate Bonds^a		8,731,499		256,088,500		—		—		—		—
Common Equities:
Australia		—		105,059,030		95,770,290		—		631,448		28,298,302
Bangladesh		—		—		—		—		—		3,879,776
China/Hong Kong		—		651,015,825		1,452,078,652		391,821		3,464,844		40,116,290
India		—		—		125,320,782		—		363,328		86,678,527
Indonesia		—		27,468,842		159,538,645		—		561,135		74,932,731
Japan		—		182,545,266		1,471,753,968		88,315		348,781		355,621,506
Luxembourg		—		—		71,353,674		—		—		—
Malaysia		—		197,847,166		—		69,540		944,423		—
New Zealand		—		57,859,979		50,879,701		—		—		—
Norway		—		44,496,720		—		—		—		—
Philippines		265,861		34,106,645		56,871,121		—		—		33,530,546
Singapore		—		396,495,736		160,118,287		36,282		1,087,483		—
South Korea		—		216,664,405		212,909,163		235,716		638,482		9,286,943
Switzerland		—		—		—		—		343,049		—
Taiwan		—		48,674,077		86,978,334		70,347		405,539		12,096,125
Thailand		—		95,361,378		103,919,551		15,956		464,693		11,641,461
United Kingdom		—		—		—		33,523		—		—
Vietnam		—		71,610,012		77,772,211		—		—		12,303,603
Preferred Equities:
South Korea		—		109,847,906		164,273,347		160,477		—		—
Rights:
Singapore		—		62,215		—		—		—		—
Total Market Value of Investments		$57,820,048		$2,839,910,133		$4,706,627,555		$1,320,377		$10,749,522		$760,804,877

a	Industry, countries, or security types are disclosed on the Schedule of Investments.


	Matthews Asia Strategic Income Fund
Derivative Financial Instruments¹
Assets:
Level 2: Other Significant Observable Inputs
Foreign Currency Exchange Contracts		$334,847
Liabilities:
Level 2: Other Significant Observable Inputs
Foreign Currency Exchange Contracts		(38,273	)
Total Market Value of Derivative Financial Instruments		$296,574

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


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Notes to Financial Statements (continued)


	Matthews China Dividend Fund		Matthews China Fund		Matthews India Fund		Matthews Japan Fund		Matthews Korea Fund		Matthews China Small Companies Fund
Assets:
Investments:
Level 1: Quoted Prices
Common Equities:
Consumer Discretionary		$9,483,287		$45,047,122		$12,656,909		$—		$—		$1,611,171
Consumer Staples		—		—		21,813,810		—		—		—
Financials		3,017,053		—		25,956,908		—		—		—
Health Care		—		—		77,501,570		—		—		1,390,551
Industrials		529,008		—		—		—		—		1,135,079
Information Technology		4,473,658		34,388,784		64,983,654		—		—		237,188
Telecommunication Services		5,279,811		—		—		—		7,438,682		—
Level 2: Other Significant Observable Inputs
Common Equities:
Consumer Discretionary		30,063,702		84,752,204		110,512,390		321,696,813		39,622,709		2,128,243
Consumer Staples		13,104,130		19,586,079		253,205,307		291,195,265		39,289,156		1,097,450
Energy		2,554,135		7,638,084		—		—		4,166,180		—
Financials		34,904,479		261,723,617		378,574,522		204,240,854		26,524,365		2,348,094
Health Care		8,449,199		39,182,541		146,401,826		258,666,298		7,195,786		2,085,572
Industrials		32,299,023		112,835,631		145,560,032		491,303,686		9,707,182		6,128,006
Information Technology		9,919,715		89,166,519		188,492,523		248,737,716		17,434,332		2,519,150
Materials		3,928,017		—		81,510,264		45,855,002		4,535,861		—
Telecommunication Services		10,313,942		—		—		—		—		—
Utilities		8,596,389		17,474,787		—		—		—		446,090
Rights:
Information Technology		—		—		—		—		—		4,607
Preferred Equities:
Consumer Discretionary		—		—		—		—		5,541,022		—
Consumer Staples		—		—		—		—		16,528,385		—
Energy		—		—		—		—		2,030,053		—
Financials		—		—		—		—		6,346,051		—
Information Technology		—		—		—		—		8,987,211		—
Materials		—		—		—		—		5,831,001		—
Level 3: Significant Unobservable Inputs
Common Equities:
Financials		—		20,510,781		—		—		—		—
Information Technology		—		—		—		—		—		7,548
Total Market Value of Investments		$176,915,548		$732,306,149		$1,507,169,715		$1,861,695,634		$201,177,976		$21,138,749


132		MATTHEWS ASIA FUNDS


	Matthews Pacific Tiger Fund		Matthews Asia ESG Fund		Matthews Emerging Asia Fund		Matthews Asia Small Companies Fund			Matthews Asia Science and Technology Fund
Assets:
Investments:
Level 1: Quoted Prices
Common Equities:
Bangladesh		$—		$—		$12,386,912		$—			$—
China/Hong Kong		520,042,996		154,872		837,081		68,191,580			51,249,404
Indonesia		16,164,708		—		1,781,085		14,349,431			2,446,440
Malaysia		73,066,276		—		—		9,066,793			—
Pakistan		—		125,338		8,018,012		—			—
Philippines		—		135,688		4,871,455		14,581,606			—
Singapore		—		54,345		—		—			—
Sri Lanka		—		—		10,461,138		—			—
United States		82,983,652		—		—		—			3,199,066
Vietnam		—		—		13,989,738		2,945,401			—
Warrants:
Malaysia		2,425,945		—		—		—			—
Thailand		—		—		17,485		—			—
Level 2: Other Significant Observable Inputs
Common Equities:
Australia		—		87,734		1,699,778		—			—
Bangladesh		—		61,559		11,290,607		—			—
Cambodia		—		—		1,781,353		—			—
China/Hong Kong		1,550,646,005		1,216,148		15,388,996		125,057,410			21,495,143
India		1,323,980,756		887,030		18,972,248		92,403,428			15,940,400
Indonesia		410,521,599		118,407		14,876,231		16,168,591			—
Japan		—		303,449		—		—			18,321,161
Luxembourg		—		86,354		—		—			—
Malaysia		164,879,101		—		—		15,774,729			—
Pakistan		—		—		25,838,998		—			—
Philippines		190,435,871		113,525		5,120,399		10,155,255			—
Singapore		17,101,875		110,956		1,787,119		39,616,214			3,913,880
South Korea		1,136,733,504		417,893		—		47,786,510			13,938,234
Sri Lanka		—		87,968		4,007,376		—			—
Switzerland		172,209,114		—		—		—			—
Taiwan		384,788,402		669,460		—		100,552,432	��		11,873,828
Thailand		340,109,464		209,681		4,762,212		34,312,819			3,185,411
Vietnam		161,219,878		—		7,301,102		—			1,307,308
Rights:
Pakistan		—		—		24,050		—			—
Taiwan		—		—		—		77,505			—
Preferred Equities:
South Korea		—		—		—		—			11,786,728
Level 3: Significant Unobservable Inputs
Common Equities:
China/Hong Kong		82,848,600		—		—		—			—
Total Market Value of Investments		$6,630,157,746		$4,840,407		$165,213,375		$591,039,704			$158,657,003


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Notes to Financial Statements (continued)

Foreign securities that are valued based on market quotations are categorized as Level 1 in the fair value hierarchy (see Note 2-B). Certain foreign securities may be fair valued by external pricing services when the Funds determine that events affecting the value of foreign securities which occur between the time at which they are determined and the close of trading on the NYSE render market quotations unreliable. Such fair valuations are typically categorized as Level 2 in the fair value hierarchy. The Funds’ policy is to recognize transfers in and transfers out as of the beginning of the reporting period. At December 31, 2015, the Funds utilized third party pricing services to fair value certain securities, some of which were different than the securities which had been valued by third party pricing services at December 31, 2014. As a result, certain securities held by the Funds were transferred from Level 2 into Level 1 and certain securities held by the Funds were transferred from Level 1 to Level 2 with beginning of period values as follows:


	Transfer to Level 1 from Level 2		Transfer to Level 2 from Level 1
Matthews Asia Dividend Fund		$34,007,402		$105,927,798
Matthews China Dividend Fund		—		8,897,745
Matthews Asia Growth Fund		18,212,806		—
Matthews Pacific Tiger Fund		61,210,015		152,036,514
Matthews Emerging Asia Fund		18,094,819		26,857,057
Matthews India Fund		37,924,647		166,384,965
Matthews Japan Fund		—		7,076,440
Matthews Korea Fund		—		12,249,730
Matthews Asia Small Companies Fund		22,542,435		42,161,044
Matthews Asia Science and Technology Fund		—		1,997,151

A reconciliation of Level 3 investments for which significant unobservable inputs were used to determine value are as follows:


	Matthews Pacific Tiger Fund			Matthews China Fund			Matthews China Small Companies Fund			Matthews China Small Companies Fund		Matthews China Dividend Fund			Matthews China Dividend Fund			Matthews China Dividend Fund
	Common Equities — China/ Hong Kong			Common Equities — Financials			Common Equities — Industrials			Common Equities — Information Technology		Common Equities — Consumer Discretionary			Common Equities — Industrials			Common Equities — Information Technology
Balance as of 12/31/14 (market value)		$—			$—			$898,951			$7,544		$5,999,103			$4,694,035			$3,526,660

Accrued discounts/premiums		—			—			—			—		—			—			—

Realized gain/(loss)		12,131,727			13,393,369			145,383			—		3,311,999			2,037,781			3,827,643

Change in unrealized (depreciation)		8,596,172			(8,110,968	)		(172,985	)		4		(1,556,432	)		(2,011,672	)		(727,248	)

Purchases		—			7,545,097			71,642			—		—			1,302,855			—

Sales		(24,708,275	)		(22,502,575	)		(942,991	)		—		(7,754,670	)		(6,022,999	)		(6,627,055	)

Transfers in to Level 3*		86,828,976			30,185,858			—			—		—			—			—

Transfers out of Level 3*		—			—			—			—		—			—			—
Balance as of 12/31/15 (market value)		$82,848,600			$20,510,781			$—			$7,548		$—			$—			$—
Net change in unrealized appreciation/depreciation on Level 3 investments held as of 12/31/15**		$8,596,172			($8,110,968	)		$—			$4		$—			$—			$—

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

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

Certain foreign securities, for which market quotations are not readily available, may be fair valued and classified as either Level 2 or Level 3. When the underlying inputs include significant observable inputs obtained from sources independent of the Funds, the securities are classified as Level 2. These inputs include evaluated prices from the Funds’ pricing vendors, day-on-day price changes, primary and ancillary pricing sources, and other available independent market indicators of value. When the underlying inputs include significant unobservable inputs and reflect assumptions of market participants, the securities are classified as Level 3. As of December 31, 2015, the Funds that previously used quoted prices or observable inputs now also utilize significant unobservable inputs for certain securities that were suspended from trading. As a result, certain securities held by the Funds that were previously classified as Level 1 or Level 2 were transferred to Level 3. Certain securities held by the Funds that were suspended from trading and classified as Level 3 on December 31, 2014 subsequently resumed trading and were transferred from Level 3 to Level 1, Level 2 or were sold.


134		MATTHEWS ASIA FUNDS

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

Value

Valuation
Technique

Unobservable
Input¹

Range of
Unobservable
Inputs

Matthews Pacific Tiger Fund Assets:

Common Equity

$82,848,600

Last Price²Multiplied by Proxy factor³

Proxy factor³

Less than 5%

Matthews China Fund Assets:

Common Equity

$20,510,781

Last Price²Multiplied by Proxy factor³

Proxy factor³

Less than 5%

1	Increase in unobservable input may result in a significant increase to value, while a decrease in unobservable input may result in a significant decrease to value.

2	Last Price could include closing price, last reported sales price, or last fair valued price as described in Note 2-A.

3	Proxy factor considers movement of the Hong Kong Hang Seng Index.

BASIS OF CONSOLIDATION: The accompanying consolidated financial statements of Matthews China Fund and Matthews Asia Dividend Fund (the “Investing Funds”) includes the accounts of the Matthews CF-U Series and Matthews ADF-U Series (the “U Series Funds”), respectively. The U Series Funds are series of Matthews A Share Selections Fund, LLC, a Delaware limited liability company registered under the 1940 Act. All of the interests offered by U Series Funds are exclusively owned by the Investing Funds. The U Series Funds primarily invest in the stocks of Chinese companies listed on Mainland China Stock Exchanges, and traded and denominated in the currency of China, the Renminbi. To allow U Series Funds to invest in China A Shares Matthews has applied for and received a license from the China Securities Regulatory Commission as a Qualified Foreign Institutional Investor (“QFII”) and has been allocated by the State Administration of Foreign Exchange of China an initial quota of $100 million in June 2014, and an additional quota of $440 million in July 2015, representing the equivalent value in Renminbi of China A Shares that the Funds may purchase. Access to the quota will be subject to Matthews’ trade allocation procedures and access allocation procedures. The U Series Funds are subject to the same investment policies and restrictions that apply to Investing Funds. The net assets of Matthews CF-U Series and Matthews ADF-U Series at December 31, 2015, were $78,853,729 and $101,315,686 respectively. Intercompany accounts and transactions, if any, have been eliminated in the consolidation process. The U Series Funds are intended to be disregarded entities for the tax purposes. Therefore, no federal tax provision is required. Consolidated financial statements include expenses that are accrued for and paid by the Investing Funds. These include on-going operational costs as well as costs in connection with the launching of the U Series Funds (see offering cost, note E).

As of April 2015, certain Funds began investing in China A Shares via the Shanghai-Hong Kong Stock Connect, a securities trading and clearing linked program developed by the Hong Kong Exchanges and Clearing Limited, Shanghai Stock Exchange and China Securities Depository and Clearing Corporation Limited, with an aim to achieve mutual stock market access between mainland China and Hong Kong.

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

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

Changes in interest rates in each of the countries in which the Funds may invest, as well as interest rates in more-developed countries, may cause a decline in the market value of an investment. Generally, fixed income securities will decrease in value when interest rates rise and can be expected to rise in value when interest rates decline. As interest rates decline, debt issuers may repay or refinance their loans or obligations earlier than anticipated. The issuers of fixed income securities may, therefore, repay principal in advance. This would force the Funds to reinvest the proceeds from the principal prepayments at lower rates, which reduces the Funds’ income.

As of December 31, 2015, Chinese law permits a QFII, such as Matthews, to repatriate an Investment Quota (including the proceeds of the Investment Quota) once every seven days. Previously, repatriation by a QFII was limited to once every 30 days (and other types of QFIIs may operate under greater or different repatriation restrictions). As a result of this restriction, the Company sought and has been granted by the U.S. Securities and Exchange Commission an exemption (the “Exemptive Order”) from the provisions of Section 22(e) of the 1940 Act and Rule 22c-1 thereunder to the extent necessary to permit the Company to operate as an “extended payment fund.” As extended payment funds, the U Series Funds (see Note 2-C) will only redeem Interests on a periodic basis, which, pursuant to the Exemptive Order, shall be no less frequent than on one day each month.

OFFERING COSTS: Offering costs are amortized on a straight-line basis over one year from each Fund’s respective commencement of operations. In the event that any of the initial shares are redeemed during the period of amortization of the Fund’s offering costs, the redemption proceeds will be reduced by any such unamortized offering costs in the same proportion as the number of shares being redeemed bears to the number of those shares outstanding at the time of redemption.


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Notes to Financial Statements (continued)

DISTRIBUTIONS TO SHAREHOLDERS: It is the policy of Matthews Asian Growth and Income Fund and Matthews China Dividend Fund to distribute net investment income on a semi-annual basis and capital gains, if any, annually. It is the policy of Matthews Asia Dividend Fund and Matthews Asia Strategic Income Fund to distribute net investment income on a quarterly basis and capital gains, if any, annually. Each of the other Funds distributes a net investment income and capital gains, if any, annually. Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from U.S. GAAP.

The tax character of distributions paid for the fiscal year ended December 31, 2015 and December 31, 2014 were as follows:


YEAR ENDED DECEMBER 31, 2015	Ordinary Income		Net Long-Term Capital Gains		Total Taxable Distributions
Matthews Asia Strategic Income Fund		$1,925,044		$—		$1,925,044
Matthews Asian Growth and Income Fund		89,571,608		134,712,377		224,283,985
Matthews Asia Dividend Fund		93,118,771		71,669,071		164,787,842
Matthews China Dividend Fund		4,110,069		7,709,592		11,819,661
Matthews Asia Value Fund		2,329		—		2,329
Matthews Asia Focus Fund		112,053		61,165		173,218
Matthews Pacific Tiger Fund		131,749,094		685,544,217		817,293,311
Matthews Asia ESG Fund		37,405		—		37,405
Matthews Emerging Asia Fund		81,591		432,972		514,563
Matthews China Fund		10,545,675		127,726,027		138,271,702
Matthews India Fund		1,967,432		13,471,979		15,439,411
Matthews Korea Fund		956,216		12,118,013		13,074,229
Matthews Asia Small Companies Fund		1,500,557		—		1,500,557
Matthews China Small Companies Fund		162,446		1,862,709		2,025,155
Matthews Asia Science and Technology Fund		—		25,836,171		25,836,171


YEAR ENDED DECEMBER 31, 2014	Ordinary Income		Net Long-Term Capital Gains		Return of Capital		Total Taxable Distributions
Matthews Asia Strategic Income Fund		$2,114,388		$—		$—		$2,114,388
Matthews Asian Growth and Income Fund		82,852,338		102,451,370		—		185,303,708
Matthews Asia Dividend Fund		79,977,573		—		21,987,983		101,965,556
Matthews China Dividend Fund		4,550,194		709,195		—		5,259,389
Matthews Asia Focus Fund		112,525		—		—		112,525
Matthews Asia Growth Fund		15,440,617		—		—		15,440,617
Matthews Pacific Tiger Fund		47,680,793		360,777,613		—		408,458,406
Matthews Emerging Asia Fund		618,186		5,141		—		623,327
Matthews China Fund		12,883,867		4,848,647		—		17,732,514
Matthews India Fund		1,848,612		5,587,798		—		7,436,410
Matthews Japan Fund		3,325,554		—		—		3,325,554
Matthews Korea Fund		—		9,796,584		—		9,796,584
Matthews Asia Small Companies Fund		2,665,812		—		—		2,665,812
Matthews China Small Companies Fund		50,571		—		828,820		879,391
Matthews Asia Science and Technology Fund		929,241		1,142,588		—		2,071,829

INVESTMENT TRANSACTIONS AND INCOME: Securities transactions are accounted for on the date the securities are purchased or sold or on the following business day. Gains or losses on the sale of securities are determined on the identified cost basis. Interest income is recorded on the accrual basis. Dividend income is generally recorded on the ex-dividend date. Dividend income for certain issuers headquartered in countries which the Funds invest may not be recorded until approved by the shareholders (which may occur after the ex-dividend date) if, in the judgment of management, such dividends are not reasonably determined as of the ex-dividend date. Income and realized and unrealized gains or losses on investments are allocated to each class of shares based on its relative net assets. Interest income, including amortization and accretion of premiums and discounts on debt securities, is recognized daily on an accrual basis. For convertible securities, premiums attributable to the conversion feature are not amortized.

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

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

CASH, CASH OVERDRAFTS, AND FOREIGN CURRENCY: The U Series Funds are required by the local market to maintain a cash reserve. The cash reserve is based upon a fixed ratio of the QFII’s approved investment quota, which is defined as the amount remitted into its special renminbi (RMB) cash account. The fixed ratio is set at 0.08 percent for the Shanghai and 0.06 percent for the Shenzhen market. When any of the Funds’ cash balances are overdrawn, a Fund is charged an overdraft fee by the custodian of 1.00% above the 30-day LIBOR rate on outstanding balances. These amounts, if any, are included in “Other expenses” on the Statements of Operations.


136		MATTHEWS ASIA FUNDS

J.	USE OF ESTIMATES: The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates.

3.	DERIVATIVE FINANCIAL INSTRUMENTS

Matthews Asia Strategic Income Fund engages in derivative transactions for a variety of purposes, including managing interest rate, currency and credit exposure. In particular, the Fund may seek to take on currency exposure by using derivatives such as currency forwards, and the Fund may also employ a currency overlay strategy in an effort to enhance returns and moderate volatility. Derivative financial instruments and transactions in which the Fund may engage include financial futures contracts and/or forward foreign currency exchange contracts. The currency overlay strategy involves long and short positions on one or more currencies. As a result, the Fund’s exposure to a currency could exceed the value of the Fund’s assets and the Fund could be exposed to currency risk whether or not it holds a bond or other instrument denominated in that currency. The gross notional value of derivative financial instruments and transactions could exceed the value of the Fund’s net assets, although the net market value of these instruments and transactions, on a marked-to-market basis, at most times, is expected to be substantially lower. The primary risks associated with the use of derivative financial instruments are: (i) Matthews may not correctly predict the direction of currency exchange rates, interest rates, security prices, or other economic factors; (ii) Matthews may not correctly predict changes in the value of derivative financial instruments and related underlying instruments or assets, which may result in disproportionately increased losses and/or reduced opportunities for gains; (iii) imperfect correlation between the change in market value of the securities held by the Fund and the price of financial futures contracts; (iv) the lack of, or a reduction in the liquidity of, any secondary market for the instrument, and the resulting inability to close the position (or exit the position) when desired; (v) losses, which are potentially unlimited, due to unanticipated market movements; (vi) the value of the instrument may change unfavorably due to movements in the value of the referenced foreign currencies; (vii) the Fund may suffer disproportionately heavy losses relative to the amount invested; (viii) changes in the value of the derivatives may not match or fully offset changes in the value of hedged or related portfolio securities, thereby failing to achieve the hedging or investment purpose for the derivative transaction; and (ix) the other party to the instrument may fail to fulfill its obligation.

Financial Futures Contracts: Financial futures contracts are agreements between the Fund and a counterparty to buy or sell a specific quantity of an underlying instrument at a specified price and at a specified date. Depending on the terms of the particular contract, futures contracts are settled either through physical delivery of the underlying instrument on the settlement date or by payment of a cash settlement amount on settlement date.

Pursuant to the contract, the Fund agrees to receive from or pay an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized appreciation or depreciation. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.

Forward Foreign Currency Exchange Contracts: A forward foreign currency exchange contract is an agreement between two parties to buy and sell a currency at a set exchange rate on a future date. The contract is marked-to-market daily and the change in market value is recorded by the Fund as an unrealized gain or loss. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value at the time it was opened and the value at the time it was closed. The Matthews Asia Strategic Income Fund does not offset financial assets and financial liabilities on forward foreign currency contracts in the statement of assets and liabilities as they are not subject to netting arrangements.

Derivative Financial Instruments Categorized by Risk Exposure:

As of December 31, 2015, the fair values of derivative financial instruments were as follows:


	Statement of Assets and Liabilities Location	Matthews Asia Strategic Income Fund
	Asset Derivatives
Forward foreign currency exchange contracts	Unrealized appreciation on forward foreign currency exchange contracts		$334,847
	Liability Derivatives
Forward foreign currency exchange contracts	Unrealized depreciation on forward foreign currency exchange contracts		(38,273	)

Total			$296,574

For the fiscal year ended December 31, 2015, the effects of derivative financial instruments on the Statements of Operations were as follows:


Derivative type	Statement of Operations Location	Matthews Asia Strategic Income Fund
Net Realized Gain (Loss)
Interest rate contracts:
Financial futures contracts	Net realized gain (loss) on financial futures contracts		($88,422	)


Net Change in Unrealized Appreciation (Depreciation)
Interest rate contracts:
Financial futures contracts	Net change in unrealized appreciation/depreciation on financial futures contracts		($12,891	)

Foreign currency contracts:
Foreign currency exchange contracts	Net change in unrealized appreciation/depreciation on foreign currency related translations		$296,574

Notional amounts disclosed on the Matthews Asia Strategic Income Fund’s Schedule of Investments are indicative of the activity during the period which forward foreign currency contracts were held, October 6, 2015 - December 31, 2015.


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Notes to Financial Statements (continued)

4.	CAPITAL SHARE TRANSACTIONS

Each Fund is authorized to issue an unlimited number of shares of beneficial interest with a par value of $0.001 per share.


	Year Ended December 31, 2015						Year Ended December 31, 2014
	Shares			Amount			Shares			Amount
MATTHEWS ASIA STRATEGIC INCOME FUND
Investor Class
Shares sold		1,323,678			$13,608,885			2,868,763			$30,387,264
Shares issued through reinvestment of distributions		156,283			1,568,876			170,890			1,792,188
Shares redeemed		(2,031,972	)		(20,725,933	)		(1,006,520	)		(10,564,074	)
Net increase (decrease)		(552,011	)		($5,548,172	)		2,033,133			$21,615,378
Institutional Class
Shares sold		514,725			$5,309,238			8,500			$90,318
Shares issued through reinvestment of distributions		34,909			350,189			28,064			294,191
Shares redeemed		(205,825	)		(2,100,037	)		(11,064	)		(115,367	)
Net increase (decrease)		343,809			$3,559,390			25,500			$269,142
MATTHEWS ASIAN GROWTH AND INCOME FUND
Investor Class
Shares sold		25,916,582			$466,448,198			42,335,422			$806,641,528
Shares issued through reinvestment of distributions		9,143,700			150,474,022			6,792,538			123,896,096
Shares redeemed		(76,976,258	)		(1,349,111,339	)		(53,031,955	)		(997,653,204	)
Net increase (decrease)		(41,915,976	)		($732,189,119	)		(3,903,995	)		($67,115,580	)
Institutional Class
Shares sold		11,883,290			$212,136,578			17,734,558			$339,731,302
Shares issued through reinvestment of distributions		3,858,797			63,544,851			2,873,664			52,402,976
Shares redeemed		(30,034,472	)		(523,307,730	)		(14,176,690	)		(266,541,558	)
Net increase (decrease)		(14,292,385	)		($247,626,301	)		6,431,532			$125,592,720
MATTHEWS ASIA DIVIDEND FUND
Investor Class
Shares sold		35,125,000			$570,435,753			27,074,172			$421,810,410
Shares issued through reinvestment of distributions		5,242,086			83,243,373			3,452,211			55,280,782
Shares redeemed		(51,950,453	)		(827,708,599	)		(74,520,827	)		(1,151,165,817	)
Net increase (decrease)		(11,583,367	)		($174,029,473	)		(43,994,444	)		($674,074,625	)
Institutional Class
Shares sold		52,931,529			$860,637,014			47,197,289			$735,042,714
Shares issued through reinvestment of distributions		2,615,057			41,384,032			1,435,590			22,955,772
Shares redeemed		(60,382,643	)		(945,927,066	)		(46,762,733	)		(729,427,226	)
Net increase (decrease)		(4,836,057	)		($43,906,020	)		1,870,146			$28,571,260
MATTHEWS CHINA DIVIDEND FUND
Investor Class
Shares sold		9,804,629			$151,536,779			3,469,549			$46,973,569
Shares issued through reinvestment of distributions		724,059			10,466,697			293,612			3,935,098
Shares redeemed		(7,269,925	)		(106,195,533	)		(4,184,807	)		(55,511,036	)
Net increase (decrease)		3,258,763			$55,807,943			(421,646	)		($4,602,369	)
Institutional Class
Shares sold		1,122,001			$16,210,502			1,028,815			$13,795,976
Shares issued through reinvestment of distributions		78,571			1,153,826			84,509			1,131,935
Shares redeemed		(2,376,571	)		(35,363,363	)		(624,547	)		(8,338,287	)
Net increase (decrease)		(1,175,999	)		($17,999,035	)		488,777			$6,589,624


138		MATTHEWS ASIA FUNDS


	Year Ended December 31, 2015						Year Ended December 31, 2014
	Shares			Amount			Shares			Amount
MATTHEWS ASIA VALUE FUND*
Investor Class
Shares sold		161,193			$1,602,501
Shares issued through reinvestment of distributions		179			1,748
Shares redeemed		(34	)		(333	)
Net increase (decrease)		161,338			$1,603,916
Institutional Class
Shares sold		14,500			$145,000
Shares issued through reinvestment of distributions		60			581
Shares redeemed		—			—
Net increase (decrease)		14,560			$145,581
MATTHEWS ASIA FOCUS FUND
Investor Class
Shares sold		250,574			$2,466,477			435,111			$4,372,718
Shares issued through reinvestment of distributions		8,502			74,221			5,515			55,145
Shares redeemed		(411,977	)		(3,802,344	)		(305,685	)		(2,951,262	)
Net increase (decrease)		(152,901	)		($1,261,646	)		134,941			$1,476,601
Institutional Class
Shares sold		85,035			$790,900			562,972			$5,679,393
Shares issued through reinvestment of distributions		11,279			98,578			5,697			57,082
Shares redeemed		(152,717	)		(1,345,220	)		(75,633	)		(749,792	)
Net increase (decrease)		(56,403	)		($455,742	)		493,036			$4,986,683
MATTHEWS ASIA GROWTH FUND
Investor Class
Shares sold		10,116,539			$220,731,758			8,352,421			$176,815,714
Shares issued through reinvestment of distributions		—			—			364,634			7,679,192
Shares redeemed		(11,770,308	)		(246,526,119	)		(8,456,299	)		(177,869,893	)
Net increase (decrease)		(1,653,769	)		($25,794,361	)		260,756			$6,625,013
Institutional Class
Shares sold		5,203,260			$112,251,892			3,166,264			$68,111,071
Shares issued through reinvestment of distributions		—			—			233,352			4,937,721
Shares redeemed		(6,990,514	)		(146,485,176	)		(564,454	)		(12,120,100	)
Net increase (decrease)		(1,787,254	)		($34,233,284	)		2,835,162			$60,928,692
MATTHEWS PACIFIC TIGER FUND
Investor Class
Shares sold		18,629,799			$505,974,505			13,461,553			$362,907,557
Shares issued through reinvestment of distributions		11,411,932			263,383,421			5,254,231			139,026,894
Shares redeemed		(29,132,577	)		(758,670,355	)		(22,276,690	)		(585,489,213	)
Net increase (decrease)		909,154			$10,687,571			(3,560,906	)		($83,554,762	)
Institutional Class
Shares sold		66,516,041			$1,778,275,629			41,237,653			$1,119,555,511
Shares issued through reinvestment of distributions		11,636,136			268,329,315			5,592,016			147,852,921
Shares redeemed		(99,756,044	)		(2,521,022,303	)		(44,056,685	)		(1,135,705,206	)
Net increase (decrease)		(21,603,867	)		($474,417,359	)		2,772,984			$131,703,226
MATTHEWS ASIA ESG FUND**
Investor Class
Shares sold		482,804			$4,562,170
Shares issued through reinvestment of distributions		1,806			16,466
Shares redeemed		(132,628	)		(1,222,043	)
Net increase (decrease)		351,982			$3,356,593
Institutional Class
Shares sold		186,254			$1,805,130
Shares issued through reinvestment of distributions		2,307			20,899
Shares redeemed		(4,586	)		(41,516	)
Net increase (decrease)		183,975			$1,784,513

*	Investor Class and Institutional Class commencement of operations on November 30, 2015.

**	Investor Class and Institutional Class commencement of operations on April 30, 2015.


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Notes to Financial Statements (continued)


	Year Ended December 31, 2015							Year Ended December 31, 2014
	Shares				Amount			Shares			Amount
MATTHEWS EMERGING ASIA FUND
Investor Class
Shares sold		3,222,545				$37,424,394			6,358,977			$71,447,277
Shares issued through reinvestment of distributions		29,906				334,053			44,331			513,799
Shares redeemed		(2,594,387	)			(29,676,907	)		(719,405	)		(7,920,065	)
Net increase (decrease)		658,064				$8,081,540			5,683,903			$64,041,011
Institutional Class
Shares sold		4,382,373				$50,726,364			1,672,829			$18,713,467
Shares issued through reinvestment of distributions		16,011				179,162			9,076			105,103
Shares redeemed		(1,342,327	)			(15,050,048	)		(44,825	)		(498,178	)
Net increase (decrease)		3,056,057				$35,855,478			1,637,080			$18,320,392
MATTHEWS CHINA FUND
Investor Class
Shares sold		5,141,080				$120,488,105			4,652,101			$101,501,385
Shares issued through reinvestment of distributions		6,355,104				116,616,158			752,109			16,034,960
Shares redeemed		(17,118,626	)			(385,888,737	)		(17,574,642	)		(379,926,583	)
Net increase (decrease)		(5,622,442	)			($148,784,474	)		(12,170,432	)		($262,390,238	)
Institutional Class
Shares sold		628,563				$14,774,529			572,587			$12,475,109
Shares issued through reinvestment of distributions		234,182				4,290,241			55,031			1,172,155
Shares redeemed		(1,990,574	)			(45,026,079	)		(3,338,212	)		(72,711,685	)
Net increase (decrease)		(1,127,829	)			($25,961,309	)		(2,710,594	)		($59,064,421	)
MATTHEWS INDIA FUND
Investor Class
Shares sold		30,620,097				$867,318,320			18,378,382			$428,347,047
Shares issued through reinvestment of distributions		408,995				10,507,217			251,419			6,614,834
Shares redeemed		(24,282,755	)			(667,371,469	)		(8,069,436	)		(172,617,142	)
Net increase (decrease)		6,746,337				$210,454,068			10,560,365			$262,344,739
Institutional Class
Shares sold		9,976,872				$279,880,654			4,119,011			$103,116,285
Shares issued through reinvestment of distributions		23,353				601,584			4,649			122,448
Shares redeemed		(768,413	)			(21,157,535	)		(195,207	)		(3,155,297	)
Net increase (decrease)		9,231,812				$259,324,703			3,928,453			$100,083,436
MATTHEWS JAPAN FUND
Investor Class
Shares sold		53,437,657				$989,896,404			14,683,754			$236,544,033
Merger		—				—			9,304,606			143,006,665
Shares issued through reinvestment of distributions		—				—			136,979			2,162,925
Shares redeemed		(13,073,985	)			(233,136,140	)		(13,641,932	)		(216,980,228	)
Net increase (decrease)		40,363,672				$756,760,264			10,483,407			$164,733,395
Institutional Class
Shares sold		25,203,856				$462,758,856			7,921,739			$130,732,643
Merger		—				—			117,933			1,814,627
Shares issued through reinvestment of distributions		—				—			27,262			430,732
Shares redeemed		(2,491,900	)			(44,833,156	)		(1,901,165	)		(30,655,635	)
Net increase (decrease)		22,711,956				$417,925,700			6,165,769			$102,322,367
MATTHEWS KOREA FUND				��
Investor Class
Shares sold		7,063,187				$45,732,771			2,855,980			$17,811,596
Shares issued through reinvestment of distributions		1,247,048				7,432,409			958,127			5,298,441
Shares redeemed		(6,893,554	)			(42,613,047	)		(4,561,112	)		(27,333,556	)
Net increase (decrease)		1,416,681				$10,552,133			(747,005	)		($4,223,519	)
Institutional Class
Shares sold		1,949,647				$12,656,326			15,224,562			$92,211,027
Shares issued through reinvestment of distributions		33,764				202,244			294,354			1,633,663
Shares redeemed		(8,378,869	)			(48,454,588	)		(1,475,555	)		(8,735,102	)
Net increase (decrease)		(6,395,458	)			($35,596,018	)		14,043,361			$85,109,588


140		MATTHEWS ASIA FUNDS


	Year Ended December 31, 2015						Year Ended December 31, 2014
	Shares			Amount			Shares			Amount
MATTHEWS ASIA SMALL COMPANIES FUND
Investor Class
Shares sold		8,497,848			$182,977,362			12,269,745			$256,739,667
Shares issued through reinvestment of distributions		23,288			441,546			91,722			1,980,278
Shares redeemed		(16,455,313	)		(348,268,552	)		(5,510,122	)		(113,024,665	)
Net increase (decrease)		(7,934,177	)		($164,849,644	)		6,851,345			$145,695,280
Institutional Class
Shares sold		11,287,130			$246,873,661			1,637,024			$34,046,110
Shares issued through reinvestment of distributions		47,417			898,076			11,551			249,394
Shares redeemed		(3,476,347	)		(67,815,813	)		(368,351	)		(7,588,297	)
Net increase (decrease)		7,858,200			$179,955,924			1,280,224			$26,707,207
MATTHEWS CHINA SMALL COMPANIES FUND
Investor Class
Shares sold		766,278			$7,633,873			1,079,235			$10,536,592
Shares issued through reinvestment of distributions		202,804			1,752,230			91,585			856,321
Shares redeemed		(911,884	)		(8,642,334	)		(1,472,901	)		(14,353,449	)
Net increase (decrease)		57,198			$743,769			(302,081	)		($2,960,536	)
MATTHEWS ASIA SCIENCE AND TECHNOLOGY FUND
Investor Class
Shares sold		2,583,487			$36,194,231			2,001,250			$26,712,471
Shares issued through reinvestment of distributions		1,321,498			16,095,853			92,181			1,261,036
Shares redeemed		(2,600,415	)		(35,098,196	)		(1,740,481	)		(22,680,601	)
Net increase (decrease)		1,304,570			$17,191,888			352,950			$5,292,906
Institutional Class
Shares sold		248,176			$3,444,526			533,868			$6,731,909
Shares issued through reinvestment of distributions		320,936			3,915,412			55,365			756,846
Shares redeemed		(2,079,401	)		(31,121,491	)		(12,051	)		(169,548	)
Net increase (decrease)		(1,510,289	)		($23,761,553	)		577,182			$7,319,207

Currently, a 2.00% redemption fee will be assessed on the sale or exchange of shares of the Matthews Emerging Asia Fund, Matthews Asia Small Companies Fund and Matthews China Small Companies Fund (collectively, the “Covered Funds”) within 90 days after the date an investor purchases shares of the Covered Funds. The imposition of redemption fees pursuant to the Funds’ Short-Term Trading Redemption Fee Policy for the Covered Funds may assist the Covered Funds in discouraging market timing activity.

The redemption fee is imposed to discourage market timing and short-term buying and selling of shares of the Covered Funds, which can disrupt the management of the Covered Funds’ investment portfolios and may have detrimental effects on the Covered Funds and other shareholders, and to allocate the costs the Covered Funds incur as a result of short-term trading and market timing. This fee is payable directly to the Covered Funds.

To determine whether the redemption fee applies, the Covered Funds do not count the day that you purchased your shares, and first redeem the shares that you have held the longest.

The Covered Funds may grant an exemption from the redemption fee when the Covered Funds have previously received assurances that transactions do not involve a substantial risk of the type of harm that the policy is designed to avoid. The Covered Funds may also waive the imposition of redemption fees in certain circumstances. For more information on this policy, please see the Funds’ prospectuses. The redemption fees returned to the assets of the Funds are stated in the Statements of Changes in Net Assets.

5.	INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES

Matthews, a registered investment advisor under the 1940 Act, provides the Funds with investment management services. Pursuant to an Investment Advisory Agreement dated August 13, 2004, as amended (the “Advisory Agreement”), the Funds pay Matthews (i) for management and advisory services; and (ii) for certain administrative services, an annual fee as a percentage of average daily net assets. Under the Advisory Agreement each of the Funds, other than Matthews Asia Strategic Income Fund, Matthews Emerging Asia Fund, Matthews Asia Small Companies Fund, and Matthews China Small Companies Fund (the “Family-Priced Funds”), pays Matthews 0.75% of their aggregate average daily net assets up to $2 billion, 0.6834% of their aggregate average daily net assets over $2 billion up to $5 billion, 0.65% of their aggregate average daily net assets over $5 billion up to $25 billion, 0.64% of their aggregate average daily net assets over $25 billion up to $30 billion, 0.63% of their aggregate average daily net assets over $30 billion up to $35 billion, 0.62% of their aggregate average daily net assets over $35 billion up to $40 billion, 0.61% of their aggregate average daily net assets over $40 billion up to $45 billion, and 0.60% of their aggregate average daily net assets over $45 billion. Matthews Asia Strategic Income Fund pays Matthews an annual fee of 0.65% of its annual average daily net assets pursuant to the Advisory Agreement. Each of the Matthews Emerging Asia Fund, Matthews Asia Small Companies Fund, and the Matthews China Small Companies Fund pays Matthews an annual fee of 1.00% of the average daily net assets of such Fund up to $1 billion and 0.95% of the average daily net assets of such Fund over $1 billion pursuant to the Advisory Agreement. Each Fund paid Matthews a monthly fee of one-twelfth (1/12) of the management fee of the Fund’s average daily net asset value.

Pursuant to a fee waiver letter agreement, effective as of September 1, 2014, between the Trust, on behalf of the Family-Priced Funds, and Matthews (as amended from time to time, the “Fee Waiver Agreement”), for each Family-Priced Fund, Matthews has agreed to waive a portion of the fee payable under the Advisory Agreement and a portion of the fee payable under the Administration and Shareholder Services Agreement, if any Family-Priced Fund’s average daily net assets are over $3 billion, as follows: for every $2.5 billion average daily net assets of a Family-Priced Fund that are


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Notes to Financial Statements (continued)

over $3 billion, the fee rates that otherwise would be applied for calculating fees payable under the Advisory Agreement and the Administration and Shareholder Services Agreement for such Family-Priced Fund with respect to such excess average daily net assets will be each reduced by 0.01%, in each case without reducing such fee rate below 0.00%.

Under a written agreement between the Funds and Matthews (the “Operating Expenses Agreement”), Matthews agrees to waive fees and reimburse expenses to a Fund if its expense ratio exceeds a certain percentage level. Effective April 30, 2015 for all Funds, except Matthews Asia Strategic Income Fund and Matthews China Small Companies Fund, this level is 1.25% for the Institutional Class. Matthews agrees to reduce the expense ratio by waiving an equal amount of non-class specific expenses for the Investor Class. Because certain expenses of the Investor Class may be higher than Institutional Class and class specific expenses may be waived solely for the Institutional Class, total annual Fund expenses for the Investor Class may exceed 1.25%. For Matthews Asia Strategic Income Fund this level is 0.90% for Institutional Class. Matthews agrees to reduce the expense ratio by waiving an equal amount of non-class expenses for the Investor Class. Because certain expenses of the Investor Class may be higher that the Institutional Class and class specific expenses may be waived solely for the Institutional Class, total annual Fund expenses for the Investor Class may exceed 0.90%. For Matthews China Small Companies Fund this level is 1.50% for the Investor Class. Prior to May 1, 2014 for Matthews China Fund, Matthews India Fund, Matthews Japan Fund, Matthews Korea Fund, Matthews Asia Small Companies Fund, Matthews China Small Companies Fund and Matthews Asia Science and Technology Fund, this level was 2.00%. For Matthews Asian Growth and Income Fund, Matthews Asia Growth Fund and Matthews Pacific Tiger Fund, this level was 1.90%. For Matthews Asia Dividend Fund and Matthews China Dividend Fund, this level was 1.50%. For Matthews Asia Strategic Income Fund, Matthews Asia Focus Fund and Matthews Emerging Asia Fund, Matthews agreed to waive fees and reimburse expenses to each Fund if its expense ratio exceeded 1.25%, 1.75%, and 2.00%, respectively, for the Institutional Class and agreed to reduce the expense ratio by an equal amount for the Investor Class. In turn, if a Fund’s expenses fall below the level noted within three years after Matthews has made such a reimbursement, the Fund may reimburse Matthews up to an amount of the recoupment available not to exceed its expense limitation. For each Fund other than the Matthews Asia Value Fund, this agreement will continue through at least April 30, 2017 and may be extended for additional periods not exceeding one year. This agreement will continue through April 30, 2018 for the Matthews Asia Value Fund, and may be extended for additional periods not exceeding one year.

On December 31, 2015, the amounts subject to possible future recoupment under the expense limitation agreement are as follows:


	Expiring December 31,
	2016		2017		2018
Matthews Asia Strategic Income Fund		$41,268		$79,504		$113,621
Matthews Asia Value Fund		—		—		41,279
Matthews Asia Focus Fund		87,951		62,897		87,252
Matthews Asia ESG Fund		—		—		183,985
Matthews Emerging Asia Fund		76,881		152,283		452,048
Matthews Asia Small Companies Fund		—		15,270		113,037
Matthews China Small Companies Fund		7,801		63,212		133,327

Matthews Asia Strategic Income Fund and Matthews China Small Companies Fund had $161,965 and $76,425, respectively, of recoupment that expired on December 31, 2015. Matthews Asian Growth and Income Fund, Matthews Pacific Tiger Fund, Matthews India Fund and Matthews Japan Fund had no amounts available for recoupment and no amounts recouped during the year ended December 31, 2015.

Investment advisory fees charged, waived fees and reimbursed additional expenses for the year ended December 31, 2015, were as follows:


	Gross Advisory Fees		Advisory Fees Waived and Reimbursed in Excess of the Expense Limitation			Net Advisory Fee/ Reimbursement
Matthews Asia Strategic Income Fund		$438,698		($113,621	)		$325,077
Matthews Asian Growth and Income Fund		25,621,034		(86,260	)		25,534,774
Matthews Asia Dividend Fund		35,306,056		(244,805	)		35,061,251
Matthews China Dividend Fund		1,183,701		—			1,183,701
Matthews Asia Value Fund		771		(41,279	)		(40,508	)
Matthews Asia Focus Fund		95,048		(87,252	)		7,796
Matthews Asia Growth Fund		5,989,698		—			5,989,698
Matthews Pacific Tiger Fund		54,519,201		(857,693	)		53,661,508
Matthews Asia ESG Fund		15,886		(183,985	)		(168,099	)
Matthews Emerging Asia Fund		1,661,519		(452,048	)		1,209,471
Matthews China Fund		6,216,536		—			6,216,536
Matthews India Fund		10,143,432		—			10,143,432
Matthews Japan Fund		7,785,999		—			7,785,999
Matthews Korea Fund		1,359,009		—			1,359,009
Matthews Asia Small Companies Fund		7,188,942		(113,037	)		7,075,905
Matthews China Small Companies Fund		223,822		(133,327	)		90,495
Matthews Asia Science and Technology Fund		1,174,937		—			1,174,937

Certain officers and Trustees of the Funds are also officers and directors of Matthews. All officers serve without compensation from the Funds. The Funds paid the Independent Trustees $967,000 in aggregate for regular compensation during the year ended December 31, 2015.

The Funds have an Administration and Shareholder Services Agreement dated August 13, 2004, as amended (the “Shareholder Services Agreement” or “Services Agreement”), in which the Funds pay an annual administration and shareholder servicing fee to Matthews, as a percentage of the average


142		MATTHEWS ASIA FUNDS

daily net assets of each Fund in aggregate, computed and prorated on a daily basis. Under the Shareholder Services Agreement, the Funds in the aggregate pay Matthews 0.25% of their aggregate average daily net assets up to $2 billion, 0.1834% of their aggregate average daily net assets over $2 billion up to $5 billion, 0.15% of their aggregate average daily net assets over $5 billion up to $7.5 billion, 0.125% of their aggregate average daily net assets over $7.5 billion up to $15 billion, 0.11% of their aggregate average daily net assets over $15 billion up to $22.5 billion, 0.10% of their aggregate average daily net assets over $22.5 billion up to $25 billion, 0.09% of their aggregate average daily net assets over $25 billion up to $30 billion, 0.08% of their aggregate average daily net assets over $30 billion up to $35 billion, 0.07% of their aggregate average daily net assets over $35 billion up to $40 billion, 0.06% of their aggregate average daily net assets over $40 billion up to $45 billion, and 0.05% of their aggregate average daily net assets over $45 billion.

Administration and shareholder servicing fees charged, for the year ended December 31, 2015, were as follows:


	Gross Administration and Shareholder Servicing Fees		Administration and Shareholder Servicing Fees Waived in Excess of Expense Limitation			Net Administration and Shareholder Servicing Fees
Matthews Asia Strategic Income Fund		$94,329		$—			$94,329
Matthews Asian Growth and Income Fund		5,389,839		(86,260	)		5,303,579
Matthews Asia Dividend Fund		7,429,497		(244,805	)		7,184,692
Matthews China Dividend Fund		248,951		—			248,951
Matthews Asia Value Fund		167		—			167
Matthews Asia Focus Fund		19,988		—			19,988
Matthews Asia Growth Fund		1,260,375		—			1,260,375
Matthews Pacific Tiger Fund		11,459,861		(857,693	)		10,602,168
Matthews Asia ESG Fund		3,397		—			3,397
Matthews Emerging Asia Fund		232,258		—			232,258
Matthews China Fund		1,306,491		—			1,306,491
Matthews India Fund		2,137,111		—			2,137,111
Matthews Japan Fund		1,647,370		—			1,647,370
Matthews Korea Fund		286,380		—			286,380
Matthews Asia Small Companies Fund		1,003,109		—			1,003,109
Matthews China Small Companies Fund		31,234		—			31,234
Matthews Asia Science and Technology Fund		247,195		—			247,195

In addition to the fees paid to the Funds’ transfer agent, the Funds bear the cost of fees paid to certain service providers or intermediaries, including supermarkets, which provide transfer agency, record-keeping and shareholder servicing to certain shareholders. These fees are referred to as intermediary service fees on the statement of assets and liabilities as well as the statement of operations. Additional information concerning these services and fees is contained in the Funds’ prospectuses.

BNY Mellon Investment Servicing (US) Inc. (“BNY Mellon”), an indirect wholly owned subsidiary of The Bank of New York Mellon Corporation, serves as the Funds’ administrator, and in that capacity, performs various administrative and accounting services for each Fund. BNY Mellon also serves as the Funds’ transfer agent, dividend disbursing agent and registrar. An officer of BNY Mellon serves as Assistant Treasurer to the Funds. Total fees accrued by the Funds for administration and accounting services for the year ended December 31, 2015 were as follows:


	Administration and Accounting Fees
Matthews Asia Strategic Income Fund		$5,399
Matthews Asian Growth and Income Fund		308,810
Matthews Asia Dividend Fund		506,832
Matthews China Dividend Fund		14,287
Matthews Asia Value Fund		9
Matthews Asia Focus Fund		1,146
Matthews Asia Growth Fund		72,251
Matthews Pacific Tiger Fund		657,337
Matthews Asia ESG Fund		192
Matthews Emerging Asia Fund		13,297
Matthews China Fund		151,438
Matthews India Fund		122,373
Matthews Japan Fund		94,121
Matthews Korea Fund		16,399
Matthews Asia Small Companies Fund		57,520
Matthews China Small Companies Fund		1,791
Matthews Asia Science and Technology Fund		14,165

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


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Notes to Financial Statements (continued)

Cross trades for the year ended December 31, 2015, were executed by the Funds pursuant to Rule 17a-7 under the 1940 Act. Cross trading is the buying or selling of portfolio securities between funds to which Matthews International Capital Management, LLC serves as investment advisor. At its regularly scheduled quarterly meetings, the Board reviews such transactions as of the most recent calendar quarter for compliance with the requirements and restrictions set forth by Rule 17a-7.

As of December 31, 2015, Matthews and its affiliates held 370,411 shares of the Matthews China Small Companies Fund, representing approximately 15% of that Fund’s outstanding shares.

As of December 31, 2015, Matthews and its affiliates held 1,383,209 shares of the Matthews Asia Strategic Income Fund, representing approximately 22% of that Fund’s outstanding shares.

As of December 31, 2015, Matthews and its affiliates held 168,743 shares of the Matthews Asia Focus Fund, representing approximately 13% of that Fund’s outstanding shares.

As of December 31, 2015, Matthews and its affiliates held 190,905 shares of the Matthews Asia ESG Fund, representing approximately 36% of that Fund’s outstanding shares.

As of December 31, 2015, Matthews and its affiliates held 94,249 shares of the Matthews Asia Value Fund, representing approximately 54% of that Fund’s outstanding shares.

6.	INVESTMENTS

The value of investment transactions made for affiliated and unaffiliated holdings for the year ended December 31, 2015 were as follows:


	Affiliated Purchases		Proceeds from Affiliated Sales		Unaffiliated Purchases		Proceeds from Unaffiliated Sales
Matthews Asia Strategic Income Fund		$—		$—		$32,426,493		$35,548,979
Matthews Asian Growth and Income Fund		—		—		618,817,959		1,769,760,356
Matthews Asia Dividend Fund		54,833,390		20,899,575		1,801,464,058		2,116,590,663
Matthews China Dividend Fund		—		—		165,523,862		135,565,439
Matthews Asia Value Fund		—		—		1,483,256		142,595
Matthews Asia Focus Fund		—		—		3,130,891		4,301,722
Matthews Asia Growth Fund		—		—		254,991,531		289,389,778
Matthews Pacific Tiger Fund		93,097,520		53,825,246		900,070,011		1,954,956,485
Matthews Asia ESG Fund		—		—		5,763,880		752,324
Matthews Emerging Asia Fund		—		—		64,115,814		19,237,728
Matthews China Fund		—		—		603,874,891		883,485,745
Matthews India Fund		35,942,361		1,405,655		581,072,943		140,772,015
Matthews Japan Fund		40,967,075		483,811		1,332,314,980		275,182,437
Matthews Korea Fund		—		—		40,847,176		79,089,909
Matthews Asia Small Companies Fund		14,394,911		—		344,866,333		329,445,055
Matthews China Small Companies Fund		—		—		15,706,729		16,488,564
Matthews Asia Science and Technology Fund		—		—		125,297,215		158,100,070

7.	HOLDINGS OF 5% VOTING SHARES OF PORTFOLIO COMPANIES

The 1940 Act defines “affiliated companies” to include investments in portfolio companies in which a fund owns 5% or more of the outstanding voting shares. During the year ended December 31, 2015, the Funds below held 5% or more of the outstanding voting shares of the noted portfolio companies. During this period, other Funds in the Trust may also have held voting shares of the issuers at levels below 5%.

Investments in affiliates:

A summary of transactions in securities of issuers affiliated with a Fund for the year ended December 31, 2015 is as follows:


	Shares Held at Dec. 31, 2014		Shares Purchased			Shares Sold		Shares Held at Dec. 31, 2015		Value at Dec. 31, 2015		Dividend Income Jan. 1, 2015– Dec. 31, 2015		Net Realized Gain (Loss) Jan. 1, 2015– Dec. 31, 2015

MATTHEWS ASIAN GROWTH AND INCOME FUND
Name of Issuer:
CITIC Telecom International Holdings, Ltd.†		188,818,250		—			188,818,250		—		$—		$—		$—

Total Affiliates											$—		$—		$—


MATTHEWS ASIA DIVIDEND FUND
Name of Issuer:
Anritsu Corp.		6,853,300		1,204,800			493,600		7,564,500		$49,563,094		$1,492,743		($2,212,956)
Ascendas India Trust		55,065,000		—			1,594,300		53,470,700		32,808,738		2,052,190		(272,425	)
Breville Group, Ltd.		10,847,453		—			203,434		10,644,019		57,515,357		2,157,910		(499,012	)
CapitaLand Retail China Trust, REIT		52,179,400		—			8,947,000		43,232,400		45,342,034		3,589,911		4,816,676
China Machinery Engineering Corp. H Shares		—		55,225,000			1,414,000		53,811,000		39,262,849		1,787,189		(206,234	)
Greatview Aseptic Packaging Co., Ltd.		110,945,000		—			1,915,000		109,030,000		49,294,621		2,861,572		(305,699	)
Minth Group, Ltd.		61,267,000		—			1,732,000		59,535,000		118,275,877		4,009,279		2,322,239
Pigeon Corp.†		2,377,800		4,755,600	††		3,327,300		3,806,100		—		—		—
Springland International Holdings, Ltd.†		138,171,000		—			138,171,000		—		—		—		—
St. Shine Optical Co., Ltd. †		2,674,000		1,057,000			1,348,000		2,383,000		—		—		—
Xingda International Holdings, Ltd. H Shares†		87,141,000		—			87,141,000		—		—		—		—
Yuexiu Transport Infrastructure, Ltd.		109,490,000		—			168,000		109,322,000		68,286,284		4,092,447		403

Total Affiliates											$460,348,854		$22,043,241		$3,642,992


144		MATTHEWS ASIA FUNDS


	Shares Held at Dec. 31, 2014		Shares Purchased			Shares Sold		Shares Held at Dec. 31, 2015		Value at Dec. 31, 2015		Dividend Income Jan. 1, 2015– Dec. 31, 2015		Net Realized Gain (Loss) Jan. 1, 2015– Dec. 31, 2015

MATTHEWS PACIFIC TIGER FUND
Name of Issuer:
Cheil Worldwide, Inc.		6,420,440		—			266,143		6,154,297		$107,636,527		$—		$2,266,723
Dongbu Insurance Co., Ltd.†		4,020,500		—			771,381		3,249,119		—		—		—
Fuyao Glass Industry Group Co., Ltd. H Shares		—		31,836,000			—		31,836,000		76,461,314		—		—
Green Cross Corp.		1,008,655		—			161,783		846,872		131,010,777		905,087		6,200,002
Hyflux, Ltd.		65,284,280		—			22,199,750		43,084,530		17,101,875		1,108,752		(14,588,250	)
Synnex Technology International Corp.		102,065,354		—			3,874,000		98,191,354		95,267,555		10,701,054		(876,059	)
Tata Power Co., Ltd.		162,545,436		13,000,000			9,925,000		165,620,436		169,173,116		3,553,739		(12,399,093	)

Total Affiliates											$596,651,164		$16,268,632		($19,396,677)


MATTHEWS INDIA FUND
Name of Issuer:
eClerx Services, Ltd.		1,189,293		2,005,664	†††		59,376		3,135,581		$67,149,179		$1,268,206		$251,540
VST Industries, Ltd.		855,933		359,771			—		1,215,704		31,082,796		1,310,066		—

Total Affiliates											$98,231,975		$2,578,272		$251,540


MATTHEWS JAPAN FUND
Name of Issuer:
AIT Corp.		678,700		499,000			47,400		1,130,300		$10,956,219		$352,952		$142,916
Daiken Medical Co., Ltd.		711,600		1,043,600			—		1,755,200		14,950,699		179,257		—
eGuarantee, Inc.		401,000		440,800			—		841,800		18,101,879		104,565		—
MORESCO Corp.		400,300		374,200			—		774,500		10,886,881		204,126		—
N Field Co., Ltd.		276,800		729,600			—		1,006,400		10,682,592		41,827		—

Total Affiliates											$65,578,270		$882,727		$142,916


MATTHEWS ASIA SMALL COMPANIES FUND
Name of Issuer:
Ezwelfare Co., Ltd.†		742,858		131,365			874,223		—		$—		$—		$—
FineTek Co., Ltd.		—		3,208,920	†††		16,000		3,192,920		7,205,664		368,679		(32,275	)
SaraminHR Co., Ltd.†		682,434		—			682,434		—		—		—		—
PT Wismilak Inti Makmur†		107,640,100		6,710,500			25,088,700		89,261,900		—		—		—

Total Affiliates											$7,205,664		$368,679		($32,275)

†	Issuer was not an affiliated company as of December 31, 2015.

††	Includes stock split during the period.

†††	Includes stock dividend during the period.

8.	INCOME TAX INFORMATION INCOME AND WITHHOLDING TAXES

It is the policy of the Funds to comply with all requirements of the Internal Revenue Code of 1986, as amended (“the Code”), applicable to regulated investment companies and to distribute substantially all of their taxable income to their shareholders. The Funds have met the requirements of the Code applicable to regulated investment companies for the year ended December 31, 2015. Therefore, no federal income tax provision is required.

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


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Notes to Financial Statements (continued)

As of December 31, 2015, the components of accumulated earnings/deficit on tax basis were as follows:


	Undistributed Ordinary Income		Undistributed Long-Term Capital Gains		Capital Loss Carryforwards
Matthews Asia Strategic Income Fund		$—		$—		($1,535,532	)
Matthews Asian Growth and Income Fund		—		40,554,606		—
Matthews Asia Dividend Fund		—		—		—
Matthews China Dividend Fund		—		645,489		—
Matthews Asia Value Fund		16,386		—		—
Matthews Asia Focus Fund		80,691		—		(637,245	)
Matthews Asia Growth Fund		6,045,112		—		(19,506,205	)
Matthews Pacific Tiger Fund		15,495,421		—		—
Matthews Asia ESG Fund		27,652		—		(29,988	)
Matthews Emerging Asia Fund		276,735		—		(883,817	)
Matthews China Fund		—		19,701,557		—
Matthews India Fund		112,375		11,087,490		—
Matthews Japan Fund		2,671,495		—		(64,759,904	)
Matthews Korea Fund		2,182,168		7,169,413		—
Matthews Asia Small Companies Fund		1,244,171		—		(12,769,786	)
Matthews China Small Companies Fund		1,346		747,896		—
Matthews Asia Science and Technology Fund		—		10,439,580		—


	Late Year Losses*			Other Temporary Differences			Unrealized Appreciation (Depreciation)**			Total Accumulated Earnings/Deficit
Matthews Asia Strategic Income Fund		($179,842	)		$—			($3,229,900	)		($4,945,274	)
Matthews Asian Growth and Income Fund		(366,546	)		—			206,388,329			246,576,389
Matthews Asia Dividend Fund		(32,923,665	)		(27,008	)		488,373,725			455,423,052
Matthews China Dividend Fund		(87,749	)		—			4,701,890			5,259,630
Matthews Asia Value Fund		—			—			(25,360	)		(8,974	)
Matthews Asia Focus Fund		—			—			(1,533,983	)		(2,090,537	)
Matthews Asia Growth Fund		—			—			129,242,658			115,781,565
Matthews Pacific Tiger Fund		—			—			1,414,766,421			1,430,261,842
Matthews Asia ESG Fund		—			—			(151,962	)		(154,298	)
Matthews Emerging Asia Fund		—			(212,031	)		4,579,398			3,760,285
Matthews China Fund		(2,902,517	)		—			73,032,675			89,831,715
Matthews India Fund		—			(11,653	)		240,416,115			251,604,327
Matthews Japan Fund		—			—			165,208,185			103,119,776
Matthews Korea Fund		—			—			63,301,929			72,653,510
Matthews Asia Small Companies Fund		—			—			29,673,107			18,147,492
Matthews China Small Companies Fund		—			—			600,246			1,349,488
Matthews Asia Science and Technology Fund		—			—			38,871,441			49,311,021

*	The Funds have elected to defer certain qualified late-year losses and recognize such losses in the next fiscal year.

**	The differences between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to the tax deferral of losses on wash sales and passive foreign investment company (PFIC) mark to market adjustments.


146		MATTHEWS ASIA FUNDS

As of December 31, 2015, the Funds have capital loss carryforwards available to offset future realized capital gains through the indicated expiration dates as follows:


					Amount With No Expiration*
LOSSES DEFERRED EXPIRING IN:	2016		2017		Short-term Losses		Long-term Losses		Total
Matthews Asia Strategic Income Fund		$—		$—		$1,535,532		$—		$1,535,532
Matthews Asia Focus Fund		—		—		128,568		508,677		637,245
Matthews Asia Growth Fund		—		19,506,205		—		—		19,506,205
Matthews Asia ESG Fund		—		—		29,988		—		29,988
Matthews Emerging Asia Fund		—		—		—		883,817		883,817
Matthews Japan Fund		20,727,478		44,032,426		—		—		64,759,904
Matthews Asia Small Companies Fund		—		—		12,769,786		—		12,769,786

*	Post-Enactment Losses: Must be utilized prior to losses subject to expiration.

The following Funds utilized capital loss carryforwards in the current year:


	Utilized Capital Loss Carryforwards
Matthews Asia Strategic Income Fund		$131,018
Matthews Asia Dividend Fund		182,779,099
Matthews Asia Growth Fund		6,923,705
Matthews Japan Fund		23,506,272
Matthews China Small Companies Fund		734,068

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

U.S. GAAP requires that certain components of net assets be reclassified between financial and tax reporting. These reclassifications have no effect on net assets or NAV. The permanent differences are primarily attributable to investments in PFICs, non-deductible expenses, foreign currency reclassification, capital gains tax, re-characterization of distributions, adjustments on distributions related to taxable spinoffs and the utilization of accumulated earnings and profits distributed to shareholders on redemptions of shares as part of the dividends paid deduction for income tax purposes. For the year ended December 31, 2015, permanent differences in book and tax accounting have been reclassified to paid-in capital, undistributed net investment income (loss) and accumulated realized gain (loss) as follows:


	Increase/ (Decrease) Paid-in-Capital			Increase/(Decrease) Undistributed Net Investment Income/(Loss)			Increase/(Decrease) Accumulated Realized Gain/(Loss)
Matthews Asia Strategic Income Fund		$—			($1,086,626	)		$1,086,626
Matthews Asian Growth and Income Fund		—			3,866,071			(3,866,071	)
Matthews Asia Dividend Fund		(96,561	)		43,531,280			(43,434,719	)
Matthews China Dividend Fund		—			1,446,644			(1,446,644	)
Matthews Asia Value Fund		(7,928	)		6,940			988
Matthews Asia Focus Fund		—			21,510			(21,510	)
Matthews Asia Growth Fund		—			6,930,533			(6,930,533	)
Matthews Pacific Tiger Fund		119,162,538			(12,995,390	)		(106,167,148	)
Matthews Asia ESG Fund		(52,457	)		53,774			(1,317	)
Matthews Emerging Asia Fund		—			4,068			(4,068	)
Matthews China Fund		13,916,644			(1,012,648	)		(12,903,996	)
Matthews India Fund		—			2,246,623			(2,246,623	)
Matthews Japan Fund		—			2,153,144			(2,153,144	)
Matthews Korea Fund		1,742,351			(329,260	)		(1,413,091	)
Matthews Asia Small Companies Fund		(1,113	)		(247,960	)		249,073
Matthews China Small Companies Fund		234,960			7,710			(242,670	)
Matthews Asia Science and Technology Fund		3,039,193			507,410			(3,546,603	)


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Notes to Financial Statements (continued)

9.	SUBSEQUENT EVENTS

Effective February 1, 2016, Mizuho Bank, Ltd. (“Mizuho”), acquired an ownership interest in Matthews equal to approximately 16% of the outstanding units of Matthews previously held by a broad group of existing equity holders. Along with that transaction, Matthews adopted a new governance structure, through eliminating the managing member roles and expanding and providing additional authority to its Board of Directors. The governance changes constituted a change of control of Matthews and, therefore, technically resulted in an “assignment” of the Investment Advisory Agreement then in effect for each Fund, and its automatic termination as required by its terms and the Investment Company Act of 1940. The shareholders of each Fund approved a new Investment Advisory Agreement with Matthews, which became effective on February 1, 2016 upon the closing of those transactions and the automatic termination of the prior Investment Advisory Agreement. The new Investment Advisory Agreement has substantively the same terms as the prior Investment Advisory Agreement, including the same fee rates, except for the commencement and renewal dates.


148		MATTHEWS ASIA FUNDS

Report of Independent Registered

Public Accounting Firm

To the Board of Trustees and Shareholders of

Matthews Asia Funds:

In our opinion, the accompanying statements of assets and liabilities, including the schedules of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Matthews Asia Strategic Income Fund, Matthews Asian Growth and Income Fund, Matthews Asia Dividend Fund, Matthews China Dividend Fund, Matthews Asia Value Fund, Matthews Asia Focus Fund, Matthews Asia Growth Fund, Matthews Pacific Tiger Fund, Matthews Asia ESG Fund, Matthews Emerging Asia Fund, Matthews China Fund, Matthews India Fund, Matthews Japan Fund, Matthews Korea Fund, Matthews Asia Small Companies Fund, Matthews China Small Companies Fund and Matthews Asia Science and Technology Fund (hereinafter referred as the “Funds”) at December 31, 2015, and the results of each of their operations, the changes in each of their net assets and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (consolidated financial statements and consolidated financial highlights for Matthews China Fund and Matthews Asia Dividend Fund) (hereinafter referred to as “financial statements”) are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2015 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers, LLP

San Francisco, California

February 26, 2016


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Tax Information (unaudited)

For shareholders who do not have a December 31, 2015 tax year-end, this notice is for informational purposes. For the period January 1, 2015 to December 31, 2015, the Funds report the following items with regard to distributions paid during the period. All reportings are based on financial information available as of the date of this annual report and, accordingly, are subject to change. For each item, it is the intention of each Fund to report the maximum amount permitted under the Internal Revenue Code and the regulations thereunder.

1. Qualified Dividend Income

The Funds report a portion of the ordinary income distributed during the year ended December 31, 2015 as Qualified Dividend Income (“QDI”) as defined in the Internal Revenue code as follows:


	QDI Portion
Matthews Asia Strategic Income Fund		1.94%
Matthews Asian Growth and Income Fund		64.31%
Matthews Asia Dividend Fund		100.00%
Matthews China Dividend Fund		63.25%
Matthews Asia Value Fund		0.00%
Matthews Asia Focus Fund		80.43%
Matthews Asia Growth Fund		0.00%
Matthews Pacific Tiger Fund		44.66%
Matthews Asia ESG Fund		56.53%
Matthews Emerging Asia Fund		100.00%
Matthews China Fund		81.42%
Matthews India Fund		100.00%
Matthews Japan Fund		0.00%
Matthews Korea Fund		94.96%
Matthews Asia Small Companies Fund		100.00%
Matthews China Small Companies Fund		29.76%
Matthews Asia Science and Technology Fund		0.00%

2. Dividends Received Deduction

The Funds report a Dividend Received Deduction pursuant to Section 854 of the Internal Revenue Code for the year ended December 31, 2015 as follows:


Matthews Asia Strategic Income Fund			0.00%
Matthews Asian Growth and Income Fund			2.31%
Matthews Asia Dividend Fund			3.45%
Matthews China Dividend Fund			4.04%
Matthews Asia Value Fund			0.00%
Matthews Asia Focus Fund			12.50%
Matthews Asia Growth Fund			0.00%
Matthews Pacific Tiger Fund			1.27%
Matthews Asia ESG Fund			0.00%
Matthews Emerging Asia Fund			0.00%
Matthews China Fund			0.00%
Matthews India Fund			0.00%
Matthews Japan Fund			0.00%
Matthews Korea Fund			0.00%
Matthews Asia Small Companies Fund			0.00%
Matthews China Small Companies Fund			0.00%
Matthews Asia Science and Technology Fund			0.00%


150		MATTHEWS ASIA FUNDS

3. Long-Term Capital Gain Distributions

The Funds report Long-Term Capital Gain distributions pursuant to Section 852(b)(3) of the Internal Revenue Code for the year ended December 31, 2015 as follows:


	Long-Term Capital Gains
Matthews Asian Growth and Income Fund		$134,712,377
Matthews Asia Dividend Fund		71,669,071
Matthews China Dividend Fund		7,709,592
Matthews Asia Focus Fund		61,165
Matthews Pacific Tiger Fund		685,544,217
Matthews Emerging Asia Fund		432,972
Matthews China Fund		127,726,027
Matthews India Fund		13,471,979
Matthews Korea Fund		12,118,013
Matthews China Small Companies Fund		1,862,709
Matthews Asia Science and Technology Fund		25,836,171

4. Foreign Taxes Paid

The Funds have elected to pass through to their shareholders the foreign taxes paid for year ended December 31, 2015 as follows:


	Foreign Source Income		Foreign Taxes Paid
Matthews Asia Strategic Income Fund		$3,829,016		$84,023
Matthews Asian Growth and Income Fund		136,221,960		5,652,434
Matthews Asia Dividend Fund		162,653,864		10,381,648
Matthews China Dividend Fund		5,790,247		210,539
Matthews Asia Value Fund		5,764		812
Matthews Asia Focus Fund		387,991		13,720
Matthews Pacific Tiger Fund		219,250,295		10,976,450
Matthews Asia ESG Fund		50,415		6,267
Matthews Emerging Asia Fund		3,364,160		286,590
Matthews China Fund		19,900,425		103,503
Matthews Korea Fund		3,088,190		509,194
Matthews Asia Small Companies Fund		12,765,019		1,056,228
Matthews China Small Companies Fund		529,412		11,589

5. Qualified Interest Income

The Funds report a portion of the net income dividends distributed during the year ended December 31, 2015, as Qualified Interest Income (QII), as defined in the Internal Revenue Code as follows:


	QII Portion
Matthews Asia Strategic Income Fund		3.46%
Matthews Asian Growth and Income Fund		0.02%
Matthews Asia Dividend Fund		0.02%
Matthews China Dividend Fund		0.16%
Matthews Asia Value Fund		0.17%
Matthews Asia Focus Fund		0.07%
Matthews Asia Growth Fund		0.00%
Matthews Pacific Tiger Fund		0.03%
Matthews Asia ESG Fund		0.00%
Matthews Emerging Asia Fund		0.05%
Matthews China Fund		0.02%
Matthews India Fund		0.03%
Matthews Japan Fund		0.00%
Matthews Korea Fund		0.07%
Matthews Asia Small Companies Fund		0.05%
Matthews China Small Companies Fund		0.05%
Matthews Asia Science and Technology Fund		0.00%


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Tax Information (unaudited) (continued)

6. Qualified Short Term Capital Gain Dividends

The Funds report a portion of the short term capital gain dividends distributed during the year ended December 31, 2015, as Qualified Short-Term Gain, as defined in the Internal Revenue Code as follows:


	Short-Term Gains
Matthews Asia Strategic Income Fund		0.00%
Matthews Asian Growth and Income Fund		100.00%
Matthews Asia Dividend Fund		0.00%
Matthews China Dividend Fund		100.00%
Matthews Asia Value Fund		0.00%
Matthews Asia Focus Fund		0.00%
Matthews Asia Growth Fund		0.00%
Matthews Pacific Tiger Fund		0.00%
Matthews Asia ESG Fund		0.00%
Matthews Emerging Asia Fund		0.00%
Matthews China Fund		100.00%
Matthews India Fund		100.00%
Matthews Japan Fund		0.00%
Matthews Korea Fund		100.00%
Matthews Asia Small Companies Fund		0.00%
Matthews China Small Companies Fund		0.00%
Matthews Asia Science and Technology Fund		0.00%


152		MATTHEWS ASIA FUNDS

Approval of Investment Advisory Agreements (unaudited)

The Funds, which are series of the Trust, have retained Matthews International Capital Management, LLC (“Matthews”) to manage their assets pursuant to the Advisory Agreement (the “Current Agreement”), which has been approved by the Board of Trustees of the Funds, including the Independent Trustees. Following an initial term with respect to each Fund upon its commencement of operations, the Current Agreement continues in effect from year-to-year provided that the continuance is specifically approved at least annually by the vote of the holders of at least a majority of the outstanding shares of the Funds, or by the Board of Trustees, and, in either event, by a majority of the Independent Trustees of the Trust casting votes in person at a meeting called for that purpose.

At a meeting held on July 15, 2015, the Board, including the Independent Trustees of the Trust, approved a new Investment Advisory Agreement (the “New Agreement”), to take effect with respect to each Fund for an initial term of two years upon consummation of the proposed change of control transaction involving Matthews that was previously described in a recent proxy statement sent to shareholders of each Fund in connection with a special shareholders meeting (the “Transaction”). Because the consummation date of the Transaction was not yet set, at a meeting held on August 26, 2015, the Board, including the Independent Trustees of the Trust, approved the continuance of the Current Agreement, with respect to each Fund, for an additional one-year period ending August 31, 2016, or the earlier consummation of the Transaction.

Materials reviewed - In response to a detailed information request sent on behalf of the Independent Trustees by their independent legal counsel, Matthews addressed a range of information relating to the New Agreement, including, but not limited to, the Transaction, the expected benefits and costs to shareholders of the Funds, the expected changes in the management and operations of Matthews after the Transaction, and Matthews’ management and investment teams serving the Funds. Matthews’ response also included extensive materials regarding each Fund’s investment results, independently prepared advisory fee and expense comparisons to other mutual funds, advisory fee comparisons to advisory fees charged by Matthews to its institutional clients, and financial and profitability information regarding Matthews. Matthews’ profitability was compared to a peer group of investment advisers, and changes over time were reviewed. Furthermore, throughout the course of the year since the last renewal of the Current Agreement, the Independent Trustees received a wide variety of materials relating to the services provided by Matthews, including reports on each Fund’s investment results, portfolio composition, portfolio trading practices, shareholder services, and other information relating to the nature, extent, and quality of services provided by Matthews to the Funds. In addition to the information furnished by Matthews, the Trustees were provided with legal memoranda discussing their fiduciary duties related to the approval of the New Agreement as well as considerations relevant to the Transaction.

The Independent Trustees later reviewed updated performance, expense and other information requested on behalf of

the Independent Trustees as part of considering and acting to renew the Current Agreement.

Review process - The Independent Trustees reviewed advice regarding legal and industry standards provided by their independent legal counsel. The Independent Trustees discussed the approval of the New Agreement and the renewal of the Current Agreement with representatives of Matthews and in private sessions at which no representatives of Matthews were present. In deciding to recommend the approval of the New Agreement and renewal of the Current Agreement with respect to each Fund, the Independent Trustees did not identify any single or particular piece of information that, in isolation, was the controlling factor. This summary describes the most important, but not all, of the factors considered by the Board and the Independent Trustees.

The nature, extent and quality of the services provided by Matthews under the Advisory Agreement. The Trustees considered the experience and qualifications of the personnel at Matthews who are responsible for providing services to the Funds and who are responsible for the daily management of the Funds’ portfolios. The Trustees noted that Matthews has continued to expand its professional staff at both senior and junior levels over the past several years, and has enjoyed relative stability of its senior executive and portfolio management. They also reviewed Matthews’ recent hiring to further strengthen current capabilities and to support future potential growth of assets and the expansion of its business. Among other improved capabilities, the Trustees noted recent and planned enhancements to communications with intermediaries and investors, as well as various marketing efforts. The Trustees noted various initiatives such as efforts to access the China A-share market, investing in other emerging or frontier markets and continuing to develop greater access to other investors such as institutional retirement plans in Latin America. The Trustees have noted on-going enhancements to governance, risk and valuation practices.

The Trustees viewed Matthews as well positioned to provide high quality services to the Funds under various market conditions, as demonstrated by the past volatile and challenging securities markets that have caused either contracting revenues or rapidly expanding assets at different times. The Trustees attributed much of that past stability to Matthews’ emphasis on preserving and enhancing portfolio management team resources, careful business planning and management, as well as its solid financial condition and strong cash reserves. As in past years, the Trustees considered the technical capabilities of Matthews, including design and implementation of a disaster recovery and business continuity infrastructure. The Trustees also considered the Chief Compliance Officer’s report regarding Matthews’ compliance resources, risk assessment and other compliance initiatives and programs. One recent example noted by the Trustees was extensive employee training. The Trustees concluded that Matthews has implemented a robust and diligent compliance process, and demonstrates a strong commitment to a culture of compliance.


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Approval of Investment Advisory Agreements (unaudited) (continued)

The Trustees concluded that Matthews had the quality of personnel and other investment resources essential to performing its duties under the Advisory Agreement, and that the nature, overall quality, cost and extent of such management services are fully satisfactory.

The investment performance of Matthews. The Trustees reviewed the short-term and long-term performance of each Fund on both an absolute basis and in comparison to peer funds and benchmark indices. The Trustees noted the challenging conditions of various Asian markets in 2012 and part of 2013, as well as more recent market challenges. The Trustees expect that the performance of certain Funds will lag the market averages in some short-term periods because of Matthews’ emphasis on consistent long-term returns from investments in less cyclical companies. The Trustees also emphasized longer-term performance, which they believe is more important than short isolated periods for purposes of evaluating Matthews’ success in meeting Fund and shareholder objectives. To the extent of any concerns about performance with respect to any particular period for a Fund, the Trustees noted that Matthews had provided a satisfactory explanation for that performance and explained its reasons for maintaining a consistent investment philosophy. In addition, the Trustees recognized actions taken by Matthews such as changes to the portfolio management team responsible for the Matthews China Fund and other China-focused investments. The Trustees also reviewed both the peer comparison measures compiled by Lipper Inc. (“Lipper”) and ratings by Morningstar, Inc. (“Morningstar”) for each Fund for various periods ending March 31, 2015 and selected updated information for various periods ending June 30, 2015.

The Trustees noted the difficulty of fairly benchmarking performance for certain of the Funds as well as the difficulty of establishing appropriate peer groups for certain of the Funds. The Trustees also gave more weight to each Fund’s longer-term investment performance given the long-term investment philosophy of each Fund. On that basis, the Trustees concluded that they were satisfied with the Funds’ overall performance records. The Trustees also reviewed Matthews’ trading policies and efforts to obtain best overall execution for the Funds in the various markets in which the Funds trade securities. The Trustees noted the relatively low turnover rates in the various equity Funds and Matthews’ consistent adherence to its long-standing investment approach, which emphasizes fundamental bottom-up driven investment selection in light of its view of regional economic conditions.

For Matthews Asia Growth Fund, the Trustees noted that the Fund’s performance compared very favorably against its peers for the one-year, three-year, five-year, ten-year and since-inception periods. The Fund ranked in the first or second quintile against its peer group funds for those periods.

For Matthews Asia Dividend Fund, the Trustees noted that the Fund had performed well against its peer group during the one-year, three-year, five-year and since

inception periods, ranking in the first or second quintile for those periods.

For Matthews Pacific Tiger Fund, the Trustees noted that the Fund’s performance was favorable in the one-year, three-year, five-year, ten-year and since-inception periods, ranking in the first quintile for those periods against the Lipper peer group.

For Matthews Asian Growth and Income Fund, the Trustees noted that the Fund outperformed its peer group during the five-year, ten-year and since-inception periods, ranking in the first or second quintile for those periods. Although the performance for the one-year and three-years periods was below the median, it was still satisfactory.

For Matthews Asia Science and Technology Fund, the Trustees noted that the Fund’s performance was more favorable than the median return of its peer funds over the one-year, three-year and since-inception periods, but less favorable than the average return of its peer funds over the five-year and ten-year periods. The Trustees noted the absence of a directly comparable peer group because the funds in the peer group invested globally, rather than being limited to Asia. The Trustees also acknowledged Matthews’ explanation about the very volatile asset class in which the Fund invests, which can produce variable relative results. The Trustees remained satisfied with Matthews’ explanation of its investment strategy and process for this Fund.

For Matthews China Fund, the Trustees noted that the Fund had outperformed the median of its peer funds over the ten-year and since-inception periods, ranking in the first or second quintile for the ten-year and since inception periods. The Trustees expressed some concern about other periods, with the one-year period below median in the fourth quintile, and the three-year and five-year periods in the lowest quintile. The Trustees focused on the more recent weak performance, which had been discussed extensively with Matthews. The Trustees noted changes to the portfolio management team for this Fund as well as Matthews’ explanation of its investment strategy and process. They will remain attentive to the Fund’s progress in improving relative performance.

For Matthews India Fund, the Trustees noted that the Fund had outperformed its peer funds over the one-year, three-year, five-year and since inception periods, ranking in the first quintile for those periods.

For Matthews Japan Fund, the Trustees noted that the Fund’s performance was favorable compared to its peer funds over the one-year, three-year, five-year, ten-year and since-inception periods, ranking in the first or second quintile.

For Matthews Korea Fund, the Trustees noted that the Fund had enjoyed favorable performance above the median for the one-, three-, five-, ten-year and since


154		MATTHEWS ASIA FUNDS

inception periods, which was satisfactory as compared to its broader Lipper peer group for various periods. They consider the broader peer group, which consists of Pacific-oriented funds excluding Japan, as much too broad to be a useful peer group for a Korea-focused fund. For that reason, the Trustees placed greater weight on relative performance against a benchmark index.

For Matthews Asia Small Companies Fund, the Trustees noted that the Fund ranked in the top quintile among its peer groups for the three-year, five-year and since-inception periods, and in the second quintile for the one-year period. The Trustees noted that the peer group included global and international small cap funds, which the Trustees considered to be of limited use in evaluating the Fund’s satisfactory performance.

For Matthews China Dividend Fund, the Trustees noted that the Fund had ranked in the first or second quintile of its peer group for the three-year, five-year and since inception periods, but was below the median for the one-year period with positive performance.

For Matthews China Small Companies Fund, the Trustees noted that the Fund’s performance was below the median in its peer group for the three-year, five-year and since inception periods. The Trustees recognized that small capitalization strategies, particularly for a China-focused fund, can produce highly variable results. The Trustees regarded the peer group of China funds as less useful because of the small capitalization mandate for this Fund within a China-focused peer group. The Trustees also noted changes to the portfolio management team for this Fund.

For Matthews Asia Strategic Income Fund, the Trustees noted that the Fund performance had ranked in the first or second quintile for the one- and three-year periods, but below the median peer groups since inception. The Trustees recognized that the peer groups included mostly broader emerging market hard currency debt funds not focused on Asia, meaning the Fund’s relative performance could be more dependent on the relative performance of the Asian debt markets than portfolio management activity. The Trustees regarded the Fund’s performance as satisfactory.

For Matthews Emerging Asia Fund, Matthews Asia Focus Fund and Matthews Asia ESG Fund, the brief period since inception has not afforded sufficient performance to conduct a meaningful comparison to any peer group. The Trustees believe, however, that the relative past performance of other Funds managed by Matthews’ provides additional support for their renewal of the Current Agreement and approval of the New Agreement with respect to these three Funds.

T	The extent to which Matthews realizes economies of scale as the Funds grow larger and whether Fund investors benefit from any economies of scale. The Trustees discussed Matthews’ ongoing investment in its technology,

systems, staffing and other aspects of its business that can benefit the Funds, which is an acceptable way for Matthews to share economies of scale with the Funds and their shareholders. The Trustees considered the new personnel hired over the past year, as well as planned hiring, and the extent to which that hiring could be expected to benefit shareholders. The Trustees also recognize that the Funds’ total assets have fluctuated over the past few years, especially in certain strategies, which has also affected any economies of scale that could be enjoyed. The Trustees concluded that the advisory fee structure with breakpoints for the group-priced Funds (other than the individually priced Funds, which at the time of approval were the two small company focused Funds, the Emerging Asia Fund and the fixed-income Fund), and the new breakpoint for most of those individually priced Funds (other than the fixed-income Fund), enhances the ability of the Funds and their shareholders to benefit from past and future potential economies of scale, and continues to be appropriate given the size and objectives of the Funds. The Trustees further noted that additional economies of scale are shared with shareholders of the Funds through fee waivers and/or expense reimbursements pursuant to the Operating Expenses Agreement, fee waivers pursuant to the Fee Waiver Agreement, and the breakpoints in the fees payable under the Services Agreement, all of which will not be changed as a result of the Transaction or the approval of the New Agreement. As a result, the Trustees remain satisfied about the extent to which economies of scale have been and will continue to be shared with the Funds and their shareholders.

The costs of the services provided by Matthews and others. The Trustees considered the advisory fees and total fees and expenses of each Fund in comparison to the advisory fees and other fees and expenses of other funds in each Fund’s relevant peer group. The Trustees considered both the gross advisory fee rates charged by Matthews, as well as the effective advisory fee rates after taking into consideration the fees waived and expenses reimbursed pursuant to the Operating Expenses Agreement and the Fee Waiver Agreement, noting that the advisory fee rates under the New Agreement are identical to those under the Current Agreement and that the fee waiver and expense reimbursement arrangements reflected in the Operating Expenses Agreement and the Fee Waiver Agreement will continue to be in place following the consummation of the Transaction. The Trustees found that the contractual advisory rates (excluding administrative services) for the Funds were very competitive and generally lower than those of the relevant peer group averages for most of the Funds. The Trustees also found that the total expense ratios paid by shareholders of the Funds, which are most representative of a shareholder’s net experience, were also very competitive, with all but the relatively newer or smaller Funds ranking below the peer group averages.

The Trustees also compared Matthews’ advisory fees with those of Matthews’ separate accounts and other investment products, noting that the Funds’ advisory expenses were


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Approval of Investment Advisory Agreements (unaudited) (continued)

not disadvantageous (not being substantially higher than the separate accounts’ rates). The Trustees agreed that total expenses appeared to be appropriate in comparison and taking into account the services differences between these products and the Funds, including the differences in the frequency of net asset value calculations and other operational and compliance activities. The Trustees considered various specific Fund expenses, including the custody fees and transfer agent fees. The Trustees noted that Matthews’ continued efforts in recent years had resulted in, for many of the Funds, reduced expenses in some categories. The Trustees concluded that Matthews’ advisory fee rates and the Funds’ expense ratios are reasonable in light of comparative performance and expense and advisory fee information for each of the Funds.

For each of the Funds, the Trustees noted that, subject to the considerations and exceptions noted below, the contractual advisory fee rates, the total expense ratio, and the effective or net advisory fee rates were all lower than or not materially above the median of the funds in each Fund’s peer group.

For Matthews Asia Small Companies Fund, the Trustees noted that the gross advisory fee rate was equal to the peer group median, but actual total expenses excluding Rule 12b-1 and actual advisory fees were higher than the peer group median. The Trustees were pleased to note, however, that the actual total expenses and non-management expenses were below the peer group medians. The Trustees expect that the Fund’s comparative position should improve as the Fund grows.

For Matthews China Small Companies Fund, the Trustees noted that the gross advisory fee rate, actual advisory fee rate and total expenses were above the median. The Trustees expect that the Fund’s comparative position should improve as the Fund grows.

For Matthews Asia Strategic Income Fund, the Trustees noted that the gross advisory fee rate, but not the actual advisory fees, are lower than the peer group median, as well as the actual total expenses in part as the result of the expense limitation in effect.

For Matthews Emerging Asia Fund, Matthews Asia Focus Fund and Matthews Asia ESG Fund, the brief period since inception means that the Funds remain small and subject to subsidies under expense limitation agreements. The contractual advisory fee rate and actual advisory fee rate for the Matthews Emerging Asia Fund is above the peer group median. For the Matthews Asia Focus Fund the contractual advisory fee is below the median but the actual advisory fee is above the median for the peer group. For the Matthews Asia ESG Fund, the contractual advisory fee and the actual advisory fee are below the median for the peer group. With respect to these fees as well as total expense levels, these Funds remain new and relatively small and there is not sufficient peer group expense information to conduct a meaningful comparison to any peer group. The Trustees

remain comfortable with the expense levels set under the expense limitation agreement for these Funds.

The profits to be realized by Matthews and its affiliates from the relationships with the Funds. The Trustees reviewed the profitability of Matthews on both an absolute basis and in comparison to other investment advisers. The Trustees noted that Matthews’ pretax profit margin appeared to be reasonable in relation to other advisors. The Trustees also noted that Matthews appeared to be sufficiently profitable to operate as a viable investment management firm, able to honor its obligations as a sponsor of the Funds, including the Funds that did not generate a profit for Matthews, without earning excessive profits from any particular Fund or from the overall relationship with the Funds. The Trustees noted that, with fluctuations in asset levels in some prior years, volatility in revenues and profitability could be expected from time to time, but also noted the continued expenditures on personnel and other resources. The Trustees noted an increase in profitability in some prior years, but they are aware of the continued volatility of markets and asset levels that can result in continued fluctuations of profitability. The Trustees further noted that Matthews’ continued upgrading of its trading, research, compliance, and other technological systems should increase Matthews’ capacity, speed and reliability in providing services to the Funds as they grow, which further supports the long-term viability of the Funds and Matthews. The Trustees also considered that the additional benefits derived by Matthews from its relationship with the Funds are limited solely to permissible research and brokerage benefits received in exchange for “soft dollars.” After that review, the Trustees determined that the profitability level for Matthews with respect to the Current Agreement and the New Agreement should be fair and reasonable in consideration of the services it provides and will provide to the Funds.

No single factor was determinative of the Board’s decision to approve the Current Agreement and the New Agreement, but rather the Trustees based their determination on the total mix of information available to them. After considering the factors described above, the Board concluded that the terms of the advisory arrangements are fair and reasonable to each Fund in light of the services that Matthews provides, its costs and reasonably foreseeable Fund asset levels, and that each Fund’s shareholders received and would receive reasonable value in return for the advisory fees paid. The Independent Trustees concluded separately that continuance of the Current Agreement and approval of the New Agreement was supported by reasonable and impartial records and information, including the performance of the Funds in relation to their peer groups, the services provided by Matthews, and the competitive expense structure, and that the continuance of the Current Agreement and approval of the New Agreement with respect to each Fund would be in the best interests of each Fund and its shareholders. In addition, the consensus of the Board and the Independent Trustees, based on the information presented with respect to the consid-


156		MATTHEWS ASIA FUNDS

eration of the New Agreement, was that there would be no “unfair burden” imposed on the Funds as a result of the Transaction within the meaning of Section 15(f) of the 1940 Act.

Each of the Current Agreement and the New Agreement may be terminated by the Trustees on behalf of the Funds or by Matthews upon 60 days’ prior written notice without penalty. Each of the Current Agreement and New Agreement will also terminate automatically in the event of its assignment, as defined in the 1940 Act.

The Matthews Asia Value Fund (the “Fund”), which is a new series of the Trust, has retained Matthews International Capital Management, LLC (“Matthews”) to manage its assets pursuant to the Advisory Agreement, which has been approved by the Board of Trustees of the Fund, including the Independent Trustees. Following an initial term with respect to the Fund upon its commencement of operations, the Advisory Agreement continues in effect from year-to-year provided that the continuance is specifically approved at least annually by the vote of the holders of at least a majority of the outstanding shares of the Fund, or by the Board of Trustees, and, in either event, by a majority of the Independent Trustees of the Trust casting votes in person at a meeting called for that purpose.

At a meeting held on November 18, 2015, the Board, including the Independent Trustees of the Trust, approved the Advisory Agreement, with respect to the Fund, for an initial term through August 31, 2016 or the earlier of the completion of a proposed change of control transaction involving Matthews. The Board, including the Independent Trustees of the Trust, also approved a new Advisory Agreement with respect to the Fund for an initial term of two years to take effect upon the closing of that change of control transaction. Both agreements are referred to together as the “Advisory Agreements.”

The Independent Trustees reviewed and discussed the information provided by Matthews at that and prior meetings. The Independent Trustees were assisted in their deliberations by their independent legal counsel. Below is a summary of the factors considered by the Board in approving the Advisory Agreements with respect to the Fund.

The nature, extent and quality of the services provided by Matthews under the Advisory Agreements. The Trustees considered the experience and qualifications of the personnel at Matthews who would be responsible for providing services to the Fund and would be responsible for the daily management of the Fund’s portfolio. The Trustees noted that Matthews has continued to expand its professional staff at both senior and junior levels over the past several years, and has enjoyed relative stability of its senior executive and portfolio management. The Trustees noted Matthews’ on-going commitment to governance, compliance, risk and valuation practices. The Trustees viewed Matthews as well positioned to provide high quality services to the Fund under various market conditions, as demonstrated by the past volatile and challenging secu-

rities markets that have caused either contracting revenues or rapidly expanding assets at different times. The Trustees concluded that Matthews has the quality of personnel and other investment resources essential to performing its duties under the Advisory Agreements, and that the nature, overall quality, cost and extent of such management services are expected to be satisfactory and reliable.

The investment performance of Matthews. The Trustees are familiar with the short-term and long-term performance of other series of the Trust on both an absolute basis and in comparison to peer funds and benchmark indices. This is a new Fund without any prior performance. The Trustees also emphasized longer-term performance goals, which they believe are more important than short isolated periods for purposes of evaluating Matthews’s success in meeting Fund and shareholder objectives. The Trustees concluded that Matthews has the potential to generate acceptable long-term performance for the Fund.

The extent to which Matthews realizes economies of scale as the Fund grows larger and whether Fund investors benefit from any economies of scale. Because the Fund is new, it is not expected to recognize economies of scale for some time. The Trustees expect to monitor the Fund’s growth and evaluate economies of scale at future renewals of the Advisory Agreement in effect at that time. They expect that the Fund will benefit from existing economies of scale because of the family pricing of certain series of the Trust, including the Fund, including recently negotiated breakpoints. Additional fee reductions were adopted under the Administration and Shareholder Services Agreement for all series of the Trust for each increment of $5 billion of additional assets over $25 billion, with the lowest fee rate on assets over $45 billion. As a result, the Trustees remain satisfied about the extent to which economies of scale would be shared with the Fund and its shareholders.

The costs of the services provided by Matthews and others. The Trustees considered the advisory fees and total fees and expenses of the Fund in comparison to the advisory fees and other fees and expenses of other funds in the Trust, noting that the Fund does not have a fully suitable peer group for its specialty strategy. The Trustees noted that the expense limitation that would apply is the same as has been applied to certain other new series of the Trust, and that the administrative fee would be based on the combined family pricing for the Trust. Also, the total expense ratio to be paid by investors in the Fund, which is most representative of an investor’s net experience, would be reasonable.

The profits to be realized by Matthews and its affiliates from the relationships with the Fund. The Trustees recognized that, as a new fund with expense limitations in place, it is unlikely that the Fund will generate profits for Matthews initially and may not do so until the Fund has experienced some significant growth. The Trustees also considered that the additional benefits expected to be


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Approval of Investment Advisory Agreements (unaudited) (continued)

derived by Matthews from its relationship with the Fund are limited solely to research benefits received in exchange for “soft dollars.”

No single factor was determinative of the Board’s decision to approve the Advisory Agreements, but rather the Trustees based their determination on the total mix of information available to them. After considering the factors described above, the Board concluded that the terms of the advisory arrangements would be fair and reasonable to the Fund in light of the services that Matthews is expected to provide, and that the Fund’s shareholders are expected to receive reasonable value in return for the advisory fees paid. For these reasons, the approval of the Advisory Agreements with respect to the Fund would be in the best interests of the Fund and its shareholders.

Each Advisory Agreement may be terminated by the Trustees on behalf of the Fund or by Matthews upon 60 days’ prior written notice without penalty. Each Advisory Agreement will also terminate automatically in the event of its assignment, as defined in the 1940 Act.


158		MATTHEWS ASIA FUNDS

Trustees and Officers of the Funds (unaudited)

The operations of each Fund are under the direction of the Board of Trustees. The Board of Trustees establishes each Fund’s policies and oversees and reviews the management of each Fund. The Board meets regularly to review the activities of the officers, who are responsible for the day-to-day operations of the Funds. The Statement of Additional Information, which includes additional information about Fund Trustees, is available without charge by calling 800.789.2742 or by visiting the Funds’ website, matthewsasia.com. The Trustees and executive officers of the Funds, their year of birth, business address and principal occupations during the past five years are set forth below:


Name, Year of Birth, Address and Position(s) Held with Trust	Term of Office and Length of Time Served¹	Principal Occupation(s) During Past 5 Years	Number of Portfolios in Fund Complex Overseen by Trustee	Other Trusteeships/Directorships (number of portfolios) Held by Trustee
INDEPENDENT TRUSTEES

JONATHAN F. ZESCHIN Born 1953 Four Embarcadero Center Suite 550 San Francisco, CA 94111 Chairman of the Board of Trustees and Trustee	Trustee since 2007 and Chairman of the Board since 2014	Partner (since 2009), Essential Investment Partners, LLC (investment advisory and wealth management); President (since 2000), Essential Advisers Inc. (financial holding company); Managing Partner (since 1998), JZ Partners LLC (consulting).	19	Director (since 2013), Matthews A Share Selections Fund, LLC (2 Portfolios); Trustee and Chairman of the Board, DCA Total Return Fund (2005–2011) (1 Portfolio) and DCW Total Return Fund (2007–2010) (1 Portfolio); Trustee (2002–2007), ICON Funds (17 Portfolios); Director (2002-2004), Wasatch Funds (10 portfolios)

TOSHI SHIBANO Born 1950 Four Embarcadero Center Suite 550 San Francisco, CA 94111 Trustee	Since 2003	Faculty (since 2000), General Electric’s John F. Welch Leadership Center; President (since 1995), Strategic Value Creation, Inc. (executive development programs); Faculty Director and Executive Education Lecturer (since 1995), Center for Executive Education, Haas School of Business, UC Berkeley; Adjunct Professor (2000–2011), Columbia Graduate School of Business; Associate Professor (2001–2005), Thunderbird School of Global Management; Visiting Assistant Professor (2000), Stanford Graduate School of Business; Assistant Professor (1995–2000), University of Chicago Graduate School of Business; Assistant Professor (1988–1995), Haas School of Business, UC Berkeley.	19	Director (since 2013), Matthews A Share Selections Fund, LLC (2 Portfolios)

RHODA ROSSMAN Born 1958 Four Embarcadero Center Suite 550 San Francisco, CA 94111 Trustee	Since 2006	Vice President, Corporate Investment Officer (2007–2010); Senior Vice President and Treasurer (2003–2007), The PMI Group, Inc. (mortgage insurer).	19	Director (since 2013), Matthews A Share Selections Fund, LLC (2 Portfolios)

RICHARD K. LYONS Born 1961 Four Embarcadero Center Suite 550 San Francisco, CA 94111 Trustee	Since 2010	Dean (since 2008), Haas School of Business, UC Berkeley; Chief Learning Officer (2006–2008), Goldman Sachs (investment banking and investment management); Executive Associate Dean (2005–2006), Acting Dean (2004–2005), Professor (2000–2004), Associate Professor (1996–2000), Assistant Professor (1993–1996), Haas School of Business, UC Berkeley.	19	Director (since 2013), Matthews A Share Selections Fund, LLC (2 Portfolios); Trustee (2001–2006), Barclays Global Investor Funds and Master Investment Portfolios (15 Portfolios); Director (2000–2006), iShares, Inc. (24 Portfolios) and iShares Trust (over 70 Portfolios); Trustee (1994–2006) and Chairman of the Board (2000–2006), Matthews International Funds (9 Portfolios)

1	Each Trustee serves for an indefinite term, until retirement age or until his/her successor is elected. Officers serve at the pleasure of the Board of Trustees.


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Name, Year of Birth, Address and Position(s) Held with Trust	Term of Office and Length of Time Served¹	Principal Occupation(s) During Past 5 Years	Number of Portfolios in Fund Complex Overseen by Trustee	Other Trusteeships/Directorships (number of portfolios) Held by Trustee
INDEPENDENT TRUSTEES

CHRISTOPHER LEE Born 1967 Four Embarcadero Center Suite 550 San Francisco, CA 94111 Trustee	Since 2015	Lecturer (part-time) (since 2013), The Chinese University of Hong Kong; Private Investor and Partner (since 2012), FAA Investments (financial holding company); Managing Director, Asia Region, and Head of Global Markets Investment Products & db-X (2010–2012), Deutsche Bank AG (financial services); Managing Director, Equity Risk Management Products, and Head of Intermediary Business (2002–2010), UBS AG (financial services); Vice President, Global Markets & Investment Bank (2000–2002), Vice President, International Private Clients Group (1997–2000), Associate, Debt and Equity Markets Group (1995–1997), Merrill Lynch & Co., Inc. (brokerage and investment management).	19	Director (since 2015), Matthews A Share Selections Fund, LLC (2 Portfolios); Director (since 2013), Asian Masters Fund (Australia) (1 Portfolio); Trustee (since 2013), African Wildlife Foundation; Trustee (since 2010), Oakland Museum of California

GALE K. CARUSO Born 1957 Four Embarcadero Center Suite 550 San Francisco, CA 94111 Trustee	Since 2015	Formerly President and Chief Executive Officer (1999–2003), Zurich Kemper Life (life insurance and annuities); Chairman, President and Chief Executive Officer (1994–1999), Scudder Canada Investor Services, Ltd. (investment management); Managing Director (1986–1999), Scudder Kemper Investments, Inc. (investment management).	19	Director (since 2015), Matthews A Share Selections Fund, LLC (2 portfolios); Trustee (since 2006), Pacific Select Fund (58 Portfolios) and Pacific Life Funds (33 Portfolios); Director (2005–2012), Make-A-Wish Foundation of Maine; Director (2005–2009), LandAmerica Financial Group, Inc.; Director (2001–2003),Make- A-Wish of Northern Illinois; former member of the Board of Directors, Illinois Life Insurance Council.

Name, Year of Birth, Address and Position(s) Held with Trust	Term of Office and Length of Time Served¹	Principal Occupation(s) During Past 5 Years	Number of Portfolios in Fund Complex Overseen by Trustee	Other Trusteeships/Directorships (number of portfolios) Held by Trustee
INTERESTED TRUSTEES²

G. PAUL MATTHEWS Born 1956 Four Embarcadero Center Suite 550 San Francisco, CA 94111 Trustee	Since 2007	Director (since 1996), Chairman (1996–2009), Managing Member (1996–2016), Portfolio Manager (1996–2012), Chief Investment Officer (1991–2007), Matthews (investment management); President (1994–2007), Matthews International Funds (registered investment company).	19	Director (since 2013), Matthews A Share Selections Fund, LLC (2 Portfolios); Director (since 2004), Matthews Asian Selections Funds PLC (Ireland) (1 Portfolio); Trustee (2001–2004) and Trustee and Chairman of Board (1994–1998), Matthews International Funds (7 Portfolios).

WILLIAM J. HACKETT Born 1967 Four Embarcadero Center Suite 550 San Francisco, CA 94111 Trustee and President	President since 2008 and Trustee since 2015	Chief Executive Officer (since 2009), President and Secretary (since 2007), Matthews (investment management); President (since 2013), Matthews A Share Selections Fund, LLC (registered investment company); Director (since 2010), Matthews Global Investors S.à r.l. (Luxembourg) (investment management); Director (since 2010), Matthews Global Investors (Hong Kong) Limited (investment management); Partner (2002–2007), Deloitte & Touche, LLP (accounting).	19	Chairman (since 2010), Matthews Asia Funds SICAV (Luxembourg) (13 Portfolios); Director (since 2009), Matthews Asian Selections Funds, PLC (Ireland) (1 Portfolio).

1	Each trustee serves for an indefinite term, until retirement age or until his/her successor is elected. Officers serve at the pleasure of the Board of Trustees.

2	A trustee is considered an “interested person” of the Trust as defined under the 1940 Act because of an ownership interest in the Advisor or an office held with the Trust or the Advisor.


160		MATTHEWS ASIA FUNDS


Name, Year of Birth, Address and Position(s) Held with Trust	Term of Office and Length of Time Served¹	Principal Occupation(s) During Past 5 Years	Other Trusteeships/ Directorships (number of portfolios) Held by Officer
OFFICERS WHO ARE NOT TRUSTEES

ROBERT J. HORROCKS, PHD Born 1968 Four Embarcadero Center Suite 550 San Francisco, CA 94111 Vice President	Since 2009	Chief Investment Officer (since 2009), Director of Research (2008–2009), Matthews (investment management); Head of Research (2006–2008), Mirae Asset Management (investment management); Chief Investment Officer (2003–2006), Everbright Pramerica (investment management).	None

JOHN P. McGOWAN Born 1964 Four Embarcadero Center Suite 550 San Francisco, CA 94111 Vice President and Secretary	Since 2005	Senior Vice President of Business Administration (since 2009), Chief Administrative Officer (2007–2008), Chief Operating Officer (2004–2007), Matthews (investment management); Vice President and Secretary (since 2013), Matthews A Share Selections Fund, LLC (registered investment company); Director (since 2010), Matthews Asia Funds SICAV (Luxembourg) (investments); Director (since 2010), Matthews Global Investors S.à r.l. (Luxembourg) (investment management); Director (since 2004), Matthews Asian Selections Funds, PLC (Ireland) (investments).	Director, Matthews Asian Selections Funds Plc (1 Portfolio); Director, Matthews Asia Funds SICAV (Luxembourg) (13 Portfolios).

SHAI A. MALKA Born 1973 Four Embarcadero Center Suite 550 San Francisco, CA 94111 Treasurer	Since 2005	Vice President of Fund Accounting and Operations (since 2010), Senior Manager of Fund Accounting and Operations (2004–2009), Matthews (investment management); Treasurer (since 2013), Matthews A Share Selections Fund, LLC (registered investment company).	None

DAVID MONROE Born 1963 Four Embarcadero Center Suite 550 San Francisco, CA 94111 Vice President	Since 2014	General Counsel (since 2015), Deputy General Counsel (2014), Matthews (investment management); Chief Legal Officer (2006–2013), Nikko Asset Management Co., Ltd. (investment management).	None

MANOJ K. POMBRA Born 1964 Four Embarcadero Center Suite 550 San Francisco, CA 94111 Chief Compliance Officer and Anti-Money Laundering Officer	Since 2005	Chief Compliance Officer and Anti-Money Laundering Officer (since 2005), Matthews (investment management); Senior Manager, Mutual Fund Compliance/Manager Portfolio Compliance (2001–2005), Franklin Templeton Investments (investment management).	None

1	Each trustee serves for an indefinite term, until retirement age or until his/her successor is elected. Officers serve at the pleasure of the Board of Trustees.


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Matthews Asia Funds

INVESTMENT ADVISOR Matthews International Capital Management, LLC Four Embarcadero Center, Suite 550 San Francisco, CA 94111 800.789.ASIA CUSTODIAN Brown Brothers Harriman & Co. 50 Milk Street Boston, MA 02109		ACCOUNT SERVICES Matthews Asia Funds P.O. Box 9791 Providence, RI 02940 800.789.ASIA LEGAL COUNSEL Paul Hastings LLP 55 Second Street, 24th Floor San Francisco, CA 94105

LOGO

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

Matthews Asia Funds are distributed in the United States by Foreside Funds Distributors LLC, Berwyn, Pennsylvania

Matthews Asia Funds are distributed in Latin America by HMC Partners

LOGO

AR-1215-192M

Item 2. Code of Ethics.

(a)

The registrant, as of the end of the period covered by this report, has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party.

(c)

There have been no amendments, during the period covered by this report, to a provision of the code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, and that relates to any element of the code of ethics description.

(d)

The registrant has not granted any waivers, including an implicit waiver, from a provision of the code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, that relates to one or more of the items set forth in paragraph (b) of this item’s instructions.

Item 3. Audit Committee Financial Expert.

(a)

As of the end of the period covered by the report, the registrant’s board of directors has determined that the registrant has two audit committee financial experts serving on its audit committee, Toshi Shibano and Jonathan F. Zeschin, and that both are “independent.”

(b)

Prof. Shibano is a member of the Faculty of the General Electric Corporate Leadership Development Center and also serves as Executive Education Lecturer at the Haas School of Business at the University of California, Berkeley. He was an Adjunct Professor at the Columbia Graduate School of Business and has served on the faculties of Thunderbird American Graduate School of International Management, Stanford Graduate School of Business, the University of Chicago School of Business and the Australian Graduate School of Management at the University of New South Wales. He regularly reviews current research in accounting both for use in instruction of courses and for internal faculty evaluation. He has experience analyzing and evaluating financial statements at the appropriate level of complexity through his professional activities on the educational faculties referenced above.

Prof. Shibano also has extensive experience in executive education worldwide (Hong Kong, Taiwan, Singapore, Finland, Italy, Mexico, India) and has developed innovative new programs in financial analysis, management control systems and strategy implementation. Prof. Shibano has published in the Journal of Accounting Research, the Journal of Accounting and Economics, the Rand Journal of Economics, and the Journal of Applied Corporate Finance, on the topics of strategic audit risk, accounting standard setting, international accounting standards, tax minimization, foreign currency risk management, and organizational structure. Prof. Shibano received his MBA from the Haas School at UC Berkeley and earned his PhD at the Stanford Graduate School of Business, earning the highest academic honors in both programs. Prof. Shibano has gained additional accounting expertise as the Audit Committee Chair of Matthews International Funds.

Mr. Zeschin is Partner of Essential Investment Partners, LLC, a wealth management and investment advisory firm. He is also the portfolio manager for that firm’s Essential Growth Portfolio. Essential Investment Partners, LLC succeeded to the business of Essential Advisers, Inc. He is Managing Partner of JZ Partners, LLC, a business consulting firm for investment managers. Prior to forming Essential Advisers, Inc., Mr. Zeschin held senior executive positions with Founders Asset Management, Inc., Invesco Fund Group, and Stein Roe & Farnham, Inc. Mr. Zeschin holds a Masters of Management from the Kellogg School at Northwestern University, with majors in Finance and Marketing, and a Bachelor in Business Administration in Accounting with distinction from the University of Michigan. He holds a Certified Public Accountant certificate from the state of Illinois and is a Certified Financial Planner certificant. Mr. Zeschin is a former chair of the ICI’s Accounting Treasurer’s Committee and a former member of the AICPA Investment Companies committee. Mr. Zeschin is currently the chairman of the Board of Trustees to two NYSE listed closed-end funds. He has served on the audit committees of mutual fund boards since 2002. He has experience analyzing and evaluating financial statements at the appropriate level of complexity through his professional activities on the educational faculties referenced above. Mr. Zeschin has gained additional expertise as a member of the Audit Committee of Matthews International Funds.

Item 4. Principal Accountant Fees and Services.

Audit Fees

(a)

The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the registrant’s annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years are $446,520 in 2014 and $525,698 in 2015.

Audit-Related Fees

(b)

The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant’s financial statements and are not reported under paragraph (a) of this Item are $0 in 2014 and $0 in 2015.

Tax Fees

(c)

The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning are $114,858 in 2014 and $124,963 in 2015. Tax fees include services provided by the principal accountant for tax return preparations.

All Other Fees

(d)

The aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) of this Item are $0 in 2014 and $0 in 2015.

(e)(1)

Disclose the audit committee’s pre-approval policies and procedures described in paragraph (c)(7) of Rule 2-01 of Regulation S-X.

Pre-Approval of Auditor Services.

Pre-Approval Requirements. Before the Auditor is engaged by the Trust to render audit related or permissible non-audit services, either:

(i)

The Audit Committee shall pre-approve all audit related services and permissible non-audit services (e.g., tax services) to be provided to the Trust; or

(ii)

The Audit Committee shall establish policies and procedures governing the Auditor’s engagement. Any such policies and procedures must (1) be detailed as to the particular service and (2) not involve any delegation of the Audit Committee’s responsibilities to the Adviser. The Audit Committee may delegate to one or more of its members the authority to grant pre-approvals. The pre-approval policies and procedures shall include the requirement that the decisions of any member to whom authority is delegated under this Section 4(e) shall be presented to the full Audit Committee at its next scheduled meeting.

De Minimis Exceptions to Pre-Approval Requirements. Pre-approval for a service provided to the Trust other than audit, review or attest services is not required if: (1) the aggregate amount of all such non-audit services provided to the Trust constitutes not more than 5 percent of the total amount of revenues paid by the Trust to the Auditor during the fiscal year in which the non-audit services are provided; (2) such services were not recognized by the Trust at the time of the engagement to be non-audit services; and (3) such services are promptly brought to the attention of the Audit Committee and are approved by the Audit Committee or by one or more members of the Audit Committee to whom authority to grant such approvals has been delegated by the Audit Committee.

Pre-Approval of Non-Audit Services Provided to the Adviser and Certain Control Persons. With respect to services that have a direct impact on the operations or financial reporting of the Trust, the Audit Committee shall pre-approve all such non-audit services proposed to be provided by the Auditor to (i) the Adviser and (ii) any entity controlling, controlled by, or under common control with the Adviser that provides ongoing services to the Trust.

Application of De Minimis Exception: The de minimis exceptions set forth above under Section 4(e)(ii) apply to pre-approvals under this Section 4(e)(iii) as well, except that the “total amount of revenues” calculation for Section 4(e)(iii) services is based on the total amount of revenues paid to the Auditor by the Trust and any other entity that has its services approved under this Section (i.e., the Adviser or any control person).

(e)(2)

The percentage of services described in each of paragraphs (b) through (d) of this Item that were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X are as follows:

(b) Not applicable.

(d) Not applicable.

(f)

The percentage of hours expended on the principal accountant’s engagement to audit the registrant’s financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees was 0%

(g)

The aggregate non-audit fees billed by the registrant’s accountant for services rendered to the registrant, and rendered to the registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for each of the last two fiscal years of the registrant was $466,862 in 2014 and $353,683 in 2015.

(h)

The registrant’s audit committee of the board of directors has considered whether the provision of non-audit services that were rendered to the registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence.

Item 5. Audit Committee of Listed Registrants.

Not applicable.

Item 6. Investments.

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

(b) Not applicable.


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

Not applicable.

Item 8. Portfolio

Managers of Closed-End Management Investment Companies.

Not applicable.


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

Not applicable.

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

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

Item 11. Controls and Procedures.

(a)

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

(b)

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

Item 12. Exhibits.


		(a)(1)		Code of ethics, or any amendment thereto, that is the subject of disclosure required by Item 2 is attached hereto.

		(a)(2)		Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.

		(a)(3)		Not applicable.

		(b)		Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto.


(12.other) Not applicable.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


(Registrant) Matthews International Funds

By (Signature and Title)* /s/ William J. Hackett
		William J. Hackett, President
		(principal executive officer)

Date 3/8/2016

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


By (Signature and Title)* /s/ William J. Hackett
		William J. Hackett, President
		(principal executive officer)

Date 3/8/2016

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

Date 3/8/2016

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

Matthews Korea Active ETF (MKOR) N-CSRCertified annual shareholder report (management investment company)