JARDINE FLEMING
CHINA REGION FUND, INC.
Annual Report
December 31, 1997
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-AR-97
F01-050 12/31/97
JARDINE FLEMING
CHINA REGION FUND, INC.
Contents
Page
Objectives 1
______________________________________________________________
Management 1
______________________________________________________________
Market Information 1
______________________________________________________________
Highlights 2
______________________________________________________________
Investment Review 3
______________________________________________________________
Major Holdings 6
______________________________________________________________
Investment Portfolio 8
______________________________________________________________
Statement of Assets and Liabilities 13
______________________________________________________________
Statement of Operations 14
______________________________________________________________
Statements of Changes in Net Assets 15
______________________________________________________________
Financial Highlights 16
______________________________________________________________
Notes to Financial Statements 17
______________________________________________________________
______________________________________________________________
Report of Independent Accountants 21
______________________________________________________________
Dividend Reinvestment and Cash Purchase Plan 22
______________________________________________________________
Directors and Administration 23
______________________________________________________________
Disclosure in the Annual Report 24
______________________________________________________________
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 on 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 $17 billion in
funds as of December 31, 1997, for both institutional and private clients.
Albert Kan is the portfolio manager of the Fund. Mr. Kan joined Jardine
Fleming in 1997 as Assistant Director and portfolio manager specializing
in Hong Kong and China. Previously, he was Chief Investment Officer of
Europe Pacific Advisors, Ltd. where he focused on Hong Kong, China,
Taiwan, Singapore, and Malaysia.
Market Information
The Fund is listed on the New York Stock Exchange (symbol JFC). The share
price is published in
o The Wall Street Journal (daily)
o The Asian Wall Street Journal (daily)
o Reuters (page JFC)
The net asset value is published in
o The Wall Street Journal under "Closed-End Funds" (every Monday)
o The Asian Wall Street Journal under "Closed-End Funds" (every
Monday)
o South China Morning Post in Hong Kong (first Thursday of every
month)
o Reuters (page JFC)
JARDINE FLEMING
CHINA REGION FUND, INC.
Highlights
December 31, 1997December 31, 1996
US$ US$
Net Assets $107.5 million $130.2 million
Net Asset Value Per Share $11.81 $14.31
Final Dividend Per Share $0.04 $0.02
Market Data
Share Price on the
New York Stock Exchange $9.75 $11.38
Discount to Net Asset Value -17.4% -20.5%
Total Return for the Year Ended December 31, 1997
Net Asset Value -17.2%
Share Price -13.9%
Hong Kong All Ordinaries Index -19.3%
Credit Lyonnais Securities Asia
All China B Index -14.9%
Peregrine Greater China Index -19.2%
JFC Benchmark Index* -14.1%
Net Asset Value and Share Price vs. Target Index
Peregrine Greater
Net Asset Value Share Price China Index
7/16/92** 100.0 100.0 100.0
99.78 98.33 89.81
100.43 94.2 91.11
100.94 80.0 79.15
108.6 92.53 90.31
111.05 96.67 91.95
12/92 109.29 93.02 90.21
110.16 96.37 87.65
117.49 98.85 97.55
120.54 108.9 94.28
125.48 118.95 97.84
129.84 122.3 92.05
6/93 122.35 120.09 83.13
120.67 116.73 77.96
124.75 129.29 82.27
128.39 126.81 84.74
147.17 150.32 102.63
156.34 166.71 113.9
12/93 188.96 187.39 128.98
175.52 183.65 111.34
158.91 148.41 103.16
136.56 136.08 91.08
132.14 134.18 87.3
136.06 148.41 90.89
6/94 123.99 123.29 82.84
130.78 126.47 87.48
130.78 135.83 92.18
132.98 129.56 94.14
132.34 126.47 89.14
124.35 110.76 80.63
12/94 115.72 94.29 72.23
101.37 90.1 62.02
108.27 98.48 66.92
109.37 94.29 67.13
105.33 90.1 63.43
113.68 107.01 70.35
6/95 111.93 92.33 69.32
116.08 95.51 73.64
108.89 88.13 69.66
112.85 94.42 68.82
110.46 89.22 67.02
104.65 85.02 64.06
12/95 103.54 84.52 63.34
112.35 107.76 72.64
113.37 95.08 73.99
110.12 95.08 70.65
111.7 96.18 68.52
112.25 94.07 71.64
6/96 111.98 87.73 71.47
110.21 81.39 71.69
110.68 84.52 73.69
112.16 85.62 74.73
113.18 83.51 77.45
125.79 90.86 89.15
12/96 132.84 95.25 97.43
135.63 99.49 97.2
138.13 99.49 101.37
133.96 99.49 99.39
148.44 106.94 107.3
159.48 115.41 115.05
6/97 170.35 124.89 116.86
178.89 130.22 124.14
187.33 126.50 126.46
167.65 124.38 114.07
124.12 87.29 83.14
107.96 84.67 74.89
12/97 110.00 82.89 78.70
* 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%.
** Commencement of operations.
Source: Jardine Fleming/Peregrine
JARDINE FLEMING
CHINA REGION FUND, INC.
Investment Review
Dear Fellow Shareholders:
Nineteen ninety-seven proved to be a year of contrast for the Asian
stock markets, with those of the China Region faring only marginally
better than their Asian counterparts.
The encouraging performance of most Asian stock markets in the first
half of the year resulted in a beneficial performance for the Fund, with
its net asset value registering a gain of 28.2%, as reported in the
semiannual report. However, financial market activity in the second half
has been considerably more turbulent across the whole of Asia and most
notably within the Association of South East Asian Nations ("ASEAN"). The
continuing deterioration in investor confidence, beginning in Thailand,
led to pressure on the Thai currency with subsequent currency
depreciations and stock market declines throughout the region. The effect
of this unrest on the Fund was to reverse the encouraging first-half gain
in the net asset value to a full-year decline of 17.2% as of December 31,
1997.
The Fund's directors have been concerned at the lack of a suitable,
comparative benchmark index against which to compare the Fund. Early in
1997, they established a benchmark currently composed of the Hong Kong All
Ordinaries Index (60%); the Credit Lyonnais Securities Asia All China B
Index (30%); and the Taiwan Weighted Index (10%). The directors propose to
review these weightings on an annual basis and adjust them as required to
best reflect future growth of the respective markets. During 1997, this
JFC benchmark index declined 14.1% in U.S. dollars.
In the early stages of the Southeast Asian economic crisis, it
appeared that the markets of the Greater China Region were immune to this
"Asian Flu." However, resilience was short-lived. As the structural
economic problems of the ASEAN and other Asian countries escalated, so did
the crisis, resulting in a meltdown of currencies and stock markets of
almost unknown proportions across Thailand, Indonesia, the Philippines,
and even Singapore. By September, the China Region was no longer exempt
from Asia's turmoil. China's troubled neighbors added momentum to the
downward market spiral as client redemptions forced European, Japanese,
and Korean investors to become big sellers of China shares. In particular,
China B shares were adversely affected, with the impact exaggerated by
their illiquidity; the Shanghai B and the Shenzhen B indices registered
falls of 16.6% and 32.1%, respectively, for calendar 1997. With respect to
the Fund, the rapid pace at which the markets fell hindered the process of
portfolio adjustment, making "damage control" that much more difficult.
However, we must not fail to focus on the positive aspects of the
year, which should be considered reassuring for long-term investors such
as the Fund. First and foremost has been the improvement of China's
political and economic outlook, which undoubtedly has helped to engender
the smooth transition of sovereignty in Hong Kong.
In the political arena, there is little doubt that China, under the
leadership of President Jiang Zemin, is considered politically stable.
This is exemplified by the calm that followed paramount leader Deng
Xiaopeng's February demise. On the economic front, too, China's
politicians have made significant progress in their attempts to boost
economic efficiency and growth. This is clearly demonstrated by the 15th
Communist Party Congress, which took place in September and where economic
growth and restructuring of the State-Owned Enterprises were made the
highest priorities in the Government's forthcoming agenda. Further, the
likely appointment of Zhu Rongji as successor to Li Peng as the country's
Premier, in March 1998, provides reassurance that China's present economic
policies will be effectively continued.
Recent economic indicators released by China are encouraging. The
retail price index (RPI), the Government's target inflation indicator,
continued to slow to 0.8% in 1997. This figure, below the Government's
target, clearly demonstrates that inflation in China is under control. GDP
growth has slowed to 8.8%, but is still considered buoyant in global
terms. Finally, despite the devaluation of Asian currencies, we believe
that China's trade surplus will continue to be positive and will compare
favorably with the estimated U.S.$40 billion in 1997. This should add
credence to Zhu Rongji's remark that China's currency, the remimbi, need
not be devalued. These economic factors are conducive to further credit
relaxation. As such, and despite having already cut interest rates by
110-150 basis points in October, we believe China will announce further
interest rate cuts in the coming year. This bodes well for the longer-term
outlook for the China stock markets.
Despite this encouraging longer-term picture, the present investment
stance of the Fund remains defensive, due principally to the risks in the
regional environment and the immaturity of many China securities. The
reduction in confidence in China over the past six months has caused some
concern, which has been reflected in the subsequent collapse of share
prices of some China plays (companies whose earnings are derived primarily
from China). Since the end of the third quarter, the Fund has adopted a
strategy of switching from China plays into Hong Kong blue chips with
major China exposures, which protected the Fund from the sharp price
declines of several former holdings. Portfolio weightings have, as a
result, increased in those Hong Kong blue chip stocks that demonstrate
quality management and major exposure to the China Region. Examples of
such issues include Citic Pacific and China Light & Power, both of which
are endeavoring to penetrate China's power sector. In addition, the
investment strategy has been to acquire stocks that are trading at large
discounts, and, in this regard, Hopewell Holdings was added to the
portfolio. Accordingly, weightings in blue chips had increased to 30% by
the end of December 1997.
Among the red chip holdings-stocks listed in Hong Kong whose major
shareholders are mainland Chinese companies-we have trimmed our positions
with switches from China plays, such as China Everbright and China
Merchants, into the more solid sector leaders, such as Shanghai Industrial
Holdings. We have also raised our weightings in China Telecom due to its
strong cash position, defensive earnings stream, and likelihood of further
capital injections.
Within China B shares, the Fund's largest position continues to be
Shanghai's Huangshan Tourism Development, which is the monopoly operator
of the Huangshan scenic area in central China. The Fund also holds
Shanghai Dazhong Taxi due to its strong cash position and quality
management. Among the H shares, we have focused mainly on infrastructure
stocks such as Beijing Datang Power Generation and have substantially
trimmed our weightings in both petrochemicals and iron and steel
companies, given their vulnerability to dumping by Korean manufacturers.
The Fund's holdings in Korean stocks were virtually eliminated
before the meltdown. We are, however, actively searching for quality
stocks in Taiwan but are hesitant to raise our weightings before the index
falls to 7,500, given the relative higher valuation of the Taiwan market
compared with Hong Kong and China.
While the China Region will inevitably continue to be affected by
turbulence from Southeast Asia, we believe it will be among the early
gainers in the upturn. The progress in China's political and economic
environment, as well as the likely relaxation of credit in China, will
help to ensure that the Region is well equipped to stage a recovery. On
balance, we remain positive on the long-term prospects of the China market
and expect rewards for long-term investors committed to the China Region
markets.
In September, Mr. Albert Kan assumed responsibility as the Fund's
portfolio manager, replacing Mr. Douglas Eu who has joined the Board of
Directors. Mr. Kan has ten years' experience of portfolio management in
the China region markets with major Asian-based investment houses. During
the year, we welcomed Mr. Ng Yook Man, a local Hong Kong businessman, and
Mr. Douglas Eu to the Board of Directors, and we sincerely thank Mr. A.B.
Colayco and Mr. B.E. White, who resigned in November and January,
respectively, for their services to the Board over the past five years.
Respectfully submitted,
Martin Barrow
President
January 30, 1998
JARDINE FLEMING
CHINA REGION FUND, INC.
Major Holdings
At December 31, 1997
% of Net
Assets
Huangshan Tourism Development 'B' 8.3
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.
Hutchison Whampoa 6.6
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 increased PRC exports.
New World Development 4.6
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.
Hong Kong Telecommunications 4.2
The dominant fixed line and cellular network operator in Hong Kong.
It has the best chance of gaining a lucrative position in China via
relationships with its existing shareholder, the Ministry of Post and
Telecommunications, particularly when China liberalizes its
telecommunications market. The company's net cash position of $10 billion
will also provide a cushion against the current high interest rate
environment.
China Telecom 3.9
Owns and operates cellular networks business with a combined 98%
market share in Guangdong and Zhejiang, China's two richest provinces.
With limited competition on the horizon, the company is expected to grow
from 2.5 million subscribers in 1997 to 4.6 million subscribers by 1999.
It is the only listed PRC telecommunication stock in Hong Kong and will be
included in the Hang Seng Index by the end of January.
Shanghai Dazhong Taxi 'B' 3.3
Shanghai Dazhong Taxi is the second largest taxi operator in
Shanghai with an 8% market share. The taxi business comprises about 70% of
earnings. In addition, Dazhong is engaged in property development,
property insurance, and owns a travel agency business.
Hopewell Holdings 3.0
The original China play, Hopewell built and began the operation of a
power station in China in 1988 and recently completed its first major
highway in the country.
Cheung Kong Holdings 3.0
One of Hong Kong's premier property companies with significant
property developments in Hong Kong and in the PRC. Cheung Kong has been
discussing numerous property and infrastructure projects in China.
Shanghai Industrial Holdings 2.9
The window company for the Shanghai government in Hong Kong. It is a
diversified holding company with interests in cigarettes, infrastructure,
auto parts, and cosmetics.
Heilongjiang Electric Power 'B' 2.9
Heilongjiang Electric Power is a supplier for electricity, servicing
predominantly the northeastern provinces. It owns at present one
hydroelectric power plant and two coal-fired plants.
Total Major Holdings 42.7
JARDINE FLEMING
CHINA REGION FUND, INC.
Investment Portfolio
At December 31, 1997
Holdings Market
(in shares Value
Description or par) (in US$)
Common Stocks (unless otherwise noted)
CHINA (30.3%)
Shanghai Equities (USD) (25.5%)
Autos & Transportation Equipment (0.9%)
* Shanghai Diesel Engine 'B' 8,400,000 1,058,400
Chemicals (1.3%)
Shanghai Tyre and Rubber 'B' 5,543,680 1,385,920
Electronics & Components (1.3%)
!* Shanghai Refrigerator Compressor 'B'5,070,0001,409,460
Energy (2.0%)
* Zhejiang Southeast Electric Power 'B'6,839,0002,202,158
Hotels & Tourism (11.6%)
! Huangshan Tourism Development 'B'11,188,500 8,883,669
* Shanghai Dazhong Taxi 'B' 4,776,000 3,572,448
12,456,117
Machinery (1.5%)
* Shanghai Zhenhua Port Machinery 'B'2,349,0001,616,112
Property & Real Estate (2.1%)
* Shanghai Lujiazui Finance & Trade
Zone Development 'B' 2,844,176 2,218,457
Textiles (1.9%)
Shanghai Worldbest 'B' 3,950,000 1,998,700
Utilities (2.9%)
Heilongjiang Electric Power 'B' 4,074,900 3,121,373
Total Shanghai Equities 27,466,697
Shenzhen Equities (HKD) (4.8%)
Commercial & Industrial (1.9%)
China Southern Glass 'B' 2,669,859 751,102
* Shenzhen China Bicycles 'B' 557,403 91,354
Wuxi Little Swan 'B' 1,150,000 1,196,154
2,038,610
Energy (0.9%)
Shenzhen Chiwan Petroleum Supply
Base 'B' 4,236,300 956,707
Steel (1.3%)
* Bengang Steel Plates 'B' 6,200,000 1,376,178
Transportation Services (0.7%)
* China Merchant Shekou Port
Service 'B' 3,138,960 806,108
Total Shenzhen Equities 5,177,603
TOTAL CHINA 32,644,300
HONG KONG (65.6%)
Autos & Transportation Equipment (2.1%)
Qingling Motors 'H' 3,500,000 1,716,351
Qingling Motors, CB, 3.50%,
1/22/02 (USD) 549,000 495,473
2,211,824
Banking & Financial Services (3.1%)
HSBC Holdings 81,200 2,001,445
Kah Wah Bank 1,505,000 1,320,687
3,322,132
Building & Construction (0.6%)
* Zhejiang Expressway 'H' 3,339,000 676,504
Chemicals (4.8%)
China Merchants Holdings International1,372,0001,407,588
Ngai Hing Hong 1,800,000 232,288
Shanghai Petrochemical 'H' 5,196,000 811,351
Zhenhai Refining & Chemical 'H' 6,628,000 2,758,459
5,209,686
Commercial & Industrial (2.0%)
Pacific Concord Holdings 8,928,000 2,108,432
Conglomerates (14.5%)
* Beijing Enterprises Holdings 566,000 1,453,530
China Resources Enterprise 1,242,000 2,772,822
Citic Pacific 523,000 2,078,771
Hutchison Whampoa 1,132,000 7,099,652
Wharf Holdings 1,001,000 2,196,025
15,600,800
Consumer Manufacturing (5.4%)
Guangdong Kelon Electrical
Holdings 'H' 2,565,000 2,631,533
Shanghai Industrial Holdings 840,000 3,121,951
5,753,484
Food & Beverages (2.4%)
China Foods Holdings 4,836,000 1,591,405
* Tsingtao Brewery 'H' 4,092,000 955,803
2,547,208
Machinery (1.9%)
* First Tractor 'H' 3,454,000 2,083,811
Packaging (2.4%)
* Concordia Paper Holdings ADR (USD)122,419 76,512
Cosco Pacific 3,074,000 2,499,187
2,575,699
Property & Real Estate (11.1%)
Cheung Kong Holdings 498,000 3,261,518
Hopewell Holdings 13,127,000 3,269,468
New World Development 1,431,000 4,949,129
Top Glory International Holdings2,408,000 503,415
11,983,530
Steel (0.7%)
Maanshan Iron and Steel 'H' 6,382,000 708,288
Transportation Services (2.0%)
* China Southern Airlines 'H' 4,238,000 1,093,819
* Shenzhen Expressway 'H' 5,736,000 1,110,337
2,204,156
Utilities (12.6%)
* Beijing Datang Power Generation 'H'4,630,0002,121,112
China Light & Power 488,500 2,710,737
* China Telecom 2,450,000 4,205,059
Hong Kong Telecommunications 2,188,000 4,503,626
13,540,534
TOTAL HONG KONG 70,526,088
TIME DEPOSITS (1.6%)
Citibank, N.A., 3.875%, 1/2/98 (HKD)8,800,0001,135,630
Citibank, N.A., 4.375%, 1/2/98 (USD)550,000 550,000
TOTAL TIME DEPOSITS 1,685,630
TOTAL INVESTMENTS
(97.5% of Net Assets) (Cost $120,999,091) 104,856,018
Other assets less liabilities 2,638,837
NET ASSETS 107,494,855
Aggregate cost is the same for Federal
income tax purposes.
The aggregate unrealized gain (loss) for all
securities is as follows:
Excess of market value over cost 12,149,464
Excess of cost over market value (28,292,537)
Net unrealized loss (16,143,073)
HKD Hong Kong dollar
USD U.S. dollar
CB Convertible Bond
* Non-income producing
! Affiliated company
See accompanying notes to financial statements.
JARDINE FLEMING
CHINA REGION FUND, INC.
Statement of Assets and Liabilities
At December 31, 1997
(in US$)
Assets
Investments at value (Note 2)
Affiliated companies (Cost $4,166,749) 10,293,129
Other companies (Cost $116,832,342) 94,562,889
Total investments in securities 104,856,018
Cash and foreign currencies 2,089,695
Receivable for securities sold 364,139
Restricted cash (Note 6) 305,266
Dividends receivable 252,602
Prepaid consultant fees 34,794
Interest receivable 19,844
Prepaid insurance premium 13,345
Total Assets 107,935,703
Liabilities
Distributions payable (Note 2) 3,861
Accrued expenses payable 317,442
Due to investment adviser (Note 5) 119,545
Total Liabilities 440,848
Net Assets 107,494,855
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 realized gain (loss) on investments
and foreign currency transactions, net of
distributions (12,476,376)
Accumulated net unrealized gain (loss) on
investments, foreign currency holdings,
and other assets and liabilities
denominated in foreign currencies (16,149,928)
Net Assets 107,494,855
Net Asset Value Per Share ($107,494,855/9,101,372) 11.81
See accompanying notes to financial statements.
JARDINE FLEMING
CHINA REGION FUND, INC.
Statement of Operations
Year Ended December 31, 1997
(in US$)
Investment Income (Note 2)
Dividends (net of foreign taxes of $14,820) 2,149,999
Interest (net of foreign taxes of $2,516) 214,555
Total Investment Income 2,364,554
Expenses
Investment advisory fee (Note 5) 1,763,228
Administration and accounting fees (Note 5) 305,792
Custodian fees 172,522
Directors' fee and expenses 138,045
Other expenses 60,473
Total Expenses 2,440,060
Net Investment Loss (75,506)
Realized and Unrealized Gain (Loss) on
Investments, Foreign Currency
Holdings and Other Assets and
Liabilities Denominated in Foreign
Currencies:
Net realized gain (loss) on (Note 2)
Investment transactions 13,973,620
Foreign currency transactions (168,898)
Net change in unrealized gain (loss) on (Note 2)
Investments (36,087,643)
Foreign currency holdings and other assets
and liabilities denominated in
foreign currencies (6,781)
Net realized and unrealized loss on
investments, foreign currency holdings
and other assets and liabilities denominated
in foreign currencies (22,289,702)
Net Decrease in Net Assets Resulting From Operations(22,365,208)
See accompanying notes to financial statements.
JARDINE FLEMING
CHINA REGION FUND, INC.
Statements of Changes in Net Assets
Year Ended Year Ended
December 31, 1997December 31, 1996
(in US$) (in US$)
Increase (Decrease) in Net Assets
Operations
Net investment income (75,506) 292,404
Net realized gain on
investment transactions13,973,620 (9,424,969)
Net realized loss on foreign
currency transactions (168,898) (19,180)
Net change in unrealized
gain (loss) on investments,
foreign currency holdings
and other assets and
liabilities denominated
in foreign currencies(36,094,424) 37,910,742
Net increase (decrease) in
net assets resulting
from operations (22,365,208) 28,758,997
Dividends to Shareholders:
From net investment income
(Note 2) (364,032) (182,014)
Total Increase (Decrease) in Net
Assets (22,729,240) 28,576,983
Net Assets:
Beginning of period 130,224,095 101,647,112
End of period 107,494,855 130,224,095
See accompanying notes to financial statements.
JARDINE FLEMING
CHINA REGION FUND, INC.
Financial Highlights
For the For the For the For the For the
Year EndedYear EndedYear EndedYear EndedYear Ended
December December December December December
31, 1997 31, 1996 31, 1995 31, 1994 31,1993
(In US$) (In US$) (In US$) (In US$) (In US$)
Per share operating performance
Net asset value,
beginning of
period 14.31 11.17 12.58 22.58 15.05
Offering costs
charged to
paid-in
capital - - - (0.06) -
14.31 11.17 12.58 22.52 15.05
Net investment
income (0.01) 0.03 0.07 0.05 0.10
Net realized and
unrealized gain
(loss) on invest-
ment and foreign
currency-related
transactions (2.45) 3.13 (1.39) (8.51) 10.50
Total from investment
operations (2.46) 3.16 (1.32) (8.46) 10.60
Less distributions
Dividends from
net invest-
ment income(0.04) (0.02) (0.09) (0.03) (0.11)
Distributions
from capital
gains - - - (1.45) (1.62)
Total distri-
butions (0.04) (0.02) (0.09) (1.48) (1.73)
Net asset value,
end of period11.81 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 9.75 11.38 10.00 11.25 26.00
Total Investment Return
Per share
market
value (13.9%) 13.9% (10.3%) (52.5%)! 99.3%
Per share net
asset value(17.2%) 28.3% (10.5%) (38.9%)! 72.9%
RATIOS/SUPPLEMENTAL DATA
Net assets,
end of
period 107,494,855 130,224,095101,647,112114,523,459162,848,785
Ratio of expenses
to average
net assets 1.68% 2.18% 2.22% 2.01% 2.17%
Ratio of net
investment
income to
average net
assets (0.05%) 0.26% 0.60% 0.35% 0.59%
Portfolio
turnover
rate 102.60% 44.40% 44.90% 71.20% 99.22%
Average
commission
rate
paid# $0.0020 $0.0015 - - -
Number of shares
outstanding
at end of
period (in
thousands) 9,101 9,101 9,101 9,101 6,807
* 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.
! Adjusted to exclude the dilutive effect of the rights offering
completed January 5, 1994.
# Disclosure requirement effective in 1996; previous data unavailable.
See accompanying notes to financial statements.
JARDINE FLEMING
CHINA REGION FUND, INC.
Notes to Financial Statements
December 31, 1997
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.
In connection with its initial organization and offering of shares,
the Fund incurred $177,227 and $772,698 of organization and offering
costs, respectively. The organization costs were amortized over a 60
month period from the date the Fund commenced operations. The
offering costs were charged to capital.
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. Capital loss
carryforwards utilized in 1997 amounted to $17,853,169. The Fund
intends to retain gains realized in future periods that may be
offset by available capital loss carryforwards.
In order for the fund's capital accounts and distributions to
shareholders to reflect the tax character of certain transactions,
the following reclassifications were made during the year ended
December 31, 1997. The results of operations and net assets were not
affected by the increases/(decreases) to these accounts.
Undistributed net investment income $365,671
Undistributed net realized gain 115,836
Paid-in-capital (481,507)
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. 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 year ended December 31, 1997, the Fund made purchases
of $143,052,123 and sales of $143,099,395 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
"Adviser"), provides investment advisory services to the Fund
under the terms of an investment advisory agreement. Under
the investment advisory agreement, the 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 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 December 31, 1997, $47,660 was payable to the
Administrator.
iii) During the year ended December 31, 1997, the Fund paid
$100,389 in brokerage commissions to Jardine Fleming Broking
Ltd. and Jardine Fleming Securities Ltd., affiliated
brokers/dealers.
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.
Report of Independent Accountants
To the Board of Directors and Shareholders of Jardine Fleming China Region
Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities,
including the investment portfolio, 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
Jardine Fleming China Region Fund Inc. (the "Fund") at December 31, 1997,
and results of its operations, the changes in its net assets and the
financial highlights for each of the fiscal periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's 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 generally accepted auditing standards which
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,
1997 by correspondence with the custodian and, where appropriate, the
application of alternative auditing procedures for unsettled security
transactions, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Linthicum, Maryland
January 21, 1998
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
(the Plan Agent):
P. O. Box 8200
Boston, Massachusetts 02266-8200
Telephone No: 800-426-5523 (toll free)
or
2) T. Rowe Price Services, Inc.
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.
Directors and Administration
Officers and Directors
Martin G. Barrow - Director and President
The Rt. Hon. The Earl of Cromer - Director
A. Douglas Eu - Director
Alexander R. Hamilton - Director
Henry H. Hopkins - Assistant Secretary
Alastair A. Macintosh - Secretary
Ng Yook Man - Director
Emmett J. Rice - Director
Mark B. E. White - Director and Treasurer
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
Price Waterhouse 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:
56th Floor, Bank of China Tower
1 Garden Road
Hong Kong
Registrar, Transfer Agent,
and Dividend Paying Agent
State Street Bank & Trust Company
P. O. Box 8200
Boston, Massachusetts 02266-8200
U.S.A.
JARDINE FLEMING
CHINA REGION FUND, INC.
Disclosure in the Annual Report
Advisory Council
At the inception of the Fund in July 1992, an Advisory Council composed of
five members was established to provide advice to the Fund on economic and
market conditions in the China Region. The Advisory Council served in a
purely advisory capacity to the Fund and had no management or investment
authority with respect to the assets of the Fund. Since the Council's
inception, China Region markets have developed significantly, with an
improved supply of market information available to the Fund. As a result,
the Investment Adviser is capable of providing similar services as the
Advisory Council without the need for the Fund to incur the additional
cost of maintaining the Advisory Council. At a recent meeting of directors
of the Fund, the directors were of the opinion that the availability of
market information in the China Region markets has improved significantly
to the extent that advice from the Advisory Council would not provide
substantial additional benefit to the Fund. The directors, therefore,
dissolved the Advisory Council on February 12, 1997.
