JARDINE FLEMING
CHINA REGION FUND, INC.
Semiannual Report
June 30, 1998
This report, including the financial statements herein, is sent to the
shareholders of the Fund for their information. It is not a prospectus, circular
or representation intended for use in the purchase or sale of shares of the Fund
or of any securities mentioned in this report.
JFCRM-SAR-98 F01-051 6/30/98
JARDINE FLEMING
CHINA REGION FUND, INC.
Contents
Page
Objectives 1
Management 1
Market Information 1
Highlights 2
Investment Review 3
Major Holdings 5
Investment Portfolio 7
Statement of Assets and Liabilities 12
Statement of Operations 13
Statement of Changes in Net Assets 14
Financial Highlights 15
Notes to Financial Statements 16
Dividend Reinvestment and Cash Purchase Plan 19
Year 2000 Processing Issue 20
Directors and Administration 21
JARDINE FLEMING
CHINA REGION FUND, INC.
Objectives
Jardine Fleming China Region Fund, Inc. (the "Fund") seeks to achieve
long-term capital appreciation through investments primarily in equity
securities of companies with substantial assets in, or revenues derived from,
the People's Republic of China (PRC or China), Hong Kong, Taiwan, and
Macau-collectively, the China Region.
The Fund provides investors with an opportunity to participate in the
growing economies of the China Region, especially that of the PRC, although
investments are expected to be predominantly in securities listed on the Stock
Exchange of Hong Kong. Hong Kong enterprises have made substantial investments
in the PRC, in Guangdong Province in particular, where abundant cheap labor and
land are available. Hong Kong is also the largest trading partner of the PRC.
The economies of the PRC, Hong Kong, Taiwan, and Macau have become
increasingly linked over the past 10 years and are expected to become further
integrated now that Hong Kong has reverted to Chinese sovereignty and Macau is
slated to follow. Investments made by the Fund will seek to take advantage of
opportunities resulting from this linkage among the China Region markets.
Management
Jardine Fleming International Management Inc. ("JFIM") is the investment
management company appointed to advise and manage the Fund's portfolio. JFIM is
part of the Jardine Fleming group, which has a team of investment managers in
the Asia Pacific region managing approximately $20 billion in funds as of June
30, 1998, for both institutional and private clients.
Albert Kan is the portfolio manager of the Fund. Mr. Kan joined Jardine
Fleming in 1997 as Assistant Director and portfolio manager specializing in Hong
Kong and China. Previously, he was Chief Investment Officer of Europe Pacific
Advisors, Ltd. where he focused on Hong Kong, China, Taiwan, Singapore, and
Malaysia.
Market Information
The Fund is listed on the New York Stock Exchange (symbol JFC). The share
price is published in
o The Wall Street Journal (daily)
o The Asian Wall Street Journal (daily)
o Reuters (page JFC)
The net asset value is published in
o The Wall Street Journal under "Closed-End Funds" (every Monday)
o The Asian Wall Street Journal under "Closed-End Funds" (every Monday)
o South China Morning Post in Hong Kong (first Thursday of every month)
o Reuters (page JFC)
JARDINE FLEMING
CHINA REGION FUND, INC.
Highlights
June 30, 1998 December 31, 1997
US$ US$
Net Assets $71.1 million $107.5 million
Net Asset Value Per Share $ 7.81 $ 11.81
Final Dividend Per Share -- $ 0.04
Market Data
Share Price on the
New York Stock Exchange $ 6.38 $ 9.75
Discount to Net Asset Value -18.3% -17.4%
Total Return for the Six Months Ended June 30, 1998
Net Asset Value -33.9%
Share Price -34.6%
JFC Benchmark Index* -24.1%
Hong Kong All Ordinaries Index -27.1%
Credit Lyonnais Securities Asia
All China B Index -22.5%
Taiwan Weighted Index -12.4%
Net Asset Value and Share Price vs. Target Index
December 31, 1996 = 100
Net Asset Value Share Price JFC Benchmark Index*
12/96 100.00 100.00 100.00
102.10 104.45 101.89
103.98 140.45 103.39
100.84 104.45 102.28
111.74 112.27 109.34
120.05 121.17 113.99
6/97 128.24 131.12 117.47
134.67 136.71 120.53
141.02 132.81 124.44
126.20 130.58 119.25
93.44 91.64 90.83
81.27 88.89 85.11
12/97 82.81 87.02 85.94
64.65 83.73 72.34
86.04 92.65 88.89
80.98 84.80 85.87
73.98 78.64 78.64
63.04 63.59 70.86
6/98 54.77 56.94 65.21
* This benchmark is composed of the Hong Kong All Ordinaries Index, 60%; Credit
Lyonnais Securities Asia All China B Index, 30%; Taiwan Weighted Index, 10%.
When calculating benchmark performance, the monthly rebalancing method is used.
The Board of Directors established the JFC Benchmark Index in 1997 following
concern over the lack of an appropriate benchmark for the fund.
Source: Jardine Fleming
JARDINE FLEMING
CHINA REGION FUND, INC.
Investment Review
Dear Fellow Shareholders:
The first half of 1998 continued to be a most difficult period for Asian
economies, with the situation exacerbated by the crisis in the yen and the
ailing Japanese economy. While faring better than its Asian counterparts, the
China region was no exception to this negative trend.
The effect on the Fund was a decline in the net asset value and share price
of 33.9% and 34.6%, respectively, compared to a 24.1% fall in the JFC Benchmark
Index, for the six-month period ended June 30, 1998.
Concerns over Hong Kong's economy intensified over the period under review,
with consumption and investment activities contracting rapidly in the wake of
falling property prices and increased uncertainties surrounding the economy.
This resulted in negative gross domestic product (GDP) of 2% for the first
quarter of 1998-the first negative period in 15 years. Despite the Government's
long awaited nine-point package to support the local property market and the
economy, the effects of the package remain to be seen.
Turning to China, the economic situation appears to be relatively more
positive since the economy progressed on track in the first quarter, recording
7.2% GDP growth and 7.9% growth in exports. However, upon closer inspection the
picture is not as reassuring, as unemployment continued to increase and the
expected positive results from the state-owned enterprises and banking reforms
have yet to materialize.
Asian stock markets did rebound in February, on the back of easing tension
following the preceding panic. The recovery, however, was short-lived, and in
April renewed political and economic instability in Indonesia triggered another
confidence crisis in Asian currencies and economies. Concerns over the Japanese
economy and the falling yen further aggravated the situation, culminating in
renewed skepticism over whether Hong Kong's pegged exchange rate system and the
exchange rate stability of the renminbi could be maintained. It became evident
that some long-term funds had withdrawn from the China region and that hedged
fund activity was beginning to dominate the Hong Kong market. Speculation on
both the Heng Sang Index (HSI) futures and the Hong Kong dollar resumed, putting
downward pressure on the Hong Kong market. The HSI has been virtually in
free-fall since April and ended the second quarter at 8,543, down 20.3% from the
year-end.
In response to the increased volatility and uncertainties since the last
quarter of 1997, your Fund has adopted a defensive strategy, switching out of
second- and third-tier stocks into the more liquid blue chips, particularly in
the utilities sector. We have sold a portion of our holdings in Shenzhen 'B'
shares but retained most of the Shanghai 'B' shares, as we believe they offer
attractive growth potential. In order to position the portfolio for positive
news from China, we have begun to accumulate stocks that will benefit from the
rise in infrastructure spending, from housing reform, and from interest rate
cuts in China. However, the plunge in the yen and concerns over possible
renminbi devaluation have seized investor attention of late, and much of the
positive news flow from China, such as interest rate cuts, has passed unnoticed.
While we do not look for excitement in the China region in the near term,
the long-term outlook remains assuring. One way in which China benefits from the
recent economic crisis is its ascending status as an economic and political
power in Asia, as highlighted by President Clinton during his recent visit.
On the economic front, the appointment, since March, of Zhu Rongji to the
position of Premier and his dedication to economic restructuring in China bodes
well for the country's economic prospects. We believe China's economy more or
less bottomed in the first half of 1998. The recent interest rate cuts and
improvement in fixed assets will assist the acceleration of the country's GDP
growth in the second half of 1998 and the attainment of 7% GDP growth for the
full year. We believe China will not devalue the renminbi in the coming year, as
it is in the interest of both China and the United States to maintain its
stability. In Hong Kong, property prices have already adjusted to a reasonable
level and we expect confidence in the economy will gradually return, which
should help stabilize property prices. After surviving repeated tests, Hong
Kong's pegged exchange rate system should hold, in our view. The risk premium on
the Hong Kong dollar should gradually decline, which will help boost the local
economy. In Taiwan, while the banking and property sectors remain weak, growth
can still be found in selective electronics companies that target the U.S. and
European markets. Our primary concern is that the Taiwan market is vulnerable to
any correction in Wall Street and, therefore, we will look to raise our exposure
to the electronics sector as soon as the Taiwan Weighted Index adjusts to the
more comfortable level of 7,000.
We believe the long-term economic fundamentals of the China region remain
favorable and the region should be among the early gainers in an upturn in Asia.
While we do not expect any major recovery in the near term, the situation should
improve by the first quarter of 1999, given the progress in China's economy. We
have positioned your portfolio for future recovery by selecting quality
companies that demonstrate clean balance sheets and long-term value. On balance,
we remain positive for the long-term prospects of the China market and expect
rewards for long-term investors.
Mr. Martin Barrow resigned as President of the Fund on May 13, 1998,
because of other business commitments, but remains a Fund director. Following
his resignation, I was appointed by the Board as Chairman and President of the
Fund. On behalf of the Board of Directors, I would like to express our thanks to
Mr. Barrow for his services to the Fund.
Respectfully submitted,
The Rt. Hon. The Earl of Cromer
Chairman
August 7, 1998
JARDINE FLEMING
CHINA REGION FUND, INC.
Major Holdings
At June 30, 1998
% of Net
Assets
Cheung Kong Holdings 6.7
One of Hong Kong's premier property companies with significant property
developments in Hong Kong and the PRC. Cheung Kong has been discussing numerous
property and infrastructure projects in China.
Hutchison Whampoa 5.8
One of Hong Kong's leading conglomerates, controlling 60% and 50% of the
container ports in Hong Kong and Shanghai, respectively. Hutchison should
benefit from an increase in PRC exports.
Huangshan Tourism Development 'B' 4.8
The monopoly operator of the Huangshan (Yellow Mountain) area, one of
China's premier scenic tourist sites. The area is frequented more by local
tourists than international visitors due to the poor airline and road
infrastructure. Huangshan collects an entrance fee from visitors and also
operates most of the major hotels and cable car rides in the area.
New World Development 4.2
Mainly engaged in property development and investment, infrastructure
projects, and hotel operations in Hong Kong and the PRC. The infrastructure and
property projects in the PRC include five toll roads and bridges, three power
plants, and home ownership projects in Wuhan.
Shanghai Industrial Holdings 4.2
The window company for the Shanghai provincial government in Hong Kong. It
is a diversified holding company with interests in cigarettes, infrastructure,
auto parts, and cosmetics.
JARDINE FLEMING
CHINA REGION FUND, INC.
Major Holdings (continued)
At June 30, 1998
% of Net
Assets
Ka Wah Bank 3.9
Owned by CITIC in Bejing, with retail and wholesale banking businesses in
Hong Kong. One of Ka Wah Bank's major focuses is China-related business. CITIC
intends to use Ka Wah Bank as the principal holding vehicle for the group's
finance and banking business.
Shanghai Dazhong Taxi 'B' 3.7
Shanghai Dazhong Taxi is the second largest taxi operator in Shanghai with
an 8% market share. The taxi business comprises approximately 70% of earnings.
In addition, Dazhong is engaged in property development, property insurance, and
owns a travel agency business.
CITIC Pacific 3.4
The oldest and largest red chip in Hong Kong. CITIC Pacific has a number of
key strategic investments in the territory, including CLP Holdings (formerly
China Light and Power), Cathay Pacific, and Dragonair. The company is also one
of the largest investors in power and infrastructure businesses in China.
Moulin International Holdings 3.4
The largest optical frame manufacturer in Hong Kong. Moulin has focused on
optical frame manufacturing for 38 years. Moulin International's biggest markets
are the U.S. and Europe, and it has recently entered China's retail market. The
company has the exclusive distribution rights for several eyewear brandnames.
China Resources Enterprise 3.3
The investment arm of the Ministry of Foreign, Trade and Economic
Cooperation in Hong Kong. Their operations include infrastructure projects, food
distribution, property development, brewery production, and warehouses in Hong
Kong and the PRC.
Total Major Holdings 43.4
JARDINE FLEMING
CHINA REGION FUND, INC.
Investment Portfolio
At June 30, 1998 (unaudited)
Holdings Market
(in shares Value
Description or par) (in US$)
Common Stocks (unless otherwise noted)
CHINA (25.9%)
Shanghai Equities (USD) (22.8%)
Chemicals (1.7%)
Shanghai Worldbest 'B' 4,740,000 1,218,180
Industrial Components (2.5%)
*Shanghai Diesel Engine 'B' 6,884,500 1,156,596
*Shanghai Tyre and Rubber 'B' 3,641,980 590,001
1,746,597
Leisure & Tourism (4.8%)
Huangshan Tourism Development 'B' 8,794,500 3,403,472
Machinery & Engineering (2.3%)
!*Shanghai Refrigerator Compressor 'B' 5,070,000 801,060
*Shanghai Zhenhua Port Machinery 'B' 2,349,00 873,828
1,674,888
Real Estate (1.8%)
*Shanghai Lujiazui Finance &
Trade Zone Development 'B' 2,844,176 1,279,879
Transportation - Road & Rail (3.7%)
*Shanghai Dazhong Taxi 'B' 4,776,000 2,607,696
Utilities - Electrical & Gas (6.0%)
Heilongjiang Electric Power 'B' 6,112,350 2,322,693
Zhejiang Southeast Electric Power 'B' 6,839,000 1,914,920
4,237,613
Total Shanghai Equities 16,168,325
Shenzhen Equities (HKD) (3.1%)
Appliances & Household Durables (1.2%)
Wuxi Little Swan 'B' 984,000 875,033
Business & Public Services (1.3%)
*China Merchant Shekou Port Service 'B' 1,615,960 425,472
Shenzhen Chiwan Petroleum Supply Base 'B' 2,549,900 523,276
948,748
Metals - Steel (0.6%)
*Bengang Steel Plates 'B' 2,364,000 411,900
Miscellaneous Materials & Commodities (0.0%)
China Southern Glass 'B' 59 12
Total Shenzhen Equities 2,235,693
TOTAL CHINA 18,404,018
HONG KONG (70.8%)
Appliances & Household Durables (1.0%)
Guangdong Kelon Electrical Holdings 'H' 870,000 684,951
Banking (4.4%)
HSBC Holdings 282 6,897
*HSBC Holdings, Warrants, 9/4/98 1,516,000 330,671
Ka Wah Bank 6,730,500 2,758,046
3,095,614
Beverages & Tobacco (0.9%)
*Tsingtao Brewery 'H' 4,092,000 639,045
Building Materials & Components (3.2%)
Guangzhou Investments 19,956,000 2,266,556
Business & Public Services (2.3%)
*New World Infrastructure 1,442,400 1,656,861
Chemicals (3.0%)
China Merchants Holdings International 2,858,000 1,742,908
Shanghai Petrochemical 'H' 3,180,000 357,073
2,099,981
Data Processing & Reproduction (1.5%)
Legend Holdings 3,522,000 1,056,873
Electrical & Electronics (1.4%)
Beijing Datang Power Generation 'H' 3,658,000 1,026,865
Energy Sources (1.2%)
Zhenhai Refining & Chemical 'H' 6,628,000 855,446
Health & Personal Care (3.3%)
Moulin International Holdings 24,000,000 2,385,132
Machinery & Engineering (1.9%)
First Tractor 'H' 1,680,000 444,502
Qingling Motors 'H' 2,210,000 613,255
Qingling Motors, CB, 3.50%, 1/22/02 (USD) 549,000 285,480
1,343,237
Metals - Steel (0.5%)
*Maanshan Iron and Steel 'H' 6,382,000 345,953
Multi-Industry (18.8%)
Beijing Enterprises Holdings 852,000 1,292,075
CITIC Pacific 1,379,000 2,438,345
Hopewell Holdings 15,277,000 1,636,540
Hutchison Whampoa 776,000 4,096,335
Pacific Concord Holdings 8,928,000 967,930
Shanghai Industrial Holdings 1,256,000 2,958,441
13,389,666
Real Estate (19.2%)
Cheung Kong Holdings 971,000 4,774,793
China Overseas Land & Investment 5,386,000 695,147
China Resources Enterprise 2,256,000 2,329,375
Henderson Land Development 664,000 2,189,623
New World Development 1,540,000 2,981,415
Wharf Holdings 698,000 689,171
*Wharf Holdings, Warrants, 12/31/99 34,900 --
13,659,524
Transportation - Road & Rail (3.2%)
Anhui Expressway 'H' 7,964,000 801,745
Shenzhen Expressway 'H' 3,632,000 670,336
Zhejiang Expressway 'H' 4,945,000 829,698
2,301,779
Transportation - Shipping (3.1%)
Cosco Pacific 4,256,000 1,524,316
Shun Tak Holdings 6,818,000 668,776
2,193,092
Utilities - Electrical & Gas (1.9%)
CLP Holdings 296,000 1,348,580
TOTAL HONG KONG 50,349,155
TOTAL INVESTMENTS
(96.7% of Net Assets) (Cost $112,614,721) 68,753,173
Other assets less liabilities 2,339,702
NET ASSETS 71,092,875
Aggregate cost is the same for federal income
tax purposes. The aggregate unrealized gain (loss)
for all securities is as follows:
Excess of market value over cost 2,304,153
Excess of cost over market value (46,165,701)
Net unrealized loss (43,861,548)
HKD Hong Kong dollar
USD U.S. dollar
CB Convertible Bond
* Non-income producing
! Affiliated company
See accompanying notes to financial statements.
JARDINE FLEMING
CHINA REGION FUND, INC.
Statement of Assets and Liabilities
At June 30, 1998 (unaudited)
(in US$)
Assets
Investments at value (Note 2)
Affiliated companies (Cost $1,251,250) 801,060
Other companies (Cost $111,363,471) 67,952,113
Total investments in securities 68,753,173
Cash and foreign currencies 1,973,065
Dividends receivable 367,386
Restricted cash (Note 6) 305,266
Receivable for securities sold 19,676
Prepaid consultant fees 10,000
Interest receivable 9,832
Prepaid insurance premium 817
Total Assets 71,439,215
Liabilities
Accrued expenses payable 258,580
Due to investment advisor (Note 5) 87,760
Total Liabilities 346,340
Net Assets 71,092,875
Net assets consist of:
Common stock, $0.01 par value
(100,000,000 shares authorized;
9,101,372 shares issued and outstanding) 91,014
Paid-in capital 136,030,145
Accumulated undistributed net investment income 146,110
Accumulated realized gain (loss) on investments
and foreign currency transactions, net of distributions (21,205,381)
Accumulated net unrealized gain (loss) on investments,
foreign currency holdings, and other assets
and liabilities denominated in foreign currencies (43,969,013)
Net Assets 71,092,875
Net Asset Value Per Share ($71,092,875 / 9,101,372) 7.81
See accompanying notes to financial statements.
JARDINE FLEMING
CHINA REGION FUND, INC.
Statement of Operations
Six Months Ended June 30, 1998 (unaudited)
(in US$)
Investment Income (Note 2)
Dividends 1,161,886
Interest (net of foreign taxes of $1,923) 77,985
Total Investment Income 1,239,871
Expenses
Investment advisory fee (Note 5) 618,648
Administration and accounting fees (Note 5) 141,006
Custodian fees 136,923
Directors' fees and expenses 75,558
Other 121,626
Total Expenses 1,093,761
Net Investment Income 146,110
Realized and Unrealized Gain (Loss) on Investments,
Foreign Currency Holdings and Other Assets and Liabilities
Denominated in Foreign Currencies:
Net realized gain (loss) on (Note 2)
Investment transactions (8,733,258)
Foreign currency transactions 4,253
Net change in unrealized gain (loss) on (Note 2)
Investments (27,718,475)
Foreign currency holdings and other
assets and liabilities
denominated in foreign currencies (100,610)
Net realized and unrealized loss on investments,
foreign currency holdings and other assets
and liabilities denominated in foreign currencies (36,548,090)
Net Decrease in Net Assets Resulting From Operations (36,401,980)
See accompanying notes to financial statements.
JARDINE FLEMING
CHINA REGION FUND, INC.
Statements of Changes in Net Assets
(unaudited)
Six Months Ended Year Ended
June 30, 1998 December 31, 1997
(in US$) (in US$)
Increase (Decrease) in Net Assets
Operations
Net investment income 146,110 (75,506)
Net realized gain (loss)
on investment transactions (8,733,258) 13,973,620
Net realized gain (loss) on foreign
currency transactions 4,253 (168,898)
Net change in unrealized
gain (loss) on investments,
foreign currency holdings
and other assets and liabilities
denominated in foreign currencies (27,819,085) (36,094,424)
Net decrease in net assets
resulting from operations (36,401,980) (22,365,208)
Dividends to Shareholders:
From net investment income (Note 2) -- (364,032)
Total Increase (Decrease)
in Net Assets (36,401,980) (22,729,240)
Net Assets:
Beginning of period 107,494,855 130,224,095
End of period 71,092,875 107,494,855
See accompanying notes to financial statements.
<TABLE>
JARDINE FLEMING
CHINA REGION FUND, INC.
Financial Highlights (unaudited)
<CAPTION>
For the Six For the For the For the For the For the
Months Ended Year Ended Year Ended Year Ended Year Ended Year Ended
June 30, December 31, December 31, December 31, December 31, December 31,
1998 1997 1996 1995 1994 1993
(In US$) (In US$) (In US$) (In US$) (In US$) (In US$)
Per share operating performance
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period 11.81 14.31 11.17 12.58 22.58 15.05
Offering costs charged to
paid-in capital -- -- -- -- (0.06) --
11.81 14.31 11.17 12.58 22.52 15.05
Net investment income 0.02 (0.01) 0.03 0.07 0.05 0.10
Net realized and
unrealized gain (loss)
on investment and foreign
currency-related
transactions (4.02) (2.45) 3.13 (1.39) (8.51) 10.50
Total from
investment operations (4.00) (2.46) 3.16 (1.32) (8.46) 10.60
Less distributions
Dividends from net
investment income -- (0.04) (0.02) (0.09) (0.03) (0.11)
Distributions from
capital gains -- -- -- -- (1.45) (1.62)
Total distributions -- (0.04) (0.02) (0.09) (1.48) (1.73)
Net asset value,
end of period 7.81 11.81 14.31 11.17 12.58 23.92
Dilutive effect of
fully subscribed
rights offering (Note 4) -- -- -- -- -- (1.34)*
Net asset value,
end of period,
giving effect to
fully subscribed
rights offering -- -- -- -- -- 22.58*
Market value,
end of period 6.38 9.75 11.38 10.00 11.25 26.00
Total Investment Return
Per share
market value (34.6%) (13.9%) 13.9% (10.3%) (52.5%)# 99.3%
Per share net
asset value (33.9%) (17.2%) 28.3% (10.5%) (38.9%)# 72.9%
RATIOS/SUPPLEMENTAL DATA
Net Assets,
end of period 71,092,875 107,494,855 130,224,095 101,647,112 114,523,459 162,848,785
Ratio of expenses to
average net assets 2.36%! 1.68% 2.18% 2.22% 2.01% 2.17%
Ratio of net investment income
to average net assets 0.32%! (0.05%) 0.26% 0.60% 0.35% 0.59%
Portfolio turnover rate 49.18% 102.60% 44.40% 44.90% 71.20% 99.22%
Number of shares
outstanding at end
of period (in thousands) 9,101 9,101 9,101 9,101 9,101 6,807
<FN>
* Reflects the effect of fully subscribed rights offering completed January
5, 1994. The fund received net proceeds of approximately $42 million in
exchange for 2,269,109 shares of common stock.
! Annualized
# Adjusted to exclude the dilutive effect of the rights offering completed
January 5, 1994.
</FN>
See accompanying notes to financial statements.
</TABLE>
JARDINE FLEMING
CHINA REGION FUND, INC.
Notes to Financial Statements
June 30, 1998 (unaudited)
1. Organization and Capital
Jardine Fleming China Region Fund, Inc. (the "Fund") was incorporated in
the State of Maryland on May 22, 1992, and is registered as a
non-diversified, closed-end management investment company under the
Investment Company Act of 1940. The Fund commenced operations on July 16,
1992.
2. Significant Accounting Policies
The following significant accounting policies, which are in conformity with
generally accepted accounting principles of the United States of America
for investment companies, are consistently followed by the Fund in the
preparation of its financial statements.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from these estimates.
i) Security Valuation
All securities for which market quotations are readily available are
valued at the last sales price prior to the time of determination, or,
if no sales price is available at that time, at the mean between the
last current bid and asked prices. Securities that are traded
over-the-counter are valued, if bid and asked quotations are
available, at the mean between the current bid and asked prices.
Investments in short-term debt securities having a maturity of 60 days
or less are valued at amortized cost. All other securities and assets
are valued at fair value as determined in good faith by the Board of
Directors. In valuing the Fund's assets, quotations of foreign
securities in a foreign currency are translated to U.S. dollar
equivalents at the exchange rate in effect on the valuation date.
ii) U.S. Federal Income Taxes
No provision for federal income taxes is required since the Fund
intends to continue to qualify as a regulated investment company and
distribute all of its taxable income. The Fund has unused realized
capital loss carryforwards for federal income tax purposes of
$7,825,208 which expire in 2004. The Fund intends to retain gains
realized in future periods that may be offset by available capital
loss carryforwards.
iii) Affiliated Companies
Investments in companies 5% or more of whose outstanding voting
securities are held by the Fund are defined as "Affiliated Companies"
in Section 2(a)(3) of the Investment Company Act of 1940.
iv) Foreign Currency Translation
The books and records of the Fund are maintained in United States
dollars. Foreign currency amounts are translated into U.S. dollars at
the mid-market price of such currencies against U.S. dollars as
follows:
o investments, other assets and liabilities at the prevailing
rates of exchange on the valuation date;
o investment transactions and investment income at the prevailing
rates of exchange on the dates of such transactions
Although the net assets of the Fund are presented at the foreign
exchange rates and market values at the close of the period, the Fund
does not isolate that portion of the results of operations arising as
a result of changes in the foreign exchange rates from the
fluctuations arising from changes in the market prices of the
securities held at period end. Similarly, the Fund does not isolate
the effect of changes in foreign exchange rates from the fluctuations
arising from changes in the market prices of securities sold during
the period. Accordingly, realized and unrealized foreign currency
gains (losses) are included in the reported net realized and
unrealized gains (losses) on investment transactions balances.
Net currency gains (losses) from valuing foreign currency denominated
assets and liabilities at period end exchange rates are reflected as a
component of unrealized gain (loss) on investments, foreign currency
holdings and other assets and liabilities denominated in foreign
currencies.
v) Distribution of Income and Gains
The Fund intends to distribute to shareholders, at least annually,
substantially all of its net investment income and expects to
distribute annually any net long-term capital gains in excess of net
short-term capital losses. An additional distribution may be made to
the extent necessary to avoid the payment of a 4% federal excise tax.
Income and capital gain distributions are determined in accordance
with federal income tax regulations and may differ from those
determined in accordance with generally accepted accounting
principles.
vi) Other
Security transactions are accounted for on the date the securities are
purchased or sold. Realized gains and losses on the sale of investment
securities are determined on the identified cost basis. Interest
income is recognized on the accrual basis. Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
Portfolio turnover rate is calculated by dividing the lesser of
purchases and sales of investment securities having maturities greater
than one year at the time of acquisition by the average monthly market
value of those investment securities.
3. Investment Transactions
Consistent with its investment objective, the Fund engages in the following
transactions practices. The investment objective, policies, program, and
risk factors of the Fund are described more fully in the Fund's Prospectus.
i) Foreign Transactions
Foreign security and currency transactions may involve certain
considerations and risks not typically associated with those of U.S.
securities and U.S. dollar denominated transactions as a result of,
among other factors, the level of governmental supervision and
regulation of foreign securities markets and the possibility of
political or economic instability.
ii) Other
During the six months ended June 30, 1998, the Fund made purchases of
$46,300,311 and sales of $44,268,076 of investment securities other
than short-term investments. There were no purchases or sales of U.S.
Government securities.
4. Rights Offering
As of the close of business on December 8, 1993, the Fund issued to
shareholders rights entitling the holders thereof to subscribe for an
aggregate of 2,269,109 shares at a rate of one share of common stock for
each three rights held. The subscription price per share was $19.50.
The offer expired on January 5, 1994. At the expiration date the offer was
fully subscribed and 2,269,109 shares were subsequently issued. Net
proceeds (after sales loads and other expenses) received by the Fund
aggregated approximately $42,000,000. The net asset value per share at
December 31, 1993, assuming that the 2,269,109 shares had been issued as of
that date, was $22.58.
5. Related Party Transactions
i) Jardine Fleming International Management Inc. ( the "Investment
Adviser"), provides investment advisory services to the Fund under the
terms of an investment advisory agreement. Under the investment
advisory agreement, the Investment Adviser is paid a fee, computed
weekly and payable monthly, at the annual rate of 1.50% of the first
$50 million, 1.25% of the next $25 million and 1.00% of the excess
over $75 million of the Fund's weekly net assets. The Investment
Adviser is an affiliate of the Fund.
ii) T. Rowe Price Services, Inc. (the "Administrator") provides
administrative services to the Fund under an Administrative Services
Agreement. The Administrator receives a fee, payable monthly, at an
annual rate of 0.10% of the first $250 million, 0.075% of the next
$250 million and 0.05% of the excess over $500 million of the Fund's
average weekly net assets subject to a minimum annual fee of $200,000,
plus reimbursement for certain out-of-pocket expenses. The
Administrator also receives an annual fee of $85,000 for fund
accounting services pursuant to an Accounting Services Agreement. At
June 30, 1998, $69,882 was payable to the Administrator.
iii) During the six months ended June 30, 1998, the Fund paid $36,702 in
brokerage commissions to Jardine Fleming Securities Ltd., an
affiliated broker/dealer.
6. Restricted Cash
As part of the arrangements for insuring the Fund, a letter of credit
amounting to $305,266 was issued by Citibank N.A. in favor of the insurers.
In return, the Fund pledged deposits amounting to $305,266 to Citibank N.A.
as security for the letter of credit.
JARDINE FLEMING
CHINA REGION FUND, INC.
Dividend Reinvestment and Cash Purchase Plan
The Fund operates an optional Dividend Reinvestment and Cash Purchase Plan (the
"Plan") whereby:
a) shareholders may elect to receive dividend and capital gain
distributions in the form of additional shares of the Fund (the Share
Distribution Plan).
b) shareholders may make optional payments (any amount between $100 and
$3,000) which will be used to purchase additional shares in the open
market (the Share Purchase Plan).
For a copy of the Plan brochure, as well as a dividend reinvestment
authorization card, please contact:
1) State Street Bank & Trust Company or
P. O. Box 8200
Boston, Massachusetts 02266-8200
Telephone No: 800-426-5523 (toll free)
2) T. Rowe Price Services, Inc.
(the Plan Agent):
Telephone No: 800-638-8540 (toll free)
The following should be noted with respect to the Plan:
If you participate in the Share Distribution Plan, whenever the Board of
Directors of the Fund declares an income dividend or net capital gain
distribution, you will automatically receive your distribution in newly issued
shares (cash will be paid in lieu of fractional shares) if the market price of
the shares on the date of the distribution is at or above the net asset value of
the shares. The number of shares to be issued to you by the Fund will be
determined by dividing the amount of the cash distribution to which you are
entitled (net of any applicable withholding taxes) by the greater of the net
asset value (NAV) per share on such date or 95% of the market price of a share
on such date. If the market price of the shares on such a distribution date is
below the NAV, the Plan Agent will, as agent for the participants, buy shares on
the open market, on the New York Stock Exchange or elsewhere, for the
participant's account on, or after, the payment date. There is no service charge
for purchases under this Plan.
For U.S. federal income tax purposes, shareholders receiving newly issued shares
pursuant to the Share Distribution Plan will be treated as receiving income or
capital gains in an amount equal to the fair market value (determined as of the
distribution date) of the shares received and will have a cost basis equal to
such fair market value. Shareholders receiving a distribution in the form of
shares purchased in the open market pursuant to the Plan will be treated as
receiving a distribution of the cash distribution that such shareholder would
have received had the shareholder not elected to have such distribution
reinvested and will have a cost basis in such shares equal to the amount of the
distribution.
There will be no brokerage charge to participants for shares issued directly by
the Fund under the Plan. Each participant will pay a pro rata share of brokerage
commissions incurred with respect to the Plan Agent's open market purchases of
shares in connection with the Plan. The Fund will pay the fees of the Plan Agent
for handling the Plan.
You may terminate your account under the Share Distribution Plan by notifying
the Plan Agent in writing. The Plan may be terminated by the Plan Agent or the
Fund with notice to you at least 30 days prior to any record date for the
payment of any distribution by the Fund. Upon any termination, the Plan Agent
will deliver a certificate or certificates for the full shares held for you
under the Plan and a cash adjustment for any fractional shares.
You also have the option of instructing the Plan Agent to make semiannual cash
purchases of shares in the open market. There is a service charge of $1.25 for
each purchase under this Share Purchase Plan.
JARDINE FLEMING
CHINA REGION FUND, INC.
Year 2000 Processing Issue
Many computer programs employed throughout the world use two digits rather than
four to identify the year. These programs, if not adapted, may not correctly
handle the change from "99" to "00" on January 1, 2000, and may not be able to
perform necessary functions. The Year 2000 issue affects virtually all companies
and organizations.
The Investment Adviser has advised the Fund that it has implemented and will
continue to implement steps intended to ensure that its computer systems are
capable of Year 2000 processing. In addition, the Investment Adviser is
questioning third parties to assess the adequacy of their Year 2000 compliance
efforts. The Investment Adviser intends to develop contingency plans intended to
ensure that third-party noncompliance will not materially affect the Fund's
operations. Based on the Investment Adviser's reports, the Fund does not
currently anticipate that the Year 2000 issue will have an adverse effect on the
Investment Adviser's ability to continue to provide the services currently
provided to the Fund.
Companies in which the Fund invests could be adversely affected by the Year 2000
issue, but the Fund cannot predict the consequential effect on its investment
return. To the extent the impact on a portfolio holding is negative, the Fund's
investment return could be adversely affected.
JARDINE FLEMING
CHINA REGION FUND, INC.
Directors and Administration
Officers and Directors The Rt. Hon. The Earl of Cromer - Director,
President, and Chairman of the Board
Martin G. Barrow - Director
S. M. Chung - Director
A. Douglas Eu - Director and Treasurer
Alexander R. Hamilton - Director
Ng Yook Man - Director
Julian M. I. Reid - Director
Emmett J. Rice - Director
Loh Cheen Yeen - Secretary
Henry H. Hopkins - Assistant Secretary
Investment Adviser Jardine Fleming International Management Inc.
P.O. Box 3151
Road Town, Tortola
British Virgin Islands
Administrator T. Rowe Price Services, Inc.
100 East Pratt Street
Baltimore, Maryland 21202
U.S.A.
Custodian Citibank N.A.
New York:
111 Wall Street, 16th Floor
New York, New York 10005
U.S.A.
Hong Kong:
Citibank Tower
Citibank Plaza
3 Garden Road
Hong Kong
Independent Accountants PricewaterhouseCoopers, LLP
1306 Concourse Drive
Suite 100
Linthicum, Maryland 21090
U.S.A.
Legal Counsel Cleary, Gottlieb, Steen & Hamilton
New York:
1 Liberty Plaza, 43rd Floor
New York, New York 10006
U.S.A.
Hong Kong:
39th Floor, Bank of China Tower
1 Garden Road
Hong Kong
Registrar, Transfer Agent, State Street Bank & Trust Company
and Dividend Paying Agent P. O. Box 8200
Boston, Massachusetts 02266-8200 U.S.A.
