UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-06686
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JF China Region Fund, Inc.
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(Exact name of registrant as specified in charter)
301 Bellevue Parkway
Wilmington, DE 19809
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(Address of principal executive offices) (Zip code)
Cleary, Gottlieb, Steen & Hamilton
1 Liberty Plaza
New York, NY 10006
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(Name and address of agent for service)
registrant's telephone number, including area code: 800-441-9800
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Date of fiscal year end: December 31, 2005
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Date of reporting period: December 31, 2005
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 100 F Street, NE,
Washington, DC 20549. The OMB has reviewed this collection of information under
the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
The Report to Shareholders is attached herewith.
[LOGO] JF CHINA REGION FUND, INC.
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ANNUAL REPORT
DECEMBER 31, 2005
[GRAPHIC]
THIS REPORT, INCLUDING THE FINANCIAL STATEMENTS HEREIN, IS SENT TO THE
STOCKHOLDERS 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.
[GRAPHIC]
JF 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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Top Ten Holdings 4
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Investment Portfolio 6
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Statement of Assets and Liabilities 12
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Statement of Operations 13
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Statement of Changes in Net Assets 14
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Financial Highlights 15
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Notes to Financial Statements 16
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Report of Independent Registered Public Accounting Firm 21
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Results of the Annual Stockholders Meeting 22
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Other Information 22
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Approval of Investment Advisory Contract 23
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Fund Management 24
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Dividend Reinvestment and Cash Purchase Plan 25
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Directors and Administration 26
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[GRAPHIC]
JF CHINA REGION FUND, INC.
OBJECTIVES
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JF 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 in the PRC are expected to be predominantly through 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
labor and land prices are lower than in Hong Kong. Hong Kong is also the largest
trading partner of the PRC. Furthermore, many PRC companies and their Hong
Kong-incorporated subsidiaries have listed their securities on the Stock
Exchange of Hong Kong.
The economies of the PRC, Hong Kong, Taiwan and Macau have become
increasingly linked over the past 10 years, especially since Hong Kong and Macau
reverted to Chinese sovereignty in 1997 and 1999, respectively. 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. ("JFIMI") is the investment management
company appointed to advise and manage the Fund's portfolio. JFIMI is part of
J.P. Morgan Chase & Co. ("JPMC"), one of the world's premier financial services
institutions. In asset management, JPMC operates globally under the name of
JPMorgan Asset Management ("JPMAM"), although in Asia it uses the sub-brand JF
Asset Management. Funds under management for the global asset management
business of JPMAM were US$846.9 billion as of December 31, 2005.
The day-to-day management of the Fund's portfolio is handled by JPMAM's
Greater China investment team based in Hong Kong. The head of this team is
Howard Wang who joined JPMAM in 2005. Previously, Mr. Wang spent eight years
with Goldman Sachs, where in 2004, he was appointed Managing Director, Equities
and General Manager of the Taipei branch office.
MARKET INFORMATION
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THE FUND IS LISTED ON THE NEW YORK STOCK EXCHANGE (SYMBOL JFC). THE SHARE PRICE
IS PUBLISHED IN
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o The Wall Street Journal (daily)
o The Asian Wall Street Journal (daily)
THE NET ASSET VALUE IS PUBLISHED IN
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o The Wall Street Journal under "Closed-End Funds" (every Monday)
o The Asian Wall Street Journal under "Closed-End Funds" (every Monday)
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[GRAPHIC]
JF CHINA REGION FUND, INC.
HIGHLIGHTS
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DECEMBER 31, 2005 DECEMBER 31, 2004
US$ US$
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Net Assets $73.5 million $64.5 million
Net Asset Value Per Share $16.04 $14.06
MARKET DATA
Share Price on the
New York Stock Exchange $13.71 $12.80
Discount to Net Asset Value (14.5%) (9.0%)
TOTAL RETURN FOR THE PERIOD ENDED DECEMBER 31, 2005
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Net Asset Value 14.51%
Share Price 7.58%
JFC Benchmark Index* 10.27%
MSCI Hong Kong 8.40%
BNP Paribas China Index 15.52%
Taiwan Weighted Index 2.91%
NET ASSET VALUE AND SHARE PRICE VS. BENCHMARK INDEX
[CHART OMITTED -- EDGAR REPRESENTATION OF DATA FOLLOWS]
Net Asset Share JFC Benchmark
Value Price 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
12/31/94 115.72 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
12/31/95 103.54 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
12/31/00 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
1/31/03 77.58 62.36 53.73
2/28/03 77.30 66.63 50.72
3/31/03 73.94 64.41 48.90
4/30/03 73.75 63.21 48.38
5/30/03 82.63 65.43 53.24
6/30/03 86.93 73.46 55.68
7/31/03 96.93 80.30 60.86
8/29/03 104.13 88.58 66.88
9/30/03 106.37 86.87 68.73
10/31/03 120.30 116.09 73.75
11/28/03 119.37 114.63 72.11
12/31/03 130.21 154.44 75.70
1/30/04 134.88 129.50 80.89
2/27/04 143.95 141.97 84.25
3/31/04 135.35 123.01 79.74
4/30/04 115.81 91.40 73.82
5/31/04 118.43 104.47 74.32
6/30/04 115.63 97.12 73.49
7/30/04 115.63 90.80 72.08
8/31/04 117.59 102.68 76.05
9/30/04 121.80 100.88 78.02
10/31/04 121.33 99.17 77.35
11/30/04 128.81 111.05 83.91
12/31/04 131.42 109.34 86.50
1/31/05 129.37 110.19 83.66
2/28/05 137.22 114.38 88.07
3/31/05 132.08 105.92 83.87
4/30/05 132.92 104.90 84.85
5/31/05 133.76 106.01 86.42
6/30/05 137.31 110.45 89.42
7/29/05 144.23 116.68 93.15
8/31/05 141.14 117.11 90.42
9/30/05 146.75 117.37 92.93
10/31/05 135.63 108.65 86.00
11/30/05 145.44 114.98 91.53
12/31/05 150.49 117.62 95.39
* JFC Benchmark: MSCI Golden Dragon Index (Total)
Prior to March 2001, 25% Taiwan Weighted Index, 20% BNP Paribas China
Index, 50% MSCI Hong Kong, 5% HSBC;
Prior to March 1999, 60% Hong Kong All Ordinaries, 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 JPMorgan Asset Management
-- 2 --
JF CHINA REGION FUND, INC.
CHAIRMAN'S STATEMENT
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Dear Fellow Stockholder,
The second half of 2005 reinforced the strong gains enjoyed during the
first six months that I reported to you in the Semi-Annual Report. Over the year
as a whole, the total return on net assets was +14.5%, compared to an increase
of +10.3% in the Fund's benchmark, the MSCI Golden Dragon Index (Total) --
outperforming the benchmark by +4.2%. The Fund's share price rose by +7.6%,
reflecting a modest increase in the discount to net asset value.
The appreciation of the Renminbi against the US Dollar that took place in
July 2005 was most welcome and put an end to the considerable speculation that
had preceded it. It triggered significant inflows of funds to Hong Kong and the
rest of the China region and our overweight position in China enabled the Fund
to benefit from it.
As I reported at the half year, the day-to-day management of the Fund's
portfolio is handled by JPMorgan Asset Management's Greater China investment
team based in Hong Kong. During the course of 2005, Howard Wang succeeded Man
Wing Chung as head of this team. Mr. Wang spent the previous eight years of his
career with Goldman Sachs. Your Board believes an encouraging outcome of
Mr.Wang's appointment has been the emergence of an improved investment process
which it expects should be of benefit to the Fund.
The continuing growth in consumer spending, together with macroeconomic
changes that are occurring, place China at the head of the list of favoured
markets within the region. Hong Kong is currently enjoying a recovery in
corporate results and consumer confidence. There are some structural weaknesses
in the Taiwan economy, although the technology sector offers selective
investment opportunities. Overall, we hope that, despite a number of risks in
the short term for the China region, a higher level of economic growth will
translate into continuing positive investment returns.
Respectfully submitted,
/s/ Cromer
The Rt. Hon. The Earl of Cromer
Chairman
February 16, 2006
For more information refer to the website www.jfchinaregion.com
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[GRAPHIC]
JF CHINA REGION FUND, INC.
TOP TEN HOLDINGS
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AT DECEMBER 31, 2005
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% OF NET
ASSETS
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TAIWAN SEMICONDUCTOR MANUFACTURING CO., LTD. 7.3
Taiwan Semiconductor Manufacturing Company Limited manufactures and markets
integrated circuits. The Company provides the following services: wafer manufacturing,
wafer probing, assembly and testing, mask production, and design services. The Company's
integrated circuits are used in the computer, communication, consumer electronics,
automotive, and industrial equipment industries.
CHINA MOBILE (HONG KONG) LTD. 5.8
China Mobile (Hong Kong) Limited provides cellular telecommunication services in
the People's Republic of China.
HUTCHISON WHAMPOA LTD. 3.8
Hutchison Whampoa Limited operates businesses including ports and related services,
telecommunications and e-commerce, property and hotels, retail and manufacturing, energy,
infrastructure, finance and investments.
CHEUNG KONG HOLDINGS LTD. 3.5
Cheung Kong Holdings Limited develops and invests in real estate. The Company also
provides real estate agency and management services, operates hotels, and invests in
securities.
ASUSTEK COMPUTER INC. 3.0
Asustek Computer Inc. manufactures and markets computer motherboards, interface
cards, notebook computers, and other related products.
CHINA RESOURCES ENTERPRISE LTD. 2.9
China Resources Enterprise Limited develops and invests in property, distributes
petroleum and chemicals, and manufactures beer, food, and textile products. The Company
also distributes food products and operates supermarkets.
CNOOC LTD. 2.8
CNOOC Limited explores, develops, produces, and markets crude oil and natural gas.
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[GRAPHIC]
JF CHINA REGION FUND, INC.
TOP TEN HOLDINGS (CONTINUED)
--------------------------------------------------------------------------------
AT DECEMBER 31, 2005
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% of Net
Assets
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PETROCHINA CO., LTD. 'H' 2.6
PetroChina Company Limited explores, develops, and produces crude oil and natural
gas. The company also refines, transports, and distributes crude oil and petroleum
products, produces and sells chemicals, and markets natural gas.
SINOPEC ZHENHAI REFINING AND CHEMICAL CO., LTD. 'H' 2.6
Sinopec Zhenhai Refining and Chemical Company Limited produces and sells gasoline,
diesel fuel, kerosene, naphtha, LPG, solvent oil, intermediate petrochemical products,
asphalt, urea, and other petrochemical products.
DELTA ELECTRONICS INC. 2.4
Delta Electronics Inc. manufactures power supplies and video display products. The
Company's products include power supplies, telecom power systems, uninterrupted power
supply, variable speed alternating current monitor drives, high resolution color
monitors, and projectors. Delta also manufactures magnetics and networking components.
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TOTAL TOP TEN HOLDINGS 36.7
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[GRAPHIC]
JF CHINA REGION FUND, INC.
INVESTMENT PORTFOLIO
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AT DECEMBER 31, 2005
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MARKET
HOLDINGS VALUE
DESCRIPTION (IN SHARES) (IN US$)
--------------------------------------------------------------------------------------------------------
COMMON STOCKS (UNLESS OTHERWISE NOTED)
--------------------------------------------------------------------------------------------------------
CHINA (22.9%)
--------------------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS (0.9%)
* Sina Corp. 26,563 641,762
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DIVERSIFIED TELECOMMUNICATION SERVICES (1.7%)
China Telecom Corp. Ltd. 'H' 3,486,000 1,281,361
--------------------------------------------------------------------------------------------------------
E-COMMERCE/SERVICES (0.9%)
Ctrip.com International - Sponsored ADR 11,266 650,612
--------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES (0.6%)
Huaneng Power International Inc. 'H' 712,000 468,327
--------------------------------------------------------------------------------------------------------
FOOD PRODUCTS (1.9%)
* China Yurun Food Group Ltd. 'H' 1,333,000 743,559
Tingyi (Cayman Islands) Holding Co. 'H' 1,298,000 640,333
--------------------------------------------------------------------------------------------------------
1,383,892
--------------------------------------------------------------------------------------------------------
INSURANCE (1.7%)
* China Life Insurance Co. 'H' 1,449,000 1,280,143
--------------------------------------------------------------------------------------------------------
MACHINERY (2.0%)
Hangzhou Steam Turbine Co. 'B' 898,600 966,567
Weichai Power Co., Ltd. 'H' 284,000 479,832
--------------------------------------------------------------------------------------------------------
1,446,399
--------------------------------------------------------------------------------------------------------
MARINE (0.6%)
Shenzhen Chiwan Wharf Holdings 'B' 337,500 469,672
--------------------------------------------------------------------------------------------------------
METALS & MINING (3.3%)
Angang New Steel Co., Ltd. 'H' 2,094,000 1,127,541
Yanzhou Coal Mining Co. 'H' 670,000 429,900
Zijin Mining Group Co., Ltd. 'H' 1,980,000 874,632
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2,432,073
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[GRAPHIC]
JF CHINA REGION FUND, INC.
INVESTMENT PORTFOLIO (CONTINUED)
--------------------------------------------------------------------------------
AT DECEMBER 31, 2005
--------------------------------------------------------------------------------------------------------
MARKET
HOLDINGS VALUE
DESCRIPTION (IN SHARES) (IN US$)
--------------------------------------------------------------------------------------------------------
OIL & GAS (6.9%)
China Petroleum and Chemical 'H' 2,346,000 1,164,899
PetroChina Co., Ltd. 'H' 2,376,000 1,945,896
Sinopec Zhenhai Refining and Chemical Co., Ltd. 'H' 1,478,000 1,944,348
--------------------------------------------------------------------------------------------------------
5,055,143
--------------------------------------------------------------------------------------------------------
REAL ESTATE (0.7%)
Shanghai Forte Land Co., Ltd. 'H' 1,546,000 528,390
--------------------------------------------------------------------------------------------------------
TRANSPORTATION INFRASTRUCTURE (1.7%)
Guangshen Railway Co., Ltd. 'H' 978,000 293,266
Sinotrans Ltd. 'H' 2,258,000 917,347
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1,210,613
--------------------------------------------------------------------------------------------------------
TOTAL CHINA 16,848,387
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HONG KONG (43.6%)
--------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS (2.8%)
BOC Hong Kong (Holdings) Ltd. 733,500 1,409,567
Hang Seng Bank Ltd. 47,300 617,364
--------------------------------------------------------------------------------------------------------
2,026,931
--------------------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS (3.3%)
* Ju Teng International 510,000 101,953
Lenovo Group Ltd. 3,832,000 1,766,855
TPV Technology Ltd. 542,000 531,267
--------------------------------------------------------------------------------------------------------
2,400,075
--------------------------------------------------------------------------------------------------------
DISTRIBUTION/WHOLESALE (1.7%)
Digital China Holdings Ltd. 1,704,000 467,012
Esprit Holdings Ltd. 113,000 803,026
--------------------------------------------------------------------------------------------------------
1,270,038
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[GRAPHIC]
JF CHINA REGION FUND, INC.
INVESTMENT PORTFOLIO (CONTINUED)
--------------------------------------------------------------------------------
AT DECEMBER 31, 2005
--------------------------------------------------------------------------------------------------------
MARKET
HOLDINGS VALUE
DESCRIPTION (IN SHARES) (IN US$)
--------------------------------------------------------------------------------------------------------
DIVERSIFIED OPERATIONS (9.8%)
China Resources Enterprise Ltd. 1,196,000 2,136,389
Citic Pacific Ltd. 261,000 722,050
Hutchison Whampoa Ltd. 293,000 2,790,728
Swire Pacific Ltd. 'A' 171,000 1,534,987
--------------------------------------------------------------------------------------------------------
7,184,154
--------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES (1.7%)
China Netcom Group Corp (Hong Kong) Ltd. 772,000 1,249,570
--------------------------------------------------------------------------------------------------------
GAS UTILITIES (0.8%)
Hong Kong & China Gas Co., Ltd. 262,000 559,241
--------------------------------------------------------------------------------------------------------
LEISURE EQUIPMENT & PRODUCTS (0.4%)
Skyworth Digital Holdings Ltd.++ 2,254,456 325,656
--------------------------------------------------------------------------------------------------------
MISCELLANEOUS (0.0%)
* Health Asia MediCentres Beijing++ 1,000,000 0
--------------------------------------------------------------------------------------------------------
MULTILINE RETAIL (1.2%)
Lifestyle International Holdings Ltd. 619,000 862,211
--------------------------------------------------------------------------------------------------------
OIL & GAS (2.8%)
CNOOC Ltd. 3,024,000 2,047,578
--------------------------------------------------------------------------------------------------------
REAL ESTATE (9.9%)
* Agile Property Holdings Limited 772,000 373,377
Cheung Kong Holdings Ltd. 251,000 2,575,214
Hang Lung Properties Ltd. 635,000 990,965
Henderson Investments Ltd. 494,000 879,236
Hysan Development Co. 650,419 1,610,623
Wheelock and Company Ltd. 540,000 881,016
--------------------------------------------------------------------------------------------------------
7,310,431
--------------------------------------------------------------------------------------------------------
RETAIL (0.2%)
* Xinyu Hengdeli Holdings, Ltd. 508,000 131,037
--------------------------------------------------------------------------------------------------------
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[GRAPHIC]
JF CHINA REGION FUND, INC.
INVESTMENT PORTFOLIO (CONTINUED)
--------------------------------------------------------------------------------
AT DECEMBER 31, 2005
--------------------------------------------------------------------------------------------------------
MARKET
HOLDINGS VALUE
DESCRIPTION (IN SHARES) (IN US$)
--------------------------------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS (2.2%)
Dickson Concepts International Ltd. 367,950 503,030
Giordano International Ltd. 1,136,000 637,334
* Texhong Textile Group Ltd. 3,366,000 516,607
--------------------------------------------------------------------------------------------------------
1,656,971
--------------------------------------------------------------------------------------------------------
TRANSPORTATION INFRASTRUCTURE (1.0%)
Cosco Pacific Ltd. 422,000 772,859
--------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES (5.8%)
China Mobile (Hong Kong) Ltd. 901,000 4,264,717
--------------------------------------------------------------------------------------------------------
TOTAL HONG KONG 32,061,469
--------------------------------------------------------------------------------------------------------
SINGAPORE (1.5%)
--------------------------------------------------------------------------------------------------------
CONTAINERS & PACKAGING (0.5%)
Full Apex Holdings Ltd. 2,000,000 384,893
--------------------------------------------------------------------------------------------------------
REAL ESTATE (1.0%)
Hongkong Land Holdings Ltd. 241,000 756,740
--------------------------------------------------------------------------------------------------------
TOTAL SINGAPORE 1,141,633
--------------------------------------------------------------------------------------------------------
TAIWAN (31.8%)
--------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS (0.6%)
Taishin Financial Holdings Co., Ltd. 825,000 432,055
--------------------------------------------------------------------------------------------------------
DIVERSIFIED OPERATIONS (1.8%)
Cathay Financial Holding - GDR 69,850 1,285,240
--------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES (0.9%)
Chunghwa Telecom Co., Ltd. 386,000 667,564
--------------------------------------------------------------------------------------------------------
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[GRAPHIC]
JF CHINA REGION FUND, INC.
INVESTMENT PORTFOLIO (CONTINUED)
--------------------------------------------------------------------------------
AT DECEMBER 31, 2005
--------------------------------------------------------------------------------------------------------
MARKET
HOLDINGS VALUE
DESCRIPTION (IN SHARES) (IN US$)
--------------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS (11.4%)
Asustek Computer Inc. 725,700 2,231,699
AU Optronics Corp. 877,820 1,309,660
Delta Electronics Inc. 879,000 1,801,197
Hon Hai Precision Industry 314,487 1,723,584
Silitech Technology Corp. 287,000 1,293,305
--------------------------------------------------------------------------------------------------------
8,359,445
--------------------------------------------------------------------------------------------------------
REAL ESTATE (0.5%)
Hung Poo Real Estate Development Corp. 589,000 394,544
--------------------------------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT (14.2%)
Advanced Semiconductor Engineering Inc. 1,186,702 1,087,590
MediaTek Inc. 121,800 1,435,210
Powerchip Semiconductor Corp. 1,290,000 850,364
Taiwan Semiconductor Manufacturing Co., Ltd. 2,830,836 5,387,061
United Microelectronics Corp. 1,207,352 683,761
Vanguard International Semiconductor Corp. 1,310,000 997,168
--------------------------------------------------------------------------------------------------------
10,441,154
--------------------------------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS (1.1%)
Far Eastern Department Stores 1,387,450 823,776
--------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES (1.3%)
Far EasTone Telecommunications Co., Ltd. 845,900 956,830
--------------------------------------------------------------------------------------------------------
TOTAL TAIWAN 23,360,608
--------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN COMMON STOCK
(99.8% of Net Assets) (Cost $65,136,423) 73,412,097
========================================================================================================
Other assets in excess of liabilities (0.2% of Net Assets) 146,552
========================================================================================================
NET ASSETS (100.0%) 73,558,649
========================================================================================================
-- 10 --
[GRAPHIC]
JF CHINA REGION FUND, INC.
INVESTMENT PORTFOLIO (CONTINUED)
--------------------------------------------------------------------------------
AT DECEMBER 31, 2005
--------------------------------------------------------------------------------------------------------
DESCRIPTION (IN US$)
--------------------------------------------------------------------------------------------------------
As of December 31, 2005, aggregate cost for Federal income tax purposes was $65,230,006.
The aggregate unrealized gain for all securities is as follows:
Excess of market value over cost 10,293,332
Excess of cost over market value (2,111,241)
--------------------------------------------------------------------------------------------------------
Net unrealized gain 8,182,091
========================================================================================================
B - Chinese security traded on Shenzhen Stock Exchange or Shanghai
Stock Exchange.
H - Chinese security traded on Hong Kong Stock Exchange.
ADR - American Depository Receipts.
GDR - Global Depository Receipts.
* Non-income producing security.
++ At fair value as determined under the supervision of the Board of
Directors.
See accompanying notes to financial statements.
-- 11 --
[GRAPHIC]
JF CHINA REGION FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
AT DECEMBER 31, 2005
-----------------------------------------------------------------------------------------------------
(IN US$)
-----------------------------------------------------------------------------------------------------
ASSETS
-----------------------------------------------------------------------------------------------------
Investments at value (cost $65,136,423) 73,412,097
Cash (including foreign currencies with a cost of $1,409,753 and value of $1,416,608) 2,114,685
Dividends receivable 8,452
Interest receivable 733
Prepaid expenses 31,704
-----------------------------------------------------------------------------------------------------
TOTAL ASSETS 75,567,671
-----------------------------------------------------------------------------------------------------
LIABILITIES
-----------------------------------------------------------------------------------------------------
Payable for securities purchased 1,301,086
Distributions payable 275,111
Due to Investment Adviser 117,010
Accrued expenses payable 315,815
-----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 2,009,022
-----------------------------------------------------------------------------------------------------
NET ASSETS 73,558,649
-----------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Common stock, $0.01 par value
(100,000,000 shares authorized;
4,585,160 shares issued and outstanding) 45,852
Paid-in capital 83,971,510
Undistributed net investment income 419,133
Accumulated realized loss on investments
and foreign currency transactions (19,160,381)
Accumulated net unrealized appreciation on investments,
and foreign currency holdings, and other assets
and liabilities denominated in foreign currencies 8,282,535
-----------------------------------------------------------------------------------------------------
NET ASSETS 73,558,649
=====================================================================================================
NET ASSET VALUE PER SHARE ($73,558,649 / 4,585,160) 16.04
=====================================================================================================
See accompanying notes to financial statements.
-- 12 --
[GRAPHIC]
JF CHINA REGION FUND, INC.
STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2005
------------------------------------------------------------------------------------------------
(IN US$)
------------------------------------------------------------------------------------------------
INVESTMENT INCOME
------------------------------------------------------------------------------------------------
Dividends (net of foreign withholding tax of $152,124) 1,986,023
Interest (net of foreign withholding tax of $180) 31,105
------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 2,017,128
------------------------------------------------------------------------------------------------
EXPENSES
------------------------------------------------------------------------------------------------
Investment advisory fees 676,245
Directors' fees and expenses 159,099
Administration and accounting fees 138,000
Custodian fees 104,000
Legal fees 75,001
Insurance 63,722
Shareholder service fees 47,000
Audit fees 40,113
Shareholder report and expenses 38,001
NYSE listing fee 27,603
Other expenses 41,195
------------------------------------------------------------------------------------------------
TOTAL EXPENSES 1,409,979
------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 607,149
------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS, FOREIGN CURRENCY
HOLDINGS AND OTHER ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES
------------------------------------------------------------------------------------------------
NET REALIZED GAIN/(LOSS)
Investments 6,571,071
Foreign currency transactions (179,850)
NET CHANGE IN UNREALIZED APPRECIATION
Investments and foreign currency holdings and
other assets and liabilities denominated
in foreign currencies 2,347,419
------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS,
FOREIGN CURRENCY HOLDINGS AND OTHER ASSETS
AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES 8,738,640
------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 9,345,789
================================================================================================
See accompanying notes to financial statements.
-- 13 --
[GRAPHIC]
JF CHINA REGION FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004
(IN US$) (IN US$)
-----------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations
Net investment income 607,149 192,218
Net realized gain on investment transactions 6,571,071 13,640,006
Net realized gain (loss) on foreign currency transactions (179,850) 83,708
Net change in unrealized appreciation (depreciation)
on investments, foreign currency holdings and other
assets and liabilities denominated in foreign currencies 2,347,419 (13,310,596)
-------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 9,345,789 605,336
-------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO STOCKHOLDERS
Net investment income ($0.06 and $0.00 per share,
respectively) (275,111) --
-------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 9,070,678 605,336
Net Assets:
Beginning of year 64,487,971 63,882,635
-------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income
of $419,133 and $266,945, respectively) 73,558,649 64,487,971
=======================================================================================================
See accompanying notes to financial statements.
-- 14 --
[GRAPHIC]
JF CHINA REGION FUND, INC.
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
For the For the For the For the For the
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
2005 2004 2003 2002 2001
(in US$) (in US$) (in US$) (in US$) (in US$)
---------------------------------------------------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR:
--------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of year 14.06 13.93 7.47 8.14 9.34
--------------------------------------------------------------------------------------------------------------------------
Net investment income
(loss) 0.13 0.04 (0.02) (0.04) (0.11)
Net realized and
unrealized gain (loss)
on investment and
foreign currency-
related transactions 1.91 0.09 6.48 (0.66) (1.31)
--------------------------------------------------------------------------------------------------------------------------
Total from investment
operations 2.04 0.13 6.46 (0.70) (1.42)
--------------------------------------------------------------------------------------------------------------------------
Dividends from net
investment income (0.06) -- -- -- --
--------------------------------------------------------------------------------------------------------------------------
Dilutive Effect of Capital
shares repurchased -- -- --* 0.03 0.22
--------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
YEAR 16.04 14.06 13.93 7.47 8.14
==========================================================================================================================
Market value, end of
year 13.71 12.80 18.08 6.50 6.57
--------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN
Per share market value 7.6% (29.2%) 178.2% (1.1%) (6.9%)
Per share net asset
value 14.5% 0.9% 86.5% (8.2%) (12.8%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year 73,558,649 64,487,971 63,882,635 34,248,715 38,169,881
Ratios of total expenses
to average net assets 2.08% 2.22% 2.54% 2.62% 3.51%
Ratios of net investment
income (loss) to
average net assets 0.90% 0.31% (0.19%) (0.44%) (1.25%)
Portfolio turnover rate 121.8% 168.6% 162.5% 245.0% 212.1%
Number of shares
outstanding at end of
year (in thousands) 4,585 4,585 4,585 4,587 4,689
* Less than $0.01 per share.
See accompanying notes to financial statements.
-- 15 --
[GRAPHIC]
JF CHINA REGION FUND, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
DECEMBER 31, 2005
--------------------------------------------------------------------------------
1. ORGANIZATION AND CAPITAL
JF 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 ("GAAP") and are consistently followed by the Fund in the
preparation of its financial statements.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of increases and decreases in net assets from operations during
the reported period. 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. 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 United States ("U.S.") dollar equivalents at the
exchange rate in effect on the valuation date.
II) FOREIGN CURRENCY TRANSLATION
The books and records of the Fund are maintained in U.S. 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,
-- 16 --
[GRAPHIC]
JF CHINA REGION FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
realized and unrealized foreign currency gains (losses) are included
in the reported net realized and unrealized gains (losses) on
investments.
Unrealized currency gains (losses) resulting 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.
III) DISTRIBUTION OF INCOME AND GAINS
The Fund intends to distribute to stockholders, 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 GAAP.
IV) OTHER
Security transactions are accounted for on trade date. 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.
3. INVESTMENT TRANSACTIONS
The investment objective, policies, program, and risk factors of the Fund
are described fully in the Fund's Prospectus.
During the year ended December 31, 2005, the Fund made purchases of
$81,296,127 and sales of $79,231,337 of investment securities other than
short-term investments. There were no purchases or sales of U.S.
government securities.
4. RELATED PARTY, OTHER SERVICE PROVIDER TRANSACTIONS AND DIRECTORS
I) JF 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. The Adviser is paid a fee, computed
weekly and payable monthly, at the annual rate of 1.00% of the
Fund's weekly net assets.
II) During the year ended December 31, 2005, the Fund paid $14,331 in
brokerage commissions to J. P. Morgan Chase Group companies and
affiliated brokers/dealers.
-- 17 --
[GRAPHIC]
JF CHINA REGION FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
III) OTHER SERVICE PROVIDERS
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.
IV) DIRECTORS
The Fund pays each of its Directors who is not a director, officer
or employee of the Adviser, Administrator or any affiliate thereof
an annual fee of $16,000 and the Chairman $19,000 plus $1,400
attendence fee for each Board and committee meeting attended. In
addition, the Fund reimburses all directors for travel and
out-of-pocket expenses incurred in connection with Board of
Directors meetings.
5. CAPITAL SHARE TRANSACTIONS
On September 8, 2005 the Board of Directors renewed an authority for the
Fund to purchase shares of its common stock from Fund stockholders, as
described below. When shares trade at a discount to net asset value, 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 458,516 shares (10% of
its issued and outstanding shares) in the open market through
September 7, 2006. Repurchases can be made only when the Fund's
shares are trading at less than net asset value and at such times
and amounts as it is believed to be in the best interest of the
Fund's stockholders.
During the years ended December 31, 2005 and December 31, 2004, the
Fund did not repurchase any shares under the share repurchase
program.
-- 18 --
[GRAPHIC]
JF CHINA REGION FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. RISKS AND UNCERTAINTIES
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
In the normal course of business, the Fund may enter into contracts
that provide general indemnifications. The maximum exposure under
these arrangements is dependent on future claims that may be made
against the Fund and, therefore, cannot be estimated; however, based
on experience, the risk of any loss from such claims is considered
remote.
7. TAX STATUS
I) 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
under subchapter M of the Internal Revenue Code and distribute
substantially all of its taxable income.
At December 31, 2005, the components of net assets (excluding
paid-in capital) on a tax basis were as follows:
Tax basis Ordinary Income ................................ $ 419,133
------------
Tax basis capital loss carryforward ...................... $(19,066,798)
Plus/Less: cumulative timing differences --
wash sales ............................................. (93,583)
-------------
Accumulated capital loss ................................................... (19,160,381)
------------
Book unrealized foreign exchange gain ...................................... 6
------------
Book unrealized appreciation on foreign currencies ......................... 6,855
------------
Tax unrealized appreciation .............................. $ 8,182,091
Plus/Less: cumulative timing differences --
wash sales ............................................. 93,583
------------
Unrealized appreciation .................................................... 8,275,674
------------
Net assets (excluding paid-in capital) ..................................... $(10,458,713)
============
-- 19 --
[GRAPHIC]
JF CHINA REGION FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
--------------------------------------------------------------------------------
The difference 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 wash sales.
Net Asset Value ................................... $ 73,558,649
Paid-in Capital ................................... (84,017,362)
------------
Net assets (excluding paid-in capital) ............ $(10,458,713)
============
As of December 31, 2005, the Fund had capital loss carryforwards for
federal income tax purposes of $19,066,798, of which $11,676,567
expires in 2006, $3,780,058 expires in 2008 and $3,610,173 expires
in 2009. 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, 2005, the Fund reclassified
$179,850 and $12,170,495 from undistributed net investment income
and paid in capital, respectively, to accumulated realized loss on
investments as a result of permanent book and tax differences
relating to realized foreign currency losses and carryforward loss
expirations. Net assets were not affected by the reclassifications.
-- 20 --
[GRAPHIC]
JF CHINA REGION FUND, INC.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
JF 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 JF China Region Fund, Inc. (the
"Fund") at December 31, 2005, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the five years in the period
then ended, 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards 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 audit, which included confirmation of securities at December
31, 2005 by correspondence with the custodian and brokers, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
February 10, 2006
-- 21 --
[GRAPHIC]
JF CHINA REGION FUND, INC.
RESULTS OF THE ANNUAL STOCKHOLDERS MEETING (UNAUDITED)
--------------------------------------------------------------------------------
The Fund held its annual stockholders meeting on May 12, 2005. At this meeting,
stockholders elected the following nominee to the Fund's Board of Directors.
I) ELECTION OF DIRECTORS
NOMINEE VOTES FOR VOTES WITHHELD NON-VOTING SHARES TOTAL VOTING SHARES
------------ --------------- ---------------- ----------------- -------------------
Julian M.I. Reid 3,652,950 46,198 886,012 4,585,160
OTHER INFORMATION
--------------------------------------------------------------------------------
Simon J. Crinage and A. Douglas Eu have both resigned as Directors of the Fund
effective May 12, 2005. Simon J. Crinage continues to serve as President of the
Fund and A. Douglas Eu continues to serve as Treasurer. Hilary A. Lowe has
replaced Philip Jones as Secretary of the Fund.
INFORMATION ABOUT PORTFOLIO HOLDINGS
The Fund files its complete schedule of portfolio holdings with the U.S.
Securities and Exchange Commission (the "Commission") for the first and third
quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q are available on
the Commission's website at http://www.sec.gov and may be reviewed and copied at
the Commission's Public Reference Room in Washington, DC. Information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
PROXY VOTING POLICIES AND PROCEDURES AND PROXY VOTING RECORD
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, by calling 202-942-8008, and on the Commission's website at
http://www.sec.gov.
Information regarding how the Fund voted proxies relating to portfolio
securities during the most recent 12-month period ended June 30 is available
without charge, upon request, by calling 202-942-8088, and on the Commission's
website at http://www.sec.gov.
CERTIFICATIONS
Simon J. Crinage, as the Fund's President, has certified to the New York Stock
Exchange that, as of June 8, 2005, he was not aware of any violation by the Fund
of applicable NYSE corporate governance listing standards. The Fund's reports to
the Commission on Forms N-CSR and N-CSRS contain certifications by the Fund's
principal executive officer and principal financial officer that relate to the
Fund's disclosure in such reports and that are required by rule 30a-2(a) under
the 1940 Act.
-- 22 --
[GRAPHIC]
JF CHINA REGION FUND, INC.
APPROVAL OF INVESTMENT ADVISORY CONTRACT
--------------------------------------------------------------------------------
On November 30, 2005, the Fund's Board of Directors (the "Board") considered and
approved the renewal of the Investment Advisory Contract (the "Agreement")
between the Fund and JFIMI for an additional term of twelve months. At this
meeting, the Board reviewed extensive materials prepared by JFIMI and discussed
these materials with representatives of JPMAM. The Directors considered the
recommendation of the Management Engagement Committee (the "Committee") that the
Agreement be renewed, noting that the Committee had discussed, in executive
session with independent counsel, the nature, extent and quality of the advisory
services provided to the Fund by JFIMI, the level of advisory fees, the costs of
the services provided and the profits realized by JFIMI, the Fund's expense
ratio, its relative and absolute performance, any economies of scale with
respect to the management of the Fund, any ancillary benefits received by JFIMI
and its affiliates as a result of their relationship with the Fund, and various
other matters included in the materials provided by JFIMI. In approving the
renewal of the Agreement, the Committee, and the Board, concluded that:
o The annual investment advisory fee rate paid by the Fund to JFIMI for
investment advisory services was reasonable relative to the Fund's peer
group and relative to other non-US funds managed by JFIMI.
o The Committee and the Board were satisfied with the nature, quality and
extent of services provided by JFIMI. In reaching this conclusion, the
Committee and the Board reviewed, among other things, JFIMI's investment
experience in the China region markets, the background and experience of
JFIMI's senior management, including the firm's new head of the Greater
China team. The Committee and the Board also received information
regarding JFIMI's compliance with applicable laws and SEC and other
regulatory inquiries or audits of the Fund and JFIMI.
o The Fund's performance, particularly in the one-year period, was improving
as compared to the Fund's peer group and the Fund's benchmark, the MSCI
Golden Dragon Index. (The Board and the Committee reviewed the Fund's
performance in comparison to the peer group and the benchmark for the 1
year, 3 year, 5 year and since inception periods.) The Board and Committee
concluded that, during the most recent fiscal year, JFIMI had made
improvements with respect to the investment processes used in managing the
Fund.
o The Fund's expense ratio remained at an acceptable level, and that JFIMI
had been successful in negotiating reductions of certain of the Fund's
operating expenses.
o Any potential economies of scale were being shared between the Fund and
JFIMI in an appropriate manner.
o In light of the costs of providing advisory services to the Fund, the
profits and ancillary benefits that JFIMI received, with respect to
providing investment advisory services to the Fund, were reasonable. The
Board and the Committee noted that beginning in May 2005, the Fund
discontinued using JFIMI's affiliates to affect Fund securities trades,
unless in exceptional circumstances, effectively eliminating brokerage
commissions as an ancillary benefit for JFIMI.
-- 23 --
[GRAPHIC]
JF 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(2) HELD BY DIRECTOR
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT DIRECTORS
------------------------------------------------------------------------------------------------------------------------------------
The Rt. Hon. The Earl of Cromer Since 1994 Chairman of the Board of the Fund; 1 Director of Schroder Asia
(June 3, 1946) Chief Executive Officer of Cromer Pacific Fund Limited,
Finsbury Dials Associates Limited (family busi- Business Link Somerset
20 Finsbury Street ness); Chairman of Lloyd George- Limited and Western
London, EC2Y 9AQ Standard Chartered China Fund Provident Association;
United Kingdom Limited and Philippine Discovery former Director of
Chairman and Director, Class I Investment Company Limited Inchcape Pacific Limited,
(consulting). A1HQ.com Inc. and
Korea Asia Fund Limited.
------------------------------------------------------------------------------------------------------------------------------------
Alexander Reid Hamilton Since 1994 Director of Citic Pacific Limited 1 See Principal Occupation
(October 4, 1941) (infrastructure), China Cosco
P.O. Box 12343 Holdings Company Limited
General Post Office (container shipping), Esprit Holdings
Hong Kong Limited (clothing retail), Shangri-La
Director, Class I Asia Limited (hotels) and Octopus
Cards Limited (financial services).
------------------------------------------------------------------------------------------------------------------------------------
Julian M. I. Reid Since 1998 Chief Executive Officer of 3a Asset 1 Director and Chaiman of
(August 7, 1944) Management Limited; Director and The Korea Fund, Inc. and
10 Frere Felix de Valois Street Chairman of Morgan's Walk Director of 3a Global
Port Louis, Mauritius Properties Limited. Growth Fund Limited.
Director, Class III
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS WHO ARE NOT DIRECTORS(3)
------------------------------------------------------------------------------------------------------------------------------------
A. Douglas Eu Since 1997 Treasurer of the Fund; Director, N/A N/A
(August 27, 1961) Chief Operations Officer and
21st Floor, Chater House Secretary of the Investment Adviser;
8 Connaught Road Chief Executive Officer of JF Funds;
Central, Hong Kong Director of JF Asset Management
Treasurer Limited and Ayudhya JF Asset
Management.
------------------------------------------------------------------------------------------------------------------------------------
Simon J. Crinage Since 2003 President of the Fund; Vice N/A N/A
(May 10, 1965) President, JPMorgan Asset
Finsbury Dials, 20 Finsbury Street Management since September 2000.
London, EC2Y 9AQ Prior to that, Director of JPMorgan
United Kingdom Asset Management (UK) Limited.
President
------------------------------------------------------------------------------------------------------------------------------------
Hilary A. Lowe Since 2005 Secretary of the Fund; Associate N/A N/A
(November 15, 1971) JPMorgan Asset Management since
Finsbury Dials, 20 Finsbury Street February 2002.
London, EC2Y 9AQ
United Kingdom
Secretary
------------------------------------------------------------------------------------------------------------------------------------
(1) Number I, II or III below a director's name indicates whether he serves in
Class I, II, or III of the Board of Directors. Class I directors will be
elected as of the 2006 Annual Meeting. Class II directors will serve until
the 2007 Annual Meeting with the position then becoming one for subsequent
three-year terms. Class III directors will serve until the 2008 Annual
Meeting with the position then becoming one for subsequent three-year
terms.
(2) The Fund is the only fund in the Fund Complex.
(3) Both Mr. Eu and Mr. Crinage resigned as Directors of the Fund effective
May 12, 2005. Mr. Crinage continues to serve as President of the Fund and
Mr. Eu continues to serve as Treasurer.
-- 24 --
[GRAPHIC]
JF 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 THE PLAN AGENT:
Computershare Trust Company, N.A.
P. O. Box 43010
Providence, RI 02940-3010
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.
-- 25 --
[GRAPHIC]
JF CHINA REGION FUND, INC.
DIRECTORS AND ADMINISTRATION
--------------------------------------------------------------------------------
OFFICERS AND DIRECTORS THE RT. HON. THE EARL OF CROMER - DIRECTOR
AND CHAIRMAN OF THE BOARD
Alexander R. Hamilton - Director
Julian M. I. Reid - Director
Simon J. Crinage - President
A. Douglas Eu - Treasurer
Hilary A. Lowe - Secretary
INVESTMENT ADVISER JF INTERNATIONAL MANAGEMENT INC.
P.O. Box 3151
Road Town, Tortola
British Virgin Islands
ADMINISTRATOR PFPC INC.
301 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 REGISTERED PRICEWATERHOUSECOOPERS LLP
PUBLIC ACCOUNTING FIRM Two Commerce Square
2001 Market Street
Philadelphia, Pennsylvania 19103
U.S.A.
LEGAL COUNSEL CLEARY GOTTLIEB STEEN & HAMILTON LLP
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 COMPUTERSHARE TRUST COMPANY, N.A.
DIVIDEND PAYING AGENT P. O. Box 43010
Providence, RI 02940-3010
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.
WWW.JFCHINAREGION.COM
-- 26 --
ITEM 2. CODE OF ETHICS.
(a) The registrant, as of the end of the period covered by this report, has
adopted a code of ethics that applies to the registrant's principal
executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant
or a third party.
(c) There have been no amendments, during the period covered by this
report, to a provision of the code of ethics that applies to the
registrant's principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing
similar functions, regardless of whether these individuals are employed
by the registrant or a third party, and that relates to any element of
the code of ethics description.
(d) The registrant has not granted any waivers, including an implicit
waiver, from a provision of the code of ethics that applies to the
registrant's principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing
similar functions, regardless of whether these individuals are employed
by the registrant or a third party, that relates to one or more of the
items set forth in paragraph (b) of this item's instructions.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Registrant's Board of Directors has determined that it does not have an "audit
committee financial expert" serving on its audit committee. While Registrant
believes that each of the members of its audit committee has sufficient
knowledge of accounting principles and financial statements to serve on the
audit committee, none has the requisite experience to qualify as an "audit
committee financial expert" as such term is defined by the Securities and
Exchange Commission.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
AUDIT FEES
(a) The aggregate fees billed for each of the last two fiscal years for
professional services rendered by the principal accountant for the
audit of the registrant's annual financial statements or services that
are normally provided by the accountant in connection with statutory
and regulatory filings or engagements for those fiscal years are
$37,244 for 2005 and $36,750 for 2004.
AUDIT-RELATED FEES
(b) The aggregate fees billed in each of the last two fiscal years for
assurance and related services by the principal accountant that are
reasonably related to the performance of the audit of the registrant's
financial statements and are not reported under paragraph (a) of this
Item are $0 for 2005 and $0 for 2004.
TAX FEES
(c) The aggregate fees billed in each of the last two fiscal years for
professional services rendered by the principal accountant for tax
compliance, tax advice, and tax planning are $5,250 for 2005 and $0 for
2004. Fees were for tax return review services.
ALL OTHER FEES
(d) The aggregate fees billed in each of the last two fiscal years for
products and services provided by the principal accountant, other than
the services reported in paragraphs (a) through (c) of this Item are $0
for 2005 and $0.
(e)(1) Disclose the audit committee's pre-approval policies and procedures
described in paragraph (c)(7) of Rule 2-01 of Regulation S-X.
The registrant's Audit Committee shall pre-approve, to the extent
required by applicable law, all audit and non-audit services that the
registrant's independent auditors provide to the registrant and (ii)
all non-audit services that the registrant's independent auditors
provide to the registrant's investment adviser and any entity
controlling, controlled by, or under common control with the
registrant's investment adviser that provides ongoing services to the
registrant, if the engagement relates directly to the operations and
financial reporting of the registrant.
(e)(2) The percentage of services described in each of paragraphs (b) through
(d) of this Item that were approved by the audit committee pursuant to
paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X are as follows:
(b) Not applicable
(c) 100%
(d) Not applicable.
(f) The percentage of hours expended on the principal accountant's
engagement to audit the registrant's financial statements for the most
recent fiscal year that were attributed to work performed by persons
other than the principal accountant's full-time, permanent employees
was less than fifty percent.
(g) The aggregate non-audit fees billed by the registrant's accountant for
services rendered to the registrant, and rendered to the registrant's
investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen by
another investment adviser), and any entity controlling, controlled by,
or under common control with the adviser that provides ongoing services
to the registrant for each of the last two fiscal years of the
registrant was $0 for 2005 and $0 for 2004.
(h) The registrant's audit committee of the board of directors has
considered whether the provision of non-audit services that were
rendered to the registrant's investment adviser (not including any
sub-adviser whose role is primarily portfolio management and is
subcontracted with or overseen by another investment adviser), and any
entity controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining the principal
accountant's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The registrant has a separately designated audit committee consisting of all the
independent directors of the registrant. The members of the audit committee are:
The Rt. Hon. The Earl of Cromer, Alexander Reid Hamilton and Julian M.I. Reid.
ITEM 6. SCHEDULE OF INVESTMENTS.
Schedule of Investments in securities of unaffiliated issuers as of the close of
the reporting period is included as part of the report to shareholders filed
under Item 1 of this form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The Proxy Voting Policies are attached herewith.
NOVEMBER 2005 EDITION
JF ASSET MANAGEMENT
VOTING POLICY
& CORPORATE GOVERNANCE
GUIDELINES
TABLE OF CONTENTS
I PRINCIPLES 3
II POLICY AND PROCEDURES 4
III VOTING GUIDELINES 6
REPORTS & ACCOUNTS 6
DIVIDENDS 6
AUDITORS 6
BOARDS 6
DIRECTORS 7
NON-EXECUTIVE DIRECTORS 8
ISSUE OF CAPITAL 8
MERGERS/ACQUISITIONS 9
VOTING RIGHTS 9
SHARE OPTIONS/L-TIPS 10
OTHERS 10
IV ACTIVISM 12
V SUSTAINABILITY 13
I. PRINCIPLES
JF ASSET MANAGEMENT ("JFAM") is committed to delivering superior
investment performance to its clients worldwide. We believe that one of
the drivers of investment performance is an assessment of the corporate
governance principles and practices of the companies in which we invest
our clients' assets and we expect those companies to demonstrate high
standards of governance in the management of their business.
We have set out below the principles which provide the framework for
our corporate governance activity. Although the policies and guidelines
set out in this document apply to Hong Kong and therefore principally
concern accounts managed from the Hong Kong office, our colleagues in
London, New York and Tokyo have similar standards, consistent with law
and best practice in these different locations.
1. FIDUCIARY PRIORITY. Our clients appoint us to manage their assets
in order to maximise the likelihood of meeting or exceeding their
investment objectives at acceptable risk levels. Every decision to
buy, hold or sell any security will be consistent with that
overriding objective.
2. EVALUATION. Our clients expect us, as their delegates, to monitor
the governance of companies in which we have invested their
assets.
3. ENGAGEMENT. We encourage excellence in the management of companies
through the considered application of our corporate governance
policies and guidelines. We welcome consultation by companies with
their leading shareholders on corporate governance issues.
4. PROXY VOTING. Company management is accountable to the
shareholders, our clients. It is our responsibility to ensure this
is recognised through the considered use of our clients' votes.
5. LITIGATION AND JOINT WORKING PARTIES. JFAM will align itself with
other shareholders, for example, by joining class action suits or
working parties as local practice dictates, where we are convinced
that this is in the best interests of our clients.
6. DISCLOSURE. JFAM's corporate governance guidelines and policies
are available to clients and companies alike. We believe that they
conform to best practice and we are prepared to discuss them
openly with other interested parties.
7. ONGOING COMMITMENT. JFAM is committed to reviewing its corporate
governance principles, policies and guidelines to ensure that they
fully reflect our interpretation of best market practice.
JF ASSET MANAGEMENT
HONG KONG PROXY COMMITTEE
II. POLICY AND PROCEDURES
JF Asset Management ("JFAM") manages the voting rights of the shares
entrusted to it as it would manage any other asset. It is the policy of
JFAM to vote in a prudent and diligent manner, based exclusively on our
reasonable judgement of what will best serve the financial interests of
the beneficial owners of the security.
1. PROXY COMMITTEE
The Hong Kong Proxy Committee has been established to oversee the proxy
voting process in the Asia ex Japan region on an ongoing basis. It is
composed of the Proxy Administrator and senior officers from the
Investment, Compliance and Risk Management Departments. The main
functions of the Proxy Committee are to review the Proxy Voting
Guidelines ("Guidelines") to ensure they are aligned with best
practice; to determine the independence of any third-party vendor which
it has delegated proxy voting responsibilities and to conclude that
there are no conflicts of interest that would prevent such vendor from
providing such proxy voting services prior to delegating proxy
responsibilities; and to provide advice and recommendations on general
proxy voting matters as well as on specific voting issues as they
occur. The Proxy Committee may delegate certain of its responsibilities
to subgroups composed of Proxy Committee members. It meets quarterly,
or more frequently as circumstances dictate and its minutes are
circulated to senior management including the Asia Risk Committee to
whom it reports.
2. VOTING
As these Guidelines represent what we consider to be in the best
financial interests of our clients, we would normally expect clients to
allow us to use them as a template for voting. However, we recognise
that in certain circumstances further analysis may be required.
In view our overriding fiduciary duty to act in the best interest of
our clients, the Guidelines are an indication only of JFAM's voting
policy. The portfolio manager has discretion to override the policy
should individual circumstances dictate.
Our Guidelines are primarily targeted at companies listed on main stock
exchanges. It is sometimes difficult for smaller companies to apply the
same corporate governance standards and we would look at any issues for
such companies on a case-by-case basis. We would, however, encourage
them to apply the highest possible standards of governance.
For markets in Asia ex Japan, we will generally abstain from voting at
AGMs on the grounds that the matters normally considered at such
meetings are of a routine and non-contentious nature. To ensure we
fulfil our fiduciary obligation to always act in our clients best
interests, we will review each AGM notice to check whether there are
any non-routine matters such as company reorganisations/
restructurings, takeover/ merger and senior management compensation
plans included therein. If any such matters are identified then we will
consider each one individually so that our clients' best interests are
served. The major routine matters in AGM are as follows:
1. Accept Financial Statement and Statutory Reports
2. Approve Dividend
3. Election and re-election of directors
4. Fix remuneration of directors
5. Appoint auditors and fix remunerations
6. Approve issuance of Equity or Equity-Linked Securities without
pre-emptive rights
7. Approve repurchase of shares (up to 20% of issued capital)
8. Authorise reissuance of repurchased shares
Also, certain markets require that shares are blocked from trading in
order to be tendered for voting purposes. In these instances, it may be
in our clients' best interests to abstain from voting in order to
preserve the ability to trade. For these countries, a decision will be
taken on a case-by-case basis by the research analyst in conjunction
with the portfolio manager in order to determine how our clients' best
interests are served.
To assist JFAM investment professionals with public companies' proxy
voting proposals, we have retained the services of an independent proxy
voting service, Institutional Shareholder Services Inc. (ISS). ISS is
assigned responsibility for various functions, which may include one or
more of the following: coordinating with client custodians to ensure
that all proxy materials are processed in a timely fashion; providing
JFAM with a comprehensive analysis of each proxy proposal and providing
JFAM with recommendations on how to vote each proxy proposal based on
the Guidelines or, where no Guideline exists or where the Guidelines
require a case-by-case analysis, on ISS' analysis; and executing the
voting of the proxies in accordance with Guidelines and its
recommendation, except when a recommendation is overridden by JFAM, as
described below.
Situations can sometimes arise where more than one JFAM client invests
in the same company or in which a single client may invest in the same
company but in multiple accounts. In those situations, two or more
clients, or one client with different accounts, may be invested in
strategies having different investment objectives, investment styles,
or portfolio managers. As a result, JFAM may cast different votes on
behalf of different clients or on behalf of the same client with
different accounts.
In the event a JFAM investment professional makes a recommendation in
connection with an override, the investment professional must provide
the appropriate Proxy Administrator with a written certification
("Certification") which shall contain an analysis supporting his or her
recommendation and a certification that he or she (A) received no
communication in regard to the proxy that would violate either the
JPMorgan Chase ("JPMC") Safeguard Policy or written policy on
information barriers, or received any communication in connection with
the proxy solicitation or otherwise that would suggest the existence of
an actual or potential conflict between JFAM's interests and that of
its clients and (B) was not aware of any personal or other relationship
that could present an actual or potential conflict of interest with the
clients' interests.
3. ENGAGEMENT
We regard regular, systematic and direct contact with senior company
management, both executive and non-executive, as crucially important.
We consider that these dialogues have been useful and plan to expand
this approach.
4. CONFLICTS OF INTEREST
In order to maintain the integrity and independence of JFAM's
proxy-voting decisions, JPMorgan Chase (including JPMAM) has
established formal barriers designed to restrict the flow of
information between JPMC's securities, lending, investment banking and
other divisions to JPMAM investment professionals.
Where a potential material conflict of interest has been identified,
the Proxy Administrator, in consultation with the Proxy Committee,
evaluates the potential conflict and determines whether an actual
conflict exists. In the event that this is the case, they make a
recommendation on how to vote the proxy. A record of such decisions is
available to clients on request.
Finally, it should be pointed out that this document is intended as an
overview only. Specific issues should always be directed to your
account administrator or portfolio manager.
III. VOTING GUIDELINES
1. REPORTS & ACCOUNTS
1A. ANNUAL REPORT
Reports and accounts should be both detailed and transparent, and
should be submitted to shareholders for approval. They should meet
accepted reporting standards, and company accounts should employ
Generally Accepted Accounting Practices (GAAP). Reports should meet
with the spirit as well as the letter of reporting standards, including
the most recent recommendations of the International Accounting
Standards Board (IASB).
The annual report should include a statement of compliance with
relevant codes of best practice, in markets where they exist.
Legal disclosure varies from market to market. If, in our opinion, a
company's standards of disclosure (whilst meeting minimum legal
requirements) are insufficient in any particular area, we will inform
company management of our concerns. Depending on the circumstances, we
will either abstain or vote against the resolution concerned . Similar
consideration would relate to the use of inappropriate accounting
methods.
2. DIVIDENDS
Proposals for the payment of dividends should be presented to
shareholders for approval, and should be fully disclosed in advance of
the meeting. We will vote against dividend proposals if we feel that
payment of the proposed dividend would prejudice the solvency or future
prospects of the company.
3. AUDITORS
3A. AUDITOR INDEPENDENCE
Auditors must provide an independent and objective check on the way in
which the financial statements have been prepared and presented. JFAM
will vote against the appointment or re-appointment of auditors who are
not perceived as being independent.
3B. AUDITOR REMUNERATION
Companies should be encouraged to distinguish clearly between audit and
non-audit fees. Audit fees should never be excessive.
4. BOARDS
4A. CHAIRMAN & CEO
JFAM believes that it is best practice for the roles of Chairman and
Chief Executive Officer to be separate.
4B. BOARD STRUCTURE
JFAM is in favour of unitary boards of the type found in Hong Kong, as
opposed to tiered board structures.
4C. BOARD SIZE
Boards with more than 20 directors are considered to be excessively
large.
4D. BOARD INDEPENDENCE
JFAM believes that a strong independent element to a board is essential
to the effective running of a company. The calibre and number of
non-executive directors on a board should be such that their views will
carry significant weight in the board's decisions.
We believe that as a minimum, all boards should have at least three
non-executive directors, unless the company is of such a size that
sustaining such a number would be an excessive burden.
JFAM will use its voting powers to encourage appropriate levels of
board independence, taking into account local market practice.
4E. BOARD COMMITTEES
Where appropriate, boards should delegate key oversight functions to
independent committees. The Chairman and members of any Committee
should be clearly identified in the annual report.
5. DIRECTORS
5A. EXECUTIVE DIRECTOR'S REMUNERATION
Executive remuneration is and will remain a contentious issue,
particularly the overall quantum of remuneration.
JFAM will generally vote against shareholder proposals to restrict
arbitrarily the compensation of executives or other employees.
5B. DIRECTOR'S LIABILITY
In certain markets, this proposal asks shareholders to give blanket
discharge from responsibility for all decisions made during the
previous financial year. Depending on the market, this resolution may
or may not be legally binding, and may not release the board from its
legal responsibility.
JFAM will usually vote against discharging the board from
responsibility in cases of pending litigation, or if there is evidence
of wrongdoing for which the board must be held accountable.
5C. DIRECTORS OVER 70
JFAM considers that a similar standard of care should be applied to the
selection of a director over 70 as would be applied to that of any
other director, although we would expect to see such a director offer
him or herself for re-election each year.
5D. DIRECTORS' CONTRACT
Generally, we encourage contracts of one year or less and vote
accordingly.
6. NON-EXECUTIVE DIRECTORS
6A. ROLE OF NON-EXECUTIVE DIRECTORS
As stated earlier in these guidelines, JFAM believes that a strong
independent element to a board is important to the effective running of
a company.
In determining our vote, we will always consider independence issues on
a case-by-case basis, taking into account any exceptional individual
circumstances, together with local markets' differing attitudes to
director independence.
In order to help assess their contribution to the company, the time
spent by each non-executive director should be disclosed to
shareholders, as well as their attendance at board and committee
meetings.
Audit and Remuneration Committees should be composed exclusively of
independent directors.
6B. DIRECTOR INDEPENDENCE
We consider that a director will generally be deemed to be independent
if he or she has no significant financial, familial or other ties with
the company which might pose a conflict, and has not been employed in
an executive capacity by the company for at least the previous ten
years.
6C. MULTIPLE DIRECTORSHIPS
In order to be able to devote sufficient time to his or her duties, we
would not normally expect a non-executive to hold more than five
significant directorships at any one time. For executives, only one
additional non-executive post would normally be considered appropriate
without further explanation.
6D. NON-EXECUTIVE DIRECTOR REMUNERATION
Non-executive directors should be paid but should not be awarded
options.
6E. BONUSES FOR RETIRING DIRECTORS AND INTERNAL STATUTORY AUDITORS
JFAM will generally vote Against proposals for retirement bonuses which
will be paid to retirees including one or more directors or statutory
auditors designated by companies as an outsider.
7. ISSUE OF CAPITAL
7A. ISSUE OF EQUITY
In most countries, company law requires that shareholder approval be
obtained in order to increase the authorised share capital of the
company. Proposals for equity issues will also specify whether
pre-emptive rights are to be retained or suppressed or partially
suppressed for the issue. As a general rule, JFAM believes that any new
issue of equity should first be offered to existing shareholders on a
pre-emptive basis.
JFAM will vote in favour of increases in capital which enhance a
company's long-term prospects.
7B. ISSUE OF DEBT
Reasons for increased bank borrowing powers are many and varied,
including allowing normal growth of the company, the financing of
acquisitions, and allowing increased financial leverage. Management may
also attempt to borrow as part of a takeover defence.
JFAM will vote in favour of proposals which will enhance a company's
long-term prospects. We will vote against an increase in bank borrowing
powers which would result in the company reaching an unacceptable level
of financial leverage, where such borrowing is expressly intended as
part of a takeover defence, or where there is a material reduction in
shareholder value.
7C. SHARE REPURCHASE PROGRAMMES
Boards may instigate share repurchase or stock buy-back programs for a
number of reasons. JFAM will vote in favour of such programmes where
the repurchase would be in the best interests of shareholders, and
where the company is not thought to be able to use the cash in a more
useful way.
We will vote against such programmes when shareholders' interests could
be better served by deployment of the cash for alternative uses, or
where the repurchase is a defensive manoeuvre or an attempt to entrench
management.
8. MERGERS / ACQUISITIONS
Mergers and acquisitions are always reviewed on a case-by-case basis by
the investment analyst in conjunction with portfolio managers and, in
exceptional circumstances, the Proxy Committee. Individual
circumstances will always apply. However, as a general rule, JFAM will
favour mergers and acquisitions where the proposed acquisition price
represents fair value, where shareholders cannot realise greater value
through other means, and where all shareholders receive fair and equal
treatment under the merger/acquisition terms.
9. VOTING RIGHTS
JFAM believes in the fundamental principle of "one share, one vote".
Accordingly, we will vote to phase out dual voting rights or classes of
share with restricted voting rights, and will oppose attempts to
introduce new ones. We are opposed to mechanisms that skew voting
rights, such as cumulative voting; directors should represent all
shareholders equally, and voting rights should accrue in accordance
with the shareholder's equity capital commitment to the company.
10. SHARE OPTIONS / LONG-TERM INCENTIVE PLANS (L-TIPS)
10A. SHARE OPTIONS
Best practice requires that share options be fully expensed, so that
shareholders can assess their true cost to the company. The assumptions
and methodology behind the expensing calculation should also be
explained to shareholders.
We will generally vote against the cancellation and re-issue,
re-pricing, of underwater options.
10B. LONG-TERM INCENTIVE PLANS (L-TIPS)
A Long-Term Incentive Plan ("L-TIP") can be defined as any arrangement,
other than deferred bonuses and retirement benefit plans, which require
one or more conditions in respect of service and/or performance to be
satisfied over more than one financial year.
JFAM normally will vote in favour of schemes with keen incentives and
challenging performance criteria, which are fully disclosed to
shareholders in advance, and vote against payments which are excessive
or performance criteria which are undemanding.
11. OTHERS
11A. CHARITABLE ISSUES
Charitable donations are generally acceptable, provided they are within
reasonable limits and fully disclosed to shareholders.
11B. POLITICAL ISSUES
JFAM does not normally support the use of shareholder funds for
political donations, and would require the fullest explanation as to
why this would be beneficial to shareholders.
11C. POISON PILLS
Poison pills, or shareholder rights plans, are designed to give
shareholders of a target company the right to purchase shares of the
acquiring company, the target company, or both at a substantial
discount from market value. These rights are exercisable once a
pre-defined "triggering event" occurs, generally a hostile takeover
offer or an outsider's acquisition of a certain percentage of stock.
Corporations may or may not be able to adopt poison pills without
shareholder approval, depending on the market.
In reaching its voting position, the Committee has reviewed and
continues to review current takeover events. However, it has concluded
that there is no clear evidence that poison pills deter takeover offers
or defeat takeover attempts and are, in fact, sometimes used as tools
to entrench management.
JFAM will generally vote against anti-takeover devices and support
proposals aimed at revoking existing plans. Where anti-takeover devices
exist, they should be fully disclosed to shareholders and shareholders
should be given the opportunity to review them periodically.
11D. COMPOSITE RESOLUTIONS
Agenda items at shareholder meetings should be presented in such a way
that they can be voted upon clearly, distinctly and unambiguously. We
normally oppose deliberately vague, composite or "bundled" resolutions,
depending on the context.
11E. AMENDMENTS TO COMPANY ARTICLES
i. Limitation on Directors' Liability - review on a case by case
basis
ii. Changes in business activities/ Expansion of business line -
generally vote For
iii. Relaxation of Quorum Requirement - generally vote Against
iv. Shares Repurchase at discretion of the Board of Directors -
review on a case by case basis
v. Changes of shareholders record date at discretion of the Board
of Directors - generally vote Against
IV. ACTIVISM
ACTIVISM POLICY
1. DISCHARGE OF RESPONSIBILITIES
a) Our primary responsibility is to protect our clients' interests
and, as active managers, we therefore absolutely reserve the right
to dispose of an investment where a company fails to meet our
expectations.
b) Our investment managers and analysts have explicit
responsibilities for monitoring the companies in the universe of
stocks from which clients' portfolios are constructed. Whilst we
attach considerable importance to meetings with management (and
several hundred take place in Asia ex Japan each year), we also
emphasise the benefits of fundamental research into companies in
our investment processes. Industry research, balance sheet
analysis and company news flow all have a role to varying degrees
in our company monitoring.
c) Our approach to dealing with conflicts of interest is described
fully in our Corporate Governance Policies and Procedures. We seek
to minimise conflicts by controlling information flows between
different parts of JPMorgan Chase. Where a material conflict does
arise we require investors who make the voting decision to certify
that they have acted solely in the clients' best interests.
2. MONITOR PERFORMANCE
Monitoring of company performance is a key part of our investment
processes. We maintain a record of all private meetings held with
companies. We regard these meetings as confidential and will not
comment on them outside JFAM.
3. EVALUATING AND REPORTING
We are convinced that a strong governance culture leads ultimately to a
better business and a better stock market rating. As investors we
scrutinise companies' governance policies as a part of our investment
research and take comfort from good governance.
V. SUSTAINABILITY
Where JFAM engages with companies on broader social, environmental and
sustainability issues, we have adopted a positive engagement approach.
Thus, specific assets or types of assets are not excluded on purely
social, environmental or ethical criteria (unless specifically
requested by clients). Rather, analysts take such issues into account
as part of the mainstream analytical process. Where appropriate, JFAM
will also engage with company management on specific issues at company
one-to-one meetings. This engagement activity can then be reported to
clients as required.
Where social or environmental issues are the subject of a proxy vote,
JFAM will consider the issue on a case-by-case basis, keeping in mind
at all times the best financial interests of our clients.
It is anticipated that our sustainability program will continue to
expand both in terms of scope and market coverage as client demand and
availability of suitable resources dictate.
* * * * * * * * * *
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
JF CHINA REGION FUND, INC.
INFORMATION AS OF JANUARY 31, 2006
JF China Region Fund, Inc. ("Fund")
JF International Management Inc. ("Adviser")
(a)(1) Identify portfolio manager(s) of the Adviser to be named in the Fund
prospectus
Howard H Wang, fund manager of JPMAM since July 2005. He was a managing director
of Equities in Goldman Sachs from 2001 and was an executive director in the same
company from 1998 to 2001.
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(a)(2)(ii) For each person identified in (a)(1), provide (a)(2)(iii) For each of the categories in column (a)(2)(ii),
number of other accounts managed by the person within each provide number of accounts and the total assets in the
category below and the total assets in the accounts managed accounts with respect to which the advisory fee is based on
within each category below the performance of the account
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Other Pooled
Registered Investment Investment Registered Investment Other Pooled
Companies Vehicles Other Accounts Companies Investment Vehicles Other Accounts
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Number Total Assets Number Total
Number of Total Number of Total Number of Total Number of Total of of Assets
Accounts Assets Accounts Assets Accounts Assets Accounts Assets Accounts Accounts
------------------------------------------------------------------------------------------------------------------------------------
1 $22 8 $1,625 1 $35 million
million million
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(a)(2)(iv) Description of any Potential Material Conflicts of Interest that may
arise in connection with the portfolio manager's management of the Fund and
other accounts.
The chart above shows the number, type and market value as of 01/31/06 of the
accounts other than the Fund that are managed by the Fund's portfolio manager.
The potential for conflicts of interest exists when the portfolio manager
manages other accounts with similar or different investment objectives and
strategies as the Fund ("Other Accounts"). Potential conflicts may include, for
example, conflicts between investment strategies and conflicts in the allocation
of investment opportunities.
Responsibility for managing the client portfolios of the Adviser and the
Adviser's participating affiliates is organized according to the mandates of
each account. The Fund's portfolio manager manages other accounts with similar
objectives, approach and philosophy to the Fund. The portfolio holdings,
relative position sizes and industry and sector exposures tend to be similar
across these similar portfolios, which minimizes the potential for conflicts of
interest. These similar portfolios include one registered investment company and
seven of the eight other pooled investment vehicles as described under
(a)(2)(ii) above that invest in the Greater China/ China markets and only take
long positions in securities. On the other hand, the other pooled investment
vehicle described under (a)(2)(iii) also invests in the Greater China markets
but may take long and short positions in securities as part of its investment
strategy. When the portfolio manager engages for this other pooled investment
vehicle in short sales of securities which the Fund has purchased, the portfolio
manager could be seen as harming the performance of the Fund for the benefit of
the accounts engaging in short sales if the short sales cause the market value
of those securities to fall.
The Adviser and the Adviser's participating affiliates receive more compensation
with respect to certain Other Accounts than that received with respect to the
Fund and receive compensation based in part on the performance of one of the
Other Accounts as described under (a)(2)(iii). This may create a potential
conflict of interest for the Adviser or the Fund's portfolio manager by
providing an incentive to favor these Other Accounts when, for example, placing
securities transactions. The conflicts of interest may arise with both the
aggregation and allocation of securities transactions and allocation of limited
investment opportunities. Allocations of aggregated trades, particularly trade
orders that were only partially completed due to limited availability, and
allocation of investment opportunities generally, could raise a potential
conflict of interest, as the Adviser or the portfolio manager may have an
incentive to allocate securities that are expected to increase in value to
favored
accounts. Initial public offerings, in particular, are frequently of very
limited availability. The portfolio manager may be perceived as causing accounts
he manages to participate in an offering to increase the Adviser's overall
allocation of securities in that offering. A potential conflict of interest also
may be perceived to arise if transactions in one account closely follow related
transactions in a different account, such as when a purchase increases the value
of securities previously purchased by another account, or when a sale in one
account lowers the sale price received in a sale by a second account.
The Adviser has policies and procedures designed to manage these conflicts
described above such as allocation of investment opportunities to achieve fair
and equitable allocation of investment opportunities among its clients over
time. For example:
Orders for the same equity security are aggregated on a continual basis
throughout each trading day consistent with the Adviser's duty of best execution
for its clients. If aggregated trades are fully executed, accounts participating
in the trade will be allocated their pro rata share on an average price basis.
Partially completed orders generally will be allocated among the participating
accounts on a pro-rata average price basis, subject to certain limited
exceptions. For example, accounts that would receive a DE MINIMIS allocation
relative to their size may be excluded from the allocation. Another exception
may occur when thin markets or price volatility require that an aggregated order
be completed in multiple executions over several days. If partial completion of
the order would result in an uneconomic allocation to an account due to fixed
transaction or custody costs, the dealer may have the discretion to complete and
exclude the small orders.
Purchases of money market instruments and fixed income securities cannot always
be allocated pro-rata across the accounts with the same investment strategy and
objective. However, the Adviser attempts to mitigate any potential unfairness by
basing non-pro rata allocations upon an objective predetermined criteria for the
selection of investments and a disciplined process for allocating securities
with similar duration, credit quality and liquidity in the good faith judgment
of the Adviser so that fair and equitable allocation will occur over time.
(a)(3) Portfolio Manager Compensation
The Fund's portfolio manager participates in a competitive compensation program
that is designed to attract and retain outstanding people and closely link the
performance of him to client investment objectives. The total compensation
program includes a base salary fixed from year to year and a variable
performance bonus consisting of cash incentives and restricted stock and, in
some cases, mandatory deferred compensation. These elements reflect individual
performance and the performance of the Adviser's business as a whole.
The portfolio manager's performance is formally evaluated annually based on a
variety of factors including the aggregate size and blended performance of the
portfolios that he manages. Individual contribution relative to client goals
carries the highest impact. The compensation is primarily driven by meeting or
exceeding clients' risk and return objectives, relative performance to
competitors or competitive indices and compliance with firm policies and
regulatory requirements. In evaluating the portfolio manager's performance with
respect to the mutual funds (including the Fund) he manages, the funds' pre-tax
performance is compared to the appropriate market peer group and to each fund's
benchmark index listed in the fund's prospectus over one, three and five year
periods (or such shorter time as the portfolio manager has managed the fund).
Investment performance is generally more heavily weighted to the long-term.
Stock awards are granted as the annual performance bonus and comprise from 0% to
35% of the portfolio manager's total award. As the level of incentive
compensation increases, the percentage of compensation awarded in restricted
stock also increases.
(a)(4) Ownership of Securities
--------------------------------------------------------------------------------------------------
Portfolio Manager None $1- $10,001- $50,001- $100,001- $500,001- over
$10,000 $50,000 $100,000 $500,000 $1,000,000 $1,000,000
--------------------------------------------------------------------------------------------------
Howard H Wang X
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(b) Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which the shareholders
may recommend nominees to the registrant's board of directors, where those
changes were implemented after the registrant last provided disclosure in
response to the requirements of Item 7(d)(2)(ii)(G) of Schedule 14A (17 CFR
240.14a-101), or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers,
or persons performing similar functions, have concluded that the
registrant's disclosure controls and procedures (as defined in Rule
30a-3(c) under the Investment Company Act of 1940, as amended (the
"1940 Act") (17 CFR 270.30a-3(c)) are effective, as of a date within
90 days of the filing date of the report that includes the disclosure
required by this paragraph, based on their evaluation of these controls
and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR
270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities
Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or
240.15d-15(b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17
CFR 270.30a-3(d)) that occurred during the registrant's second fiscal
quarter of the period covered by this report that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Code of ethics, or any amendment thereto, that is the subject of
disclosure required by Item 2 is attached hereto.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and
Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(a)(3) Not applicable.
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and
Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) JF China Region Fund, Inc.
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By (Signature and Title)* /s/ Simon Crinage
-------------------------------------------------------
Simon Crinage, President
(principal executive officer)
Date March 9, 2006
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Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Simon Crinage
-------------------------------------------------------
Simon Crinage, President
(principal executive officer)
Date March 9, 2006
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By (Signature and Title)* /s/ Douglas Eu
-------------------------------------------------------
Douglas Eu, Treasurer
(principal financial officer)
Date March 10, 2006
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* Print the name and title of each signing officer under his or her signature.