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JARDINE FLEMING
CHINA REGION FUND, INC.
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ANNUAL REPORT
DECEMBER 31, 2002
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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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Chairman's Statement 3
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Investment Review 4
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Major Holdings 8
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Investment Portfolio 10
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Statement of Assets and Liabilities 15
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Statement of Operations 16
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Statements of Changes in Net Assets 17
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Financial Highlights 18
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Notes to Financial Statements 19
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Report of Independent Accountants 24
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Fund Management 25
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Dividend Reinvestment and Cash Purchase Plan 26
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Directors and Administration 27
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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 and Macau have reverted to Chinese sovereignty.
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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JF International Management Inc. ("JFIM") (formerly Jardine Fleming
International Management Inc.) is the investment management company appointed to
advise and manage the Fund's portfolio. With the completion of the merger
between Robert Fleming Holdings Ltd. and The Chase Manhattan Corporation
("Chase") in October 2000, and the subsequent merger between Chase and J.P.
Morgan & Co. Incorporated in January 2001, JFIM became part of J.P. Morgan Chase
& Co. ("JPMC"), one of the world's premier financial services institutions. In
asset management, JPMC will operate globally under the name of JPMorgan Fleming
Asset Management ("JPMFAM"), although in Asia it will use the sub-brand JF Asset
Management. Funds under management for the global asset management business of
JPMFAM were US $516 billion as of December 31, 2002.
Chung Man Wing is the portfolio manager of the Fund. Mr. Chung joined JFIM
in late 2000 as head of the Greater China team. Previously, he was chief
investment officer at HSBC Asset Management (Asia).
MARKET INFORMATION
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THE FUND IS LISTED ON THE NEW YORK STOCK EXCHANGE (SYMBOL JFC). THE SHARE PRICE
IS PUBLISHED IN
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[ ] The Wall Street Journal (daily)
[ ] The Asian Wall Street Journal (daily)
[ ] Reuters (page JFC)
THE NET ASSET VALUE IS PUBLISHED IN
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[ ] The Wall Street Journal under "Closed-End Funds" (every Monday)
[ ] The Asian Wall Street Journal under "Closed-End Funds" (every Monday)
[ ] South China Morning Post in Hong Kong (first Thursday of every month)
[ ] Reuters (page JFC)
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JARDINE FLEMING
CHINA REGION FUND, INC.
HIGHLIGHTS
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DECEMBER 31, 2002 December 31, 2001
US$ US$
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Net Assets $34.2 MILLION $38.2 million
Net Asset Value Per Share $7.47 $8.14
MARKET DATA
Share Price on the
New York Stock Exchange $6.50 $6.57
Discount to Net Asset Value -13.0% -19.3%
TOTAL RETURN FOR THE PERIOD ENDED DECEMBER 31, 2002
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Net Asset Value -8.2%
Share Price -1.1%
JFC Benchmark Index* -19.7%
MSCI Hong Kong Index (Total) -17.8%
BNP Prime Peregrine China Index -10.7%
Taiwan Weighted Index -19.3%
NET ASSET VALUE AND SHARE PRICE VS. BENCHMARK INDEX
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EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
NET ASSET VALUE SHARE PRICE JFC BENCHMARK INDEX*
7/16/92 $100.00 $100.00 $100.00
7/27/92 $99.78 $98.33 $89.81
8/28/92 $100.43 $94.20 $91.11
9/30/92 $100.94 $80.00 $79.15
10/30/92 $108.60 $92.53 $90.31
11/30/92 $111.05 $96.67 $91.95
12/31/92 $109.29 $93.02 $90.21
1/29/93 $110.16 $96.37 $87.65
2/26/93 $117.49 $98.85 $97.55
3/31/93 $120.54 $108.90 $94.28
4/30/93 $125.48 $118.95 $97.84
5/28/93 $129.84 $122.30 $92.05
6/30/93 $122.35 $120.09 $83.13
7/30/93 $120.67 $116.73 $77.96
8/27/93 $124.75 $129.29 $82.27
9/30/93 $128.39 $126.81 $84.74
10/29/93 $147.17 $150.32 $102.63
11/26/93 $156.34 $166.71 $113.90
12/31/93 $188.96 $187.39 $128.98
1/28/94 $175.52 $183.65 $111.34
2/25/94 $158.91 $148.41 $103.16
3/31/94 $136.56 $136.08 $91.08
4/29/94 $132.14 $134.18 $87.30
5/27/94 $136.06 $148.41 $90.89
6/30/94 $123.99 $123.29 $82.84
7/29/94 $130.78 $126.47 $87.48
8/26/94 $130.78 $135.83 $92.18
9/30/94 $132.98 $129.56 $94.14
10/28/94 $132.34 $126.47 $89.14
11/23/94 $124.35 $110.76 $80.63
12/30/94 $115.72 $94.29 $72.23
1/27/95 $101.37 $90.10 $62.02
2/24/95 $108.27 $98.48 $66.92
3/31/95 $109.37 $94.29 $67.13
4/30/95 $105.33 $90.10 $63.43
5/26/95 $113.68 $107.01 $70.35
6/30/95 $111.93 $92.33 $69.32
7/28/95 $116.08 $95.51 $73.64
8/31/95 $108.89 $88.13 $69.66
9/30/95 $112.85 $94.42 $68.82
10/31/95 $110.46 $89.22 $67.02
11/30/95 $104.65 $85.02 $64.06
12/29/95 $103.54 $84.52 $63.34
1/31/96 $112.35 $107.76 $72.64
2/29/96 $113.37 $95.08 $73.99
3/31/96 $110.12 $95.08 $70.65
4/30/96 $111.70 $96.18 $68.52
5/31/96 $112.25 $94.07 $71.64
6/30/96 $111.98 $87.73 $71.47
7/31/96 $110.21 $81.39 $71.69
8/30/96 $110.68 $84.52 $73.69
9/30/96 $112.16 $85.62 $74.73
10/31/96 $113.18 $83.51 $77.45
11/29/96 $125.79 $90.86 $89.15
12/31/96 $132.84 $95.25 $97.43
1/31/97 $135.63 $99.49 $99.27
2/28/97 $138.13 $99.49 $100.73
3/27/97 $133.96 $99.49 $99.65
4/30/97 $148.44 $106.94 $106.53
5/31/97 $159.48 $115.41 $111.06
6/30/97 $170.35 $124.89 $114.45
7/31/97 $178.89 $130.22 $117.43
8/31/97 $187.33 $126.50 $121.24
9/30/97 $167.65 $124.38 $116.19
10/31/97 $124.12 $87.29 $88.50
11/28/97 $107.96 $84.67 $82.92
12/31/97 $110.00 $82.89 $83.73
1/30/98 $85.88 $79.75 $70.48
2/28/98 $114.29 $88.25 $86.61
3/31/98 $107.58 $80.77 $83.66
4/30/98 $98.27 $74.90 $76.62
5/29/98 $83.74 $60.57 $69.04
6/30/98 $72.75 $54.24 $63.53
7/31/98 $57.28 $44.10 $56.17
8/31/98 $51.32 $29.76 $50.16
9/30/98 $60.82 $40.91 $56.88
10/30/98 $70.51 $50.48 $65.12
11/30/98 $72.47 $53.14 $64.68
12/31/98 $69.86 $46.76 $61.44
1/29/99 $63.27 $45.70 $55.92
2/26/99 $63.43 $44.63 $56.22
3/31/99 $69.67 $47.82 $62.49
4/30/99 $82.25 $62.17 $74.33
5/31/99 $76.94 $57.39 $69.97
6/30/99 $90.35 $74.39 $80.74
7/30/99 $84.95 $60.57 $75.80
8/31/99 $88.77 $61.11 $78.44
9/30/99 $84.11 $56.86 $73.92
10/29/99 $87.65 $59.51 $75.69
11/30/99 $99.29 $68.01 $82.85
12/31/99 $110.11 $72.07 $90.38
1/31/00 $108.99 $69.94 $90.33
2/29/00 $113.38 $73.68 $91.87
3/31/00 $118.43 $75.28 $96.89
4/28/00 $100.86 $64.07 $87.24
5/31/00 $94.69 $62.46 $82.27
6/30/00 $98.52 $66.73 $85.48
7/31/00 $102.07 $69.94 $89.73
8/31/00 $103.94 $71.54 $88.73
9/29/00 $95.34 $66.73 $79.73
10/31/00 $87.40 $64.07 $72.78
11/30/00 $83.00 $61.93 $68.48
12/29/00 $87.30 $60.33 $71.12
1/31/01 $95.81 $71.33 $78.24
2/28/01 $91.42 $67.57 $76.15
3/30/01 $84.59 $60.73 $69.80
4/30/01 $86.09 $63.89 $69.03
5/31/01 $87.12 $66.46 $67.29
6/29/01 $84.69 $66.20 $65.30
7/31/01 $78.98 $60.22 $61.21
8/31/01 $73.10 $54.24 $57.47
9/28/01 $66.37 $50.83 $48.34
10/31/01 $71.51 $51.34 $51.10
11/30/01 $76.18 $55.95 $57.64
12/31/01 $76.09 $56.12 $63.41
1/31/02 $75.34 $55.52 $63.09
2/28/02 $75.53 $57.92 $60.84
3/28/02 $81.23 $63.64 $65.43
4/30/02 $80.95 $64.92 $66.68
5/31/02 $81.88 $65.18 $64.55
6/28/02 $76.65 $58.94 $60.36
7/31/02 $73.94 $54.24 $57.39
8/30/02 $70.29 $53.39 $54.89
9/30/02 $65.71 $49.71 $49.30
10/31/02 $68.42 $52.96 $52.07
11/29/02 $70.48 $55.78 $54.34
12/31/02 $69.82 $55.52 $50.92
* JFC Benchmark: MSCI Golden Dragon Index (Total)
Prior to March 2001: 25% Taiwan Weighted Index, 20% BNP Prime Peregrine China
Index, 50% MSCI Hong Kong Index, 5% HSBC
Prior to March 1999: 60% Hong Kong All Ordinaries Index, 30% Credit Lyonnais
Securities Asia All China B Index, 10% Taiwan Weighted
Index
Prior to January 1997: Peregrine Greater China Index
** Commencement of operations
Source: JP Morgan Fleming Asset Management
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JARDINE FLEMING
CHINA REGION FUND, INC.
CHAIRMAN'S STATEMENT
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Dear Shareholders,
2002 was a challenging year, both for your Fund and for equities generally,
as global economic and corporate earnings prospects remained sluggish. Towards
the end of the year, deteriorating geopolitical conditions further weighed on
markets. For the whole year, global equities, as measured by the MSCI World
Index (Total), declined 19.5%. Against this difficult backdrop, equity markets
in the China Region experienced substantial volatility. In China, the continued
tariff war and regulatory uncertainty hurt the large mobile phone company stocks
and dragged the MSCI China Index (Total) down over the year. In Hong Kong, the
blue chips were depressed by persistent deflation and lackluster earnings
growth, although selected mid-cap manufacturers/exporters did well in both
absolute and relative terms. Taiwan's equity market also declined as the large
technology stocks suffered from poor earnings and negative sentiment towards
their stock offerings. Nonetheless, certain mid-cap industrial stocks and
transportation stocks outperformed the overall Taiwan market, as they were
perceived as beneficiaries of the increasing economic integration between China
and Taiwan. Overall, the aggregate MSCI Golden Dragon Index (Total), the Fund's
benchmark, was down by 19.7% for the year.
During this difficult year, the Fund managed to outperform its MSCI Golden
Dragon benchmark by 11.5% in net asset value ("NAV") terms. But in absolute
terms, the Fund's NAV fell 8.2%. The Fund's share price performed relatively
better, falling only 1.1% over the year. See the Investment Review, also
enclosed in this report, for additional details on results and prospects for
China Region investments.
Looking forward, we expect that the China growth story will remain "in play"
and believe it presents promising investment opportunities. While China's entry
into the World Trade Organization is accelerating the formation of a rule-based
market economy, the new Chinese leadership will be challenged in its efforts at
financial reform and in managing rising unemployment caused by the
rationalization of state-owned enterprises and the opening of the agricultural
sector. Corporate governance, while improving, is still rudimentary among the
Chinese firms. As such, the Fund's investment advisor plans to continue its
focus on bottom-up stock selection -- hoping to seek companies that stand ready
to reap the "China Harvest," regardless of where the company's securities are
listed. The Fund's investment advisor has also stated its intention to continue
its top-down analysis, focusing on the powerful secular trends of privatization,
industrialization and increasing consumption in China. We are optimistic about
this combination of bottom-up and top-down approaches.
Despite this optimism towards the Fund's investment opportunities, given the
Fund's declining size, the lack of liquidity for the Fund's shares, and the
persistent discount to NAV at which the Fund's shares trade in the market, your
Board recently announced its unanimous decision to propose dissolution of the
Fund and a plan for liquidation to shareholders at the Fund's annual meeting of
stockholders, which is scheduled for May 8, 2003. If the proposal is approved by
shareholders and if all other conditions contained in the plan of liquidation
are satisfied, the Fund will be liquidated. Information about the liquidation
proposal will be included in the proxy statement for the above-mentioned annual
meeting. The proxy statement is expected to be distributed within a few weeks
and I encourage shareholders to carefully review and consider it once it is
available.
Respectfully submitted,
/s/ THE RT. HON. THE EARL OF CROMER
The Rt. Hon. The Earl of Cromer
Chairman
February 26, 2003
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JARDINE FLEMING
CHINA REGION FUND, INC.
INVESTMENT REVIEW
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Dear Shareholders:
2002 was a difficult year for equity investors worldwide. Within the China
Region, the MSCI Hong Kong Index (Total) fell 17.8%, as the economy and the
major corporates there suffered from deflation, a loss of pricing power and
lackluster earnings prospects. In China, continued concerns about regulatory
changes, poor corporate governance and an overhang relating to expected sales of
government-held shares weighed on the market; and the MSCI China Index (Total)
was down 14.0% for the year. In Taiwan, despite the good returns in the first
quarter, the middle of the year was beset by the lack of encouraging earnings
reports and worries about poor demand from the U.S. Heightened tensions in the
Middle East damaged investors' confidence further towards the year-end. As a
result, the MSCI Taiwan Index dropped 24.5% for the year.
The Fund's benchmark, the MSCI Golden Dragon Index (Total), fell 19.7% over
the year. Because of good stock selection, the Fund managed to outperform the
benchmark over the period, in terms of both net asset value (down 8.2%) and
share price (down 1.1%). The most positive of our stock selections came in Hong
Kong, where the Fund's overweight positions (relative to the benchmark) in
selected mid-cap manufacturing stocks (such as Fountain Set and Techtronic)
boosted performance in terms of both absolute and relative returns. In China,
the Fund's underweight positions in large telecom stocks (such as China Mobile)
and overweight positions in oil stocks (such as Petrochina) and mid-cap consumer
and manufacturing stocks (such as Brilliance China and Tong Ren Tang
Technologies) proved rewarding. However, stock selection in Taiwan detracted
from the Fund's value, as we were slightly underweight in the financial and
chemical stocks there.
In Hong Kong, the local Hang Seng Index lost 18.2% in 2002. Property stocks
turned in the worst performances, as residential property prices fell for the
fifth consecutive year. Despite the government's supportive measures,
transaction volume faced downward pressure, as primary market launches put
pressure on the secondary market, driving prices down. A deteriorating
employment picture and wage cuts across the territory also plagued investor
sentiment. The blue chip conglomerates, which feature the large-cap
telecom-related Hutchison and commercial landlord Swire, also underperformed, as
investors were nervous about Hutchison's aggressive investments in global 3G
mobile phone businesses, while the commercial rent cycle in Hong Kong continued
to trend downwards. On the other hand, banks and utilities continued to
outperform in an overall falling market. Despite the moderate earnings growth
for banks and utilities, investors welcomed their high dividend yield and
healthy return on equity. As mentioned before, selected mid-cap consumer and
manufacturing stocks did well, thanks to their proven China angles, strong
earnings growth prospects and reasonable share valuations.
Stocks within the Chinese universe posted mixed performance during the year.
Helped by the strong performance of the oil and chemical sectors, in particular
Petrochina and Sinopec, the Hang Seng "H share" Index (referring to shares of
Chinese state-owned enterprises listed on the Hong Kong exchange) was up 13.2%
and was one of the best performing indices in Asia. On the other hand, the Hang
Seng "Red Chips" Index (referring to Hong Kong-based and -listed companies that
are ultimately controlled by enterprises or government interests in China) was
down 24.6% over the year, mainly owing to the poor performance of the large-cap
mobile telecom stocks. The disappointing performance of telecom stocks more than
negated the good performance of upstream offshore oil explorer CNOOC, which,
thanks to the firm crude oil price and its overseas alliances, was up 38.1%.
Nonetheless, selected small- and medium-sized red chips, especially those
benefiting from China's robust trade growth and rising consumption, managed to
post positive returns. These included mobile handset manufacturer TCL and
container leasing
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JARDINE FLEMING
CHINA REGION FUND, INC.
INVESTMENT REVIEW (CONTINUED)
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company COSCO Pacific, in which the Fund was overweight. The once high-flying
Hong Kong-listed "private chips" (referring to listed companies from China's
"private sector" of companies that do not have a history rooted in China's
state-owned industries) consolidated in the middle of the year after a
well-publicized scandal involving Euro-Asia Agriculture and its founder Yang
Bin. Despite the strong profits growth and low valuations of some of these
private chips, investors shied away from them as doubts about their corporate
governance and accounting standards persisted. Meanwhile, the "B" share markets
(referring to shares that were originally restricted to foreign investors, but
that now may be owned by both Chinese and foreign investors) in Shanghai and
Shenzhen were down 33.8% and 29.6%, respectively. Sentiment towards the "B"
shares was dragged down by the nervousness in the domestic "A" shares markets
(referring to shares on the Shanghai and Shenzhen markets that can only be owned
by Chinese investors), which was exacerbated by the deflating of the high PER
multiple and the overhang created by the government selling down its stake in
the listed "A" shares.
In Taiwan, the local TAIEX Index had a roller-coaster ride and ended 2002
down 19.3%. The year started off well for the technology-heavy index, with hopes
of acceleration in export demand and of better global sentiment driving share
prices. However, as the year progressed, both domestic consumer spending and
export orders came in weaker than expected. In particular, the upwards global
inventory adjustment in the technology sector started to weaken after the first
quarter, when product prices and profit margins in various technology subsectors
such as DRAM began to drop. This led to a drastic fall for the TAIEX in general
and the technology sector in particular. Over the year, Taiwan's banking sector
outperformed the broader TAIEX, underpinned by expectations, and realization in
certain cases, of industry consolidation. However, the deepening consolidation
and industry reforms ran into serious doubt after massive farmer protests
against the closure of agricultural credit institutions. Elsewhere, optimism
regarding improving relations between China and Taiwan led to a rally in the
so-called "China Harvest" plays (referring to the expectation that Taiwan
companies with significant operations in China will benefit from economic growth
there), which include light industrials, consumer goods and transportation
stocks. The commodities plays, especially steel and chemicals, were strong on
the back of high product prices and good dividend yields.
OUTLOOK AND STRATEGY
Despite the positive outlook for the China Region and the Fund's investment
prospects that we outline below, the Fund's Board has recently decided to
recommend the liquidation of the Fund, as discussed in the preceding statement
by the Fund's chairman. We will be mindful of the possibility that the Fund may
be liquidated in making investment decisions. If, however, the decision to
liquidate the Fund is not made, we expect to continue to keep the Fund invested
in the various China Region markets, in keeping with our general view of these
markets outlined below.
We expect that the sluggish economic and corporate outlook in the US and
other OECD countries will keep equity investors on the sideline for the time
being. Moreover, the situations in the Middle East and the Korean peninsula will
cap near-term upside for the broader markets. However, we continue to be
encouraged by the positive, long-term trends that are emerging within the China
Region. We expect to be able to identify stock-specific investment opportunities
likely to benefit from these powerful trends and that will serve investors well
as safe havens amid the current external uncertainty.
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JARDINE FLEMING
CHINA REGION FUND, INC.
INVESTMENT REVIEW (CONTINUED)
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In Hong Kong, the major blue chips and the broader index continue to be
constrained by stubborn domestic deflation and anemic earnings growth momentum.
Coupled with geopolitical tensions, significant upside potential for the market
appears limited. On the other hand, Hong Kong may outperform major North Asian
markets, such as Korea, as Hong Kong is perceived as less sensitive to the US
market. Furthermore, market valuations now appear more reasonable in light of
improved dividend yield, despite slow earnings growth. As such, we expect the
Hang Seng Index and the major blue chip stocks to stay within a narrow trading
range. In terms of strategy for Hong Kong, we expect to continue to concentrate
on stock selection. We intend to stay focused on a select group of well managed,
mid-cap manufacturing companies that have built up efficient operations, show
sustainable growth potential and have shares still trading at reasonable
valuations, even after the recent strong run for such stocks.
In China, the dichotomy between the healthy macro-economic growth and the
often disappointing share price performance is expected to continue for some
time. While the China growth story remains "in play," thus attracting a
continued influx of foreign direct investment and accelerating the powerful
secular trends of privatization, urbanization and increased consumption, the
listed pure Chinese companies are not considered to be good quality long-term
investment candidates. The earnings of these companies are still of a very
cyclical and volatile nature and their business models are often affected by
changing policies and escalating competition outside their control. Last but not
least, corporate governance standards, while improving, are still rudimentary.
As such, we plan to continue our prudent bottom-up approach towards investing in
Chinese shares. From a tactical perspective, we expect to maintain our
overweight positions in the materials and basic commodities stocks, which we
expect to enjoy a strong cyclical earnings recovery, thanks to the robust
domestic demand resulting from the rapid industrialization of China. Also, we
continue to focus on companies, especially those with well-established brand
names and distribution franchises, that we expect to benefit from the increasing
spending by Chinese consumers. In 2003, we expect to see the corporatization and
floatation of more investment-grade quality Chinese entities, mostly on the Hong
Kong exchange. These should include leading state enterprises in the financial,
telecommunications and transportation sectors. In addition, many more good
quality private chips from the industrial and consumer sectors are also expected
to tap the capital markets, both in China and abroad. As such, the breadth and
depth of the Chinese stock universe will improve significantly, thus providing
more investment opportunities for the Fund.
In Taiwan, we expect the outlook for the TAIEX heavyweight technology stocks
to remain uncertain over at least the next few months. Investment demand from
the US will be clouded further by the prospects for war in the Middle East.
Also, we believe that consensus earnings estimates by the investment community
following Taiwan still look over-optimistic. Therefore, while we expect to
maintain a few strategic positions in leading Taiwan technology companies that
have genuine China exposure and that have seen their shares sold down to very
attractive levels, we plan to remain underweight in the technology sector. On
the other hand, we have gradually increased our exposure to what the Taiwanese
press has called the China Harvest plays over the last year and expect to remain
overweight in them. These include companies in various manufacturing industries
and the consumer goods sector that have, like their counterparts in Hong Kong,
established significant production capabilities in China. They are now ready to
reap the "harvest," both in terms of using China as an export base and
increasingly with an eye to tapping the massive Chinese domestic consumer
market. In addition, we expect that the increasing economic integration and
trade flows into and out of China will benefit a few Taiwanese transportation
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JARDINE FLEMING
CHINA REGION FUND, INC.
INVESTMENT REVIEW (CONTINUED)
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companies. These China Harvest plays often exhibit strong earnings growth and
high return on equity, and therefore we believe they should still have
significant share price appreciation potential, despite their recent good
performance.
And looking at one final opportunity, as the operating environment in China
improves, an increasing number of entrepreneurs and companies across the Asia
Pacific region, especially those from Korea and Singapore, will step up their
investments in China. These will initially include many industrial
manufacturers, which we expect to seek to take advantage of the low labor cost
and high productivity in China, and we expect companies from the service and
consumer sectors to follow suit. The Fund is likely to build positions in these
regional China plays, based on their individual merits and our overall stock
selection criteria.
While the external environment may be challenging and structural economic
issues within the China Region remain to be grappled with, the development of
the Chinese economy will present many investment opportunities across the region
that we feel cannot be ignored. We are confident that our disciplined investment
strategy for the Fund has the potential to provide good investment returns.
Respectfully submitted,
/s/ A. DOUGLAS EU
A. Douglas Eu
President
February 26, 2003
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JARDINE FLEMING
CHINA REGION FUND, INC.
MAJOR HOLDINGS
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AT DECEMBER 31, 2002
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% of Net
Assets
---------------------------------------------------------------------------------------------------------
FOUNTAIN SET HOLDINGS 8.5
Fountain Set manufactures and sells knitted fabrics, sewing threads,
dyedyarns and garments. The company also provides knitting, dyeing, printing and
fabric finishing services and trades raw yarns.
HUTCHISON WHAMPOA 4.6
Hutchison Whampoa is one of Hong Kong's leading conglomerates, controlling
60% and 50% of the container port capacity in Hong Kong and Shanghai,
respectively. Hutchison should benefit from an increase in PRC exports.
CHINA INSURANCE INTERNATIONAL HOLDINGS 4.5
China Insurance underwrites and reinsures all classes of general insurance,
including non-marine and marine, and certain classes of long-term business. The
company also carries on reinsurance broking and, to support its reinsurance
activities, invests in securities, money market and property.
CHEUNG KONG HOLDINGS 3.8
Cheung Kong is one of Hong Kong's premier property companies with
significant residential, commercial and industrial property developments in Hong
Kong and the PRC. Cheung Kong has numerous property and infrastructure projects
in China and has substantial IT and internet applications.
TAIWAN SEMICONDUCTOR MANUFACTURING 3.5
Taiwan Semiconductor Manufacturing Company is the world's earliest and
largest dedicated integrated circuit (IC) foundry manufacturing chips used
across the entire IC application spectrum. It continues as a leader of the
global IC business developing a new generation of technology. TSMC benefits from
the increase in outsourcing by major IC companies around the world.
TECHTRONIC INDUSTRIES 3.5
Techtronic Industries engineers, manufactures and trades power tools,
outdoor power products, floor care and electronic products for the home
improvement industry. The group partners with brand name customers worldwide.
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CHINA REGION FUND, INC.
MAJOR HOLDINGS (CONTINUED)
---------------------------------------------------------------------------------------------------------
AT DECEMBER 31 2002
---------------------------------------------------------------------------------------------------------
% of Net
Assets
---------------------------------------------------------------------------------------------------------
COSCO PACIFIC 3.1
Cosco Pacific, through its subsidiaries, provides shipping container leasing
services worldwide. The company also operates container terminals and provides
container handling, storage, transportation and management services, as well as
depot handling and stevedoring services.
HON HAI PRECISION INDUSTRY 2.8
Hon Hai Precision manufactures and markets personal computer (PC)
connectors, and cable assemblies used in desktop PCs and PC servers.
SINGAMAS CONTAINER HOLDINGS 2.7
Singamas Container, through its subsidiaries, manufactures containers,
operates container depot businesses and provides container storage, repair and
trucking as well as mid-stream services to the industry.
HOPEWELL HOLDINGS 2.7
Hopewell, based in Hong Kong is invested in infrastructure development,
property investment and development, engineering and construction and hotels
activity in the Greater China region.
---------------------------------------------------------------------------------------------------------
TOTAL MAJOR HOLDINGS 39.7
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CHINA REGION FUND, INC.
INVESTMENT PORTFOLIO
---------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 2002
---------------------------------------------------------------------------------------------------------
Holdings Market
(in shares Value
Description or par) (in US$)
---------------------------------------------------------------------------------------------------------
COMMON STOCKS (UNLESS OTHERWISE NOTED)
---------------------------------------------------------------------------------------------------------
CHINA (24.4%)
---------------------------------------------------------------------------------------------------------
AUTOMOBILES (3.3%)
Brilliance China Automotive Holdings 'H' 4,150,000 755,648
Qingling Motors 'H' 3,250,000 379,235
---------------------------------------------------------------------------------------------------------
1,134,883
---------------------------------------------------------------------------------------------------------
BIOTECHNOLOGY (2.4%)
Tong Ren Tang Technologies 'H' 790,000 840,792
---------------------------------------------------------------------------------------------------------
CHEMICALS (1.2%)
* Sinopec Shanghai Petrochemical 'H' 2,650,000 400,969
---------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES (0.3%)
* CCID Consulting 'H' 4,300,000 93,735
---------------------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS (2.2%)
Legend Group 2,300,000 766,804
---------------------------------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES (1.0%)
* China Oilfield Services 'H' 1,450,000 353,269
---------------------------------------------------------------------------------------------------------
FOOD PRODUCTS (2.6%)
COFCO International 3,150,000 888,621
---------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES (2.6%)
TCL International Holdings 2,900,000 883,171
---------------------------------------------------------------------------------------------------------
MARINE (1.2%)
China Shipping Development 'H' 2,000,000 418,024
---------------------------------------------------------------------------------------------------------
METALS & MINING (2.4%)
Angang New Steel 'H' 2,500,000 359,039
Jiangxi Copper 'H' 3,600,000 447,773
---------------------------------------------------------------------------------------------------------
806,812
---------------------------------------------------------------------------------------------------------
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JARDINE FLEMING
CHINA REGION FUND, INC.
INVESTMENT PORTFOLIO (CONTINUED)
---------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 2002
---------------------------------------------------------------------------------------------------------
Holdings Market
(in shares Value
Description or par) (in US$)
---------------------------------------------------------------------------------------------------------
OIL & GAS (2.1%)
PetroChina 'H' 3,600,000 715,513
---------------------------------------------------------------------------------------------------------
TRANSPORTATION INFRASTRUCTURE (3.1%)
Cosco Pacific 1,300,000 1,066,858
---------------------------------------------------------------------------------------------------------
TOTAL CHINA 8,369,451
---------------------------------------------------------------------------------------------------------
HONG KONG (49.1%)
---------------------------------------------------------------------------------------------------------
AIRLINES (1.5%)
Cathay Pacific Airways 370,000 505,283
---------------------------------------------------------------------------------------------------------
BANKS (2.0%)
Hang Seng Bank 65,000 691,791
---------------------------------------------------------------------------------------------------------
CONTAINERS & PACKAGING (5.2%)
Hung Hing Printing Group 1,350,000 865,540
Singamas Container Holdings 4,500,000 923,243
---------------------------------------------------------------------------------------------------------
1,788,783
---------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIALS (0.9%)
Shun Tak Holdings 1,600,000 320,057
---------------------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT (3.5%)
Techtronic Industries 1,250,000 1,186,110
---------------------------------------------------------------------------------------------------------
FOOD PRODUCTS (3.1%)
Chaoda Modern Agriculture Holdings 2,450,000 420,973
Global Bio-chem Technology Group 2,400,000 638,576
---------------------------------------------------------------------------------------------------------
1,059,549
---------------------------------------------------------------------------------------------------------
GAS UTILITIES (1.9%)
Hong Kong & China Gas 515,000 666,979
---------------------------------------------------------------------------------------------------------
HEALTHCARE EQUIPMENT & SUPPLIES (1.5%)
Hengan International Group 1,900,000 517,721
---------------------------------------------------------------------------------------------------------
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JARDINE FLEMING
CHINA REGION FUND, INC.
INVESTMENT PORTFOLIO (CONTINUED)
---------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 2002
---------------------------------------------------------------------------------------------------------
Holdings Market
(in shares Value
Description or par) (in US$)
---------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES (1.2%)
Skyworth Digital Holdings 4,000,000 420,588
---------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES (4.7%)
Hutchison Whampoa 255,000 1,595,671
---------------------------------------------------------------------------------------------------------
INSURANCE (4.5%)
China Insurance International Holdings 3,000,000 1,529,121
---------------------------------------------------------------------------------------------------------
LEISURE EQUIPMENT & PRODUCTS (0.8%)
Kin Yat Holdings 1,500,000 269,279
---------------------------------------------------------------------------------------------------------
MEDIA (0.9%)
* tom.com 1,350,000 321,981
---------------------------------------------------------------------------------------------------------
MISCELLANEOUS (0.0%)
Health Asia MediCentres Beijing++ 1,000,000 0
---------------------------------------------------------------------------------------------------------
MULTILINE RETAIL (2.3%)
* Convenience Retail Asia 1,400,000 359,039
Jusco Stores (Hong Kong) 1,500,000 432,770
---------------------------------------------------------------------------------------------------------
791,809
---------------------------------------------------------------------------------------------------------
REAL ESTATE (3.8%)
Cheung Kong Holdings 200,000 1,301,516
---------------------------------------------------------------------------------------------------------
TEXTILES & APPAREL (8.6%)
Fountain Set Holdings 5,300,000 2,922,319
Texwinca Holdings 36,000 26,774
---------------------------------------------------------------------------------------------------------
2,949,093
---------------------------------------------------------------------------------------------------------
TRANSPORTATION INFRASTRUCTURE (2.7%)
Hopewell Holdings 1,400,000 915,549
---------------------------------------------------------------------------------------------------------
TOTAL HONG KONG 16,830,880
---------------------------------------------------------------------------------------------------------
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JARDINE FLEMING
CHINA REGION FUND, INC.
INVESTMENT PORTFOLIO (CONTINUED)
---------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 2002
---------------------------------------------------------------------------------------------------------
Holdings Market
(in shares Value
Description or par) (in US$)
---------------------------------------------------------------------------------------------------------
TAIWAN (26.3%)
---------------------------------------------------------------------------------------------------------
AIRLINES (1.7%)
* Eva Airways 1,406,650 594,731
---------------------------------------------------------------------------------------------------------
AUTO COMPONENTS (2.0%)
Tong Yang Industry 765,000 675,584
---------------------------------------------------------------------------------------------------------
AUTOMOBILES (1.3%)
China Motor 250,000 458,153
---------------------------------------------------------------------------------------------------------
CHEMICALS (2.7%)
Formosa Plastics 365,000 480,346
* Taiwan Styrene Monomer 485,000 433,911
---------------------------------------------------------------------------------------------------------
914,257
---------------------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS (1.7%)
Ambit Microsystems 75,000 244,589
Lite-On Technology 287,037 323,900
---------------------------------------------------------------------------------------------------------
568,489
---------------------------------------------------------------------------------------------------------
CONTAINERS & PACKAGING (1.2%)
Taiwan Hon Chuan Enterprise 305,000 395,224
---------------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS (4.6%)
Hon Hai Precision Industry 280,000 969,697
Synnex Technology International 400,000 606,061
---------------------------------------------------------------------------------------------------------
1,575,758
---------------------------------------------------------------------------------------------------------
LEISURE EQUIPMENT & PRODUCTS (1.9%)
Giant Manufacturing 495,200 655,979
---------------------------------------------------------------------------------------------------------
MACHINERY (1.1%)
Kaulin Manufacturing 345,000 380,346
---------------------------------------------------------------------------------------------------------
MARINE (1.7%)
Wan Hai Lines 700,000 565,657
---------------------------------------------------------------------------------------------------------
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JARDINE FLEMING
CHINA REGION FUND, INC.
INVESTMENT PORTFOLIO (CONTINUED)
---------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 2002
---------------------------------------------------------------------------------------------------------
Holdings Market
(in shares Value
Description or par) (in US$)
---------------------------------------------------------------------------------------------------------
METALS & MINING (1.2%)
China Steel 740,000 414,315
---------------------------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS (0.7%)
* Chung Hwa Pulp 753,000 256,433
---------------------------------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT & PRODUCTS (4.5%)
Realtek Semiconductor 130,000 337,662
* Taiwan Semiconductor Manufacturing 975,000 1,198,701
---------------------------------------------------------------------------------------------------------
1,536,363
---------------------------------------------------------------------------------------------------------
TEXTILES & APPAREL (0.0%)
* Pou Chen 710 606
---------------------------------------------------------------------------------------------------------
TOTAL TAIWAN 8,991,895
---------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(99.8% of Net Assets) (Cost $33,271,740) 34,192,226
=========================================================================================================
Other assets in excess of liabilities (0.2% of Net Assets) 56,489
=========================================================================================================
NET ASSETS (100.0%) 34,248,715
=========================================================================================================
Aggregate cost for Federal income tax purposes is $33,926,874 The aggregate
unrealized gain for all securities is as follows:
Excess of market value over cost 3,244,542
Excess of cost over market value (2,979,190)
---------------------------------------------------------------------------------------------------------
Net unrealized gain 265,352
=========================================================================================================
* Non-income producing security.
++ At fair value as determined under the supervision of the Board of Directors.
See accompanying notes to financial statements.
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JARDINE FLEMING
CHINA REGION FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
-----------------------------------------------------------------------------------------------------
AT DECEMBER 31, 2002
-----------------------------------------------------------------------------------------------------
(in US$)
-----------------------------------------------------------------------------------------------------
ASSETS
-----------------------------------------------------------------------------------------------------
Investments at value (Note 2) (cost $33,271,740) 34,192,226
Cash (including foreign currencies with a cost of $347,163 and value of $348,100) 404,124
Dividends receivable 16,445
Prepaid insurance premiums 16,150
-----------------------------------------------------------------------------------------------------
TOTAL ASSETS 34,628,945
-----------------------------------------------------------------------------------------------------
LIABILITIES
-----------------------------------------------------------------------------------------------------
Payable for securities purchased 95,984
Payable for Fund shares redeemed 10,662
Accrued expenses payable 243,942
Due to Investment Advisor (Note 4) 29,642
-----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 380,230
-----------------------------------------------------------------------------------------------------
NET ASSETS 34,248,715
=====================================================================================================
NET ASSETS CONSIST OF:
Common stock, $0.01 par value
(100,000,000 shares authorized;
4,586,710 shares issued and outstanding) 45,867
Paid-in capital 96,220,488
Accumulated realized loss on investments
and foreign currency transactions (62,939,062)
Net unrealized appreciation on investments,
and foreign currency holdings, and other assets
and liabilities denominated in foreign currencies 921,422
-----------------------------------------------------------------------------------------------------
NET ASSETS 34,248,715
=====================================================================================================
NET ASSET VALUE PER SHARE ($34,248,715 / 4,586,710) 7.47
=====================================================================================================
See accompanying notes to financial statements.
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JARDINE FLEMING
CHINA REGION FUND, INC.
STATEMENT OF OPERATIONS
-----------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2002
-----------------------------------------------------------------------------------------------------
(in US$)
-----------------------------------------------------------------------------------------------------
INVESTMENT INCOME (LOSS) (NOTE 2)
-----------------------------------------------------------------------------------------------------
Dividend (net of foreign withholding tax of $53,167) 789,020
Interest (net of foreign withholding tax of $698) 18,342
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 807,362
-----------------------------------------------------------------------------------------------------
EXPENSES
-----------------------------------------------------------------------------------------------------
Investment advisory fees (Note 4) 370,820
Administration and accounting fees (Note 4) 137,999
Directors' fees and expenses 115,746
Legal fees 111,099
Custodian fees 102,018
Audit fees 37,290
Shareholder service fees 37,236
NYSE listing fee 25,000
Shareholder report and meeting expenses 22,002
Other expenses 12,259
-----------------------------------------------------------------------------------------------------
TOTAL EXPENSES 971,469
-----------------------------------------------------------------------------------------------------
NET INVESTMENT LOSS (164,107)
=====================================================================================================
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FOREIGN CURRENCY
HOLDINGS AND OTHER ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES
-----------------------------------------------------------------------------------------------------
NET REALIZED LOSS (NOTE 2)
Investments (4,384,675)
Foreign currency transactions (65,414)
NET CHANGE IN UNREALIZED APPRECIATION (NOTE 2)
Investments and foreign currency holdings and
other assets and liabilities denominated
in foreign currencies 1,424,348
-----------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS,
FOREIGN CURRENCY HOLDINGS AND OTHER ASSETS
AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES (3,025,741)
=====================================================================================================
DECREASE IN NET ASSETS RESULTING FROM OPERATIONS (3,189,848)
=====================================================================================================
See accompanying notes to financial statements.
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JARDINE FLEMING
CHINA REGION FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
----------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------
Year Ended Year Ended
December 31, 2002 December 31, 2001
(in US$) (in US$)
----------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment loss (164,107) (587,001)
Net realized loss on investments
transactions (4,384,675) (4,688,873)
Net realized loss on foreign currency transactions (65,414) (196,275)
Net change in unrealized appreciation (depreciation)
on investments, foreign currency holdings
and other assets and liabilities
denominated in foreign currencies 1,424,348 (1,647,317)
----------------------------------------------------------------------------------------------------------
Net decrease in net assets
resulting from operations (3,189,848) (7,119,466)
----------------------------------------------------------------------------------------------------------
CAPITAL SHARES REPURCHASED (NOTE 5) (731,318) (10,860,972)
==========================================================================================================
TOTAL DECREASE IN NET ASSETS (3,921,166) (17,980,438)
Net Assets:
Beginning of year 38,169,881 56,150,319
----------------------------------------------------------------------------------------------------------
End of year 34,248,715 38,169,881
==========================================================================================================
See accompanying notes to financial statements.
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JARDINE FLEMING
CHINA REGION FUND, INC.
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------------------------------------------
For the For the For the For the For the
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
2002 2001 2000 1999 1998
(in US$) (in US$) (in US$) (in US$) (in US$)
--------------------------------------------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
--------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of year 8.14 9.34 11.78 7.50 11.81
====================================================================================================================
Net investment income
(loss) (0.04) (0.11) (0.06) 0.03 0.02
Net realized and
unrealized gain (loss)
on investment and
foreign currency-
related transactions (0.66) (1.31) (2.73) 4.29 (4.33)
--------------------------------------------------------------------------------------------------------------------
Total from investment
operations (0.70) (1.42) (2.79) 4.32 (4.31)
====================================================================================================================
Dividends from net
investment income -- -- -- (0.04) --
====================================================================================================================
Capital shares repurchased
(Note 5) 0.03 0.22 0.35 -- --
====================================================================================================================
NET ASSET VALUE, END OF
YEAR 7.47 8.14 9.34 11.78 7.50
====================================================================================================================
Market value, end of
year 6.50 6.57 7.06 8.44 5.50
====================================================================================================================
TOTAL INVESTMENT RETURN
Per share market value (1.07%) (6.9%) (16.3%) 54.2% (43.6%)
Per share net asset
value (8.23%) (12.8%) (20.7%) 57.6% (36.5%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year 34,248,715 38,169,881 56,150,319 107,250,954 68,288,936
Ratios of total expenses
to average net assets 2.62% 3.51%+ 2.02% 2.28% 2.49%
Ratios of net investment
income (loss) to
average net assets (0.44%) (1.25%) (0.36%) 0.37% 0.24%
Portfolio turnover rate 245.0% 212.1% 94.8% 90.8% 111.9%
Number of shares
outstanding at end of
year (in thousands) 4,587 4,689 6,012 9,101 9,101
+ The ratio of total expenses to average net assets for the year ended December
31, 2001 is relatively higher than that of previous years as a result of the
expenses incurred in relation to a tender offer and share repurchases that
decreased the size of the Fund following similar actions in the previous year.
See accompanying notes to financial statements.
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JARDINE FLEMING
CHINA REGION FUND, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
DECEMBER 31, 2002
--------------------------------------------------------------------------------
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 accounting principles generally accepted in 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 accounting
principles generally accepted in the United States of America ("GAAP")
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.
Income and capital gain distributions are determined in accordance
with federal income tax regulations, which may differ from GAAP.
At December 31, 2002, the components of net assets (excluding paid in
capital) on a tax basis were as follows:
Tax basis capital loss carryover ......... $(61,255,744)
Plus/Less:Cumulative Timing Differences .. (1,028,183)
------------
Accumulated capital loss ............................... $(62,283,927)
------------
Book unrealized foreign exchange gain .................. 935
------------
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JARDINE FLEMING
CHINA REGION FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
Book unrealized appreciation .............. $ 920,486
Plus/Less:Cumulative Timing Differences ... (655,134)
-----------
Unrealized appreciation ................................ 265,352
------------
Net assets (excluding paid in capital) ................. $(62,017,640)
------------
The differences between book and tax basis unrealized appreciation is
primarily attributable to wash sales. The cumulative timing difference
for the capital loss carryover is due to post-October Losses.
Net Asset Value ....................................... $ 34,248,715
Paid in Capital ....................................... (96,266,355)
------------
Net assets (excluding paid in capital) ................ $(62,017,640)
------------
As of December 31, 2002, the Fund has capital loss carryforwards for
federal income tax purposes of $61,255,744, of which $42,188,946
expires in 2006, $11,676,567 expires in 2007, $3,780,058 expires in
2009 and 3,610,173 expires in 2010. The Fund intends to retain gains
realized in future periods that may be offset by available capital
loss carryforward.
During the year ended December 31, 2002, the Fund reclassified $65,414
from accumulated net realized loss on investments to accumulated net
investment loss as a result of permanent book and tax differences
relating primarily to realized foreign currency losses. The Fund also
reclassified $234,447 from accumulated net investment loss to paid-in
capital as a result of permanent tax differences relating to the net
operating loss for the year ended December 31, 2002. Net assets were
not affected by the reclassifications. The Fund's realized capital
losses incurred after October 31, 2002, but before December 31, 2002,
are deemed to arise on the first business day of the following year.
The Fund incurred and elected to defer such realized capital losses of
$1,028,183.
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 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 investments.
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JARDINE FLEMING
CHINA REGION FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
Unrealized currency gains (losses) from valuing foreign currency
denominated assets and liabilities at period-end exchange rates are
reflected as a component of accumulated net unrealized gain (loss) on
investments, foreign currency holdings, and other assets and
liabilities denominated in foreign currencies.
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 or 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, 2002, the Fund made purchases of
$87,975,797 and sales of $85,798,628 of investment securities other
than short-term investments. There were no purchases or sales of U.S.
government securities.
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JARDINE FLEMING
CHINA REGION FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
4. RELATED PARTY AND OTHER SERVICE PROVIDER TRANSACTIONS
I) JF International Management Inc. (formerly Jardine Fleming
International Management Inc.) (the "Adviser") an indirect
wholly-owned subsidiary of J.P. Morgan Chase & Co., provides
investment advisory services to the Fund under the terms of an
investment advisory agreement. Under the investment advisory
agreement effective November 1, 2001, the Advisor is paid a fee,
computed weekly and payable monthly, at the annual rate of 1.00% of
the Fund's weekly net assets. Prior to November 2001, the Adviser was
paid a fee, computed weekly and payable monthly, at the annual rate
of 1.25% of the first $75 million and 1.00% of the excess over $75
million of the Fund's weekly net assets.
II) Effective June 1, 2001 PFPC Inc. (the "Administrator") provides
administrative and accounting services to the Fund under an
Administrative and Accounting Services Agreement. The Administrator
receives a fee, payable monthly, at an annual rate of 0.135% of the
first $100 million, 0.095% of the next $50 million, 0.08% of the next
$50 million and 0.065% of the excess over $200 million of the Fund's
average weekly net assets, subject to a minimum annual fee of
$138,000, plus reimbursement for certain out-of-pocket expenses.
III) Prior to June 1, 2001, T. Rowe Price Associates, Inc., the former
Administrator provided administrative services to the Fund under an
Administrative Services Agreement. The former Administrator received
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 former Administrator also received an
annual fee of $85,000 for fund accounting services pursuant to an
Accounting Services Agreement.
IV) During the year ended December 31, 2002, the Fund paid $83,477 in
brokerage commissions to J.P. Morgan Chase Group companies,
affiliated brokers/dealers.
5. CAPITAL SHARE TRANSACTIONS
During the year ended December 31, 2002, the Fund's Board of Directors
authorized the Fund to purchase shares of its common stock from Fund
shareholders, as described below. Any purchase of shares by the Fund has
the effect of increasing the net asset value per share of the Fund's
remaining shares outstanding. All shares purchased by the Fund are
thereafter considered authorized and unissued.
I) SHARE REPURCHASE PROGRAM
The Fund was authorized to repurchase up to 469,142 shares (10% of its
issued and outstanding shares) in the open market through July 22,
2002. Repurchases were made only when the Fund's shares were trading
at less than net asset value and at such times and amounts as were
believed to be in the best interest of the Fund's shareholders. On
July 23, 2002, the Fund's Board of Directors approved a new 10% share
repurchase program which authorized the Fund to repurchase up to
460,761 shares in the open market during 2002 and 2003.
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JARDINE FLEMING
CHINA REGION FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
During the year ended December 31, 2002, the Fund paid $731,318 to
repurchase 102,114 shares, at a per-share weighted average discount to
net asset value of 14.85%.
During the year ended December 31, 2001, the Fund paid $1,161,805 to
repurchase 150,600 shares, at a per-share weighted average discount to
net asset value of 20.03%.
Subsequent to December 31, 2002, the Fund paid $10,191 to repurchase
1,550 shares through January 3, 2003, at a per-share weighted average
discount to net asset value of 13.07%.
II) TENDER OFFER
Pursuant to a tender offer that closed on July 9, 2001, the Fund
purchased 20% of its outstanding common stock at a price equal to 95%
of the Fund's net asset value per share on the closing date. The Fund
acquired 1,172,856 shares for a total cost of $9,699,167 in cash.
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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, 2002, 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 accounting principles generally accepted
in the United States of America. 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 auditing standards
generally accepted in the United States of America 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, 2002 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Baltimore, Maryland
January 31, 2003
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JARDINE FLEMING
CHINA REGION FUND, INC.
FUND MANAGEMENT
--------------------------------------------------------------------------------
Information pertaining to the Directors and officers of the Fund is set forth
below.
NUMBER OF
TERM OF PORTFOLIOS IN OTHER
OFFICE AND FUND COMPLEX TRUSTEESHIPS/
NAME, (DOB), ADDRESS AND LENGTH OF TIME PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS
POSITION(S) WITH FUND SERVED 1 DURING PAST 5 YEARS DIRECTOR HELD BY DIRECTOR
-------------------------------------------------------------------------------------------------------------
DISINTERESTED DIRECTORS
-------------------------------------------------------------------------------------------------------------
The Rt. Hon. The Earl of Cromer Since 1994 Chairman of the 1 Director of AIHQ.com
(June 3, 1946) Board of the Fund; Inc., Schroder Asia
6, Sloane Terrace Mansions, Chief Executive Pacific Fund
London, SW1X9DG Officer of Cromer Limited, and Korea
United Kingdom Associates Limited; Asia Fund Limited;
Chairman and Director, Class I Chairman of Loyd former Director of
George-Standard Inchcape Pacific
Chartered China Fund Limited
Limited and
Philippine Discovery
Investment Company
Limited
-------------------------------------------------------------------------------------------------------------
Alexander Reid Hamilton Since 1994 Director of Citic 1 See Principal Occupation
(October 4, 1941) Pacific Limited, The
P.O. Box 12343 Swank Shop Limited,
General Post Office Cosco Pacific
Hong Kong Limited, Esprit
Director, Class I Holdings Limited,
Cosco International
Holdings Limited,
DBS Kwong On Bank
Limited, and
Shangri-la Asia
Limited.
-------------------------------------------------------------------------------------------------------------
Julian M. I. Reid Since 1998 Chief Executive Officer 2 N/A
(August 7, 1944) of 3a Asset Management
10 Frere Felix de Valois Street Limited; Chairman of
Port Louis, Mauritius Jardine Fleming
Director, Class III India Fund, Inc.
-------------------------------------------------------------------------------------------------------------
INTERESTED DIRECTORS
-------------------------------------------------------------------------------------------------------------
A. Douglas Eu Since 1997 Director, Chief 2 Director of Jardine
(August 27, 1961) Operations Officer Fleming India Fund,
21st Floor, Chater House and Secretary of the Inc.; former
8 Connaught Road Investment Advisor; Director of JF Asset
Central Chief Executive Management Limited.
Hong Kong Officer of JF Funds;
President, Treasurer and Director of Ayudtuya
Director, Class II JF Asset Management
-------------------------------------------------------------------------------------------------------------
OFFICER(S) WHO ARE NOT DIRECTORS
-------------------------------------------------------------------------------------------------------------
Lauren Pan Since 2001 Vice President of JF N/A N/A
(December 20, 1966) Asset Management
Secretary Ltd. since July
2000. Prior to that
Manager of JF Asset
Management Limited
-------------------------------------------------------------------------------------------------------------
1 Number I, II or III below a director's name indicates whether he serves in
Class I, II, or III or the Board of Directors. Class III directors will be
elected for three-year terms as of the 2005 Annual Meeting. Class I directors
will serve until the 2003 Annual Meeting with the position then becoming one
for subsequent three-year terms. Class II directors will serve until the 2004
Annual Meeting with the position then becoming one for subsequent three-year
terms.
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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:
EquiServe Trust Company N.A.
(the Plan Agent):
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.
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JARDINE FLEMING
CHINA REGION FUND, INC.
DIRECTORS AND ADMINISTRATION
--------------------------------------------------------------------------------
OFFICERS AND DIRECTORS THE RT. HON. THE EARL OF CROMER -
DIRECTOR AND CHAIRMAN OF THE BOARD
A. Douglas Eu - Director, President,
and Treasurer
Alexander R. Hamilton - Director
Julian M. I. Reid - Director
Lauren Pan - Secretary
INVESTMENT ADVISER JF INTERNATIONAL MANAGEMENT INC.
P.O. Box 3151
Road Town, Tortola
British Virgin Islands
ADMINISTRATOR PFPC INC.
400 Bellevue Parkway
Wilmington, Delaware 19809
U.S.A.
CUSTODIAN CITIBANK N.A.
NEW YORK:
111 Wall Street, 16th Floor
New York, New York 10005
U.S.A.
HONG KONG:
Citibank Tower
Citibank Plaza
3 Garden Road
Hong Kong
INDEPENDENT ACCOUNTANTS PRICEWATERHOUSECOOPERS LLP
250 West Pratt Street
Baltimore, Maryland 21201
U.S.A.
LEGAL COUNSEL CLEARY, GOTTLIEB, STEEN & HAMILTON
NEW YORK:
1 Liberty Plaza
New York, New York 10006
U.S.A.
HONG KONG:
Bank of China Tower
1 Garden Road
Hong Kong
REGISTRAR, TRANSFER AGENT, AND EQUISERVE TRUST COMPANY N.A.
DIVIDEND PAYING AGENT P. 0. Box 8200
Boston, Massachusetts 02266-8200
U.S.A.
NOTICE IS HEREBY GIVEN IN ACCORDANCE WITH SECTION 23(C) OF THE INVESTMENT
COMPANY ACT OF 1940, AS AMENDED, THAT FROM TIME TO TIME THE FUND MAY PURCHASE
SHARES OF ITS COMMON STOCK IN THE OPEN MARKET.
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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-01 F01-051 12/31/02