Commentary

Quarter Ending March 31, 2008

For the quarter ending March 31, 2008, the Matthews Asian Technology Fund lost –16.22%, while the MSCI/Matthews Asian Technology Index declined –9.16%. The Asian technology sector continued to correct due to a worsening macro environment that has stemmed from worries over the U.S. credit crisis and talk of a potential recession in the U.S. market.

During the quarter, software and services companies within the information technology sector experienced the most significant decline, making them the worst performers in the Fund. In recent years, the Fund has benefited from its holdings in that sector, and the growth outlook for such companies still remains solid in the region. Demand for various Internet services such as keyword search, casual and massively multiplayer online role-playing games (MMORPG), multimedia content and social networking sites also remains strong. However, last year’s strong outperformance and substantial gains of software and services companies led some investors to take profits in the first quarter. We continue to view the software and services industry as one of the Fund’s key focus areas and have added to select positions where we saw long-term investment opportunities. Another segment to underperform during the quarter was technology hardware and equipment. The U.S. is still the biggest market for technology products, and a significant slowdown in the U.S. could negatively impact this segment. On the other hand, performance was helped by the Fund’s exposure to the health care sector, which was relatively unharmed by the turmoil in the credit markets.

On a company basis, the Fund’s performance benefited most from Yahoo! Japan. The company, which underperformed other Asian Internet firms last year, rebounded during the first quarter as investors regained their interest in the Japanese equity market. Yahoo! Japan’s advertising revenue has been seeing steady growth in a difficult market environment as online advertising continued to take market share away from traditional media. Samsung Electronics, which benefited from the expected recovery in the dynamic random access memory (DRAM) industry contributed positively to Fund performance.

The Fund's worst-performing holdings were Internet companies. This included Baidu, a Beijing-based Internet company, the dominant Internet search engine in China. Baidu continues to strengthen its leadership position in China, capturing even more market share from rivals including Google. However, Baidu’s strong performance last year led shareholders to take profits, contributing to the stock’s sharp decline in the first quarter. The Fund’s second-worst performer was Tencent, which runs a popular instant messaging service.

By country, overall returns were strongest in Thailand. While Chinese companies were among the best contributors last year, the first quarter saw China become the Fund’s worst-performing country, with the exception of strong returns in Hong Kong. In recent years, China’s economy has shown tremendous growth and domestic Chinese firms, especially Internet-related companies, have benefited from that expansion. However, more recently, the U.S. credit crisis has dampened investor’s enthusiasm for Chinese companies, and their declines have been exacerbated by their strong outperformance last year.

Looking ahead, the Fund continues to search for long-term opportunities in a broad range of technology industries that we believe are poised to benefit from increasing demand from Asian consumers and overall growth in the Asia Pacific region.

TThe views and opinions in this commentary were current as of March 31, 2008. 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 the Funds' future investment intent.

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.

As of 3/31/08, Yahoo! Japan accounted for 3.0% of the Matthews Asian Technology Fund, Samsung Electronics accounted for 4.3%, Baidu accounted for 3.4%, and Tencent accounted for 3.4% of the Fund. The Matthews Asian Technology Fund holds no positions in Google.