JARDINE FLEMING
CHINA REGION FUND, INC.
- --------------------------------------------------------------------------------
Annual Report
December 31, 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-AR-98 F01-051 12/31/98
JARDINE FLEMING
CHINA REGION FUND, INC.
Contents
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Page
Objectives 1
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Management 1
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Market Information 1
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Highlights 2
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Investment Review 3
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Major Holdings 5
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Investment Portfolio 7
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Statement of Assets and Liabilities 13
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Statement of Operations 14
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Statements of Changes in Net Assets 15
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Financial Highlights 16
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Notes to Financial Statements 17
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Year 2000 Processing Issue 19
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Report of Independent Accountants 20
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Dividend Reinvestment and Cash Purchase Plan 21
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Directors and Administration 22
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JARDINE FLEMING
CHINA REGION FUND, INC.
Objectives
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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
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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 $21 billion in funds as of
December 31, 1998, for both institutional and private clients. Albert Kan is the
portfolio manager of the Fund. Mr. Kan joined Jardine Fleming in 1997 as
Assistant Director and portfolio manager specializing in Hong Kong and China.
Previously, he was Chief Investment Officer of Europe Pacific Advisors, Ltd.
where he focused on Hong Kong, China, Taiwan, Singapore, and Malaysia.
Market Information
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The Fund is listed on the New York Stock Exchange (symbol JFC).
The share price is published in
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o The Wall Street Journal (daily)
o The Asian Wall Street Journal (daily)
o Reuters (page JFC)
The net asset value is published in
- --------------------------------------------------------------------------------
o The Wall Street Journal under "Closed-End Funds" (every
Monday)
o The Asian Wall Street Journal under "Closed-End Funds"
(every Monday)
o South China Morning Post in Hong Kong (first Thursday of
every month)
o Reuters (page JFC)
JARDINE FLEMING
CHINA REGION FUND, INC.
Highlights
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December 31, 1998 December 31, 1997
US$ US$
- --------------------------------------------------------------------------------
Net Assets $68.3 million $107.5 million
Net Asset Value Per Share $7.50 $11.81
Final Dividend Per Share - $0.04
Market Data
Share Price on the
New York Stock Exchange $5.50 $9.75
Discount to Net Asset Value -26.7% -17.4%
Total Return for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
Net Asset Value -36.5%
Share Price -43.6%
JFC Benchmark Index* -26.6%
Hong Kong All Ordinaries Index -18.2%
Credit Lyonnais Securities Asia
All China B Index -45.8%
Taiwan Weighted Index -20.5%
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
ee 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
43.12 46.30 57.66
38.63 31.24 51.48
45.79 42.95 58.38
53.08 52.99 66.83
54.55 55.78 66.39
12/31/98 52.59 49.09 63.06
* 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.
Source: Jardine Fleming
JARDINE FLEMING
CHINA REGION FUND, INC.
Investment Review
- --------------------------------------------------------------------------------
Dear Fellow Shareholders:
Nineteen ninety-eight was a year of extreme volatility for the Asian
stock markets. Financial turmoil in the region came close to triggering a major
economic crisis in the third quarter, but this was averted by timely government
action and by other developments in the region and globally.
The magnitude of the swings and surprises in the market throughout 1998
were without precedent, in particular the dramatic change in the outlook for
global interest rates and also the decline in the supply of shares available on
the Hong Kong market at the end of the third quarter. Although your Fund
outperformed the benchmark by 6.9 percentage points in the last quarter, its net
asset value and share price still declined by -36.5% and -43.6%, respectively,
for the full year. This compared with a return of -26.6% for the JFC Benchmark
Index during the period. Your board is concerned about performance and is
working with the investment advisor to seek improvement.
The past year was difficult for the Hong Kong economy. The territory's
overall economy continued to deteriorate throughout most of 1998, with
consumption and investment spending contracting in the wake of falling property
prices, double-digit interbank rates, and the ensuing credit crunch. This
resulted in a fall in gross domestic product (GDP) of 5% in 1998 - the most
severe economic downturn in 15 years. Unemployment also hit a record high of
5.8% in December. While the local property market and interbank rates began to
stabilize in the fourth quarter, it remains to be seen whether the Hong Kong
economy can get back on the recovery track within the next 12 months. We expect
Hong Kong interest rates to fall further in the course of 1999, which, along
with strong end-user demand, should help support the local property market.
Turning to Mainland China, the economic situation is relatively better
than in most other Asian countries, with GDP growth of 7.8% for 1998. However,
upon closer inspection, there are still many challenges, such as rising
unemployment and slowing exports. We have yet to see the expected positive
results from the reform of state-owned enterprises and the banking system.
Despite all the negatives in the year, the good news for the region is
that some positive developments emerged toward year-end. Most notable was a
sudden change in the interest rate outlook in the U.S. in the wake of Russia's
devaluation and default and a near-collapse of a major hedge fund. There were
three interest rate cuts by the Federal Reserve between late September and
mid-November that, in turn, resulted in a series of rate cuts in the China
region, including Hong Kong. In hindsight, the Hong Kong government's
intervention in the stock market in August was timely. However, it significantly
distorted the market's supply as more than 10% of its tradable shares are now in
government hands. One consequence of this development is that when the Hang Seng
Index rebounded in the last quarter on the more favourable interest rate
outlook, the magnitude and pace of the rally were exaggerated.
In response to this changing environment, we have been switching fund
assets out of cash into interest rate-sensitive stocks, notably property
companies and banks. Since the end of the third quarter, we have also been
steadily raising exposure to quality blue chips, which should lead the market
rebound. As a result of these portfolio adjustments, the Fund has been
outperforming its benchmark since year-end.
While we do not expect a quick recovery for the region in 1999, the
long-term outlook is more reassuring. 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's visit to China in July
1998. On the economic front, the appointment of Zhu Rongji to the position of
Premier in March 1998 also bodes well for the country's economic restructuring
and overall prospects.
JARDINE FLEMING
CHINA REGION FUND, INC.
We expect the China economy to expand by approximately 7% in 1999.
While exports may face the most difficult environment since 1980, and may fall
by as much as 5%, the country's trade account is expected to remain healthy due
to declining imports. An estimated trade surplus of US$40 billion should support
the renminbi and provide a stable environment for continuing reform of the
country's state-owned enterprises and banking sector as well as for its various
infrastructure programs. The private sector, which has been a main driving force
for China's economic growth in the past, remains robust and its sustained growth
should help reduce the country's dependence on state-owned enterprises. All in
all, while China's economic numbers in 1999 may not be too encouraging, we
expect the quality of the main sectors of its economy to improve, which bodes
well for the country's economic competitiveness in 2000 and beyond.
We will make the necessary adjustments in portfolio strategy to take
advantage of the above changes in the broad economic environment. Currently, the
portfolio has slightly more Hong Kong blue chip stocks than the benchmark index,
and our exposure will be raised further when opportunities arise. The Fund's
overall holdings of red chip stocks are also somewhat larger than their
representation in the benchmark, which is very small at around 8%. However, we
will continue to be very cautious and selective about the red chips, and
currently the Fund's focus is on quality companies. The Fund will continue to
have lesser holdings of China 'B' shares than the benchmark due to their high
illiquidity and vulnerability to continued deflationary pressures in China. As
for Taiwan, we are cautious about the banks and the real estate sector but
remain comfortable with the growth prospects of the electronics sector, where
the Fund's holdings are concentrated.
Overall, while 1998 was difficult for the region, the worst should be
almost over and we expect 1999 to be a better year. The Fund's performance since
the fourth quarter of last year has been encouraging, and we expect better
rewards in the coming year for long-term investors committed to the China region
markets.
Respectfully submitted,
The Rt. Hon. The Earl of Cromer
Chairman
February 12, 1999
JARDINE FLEMING
CHINA REGION FUND, INC.
Major Holdings
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At December 31, 1998
- --------------------------------------------------------------------------------
% of Net
Assets
- --------------------------------------------------------------------------------
HSBC Holdings 9.8
Hong Kong's first home-grown international bank with a network of over
3,400 offices in more than 70 countries. Despite its prominent overseas
presence, HSBC has been active in pursuing expansion opportunities in the
restricted banking sector in China. It is one of the first four banks to be
granted a license to conduct renminbi business in the PRC.
Hutchison Whampoa 5.6
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 an increase in PRC exports.
Cheung Kong Holdings 5.2
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.
Hang Seng Bank 4.6
The largest local bank in Hong Kong. Hang Seng Bank is well known
for its conservative and prudent management. Apart from capitalizing
on HSBC's network in China, Hang Seng Bank has pursued its own
expansion in China in recent years with branches and representative
offices in major cities.
China Telecom 4.5
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 in 1999. It
is the only listed PRC telecommunications stock in Hong Kong included
in the Hang Seng Index.
JARDINE FLEMING
CHINA REGION FUND, INC.
Major Holdings (continued)
- --------------------------------------------------------------------------------
At December 31, 1998
- --------------------------------------------------------------------------------
% of Net
Assets
- --------------------------------------------------------------------------------
Hong Kong Telecommunications 3.8
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.
Moulin International Holdings 3.5
The largest optical frame manufacturer in Hong Kong. Moulin
International has focused on optical frame manufacturing for 38 years.
The company's biggest markets are the U.S. and Europe, and it has
recently entered China's retail market. Moulin has the exclusive
distribution rights for several eyewear brand names.
Sun Hung Kai Properties 3.4
Hong Kong's premier and largest property company with an
investment properties portfolio of over 15 million square feet and a
property development landbank in excess of 30 million square feet.
Although primarily focused in Hong Kong, SHK Properties has been
gradually expanding its property exposure to three strategic locations
in China - Beijing, Shanghai, and Guangzhou.
Heilongjiang Electric Power 'B' 2.9
A supplier of electricity, serving predominantly the northeastern
provinces. Heilongjiang Electric at present owns one hydroelectric
power plant and two coal-fired plants.
CLP Holdings 2.7
The franchisee for electricity generation and transmission for
the Kowloon and New Territories area. China Light & Power was one of
the first Hong Kong companies to pursue investment opportunities in
China. Its first such investment was 1979, and it is one of the
largest shareholders of a power project in Shandong - one of the
largest projects in China. In 1997, China Light established a
strategic relationship with CITIC Pacific, which is ultimately owned
by the State Council, and now has a 20% stake in CITIC Pacific.
- --------------------------------------------------------------------------------
Total Major Holdings 46.0
JARDINE FLEMING
CHINA REGION FUND, INC.
Investment Portfolio
- --------------------------------------------------------------------------------
At December 31, 1998
- --------------------------------------------------------------------------------
Holdings Market
(in shares Value
Description or par) (in US$)
- --------------------------------------------------------------------------------
Common Stocks (unless otherwise noted)
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CHINA (12.1%)
- --------------------------------------------------------------------------------
Shanghai Equities (USD) (11.2%)
- --------------------------------------------------------------------------------
Industrial Components (1.2%)
Shanghai Diesel Engine 'B' 6,884,500 826,140
Leisure & Tourism (2.4%)
* Huangshan Tourism Development 'B' 6,503,500 1,612,868
Machinery & Engineering (0.9%)
Shanghai Zhenhua Port Machinery 'B' 1,764,000 624,456
Real Estate (1.3%)
* Shanghai Lujiazui Finance &
Trade Zone Development 'B' 2,844,176 915,825
Transportation - Road & Rail (1.2%)
* Shanghai Dazhong Taxi 'B' 1,906,000 804,332
Utilities - Electrical & Gas (4.2%)
Heilongjiang Electric Power 'B' 6,112,350 1,955,952
Zhejiang Southeast Electric Power 'B' 4,307,000 904,470
2,860,422
Total Shanghai Equities 7,644,043
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JARDINE FLEMING
CHINA REGION FUND, INC.
Investment Portfolio (continued)
- --------------------------------------------------------------------------------
At December 31, 1998
- --------------------------------------------------------------------------------
Holdings Market
(in shares Value
Description or par) (in US$)
- --------------------------------------------------------------------------------
Shenzhen Equities (HKD) (0.9%)
- --------------------------------------------------------------------------------
Business & Public Services (0.9%)
China Merchant Shekou Port Service 'B' 1,615,960 296,177
Shenzhen Chiwan Petroleum Supply Base 'B' 2,549,900 345,577
641,754
Total Shenzhen Equities 641,754
- --------------------------------------------------------------------------------
TOTAL CHINA 8,285,797
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HONG KONG (71.9%)
- --------------------------------------------------------------------------------
Appliances & Household Durables (1.0%)
Guangdong Kelon Electrical Holdings 'H' 763,000 679,526
Banking (16.0%)
Bank of East Asia 380,000 662,141
Dao Heng Bank Group 148,000 457,509
HSBC Holdings 268,400 6,686,096
Hang Seng Bank 350,800 3,135,539
10,941,285
Building Materials & Components (1.6%)
Cheung Kong Infrastructure Holdings 353,000 788,231
Guangzhou Investment 2,756,000 273,907
1,062,138
Business & Public Services (2.1%)
* New World Infrastructure 969,800 1,420,728
JARDINE FLEMING
CHINA REGION FUND, INC.
Investment Portfolio (continued)
- --------------------------------------------------------------------------------
At December 31, 1998
- --------------------------------------------------------------------------------
Holdings Market
(in shares Value
Description or par) (in US$)
- --------------------------------------------------------------------------------
Data Processing & Reproduction (1.0%)
Legend Holdings 1,964,000 690,782
Electrical & Electronics (0.7%)
Beijing Datang Power Generation 'H' 1,532,000 459,742
Food & Household Products (0.4%)
Guangnan Holdings 1,308,000 300,511
Health & Personal Care (3.5%)
Moulin International Holdings 19,532,000 2,369,776
Machinery & Engineering (1.3%)
First Tractor 'H' 1,588,000 362,792
Qingling Motors 'H' 2,210,000 387,939
Qingling Motors, CB, 3.50%, 1/22/02 (USD) 549,000 164,700
915,431
Multi-Industry (12.4%)
CITIC Pacific 357,000 769,516
Hutchison Whampoa 539,000 3,808,954
Pacific Concord Holdings 10,232,000 1,307,460
Shanghai Industrial Holdings 566,000 1,143,309
Swire Pacific 174,500 781,552
Wheelock & Co. 800,000 640,198
8,450,989
Real Estate (13.9%)
Cheung Kong Holdings 491,000 3,533,126
China Overseas Land & Investment 2,662,000 357,334
China Resources Beijing Land 2,616,000 651,670
China Resources Enterprise 488,000 762,146
Henderson Land Development 227,000 1,174,906
Hysan Development 487,000 726,012
Sun Hung Kai Properties 318,000 2,319,041
9,524,235
JARDINE FLEMING
CHINA REGION FUND, INC.
Investment Portfolio (continued)
- --------------------------------------------------------------------------------
At December 31, 1998
Holdings Market
(in shares Value
Description or par) (in US$)
- --------------------------------------------------------------------------------
Telecommunications (8.4%)
* China Telecom 1,796,000 3,106,304
Hong Kong Telecommunications 1,494,000 2,612,899
5,719,203
Transportation - Road & Rail (3.3%)
Anhui Expressway 'H' 4,150,000 487,441
Shenzhen Expressway 'H' 3,272,000 760,184
Zhejiang Expressway 'H' 4,945,000 1,002,072
2,249,697
Transportation - Shipping (1.6%)
Cosco Pacific 1,574,000 655,190
Shun Tak Holdings 2,394,000 451,138
1,106,328
Utilites - Electrical & Gas (3.8%)
CLP Holdings 375,000 1,868,321
Hong Kong & China Gas 577,000 733,576
2,601,897
Wholesale & International Trade (0.9%)
Ng Fung Hong 698,000 626,142
TOTAL HONG KONG 49,118,410
- --------------------------------------------------------------------------------
TAIWAN (13.3%)
- --------------------------------------------------------------------------------
Data Processing & Reproduction (6.2%)
Asustek Computer 82,000 766,046
Compal Electronics 463,000 1,508,845
* Compal Electronics, Rights, 1/22/99 926 719
Inventec 193,000 766,729
Mitac International 806,000 1,200,745
* Mitac International, Rights, 1/8/99 51,628 12,819
4,255,903
JARDINE FLEMING
CHINA REGION FUND, INC.
Investment Portfolio (continued)
- --------------------------------------------------------------------------------
At December 31, 1998
- --------------------------------------------------------------------------------
Holdings Market
(in shares Value
Description or par) (in US$)
- --------------------------------------------------------------------------------
Electrical & Electronics (1.3%)
Taiwan Semiconductor Manufacturing 401,000 883,644
Electronic Components, Instruments (1.8%)
D-Link 276,000 646,741
WUS Printed Circuit 241,400 546,027
1,192,768
Insurance (1.9%)
Cathay Life Insurance 401,000 1,294,351
Textiles & Apparel (2.1%)
Far Eastern Textile 1,741,000 1,421,114
TOTAL TAIWAN 9,047,780
- --------------------------------------------------------------------------------
TIME DEPOSITS (1.7%)
- --------------------------------------------------------------------------------
Citibank, N.A., 4.625%, 1/4/99 (USD) 1,140,000 1,140,000
TOTAL TIME DEPOSITS 1,140,000
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS
(99.0% of Net Assets) (Cost $77,337,416) 67,591,987
================================================================================
Other assets less liabilities 696,949
================================================================================
NET ASSETS 68,288,936
================================================================================
JARDINE FLEMING
CHINA REGION FUND, INC.
Investment Portfolio (continued)
- --------------------------------------------------------------------------------
At December 31, 1998
- --------------------------------------------------------------------------------
Aggregate cost is substantially the same for Federal income tax purposes. The
aggregate unrealized gain (loss) for all securities is as follows:
Excess of market value over cost 4,941,066
Excess of cost over market value (14,686,495)
Net unrealized loss (9,745,429)
================================================================================
HKD Hong Kong dollar
USD U.S. dollar
CB Convertible Bond
* Non-income producing
See accompanying notes to financial statements.
JARDINE FLEMING
CHINA REGION FUND, INC.
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
At December 31, 1998
- --------------------------------------------------------------------------------
(in US$)
- --------------------------------------------------------------------------------
Assets
- --------------------------------------------------------------------------------
Investments at value (Note 2) (cost $77,337,416) 67,591,987
Cash and foreign currencies 693,210
Receivable for securities sold 231,381
Dividends receivable 83,526
Interest receivable 17,880
Prepaid insurance premium 15,939
- --------------------------------------------------------------------------------
Total Assets 68,633,923
Liabilities
- --------------------------------------------------------------------------------
Accrued expenses payable 261,288
Due to investment advisor (Note 5) 83,699
- --------------------------------------------------------------------------------
Total Liabilities 344,987
Net Assets 68,288,936
================================================================================
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 net investment income, net of distributions 188,258
Accumulated realized gain (loss) on investments
and foreign currency transactions, net of distributions (58,285,450)
Net unrealized gain (loss) on investments,
foreign currency holdings, and other assets
and liabilities denominated in foreign currencies (9,735,031)
- --------------------------------------------------------------------------------
Net Assets 68,288,936
================================================================================
Net Asset Value Per Share ($68,288,936 / 9,101,372) 7.50
================================================================================
See accompanying notes to financial statements.
JARDINE FLEMING
CHINA REGION FUND, INC.
Statement of Operations
- --------------------------------------------------------------------------------
Year Ended December 31, 1998
- --------------------------------------------------------------------------------
(in US$)
- --------------------------------------------------------------------------------
Investment Income (Note 2)
- --------------------------------------------------------------------------------
Dividends (net of foreign taxes of $2,032) 1,898,798
Interest (net of foreign taxes of $6,069) 237,642
- --------------------------------------------------------------------------------
Total Investment Income 2,136,440
Expenses
- --------------------------------------------------------------------------------
Investment advisory fee (Note 5) 1,079,952
Administration and accounting fees (Note 5) 303,502
Custodian fees 201,635
Directors' fees and expenses 147,684
Audit and legal fees 66,031
Shareholder report and meeting expenses 60,382
Other expenses 88,996
- --------------------------------------------------------------------------------
Total Expenses 1,948,182
- --------------------------------------------------------------------------------
Net Investment Income 188,258
- --------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss)
- --------------------------------------------------------------------------------
Net realized gain (loss) (Note 2)
Investments (45,702,880)
Foreign currency transactions (106,194)
Net change in unrealized gain (loss) (Note 2)
Investments 6,397,644
Foreign currency holdings and other assets and liabilities
denominated in foreign currencies 17,253
- --------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (39,394,177)
- --------------------------------------------------------------------------------
Net Decrease in Net Assets Resulting From Operations (39,205,919)
================================================================================
See accompanying notes to financial statements.
JARDINE FLEMING
CHINA REGION FUND, INC.
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
Year Ended Year Ended
December 31, 1998 December 31, 1997
(in US$) (in US$)
- --------------------------------------------------------------------------------
Increase (Decrease) in Net Assets
Operations
Net investment income 188,258 (75,506)
Net realized gain (loss)
on investments (45,702,880) 13,973,620
Net realized loss on foreign
currency transactions (106,194) (168,898)
Net change in unrealized gain
(loss) on investments, foreign
currency holdings and other
assets and liabilities denominated
in foreign currencies 6,414,897 (36,094,424)
- --------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations (39,205,919) (22,365,208)
- --------------------------------------------------------------------------------
Dividends to Shareholders:
- --------------------------------------------------------------------------------
From net investment income
(Note 2) - (364,032)
- --------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets (39,205,919) (22,729,240)
Net Assets:
Beginning of period 107,494,855 130,224,095
- --------------------------------------------------------------------------------
End of period 68,288,936 107,494,855
================================================================================
See accompanying notes to financial statements.
JARDINE FLEMING
CHINA REGION FUND, INC.
<TABLE>
<CAPTION>
Financial Highlights
- ------------------------------------------------------------------------------------------------------------------------------------
For the For the For the For the For the
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
1998 1997 1996 1995 1994
(In US$) (In US$) (In US$) (In US$) (In US$)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period 11.81 14.31 11.17 12.58 22.58
Offering costs
charged to paid-in
capital Note 4) - - - - (0.06)
- ------------------------------------------------------------------------------------------------------------------------------------
11.81 14.31 11.17 12.58 22.52
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment
income 0.02 (0.01) 0.03 0.07 0.05
Net realized and unrealized gain
(loss) on investment and foreign
currency-related transactions (4.33) (2.45) 3.13 (1.39) (8.51)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (4.31) (2.46) 3.16 (1.32) (8.46)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions
Dividends from net
investment income - (0.04) (0.02) (0.09) (0.03)
Distributions from capital gains - - - - (1.45)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions - (0.04) (0.02) (0.09) (1.48)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period 7.50 11.81 14.31 11.17 12.58
====================================================================================================================================
Market value, end of period 5.50 9.75 11.38 10.00 11.25
====================================================================================================================================
Total Investment Return
Per share market value (43.6%) (13.9%) 13.9% (10.3%) (52.5%)#
Per share net asset value (36.5%) (17.2%) 28.3% (10.5%) (38.9%)#
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period 68,288,936 107,494,855 130,224,095 101,647,112 114,523,459
Ratio of expenses to
average net assets 2.49% 1.68% 2.18% 2.22% 2.01%
Ratio of net investment income
to average net assets 0.24% (0.05%) 0.26% 0.60% 0.35%
Portfolio turnover rate 111.9% 102.60% 44.40% 44.90% 71.20%
Number of shares outstanding at
end of period (in thousands) 9,101 9,101 9,101 9,101 9,101
<FN>
# 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
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December 31, 1998
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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
capital loss carryforwards for federal income tax purposes of
$54,679,011, of which $7,825,208 expires in 2004 and
$46,853,803 expires in 2006. The Fund intends to retain gains
realized in future periods that may be offset by available
capital loss carryforwards.
iii) 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 realized and unrealized
gain (loss) on investments arising as a result of changes in the
foreign exchange rates from that portion arising from changes in
the market prices of the securities sold during the period or
held at period-end. Accordingly, realized and unrealized foreign
currency gains (losses) on investments are included in the
reported net realized and unrealized gains (losses) on
investments.
iv) 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.
v) 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 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, 1998, the Fund made
purchases of $85,106,794 and sales of $82,496,410 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 $91,000 for fund accounting
services pursuant to an Accounting Services Agreement.
At December 31, 1998, $50,267 was payable to the
Administrator.
iii) During the year ended December 31, 1998, the Fund paid $77,925
in brokerage commissions to Jardine Fleming Broking Ltd. and
Jardine Fleming Securities Ltd., affiliated brokers/dealers.
JARDINE FLEMING
CHINA REGION FUND, INC.
Report of Independent Accountants
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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, 1998, and the 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, 1998 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
January 21, 1999
Year 2000 Processing Issue (unaudited)
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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.
Dividend Reinvestment and Cash Purchase Plan
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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 2) T. Rowe Price Services, Inc.
& Trust Company or Telephone No: 800-638-8540
(the Plan Agent): (toll free)
P. O. Box 8200
Boston, Massachusetts 02266-8200
Telephone No: 800-426-5523 (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
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Officers and The Rt. Hon. The Earl of Cromer - Director,
Directors 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 PricewaterhouseCoopers LLP
Accountants 250 West Pratt Street
Baltimore, Maryland 21201 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, State Street Bank & Trust Company
Transfer Agent, P. O. Box 8200
and Dividend Boston, Massachusetts 02266-8200
Paying Agent U.S.A.
