Form N-Q is to be used by management investment companies, other than small business investment companies registered on Form N-5 (§§ 239.24 and 274.5 of this chapter), to file reports with the Commission, not later than 60 days after the close of the first and third fiscal quarters, pursuant to rule 30b1-5 under the Investment Company Act of 1940 (17 CFR 270.30b1-5). The Commission may use the information provided on Form N-Q in its regulatory, disclosure review, inspection, and policymaking roles.

A registrant is required to disclose the information specified by Form N-Q, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-Q 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 the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.

FROM THE INVESTMENT ADVISOR

Dear Shareholder,

Asian markets rallied strongly in the third quarter, following a generally lackluster start to the year. Following these rallies, total returns for most Asian markets were generally positive for the year to date, in spite of a backdrop of concerns ranging from rising oil prices and interest rates to ongoing debate over the sustainability of rapid growth in the region’s two most populous countries, India and China. Asian regional financial markets have enjoyed relatively strong performance over the past five years as economic growth in much of the region has outpaced that of the rest of the world. However, this growth has depended in large part on the exceptional performance of the mainland Chinese economy and, more recently, that of India, while the largest economy in the region, Japan, has continued to sputter.

In that respect, perhaps the most noteworthy event of the third quarter was the strong rally in the Japanese equity market following the surprise election called by Prime Minister Koizumi, and the public’s apparent support of his reform program for the Japanese postal system. This rally was accompanied by reports of continued improvement in the Japanese economy and the suggestion that Japan’s apparently ultra-easy monetary policy was starting to have a positive impact. While there have been many premature signs of recovery in the Japanese economy over the past several years, the prospect of true reform at the heart of what remains one of the world’s largest pools of savings is perhaps more encouraging than any short-term sign of economic recovery. While we remain confident of the long-term prospects for the region outside of Japan, we believe that continued reforms in the Japanese financial markets are key to the medium-term prospects for the region.

While we were encouraged by macroeconomic developments in Japan during the third quarter, we were disappointed by the relative performance of the Funds’ Japanese portfolios over the period. With our primary focus on longer time horizons, we are aware that our Japanese exposure generally lagged the benchmarks for the three months ended September 30. Over the past three to five years, our portfolios in Japan have benefited from a diverse range of companies in Japan, strongly helped by positions in Japanese financials. While financials generally performed well

2       MATTHEWS ASIAN FUNDS

in the third quarter, the individual positions in financial stocks in the Funds’ Japanese portfolios underperformed over this period. We have not made any dramatic changes to the Funds’ Japanese portfolios in recent months and remain confident in our longer-term stock selection. By contrast, we were pleased with our stock selection in South Korea in the third quarter, helped in particular by a strong showing from pharmaceutical companies. Elsewhere in the region for the quarter, we were satisfied with the Funds’ relative performance.

Oil prices continued to rise in the third quarter, presenting perhaps the biggest challenge faced by regional economies since the end of the financial crisis in 1999. While to date this has not had a significant impact on economic growth in the region, the recent increases are undoubtedly starting to bite. Historically, a number of countries in Asia—most notably India, China and Indonesia—have attempted to cushion the impact of oil price volatility by “subsidizing” prices for end users. These subsidies have taken various forms but generally have come under pressure as oil moved to more than $60 a barrel. While we believe that Asian economies can withstand higher prices, we are concerned that the impact of subsidies around the region can cause dislocations and imbalances and may lead to short-term volatility.

The start of reforms to the Japanese postal savings system and the continued reform effort in China provide long-term reasons for optimism about the economic prospects for Asia. In the near term, the twin threats of rising oil prices and rising interest rates present a challenge to those growth prospects.

The timetable for the full opening of the Chinese economy, including the eventual opening of the currency market on the capital account, has for many years been subject to progress being made on substantive reform of China’s banking system. While no one can be certain of the final outcome, there can be no doubt that in recent months, very significant progress has been made toward Chinese banking reform. The pace and scale of foreign bank investments in mainland banks of

all sorts has been dramatic so far in 2005; this trend continued to accelerate in the third quarter. There continues to be much discussion as to how sustainable China’s rate of economic growth is in the short term, but we believe this is far less critical for long-term investors in the region than is the eventual success of the banking reform program, and we are encouraged by recent developments.

The start of reforms to the Japanese postal savings system and the continued reform effort in China provide long-term reasons for optimism about the economic prospects for Asia. In the near term, the twin threats of rising oil prices and rising interest rates present a challenge to those growth prospects. For all of the Funds’ portfolios, we remain focused on identifying strong long-term growth companies selling at reasonable prices that can withstand the near-term uncertainties and benefit from what we continue to believe will be a long period of relative prosperity for an Asian region that understands the benefits of allowing the markets to operate as freely as possible.

On a separate subject, we are pleased to announce the addition of the Matthews India Fund to the fund family. Launched on October 31, 2005, the Fund’s investment objective is long-term capital appreciation and, under normal conditions, the Fund seeks to achieve its investment objective by investing at least 80% of its total net assets in publicly traded common stocks, preferred stocks and convertible securities of Indian companies. For more information, please refer to the Fund’s prospectus, which can be obtained at the Funds’ web-site at www.matthewsfunds.com.

Thank you for your continued support.

G. Paul Matthews

Chairman and Chief Investment Officer
Matthews International Capital Management, LLC

Mark W. Headley

Chief Executive Officer and Portfolio Manager
Matthews International Capital Management, LLC

INTRODUCING THE MATTHEWS INDIA FUND

LAUNCHED ON OCTOBER 31, 2005

For information on this new Fund and its investment objectives, please visit www.matthewsfunds.com

4     MATTHEWS ASIAN FUNDS

The Funds assess a redemption fee of 2.00% of the total redemption proceeds if you sell or exchange your shares within 90 calendar days after purchasing them. The redemption fee is paid directly to the Funds and is designed to discourage frequent short-term trading and to offset transaction costs associated with such trading of Fund shares. For purposes of determining whether the redemption fee applies, the shares that have been held longest will be redeemed first. The redemption fee does not apply to redemptions of shares held in certain omnibus accounts and retirement plans that cannot currently implement the redemption fee. While these exceptions exist, the Funds are not accepting any new accounts that cannot implement the redemption fee. In addition, the Funds are actively discussing a schedule for implementation of the fee with these providers. For more information on this policy, please see the Funds’ prospectus.

Past Performance: All performance quoted in this report is past performance and is no guarantee of future results. Investment return and principal value will fluctuate with changing market conditions so that when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the returns quoted. Returns are net of the Funds’ management fee and other operating expenses. If certain of the Funds’ fees and expenses had not been waived, returns would have been lower. For the Funds’ most recent month-end performance, please call 1-800-789-ASIA [2742] or visit www.matthewsfunds.com.

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

Fund Holdings: The Fund holdings shown in this report are as of September 30, 2005. Holdings are subject to change at any time, so holdings shown in this report may not reflect current Fund holdings. The Funds file complete schedules of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q, the first of which was filed for the quarter ended November 30, 2004. The Funds changed their fiscal year-end to December 31 in 2004. The Funds’ Form N-Q is available on the SEC’s website at www.sec.gov and may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Matthews Asian Funds publishes quarterly reports containing the information filed in the form N-Q, copies of which may be obtained by visiting the Funds’ website at www.matthewsfunds.com or by calling 1-800-789-ASIA [2742].

Proxy Voting Record: The Funds’ Statement of Additional Information containing a description of the policies and procedures that the Matthews Asian Funds use to vote proxies relating to portfolio securities, along with each Fund’s proxy voting record relating to portfolio securities held during the 12-month period ended June 30, 2005, is available upon request, at no charge, at the Funds’ website at www.matthewsfunds.com or by calling 1-800-789-ASIA [2742], or on the SEC’s website at www.sec.gov.

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

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

Lead Manager: Mark W. Headley

The Matthews Asia Pacific Fund invests at least 80% of its assets in the common and preferred stocks of companies located in the Asia Pacific region. The Fund may also invest in the convertible securities, of any duration or quality, of companies located in Asia Pacific.

The Asia Pacific region includes Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand, Pakistan, Philippines, Singapore, South Korea, Taiwan and Thailand.

PORTFOLIO MANAGER COMMENTARY

The Matthews Asia Pacific Fund gained 10.06% during the three months ended September 30, 2005, underperforming both the MSCI All Country Asia Pacific Index and the Lipper Pacific Region Funds Category Average, which returned 15.14% and 14.97%, respectively. The relatively poor performance of the Fund’s holdings in Japan was a primary reason for the underperformance. Since its inception, the Fund has underweighted the large Japanese market.

The Fund’s performance for the quarter was dominated by returns from its positions in North Asia, including Japan, Korea and China. Financials bounced back strongly during the period, and technology and telecommunications holdings were also major contributors to positive Fund performance, with core positions in China taking the lead. Korean stocks saw one of the broadest rallies in recent memory, and the market managed to break an 11-year high in local currency terms. Indonesia was the primary area of significant weakness, along with several holdings in Japan. Indonesia has suffered from higher energy prices, and its currency weakened as investors became concerned that the government was too weak to make the necessary fiscal adjustments.

Overall, the portfolio is maintaining its overweight position in domestically related companies, primarily consumer/retail and financials. A number of strong global competitors in the portfolio provide significant diversification and, in many cases, some of the strongest management teams in Asia. The Fund’s exposure to Japan has been modestly increased with several new positions.

The region continues to see significant inflows of foreign capital, and domestic confidence in financial markets seems to be building in a number of key countries. The portfolio has perhaps suffered from a bit too much caution as markets have moved higher in the face of a significant rise in energy and commodity prices, as well as interest rates moving modestly higher in a number of countries.

SCHEDULE OF INVESTMENTS (Unaudited)

EQUITIES: 98.4%*

ADR    American Depositary Receipt

W/I      When Issued Shares

See accompanying notes to schedules of investments.

Lead Manager: Mark W. Headley
Co-Manager: G. Paul Matthews

The Matthews Pacific Tiger Fund invests at least 80% of its assets in the common and preferred stocks of companies located in the Pacific Tiger countries of China, Hong Kong, India, Indonesia, Malaysia, Philippines, Singapore, South Korea, Taiwan and Thailand.

PORTFOLIO MANAGER COMMENTARY

For the three-month period ended September 30, 2005, the Matthews Pacific Tiger Fund gained 12.44%, versus a gain of 8.47% for the MSCI All Country Far East ex-Japan Index and a gain of 11.67% for the Lipper Pacific ex-Japan Category Average. The region as a whole saw a strong rally—which was already being tested as we entered the final three months of the year.

The Fund enjoyed positive returns from every significant sector in which it was invested during one of the broadest rallies in recent years. The financials sector recovered powerfully, especially in Korea, after some weakness earlier in the year. Technology and telecommunications were significant contributors to performance, with core holdings in China doing particularly well. The Fund’s consumer-related holdings also did well. The only notable area of weakness was Indonesia, where concerns over potential economic shocks from rising energy prices hit its market and currency. It is a sad irony that Indonesia, the only Asian member of OPEC, sits on vast energy reserves, yet domestic politics and corruption have slowed investment to the point where the country cannot meet its own energy needs.

The Fund continues to focus on its long-term areas of greatest interest: domestic consumption, financials and broadly defined technology. We are constantly looking for new areas of sustainable growth potential in the regional economy, as well as companies that have the ability to compete globally. We are pleased that the one-year returns for the Fund have remained competitive despite its lack of exposure to energy- and commodity-related companies.

There is no doubt that the regional markets have enjoyed a period of very strong liquidity as both foreign and local investors have added to equity holdings. While valuations in the region remain broadly reasonable, investors should be aware that sharp corrections could occur after the dramatic gains that have been seen since the dark days of the SARS epidemic. We never pretend to know where the markets will head, but with so many new participants, volatility must be anticipated.

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

The Matthews Asian Growth and Income Fund invests at least 80% of its assets in dividend-paying equity securities and convertible securities, of any duration or quality, of companies located in Asia, which includes China, Hong Kong, India, Indonesia, Japan, Malaysia, Philippines, Singapore, South Korea, Taiwan and Thailand.

Note: This fund is closed to most new investors.

For the three months ended September 30, 2005, the Matthews Asian Growth and Income Fund gained 8.05%, underperforming both its benchmark MSCI All Country Far East ex-Japan Index and the Lipper Pacific ex-Japan Funds Category Average, which returned 8.47% and 11.67%, respectively.

Asian equities generated positive returns during the third quarter, even as rising energy prices and emerging inflationary pressures were increasingly evident in the region’s markets.

Regional markets digested a number of notable events during the quarter: Indonesia, India and Thailand all saw their domestic energy subsidies partially or totally undone; Japan’s prime minister, Junichiro Koizumi, consolidated power and won a mandate for reform in a noteworthy snap election; and China moved off its fixed exchange rate regime, which had served the country for over a decade.

The Fund’s performance was led by a number of positions not particularly unified by a common theme. Several of the Fund’s holdings in Korean financials gained, driven by earnings upgrades and reported improvements in their underlying credit quality. Two consumer goods companies also delivered substantial performance during the quarter; each saw sharp recovery in its financial performance in recent months. Income-paying utilities also performed well despite energy prices that moved consistently higher throughout the quarter.

Offsetting these gains was decidedly mixed performance among the Fund’s positions in banks and real estate holdings. After several months of relatively strong performance, the Fund’s REIT holdings underwent a correction as markets digested the likelihood and timing of future interest-rate hikes. Several positions in Asian banks also declined marginally, driven by concerns that future rate increases might stall credit demand. Telecom shares were also notably weak, with growing concerns that current cash flows at incumbent companies will be difficult to maintain in the face of growing competitive threats from new Internet technologies.

SCHEDULE OF INVESTMENTS (Unaudited)

COMMON EQUITIES: 73.3%*

SCHEDULE OF INVESTMENTS (Unaudited) (continued)

PREFERRED EQUITIES: 4.3%*