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: 811-4893
----------------------------------------------
THE TAIWAN FUND, INC.
------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
225 FRANKLIN STREET
BOSTON, MA 02110
------------------------------------------------------------------------------
(Address of principal executive offices in the United States)(Zip code)
(Name and Address of Agent for Copy to:
Service)
State Street Bank and Laurence E. Cranch
Trust Company Clifford Chance US LLP
Attention: Ann M. Casey 200 Park Avenue
225 Franklin Street New York, New York 10166-0153
Boston, MA 02110
Registrant's telephone number, including area code: (800) 636-9242
Date of fiscal year end: August 31, 2004
Date of reporting period: September 1, 2003 - February 29, 2004
ITEM 1. REPORTS TO SHAREHOLDERS.
THE TAIWAN
FUND, INC.(R)
* * * * * * * * * *
THE TAIWAN
Semi-Annual Report FUND, INC.
-----------------------
February 29, 2004 WHAT'S INSIDE
-----------------------
Page
(Unaudited) Chairman's Statement 2
Report of the Investment 4
Manager
Portfolio Snapshot 7
Investments 8
Financial Statements 11
Notes to Financial 14
Statements
Other Information 17
Summary of Dividend 19
Reinvestment and
Cash Purchase Plan
Directors and Officers 21
CHAIRMAN'S STATEMENT
--------------------------------------------------------------------------------
Dear Shareholders:
We are pleased to present the Semi-Annual Report of The Taiwan Fund, Inc. (the
"Fund") for the six months ended February 29, 2004. During this period, the
Fund's net asset value ("NAV") increased by 18.41% in U.S. dollar terms. During
the same period, the Taiwan Stock Exchange Index (the "TAIEX") increased by
19.46% in New Taiwan ("NT") dollar terms and by 22.77% in U.S. dollar terms. The
NT dollar appreciated over the U.S. dollar by 2.77% during this period.
On February 29, 2004, the Fund's shares were trading at US$13.61 per share,
reflecting a discount of 10.34% to the Fund's NAV per share of US$15.18. The
Fund's shares were trading at a discount of 13.49% on August 31, 2003.
The global economy continued to recover during the six months covered by this
report, with most regions posting surprisingly good economic performance. For
example, the U.S. economy grew 4.1% in the fourth quarter of 2003, with
equipment and software investment growing at an annualized 15.8%. The Japanese
economy also delivered unexpectedly strong growth of 6.4% in the fourth quarter
of 2003, driven by a lift in business investments at an annual rate of over 25%.
The long-awaited recovery in capital spending was evident in the second half of
2003. With low interest rates, improving business outlook, and aging equipment
after years of under-investment, the global economy should continue to benefit
from this investment-led cycle in the foreseeable future.
Taiwan's economy posted strong growth in the second half of 2003, with 4.18% GDP
growth in the third quarter of 2003, followed by a 5.17% growth in the fourth
quarter of 2003. Exports were strong and, more encouraging, consumption and
investment were also picking up. Private consumption and expenditure was up
1.12% in the third quarter, and fourth quarter growth accelerated to a three-
year high of 2.44%. According to the Directorate General of Budget Accounting
and Statistics, Taiwan's private consumption should recover and grow 3.33% in
2004, up from 0.6% in 2003 and 1.7% in 2002. In terms of investments, the
government expects a growth rate of 14.48% in 2004, a significant boost from
-0.7% in 2003 and 2.5% in 2002. In all, Taiwan's GDP growth should increase to
4.74% in 2004 from 3.24% in 2003. This continued momentum in economic growth
should be favorable to Taiwan's stock market in 2004.
The risk to the above growth projection continues to be the sustainability of
U.S. consumer spending and the sustainability of China's investment boom, both
of which are crucial to the aggregate demand in the global economy. The key
factors to watch will be
2
--------------------------------------------------------------------------------
the U.S. economy's ability to generate jobs, which affects consumer spending,
and the Chinese government's monetary policy, which affects investments. By now,
such factors are looking positive, but they should continue to be monitored.
The political environment in Taiwan should be mixed in 2004. The disputed
outcome of the presidential election in late March and the subsequent reaction
from the Opposition Party have caused some movements in the market. Also, the
legislative election by the end of 2004 may also present issues regarding the
country's political stability. These political developments may therefore lead
to fluctuations in the stock market in 2004.
With a sound investment outlook, Taiwan's stock market should perform positively
in 2004. The first half of the year should be rewarding for investors because of
strong economic momentum and ample liquidity. The second half of the year,
however, should be more challenging for investors. We expect to see more
volatility during this period due to a potential market correction.
During the six months ended February 29, 2004, the Fund's shares were trading at
an average discount of 11.1%, an improvement over the 13.8% average discount for
the prior six months. This is a reflection of the growing interest in investing
in Taiwan over time, and we expect such a trend to continue in the coming months
based on our positive view of Taiwan's stock market.
The Board remains confident in the long-term investment outlook for Taiwan, and
believes the Fund should continue to deliver substantial returns to its
investors. We appreciate your support to the Fund and wish you a fruitful year
in 2004.
Sincerely,
/s/ S.Y. Wang
S. Y. Wang
Chairman
3
REPORT OF THE INVESTMENT MANAGER
--------------------------------------------------------------------------------
INVESTMENT PERFORMANCE
The Fund's net asset value ("NAV") increased by 18.41% in U.S. dollar terms
during the six months ended February 29, 2004. The Taiwan Stock Exchange Index
(the "TAIEX") increased by 22.77% in U.S. dollar terms during the same period.
The Fund underperformed the TAIEX primarily because of underperformance in
September 2003 and in February 2004. The Fund underperformed in September 2003
because of a correction in the share prices of some of the technology companies
in which it invested. The Fund underperformed in February 2004 primarily because
of its focus on blue-chip stocks that generated less favorable returns compared
to the benchmark. Relative to its peers, however, the Fund has delivered solid
performance and maintained its ranking in the second quartile for the past six
months.
Based on the performance attribution report generated by FactSet (an investment
research service), the Fund saw negative performance contributions from sector
allocation as well as from stock selection in the past six months. On the sector
level, we received positive contributions from our underweight position in the
electronics sector and from our overweight position in the steel sector.
However, we also received fairly large negative contributions from our
underweight positions in the construction sector and in the finance sector. On
the stock level, we benefited from our better selections of a few financial
stocks, but we suffered more significantly from keeping our positions in certain
technology stocks.
INVESTMENT OUTLOOK
We maintain our positive outlook for Taiwan's stock market and believe it will
offer significant opportunities for investors in the coming months. Our view is
based on the expectations that (1) liquidity should stay supportive; (2)
economic momentum should be sustainable; and (3) valuations should be relatively
attractive.
Liquidity in Taiwan is rising rapidly as M1b growth reached a historical high
level of 20% in January 2004, up from 6% in March 2003. We expect this level of
liquidity to be supported by a continued low interest rate environment, a steady
foreign investor's interest, and a favorable outlook for the NT dollar.
Taiwan's economic fundamentals are currently in an upwards cycle and the
momentum is expected to continue into the second quarter of 2004 or even beyond.
This momentum is primarily supported by rising growth of domestic consumption
and investment. While exports should still be robust, their growth is peaking
due to the higher recent comparison base. We expect domestic consumption to be
stimulated by the
4
--------------------------------------------------------------------------------
wealth effect resulting from rising stock prices as well as property prices.
Meanwhile, investment should increase because of low interest rates, increasing
operating cash flow, and rising capacity utilization. Export growth should also
regain momentum later in the second half of 2004, as corporate capital spending
gets into full swing. The government is projecting a quarterly GDP growth of
5.16% in the first quarter of 2004, 5.21% in the second quarter, 4.57% in the
third quarter, and 4.09% in the fourth quarter.
Attractive valuation is another key element for Taiwan's promising market
outlook. Taiwan's market is anticipating over 30% corporate profit growth in
2004, second only to Korea in Asia. In terms of valuation, its price-to-earnings
ratio is at approximately 13 times at the end of February, which is at the low
end of its historical band. For investors gearing up to profit from Asia's
growth in 2004, Taiwan represents a good target with its high growth and
attractive valuation.
INVESTMENT STRATEGY
We believe there will be two major investment themes in 2004, asset reflation
and capital expenditure recovery. Taiwan's strong liquidity is a major factor
behind the asset reflation theme. With the positive currency exchange rate
outlook and low interest rates in place, Taiwan's liquidity is at a high level
and should stimulate domestic consumption. Such a favorable outlook has led to
strong share price performance in recent months in many domestic related
sectors, such as cement, food, electrical, wire & cable, glass, construction,
transportation, tourism, finance, and retailing. We believe fundamentals are
getting better for related companies and there are still upside opportunities
for their shares in the coming months.
A more important investment theme for Taiwan, which has yet to materialize, is
the return of corporate information technology ("IT") spending. We believe
several factors are positive for the CAPEX recovery theme. First, many IT
infrastructures that were built during the last boom are now approaching the end
of their life cycle. There should be a need to replace them so as to reduce
maintenance costs and increase productivity. Secondly, the recovering economy
should finally lead to job growth and new IT investments are therefore required.
Lastly, corporations have built up very healthy balance sheets during the past
years and therefore are better able to invest in IT now. For example, the 2004
operating free cash flow for Taiwanese corporations is expected to exceed the
2000 peak, according to a UBS study. A renewal of IT spending is expected later
in the year and should lead to strong performance of technology stocks in 2004.
5
REPORT OF THE INVESTMENT MANAGER (continued)
--------------------------------------------------------------------------------
Within the technology sector, we believe pricing power is better for upstream
component and semiconductor companies because of tight capacity and the long
investment cycle. Downstream manufacturers, on the other hand, have to deal with
rising costs as well as higher currency risks. Therefore, we will focus more on
upstream players in the technology sector.
The year 2004 should be rewarding for investors in Taiwan with several sectors
such as technology and industrial cyclical exhibiting sound fundamentals and
different attractions. For the near-term, we intend to continue our strategy of
maintaining a sector balanced portfolio and try to beat the benchmark through
bottom-up stock selections. We believe the market should continue to edge up in
the coming months, and then enter into a period of consolidation before moving
up again. Our long-term view for the market is quite optimistic as Taiwan's
economy is showing a broad based upturn that may prove to be only the beginning
of a multi-year prosperity.
Thank you for your support and we look forward to presenting our strategy again
in coming reports.
Sincerely,
/s/ Victor Shih /s/ Jovi Chen
Victor Shih Jovi Chen
Portfolio Manager Deputy Portfolio Manager
6
PORTFOLIO SNAPSHOT*
--------------------------------------------------------------------------------
TOP TEN EQUITY HOLDINGS
HOLDINGS AS OF FEBRUARY 29, 2004 %
--------------------------------------------------
Taiwan Semiconductor Manufacturing Co. 7.0
--------------------------------------------------
Cathay Financial Holding Co. Ltd. 4.7
--------------------------------------------------
United Microelectronics Corp. Ltd. 3.8
--------------------------------------------------
Au Optronics Corp. 3.7
--------------------------------------------------
China Steel Corp. 3.6
--------------------------------------------------
Hon Hai Precision Industry Co. Ltd. 3.4
--------------------------------------------------
Chinatrust Financial Holding Co. Ltd. 3.0
--------------------------------------------------
Advanced Semiconductor Engineering, Inc. 2.7
--------------------------------------------------
Chunghwa Telecom Co. Ltd. 2.7
--------------------------------------------------
MediaTek, Inc. 2.5
--------------------------------------------------
TOP TEN EQUITY INDUSTRY WEIGHTINGS
WEIGHTINGS AS OF FEBRUARY 29, 2004 %
--------------------------------------------------
Semi-conductor 21.5
--------------------------------------------------
Financial Services 16.3
--------------------------------------------------
PC & Peripherals 12.4
--------------------------------------------------
Electronics 10.5
--------------------------------------------------
Plastics 6.4
--------------------------------------------------
Telecommunications 6.3
--------------------------------------------------
Iron & Steel 4.5
--------------------------------------------------
Automobiles, Tires & Accessories 3.7
--------------------------------------------------
Shipping 2.9
--------------------------------------------------
Others & Miscellaneous 2.2
--------------------------------------------------
TOP TEN EQUITY HOLDINGS
HOLDINGS AS OF AUGUST 31, 2003 %
--------------------------------------------------
Taiwan Semiconductor Manufacturing Co. 9.3
--------------------------------------------------
Au Optronics Corp. 3.8
--------------------------------------------------
MediaTek, Inc. 3.5
--------------------------------------------------
Quanta Computer, Inc. 2.9
--------------------------------------------------
Compal Electronics, Inc. 2.8
--------------------------------------------------
Hon Hai Precision Industry Co. Ltd. 2.5
--------------------------------------------------
Chunghwa Telecom Co. Ltd. 2.5
--------------------------------------------------
Asustek Computer, Inc. 2.4
--------------------------------------------------
Formosa Chemicals & Fibre Corp. 2.4
--------------------------------------------------
United Microelectronics Corp. Ltd. 2.3
--------------------------------------------------
TOP TEN EQUITY INDUSTRY WEIGHTINGS
WEIGHTINGS AS OF AUGUST 31, 2003 %
--------------------------------------------------
Semi-conductor 20.4
--------------------------------------------------
PC & Peripherals 16.6
--------------------------------------------------
Electronics 12.1
--------------------------------------------------
Financial Services 9.5
--------------------------------------------------
Telecommunications 7.8
--------------------------------------------------
Plastics 5.2
--------------------------------------------------
Automobiles, Tires & Accessories 5.0
--------------------------------------------------
Textiles & Apparel 4.0
--------------------------------------------------
Iron & Steel 3.1
--------------------------------------------------
Others & Miscellaneous 2.4
--------------------------------------------------
* Percentages based on total investments at February 29, 2004 and August 31,
2003.
7
THE TAIWAN FUND, INC.
INVESTMENTS/FEBRUARY 29, 2004 (SHOWING PERCENTAGE OF TOTAL VALUE OF
INVESTMENT IN SECURITIES) (UNAUDITED)
--------------------------------------------------------------------------------
US$
VALUE
SHARES (NOTE 1)
------ --------
COMMON STOCKS -- 98.1%
BASIC INDUSTRIES -- 15.0%
CEMENT -- 0.7%
Asia Cement Corp. ................... 1,064,000 $ 758,400
Taiwan Cement Corp. ................. 1,749,000 1,052,030
------------
1,810,430
------------
CHEMICALS -- 0.6%
Apex Biotechnology Corp. ............ 363,000 475,994
Ho Tung Chemical Corp. .............. 942,000 433,462
Oriental Union Chemical Corp. ....... 394,000 490,574
------------
1,400,030
------------
GLASS -- 0.3%
Taiwan Glass Industrial Corp. ....... 814,000 724,644
------------
IRON & STEEL -- 4.5%
China Steel Corp. ................... 8,756,000 8,953,504
Feng Hsin Iron & Steel Co. Ltd. ..... 469,000 442,905
Tung Ho Steel Enterprise Corp. (a)... 1,430,000 881,654
Yieh Phui Enterprise................. 761,000 750,701
------------
11,028,764
------------
PAPER & FOREST PRODUCTS -- 0.2%
Yuen Foong Yu Paper Manufacturing Co.
Ltd................................ 1,098,000 620,824
------------
PETROLEUM SERVICES -- 1.7%
Formosa Petrochemical Corp. (a)...... 2,617,000 4,250,165
------------
PLASTICS -- 6.4%
Formosa Chemicals & Fibre Corp. ..... 3,123,000 4,978,015
Formosa Plastic Corp. ............... 2,659,000 4,318,376
Grand Pacific Petrochemical Co. Ltd.
(a)................................. 1,070,000 444,090
Nan Ya Plastics Corp. ............... 3,563,000 4,832,821
Union Petrochemical Technology
Corp. .............................. 1,468,000 693,161
USI Far East Corp. (a)............... 1,559,000 665,799
------------
15,932,262
------------
WIRE & CABLE -- 0.6%
Sampo Corp. (a)...................... 1,089,000 497,829
Walsin Lihwa Corp. (a)............... 1,956,000 958,881
------------
1,456,710
------------
TOTAL BASIC INDUSTRIES............... 37,223,829
------------
CONSTRUCTION & REAL ESTATE -- 0.6%
CONSTRUCTION & REAL ESTATE -- 0.6%
Cathay Real Estate Development Co.
Ltd. (a)........................... 2,329,000 1,414,911
------------
US$
VALUE
SHARES (NOTE 1)
------ --------
DURABLES -- 6.7%
AUTOMOBILES, TIRES &
ACCESSORIES -- 3.7%
Cheng Shin Rubber Industry Co. ...... 2,001,000 $ 2,864,589
China Motor Co. ..................... 2,293,000 4,620,481
Kenda Rubber Industrial Co. Ltd. .... 543,000 563,414
Yulon Motor Co. Ltd. ................ 691,000 1,016,238
------------
9,064,722
------------
ELECTRICAL EQUIPMENT -- 1.4%
Fu Sheng Industrial Co. Ltd. ........ 277,000 558,165
Pihsiang Machinery Manufacturing Co.
Ltd. ............................... 150,000 514,286
Ta Yih Industrial Co. Ltd. .......... 1,189,000 1,351,705
Teco Electric & Machinery Co. ....... 1,203,000 531,853
Yungtay Engineering Co. Ltd.......... 619,000 470,998
------------
3,427,007
------------
TEXTILES & APPAREL -- 1.6%
Far Eastern Textile Co. Ltd. ........ 1,796,000 1,296,361
Formosa Taffeta Co. Ltd. ............ 1,330,000 640,000
Nien Hsing Textile Co. Ltd. ......... 428,000 444,090
Shinkong Synthetic Fibers Corp.
(a)................................. 2,090,000 606,571
Tainan Enterprises Co. .............. 302,000 448,686
Yi Jinn Industrial Co. Ltd. (a)...... 2,223,000 544,886
------------
3,980,594
------------
TOTAL DURABLES....................... 16,472,323
------------
FINANCE -- 17.9%
BANKS -- 1.6%
Chang Hwa Commercial Bank (a)........ 2,084,000 1,422,761
Cosmos Bank Taiwan (a)............... 918,000 599,116
Far Eastern International Bank (a)... 989,000 559,194
Hsinchu International Bank (a)....... 1,084,000 684,631
International Bank of Taipei......... 887,000 693,594
------------
3,959,296
------------
FINANCIAL SERVICES -- 16.3%
Cathay Financial Holding Co. Ltd. ... 5,854,000 11,531,940
Chinatrust Financial Holding Co.
Ltd. ............................... 6,127,000 7,333,973
E. Sun Financial Holding Co. Ltd.
(a)................................. 1,536,000 1,071,735
First Financial Holdings Co. Ltd.
(a)................................. 2,319,000 1,924,944
Fubon Financial Holding Co. Ltd. .... 3,136,000 3,348,211
Fuh-Hwa Financial Holdings Co.
Ltd................................. 1,794,000 895,651
Hua Nan Financial Holdings Co. Ltd.
(a)................................. 2,053,000 1,932,598
Mega Financial Holding Co. .......... 3,903,000 2,852,418
Polaris Securities Co. Ltd. (a)...... 1,160,000 753,564
Shin Kong Financial Holdings Co. Ltd.
(a)................................. 1,734,000 1,606,232
SinoPac Holdings Co. ................ 2,183,000 1,247,429
Taishin Financial Holdings Co.
Ltd. ............................... 6,382,000 5,815,777
------------
40,314,472
------------
TOTAL FINANCE........................ 44,273,768
------------
8 The accompanying notes are an integral part of the financial statements.
INVESTMENTS/FEBRUARY 29, 2004 (unaudited) (continued)
--------------------------------------------------------------------------------
US$
VALUE
SHARES (NOTE 1)
------ --------
COMMON STOCKS -- continued
NONDURABLES -- 0.4%
FOODS -- 0.4%
Uni-President Enterprises Corp. ..... 1,838,000 $ 1,083,453
------------
OTHERS & MISCELLANEOUS -- 2.2%
OTHERS & MISCELLANEOUS -- 2.2%
CTCI Corp. .......................... 533,000 448,842
Giant Manufacturing Co. Ltd. ........ 320,000 429,233
National Petroleum Co. Ltd. ......... 795,000 612,090
Nien Made Enterprise Co. Ltd. ....... 244,000 447,639
Pou Chen Corp. ...................... 975,000 1,128,947
Taiwan Hon Chuan Enterprise Co.
Ltd. ............................... 1,309,000 1,929,053
Ton Yi Industrial Corp. (a).......... 1,456,000 529,853
------------
5,525,657
------------
TOTAL OTHERS & MISCELLANEOUS......... 5,525,657
------------
RETAIL & WHOLESALE -- 0.7%
GENERAL MERCHANDISE STORES -- 0.7%
Far Eastern Department Stores (a).... 1,267,000 689,705
President Chain Store Corp. ......... 467,000 941,023
------------
1,630,728
------------
TOTAL RETAIL & WHOLESALE............. 1,630,728
------------
TECHNOLOGY -- 50.9%
COMPUTER SERVICE & SOFTWARE -- 0.2%
Springsoft, Inc. .................... 174,000 481,444
------------
ELECTRONICS -- 10.5%
Asia Optical Co., Inc. .............. 72,000 630,135
Au Optronics Corp. .................. 5,529,000 9,228,857
Audix Corp. ......................... 328,000 557,353
Cheng Uei Precision Industry Co.
Ltd. ............................... 12,000 25,263
Chi Mei Optoelectronics Corp. (a).... 1,254,000 1,870,629
Chungwha Picture Tubes Ltd. (a)...... 2,305,000 1,351,805
CMC Magnetics Corp. (a).............. 1,182,000 1,023,808
Compeq Manufacturing Co. Inc. (a).... 969,000 562,457
Delta Electronics, Inc. ............. 609,000 824,211
Everlight Electronics Co. Ltd. ...... 659,000 1,347,729
Formosa Epitaxy Inc. (a)............. 386,000 626,887
Holy Stone Enterprise Co. Ltd. ...... 267,000 542,030
Largan Precision Co. Ltd. ........... 40,000 487,218
Optimax Technology Corp. ............ 194,000 708,902
Quanta Display Inc. (a).............. 1,545,000 1,012,962
Spi Electronic Co. Ltd. ............. 203,000 402,947
Unimicron Technology Corp. .......... 3,139,000 2,690,572
Wintek Corp.......................... 504,000 522,947
US$
VALUE
SHARES (NOTE 1)
------ --------
Ya Hsing Industrial Co. Ltd. ........ 507,000 $ 748,683
Yageo Corp. (a)...................... 1,688,000 908,728
------------
26,074,123
------------
PC & PERIPHERALS -- 12.4%
Acer, Inc. .......................... 671,000 1,059,474
Advantech Co. Ltd. .................. 288,000 588,992
AmTRAN Technology Co. Ltd. .......... 492,000 507,537
Aopen, Inc. ......................... 309,000 297,383
Asustek Computer, Inc. .............. 1,860,000 4,894,737
Benq Corp. .......................... 2,715,000 3,747,925
Compal Electronics, Inc. ............ 1,128,000 1,526,617
Gigabyte Technology Co. Ltd. ........ 274,000 519,158
High Tech Computer Corp. ............ 172,000 703,519
Hon Hai Precision Industry Co.
Ltd. ............................... 1,869,000 8,319,158
Inventec Co. Ltd. ................... 1,090,000 721,203
Lite-On Technology Corp. ............ 871,000 1,074,015
Micro-Star International Co. Ltd. ... 313,000 517,744
Premier Image Technology Corp. ...... 306,000 515,368
Quanta Computer, Inc. ............... 1,677,000 4,261,850
Synnex Technology International
Corp. .............................. 399,000 696,000
Wistron Corp. ....................... 741,000 650,743
------------
30,601,423
------------
SEMI-CONDUCTOR -- 21.5%
Advanced Semiconductor Engineering,
Inc. (a)........................... 5,974,000 6,755,561
Edom Technology Co. Ltd. ............ 294,000 543,789
Elite Semiconductor Memory Technology
Inc. ............................... 156,000 433,985
Faraday Technology Corp. ............ 186,000 478,286
King Yuan Electronics Co. Ltd (a).... 428,000 581,823
MediaTek, Inc. ...................... 551,000 6,264,000
Nanya Technology Corp. (a)........... 1,420,000 1,050,587
Novatek Microelectronics Corp.
Ltd. ............................... 588,000 2,387,368
Realtek Semiconductor Corp. ......... 273,000 509,053
Richtek Technology Corp. (a)......... 114,000 716,571
Sigurd Microelectronics Corp. ....... 367,000 634,662
Siliconware Precision Industries Co.
(a)................................. 750,000 818,797
Sunplus Technology Co. Ltd. ......... 1,000,000 2,255,639
Taiwan Semiconductor Manufacturing
Co. (a)............................. 9,079,000 17,338,842
Transcend Information Co. Ltd. ...... 136,000 345,624
United Microelectronics Corp. Ltd.
(a)................................. 10,406,000 9,514,057
Via Technologies, Inc. .............. 579,000 785,350
Weikeng Industrial Co. Ltd. ......... 581,000 426,358
Winbond Electronics Corp. (a)........ 1,950,000 1,038,045
Yosun Industrial Corp. .............. 297,000 360,866
------------
53,239,263
------------
TELECOMMUNICATIONS -- 6.3%
Abocom Systems Inc. ................. 767,000 525,943
Accton Technology Corp. ............. 508,000 453,762
The accompanying notes are an integral part of the financial statements. 9
INVESTMENTS/FEBRUARY 29, 2004 (unaudited) (continued)
--------------------------------------------------------------------------------
US$
VALUE
SHARES (NOTE 1)
------ --------
COMMON STOCKS -- continued
TELECOMMUNICATIONS -- continued
Ambit Microsystems Corp. ............ 159,000 $ 463,850
Askey Computer Co. .................. 589,000 434,000
Chunghwa Telecom Co. Ltd. ........... 4,016,000 6,582,617
CyberTAN Technology Inc. ............ 308,000 467,789
D-Link Corp. ........................ 363,000 458,526
Gemtek Technology Corp. ............. 197,000 527,308
Ichia Technologies, Inc. ............ 1,176,000 2,511,158
Meiloon Industrial Co. Ltd. ......... 467,000 688,210
Microelectronics Technology Inc.
(a)................................. 862,000 471,832
Taiwan Cellular Corp. ............... 1,472,000 1,425,516
Zyxel Communications Corp. .......... 209,000 487,143
------------
15,497,654
------------
TOTAL TECHNOLOGY..................... 125,893,907
------------
TRANSPORTATION -- 3.7%
AIR TRAVEL -- 0.8%
China Airlines (a)................... 1,773,000 1,077,131
EVA Airways Corp. ................... 1,654,000 910,321
------------
1,987,452
------------
SHIPPING -- 2.9%
Evergreen Marine Corp. .............. 881,000 964,463
Wan Hai Lines Ltd. .................. 551,000 575,029
Yang Ming Marine Transport........... 4,544,000 5,534,797
------------
7,074,289
------------
TOTAL TRANSPORTATION................. 9,061,741
------------
TOTAL COMMON STOCKS (Identified
Cost -- $152,836,149)............... 242,580,317
------------
PRINCIPAL
AMOUNT
NT$
---------
COMMERCIAL PAPER -- 1.5%
Chiao Tung Bank
00.80%, 5/19/04 (b)................. 14,964,121 450,049
Fu Sheng Group
00.90%, 4/08/04 (b)................. 39,902,339 1,200,070
Haojey Co Ltd
00.775%, 3/08/04 (b)................ 33,086 995
Tai Shin Enterprise
00.80%, 5/31/04 (b)................. 19,947,967 599,939
PRINCIPAL US$
AMOUNT VALUE
NT$ (NOTE 1)
--------- --------
COMMERCIAL PAPER -- continued
Teco Electric & Machinery Ltd.
00.82%, 3/25/04 (b)................. 37,463,326 $ 1,126,717
Totalife International Co. Ltd.
00.82%, 3/31/04 (b)................. 9,986,889 300,357
------------
TOTAL COMMERCIAL PAPER (Identified
Cost -- $3,665,459)................. 3,678,127
------------
MATURITY
AMOUNT
US$
--------
REPURCHASE AGREEMENTS -- 0.4%
State Street Bank and Trust Co.
0.050% dated 2/23/04 due 3/1/04
(collateralized by U.S. Treasury
Note 8.750%, 5/15/20, market
value $959,563).................. $ 937,009 937,000
------------
TOTAL INVESTMENTS -- 100%
(Cost -- $157,438,608)............. $247,195,444
============
LEGEND:
US$ - United States dollar
NT$ - New Taiwan dollar
(a) Non-income producing
(b) Certificates of Deposit and Commercial Paper that are traded through Bills
Finance Corporations must be guaranteed by either a bank, a trust company or
a Bills Finance Corporation. Since there is no recognized credit rating
system in the Republic of China, the guarantee may not be comparable to a
guarantee issued by a U.S. institution.
INCOME TAX INFORMATION:
At February 29, 2004, the aggregate cost basis of the Fund's investment
securities for income tax purposes was $157,693,814.
Net unrealized appreciation of the Fund's investment securities was $89,501,630
of which $90,380,506 related to appreciated investment securities and $878,876
related to depreciated investment securities. In addition, as of August 31,
2003, the Fund's last fiscal year end, the Fund had a capital loss carryforward
of $82,718,763 for Federal income tax purposes which may be utilized to offset
future capital gains through August 31, 2009 ($18,722,303), August 31, 2010
($39,995,101) and August 31, 2011 ($24,001,359). As of August 31, 2003, the Fund
elected for Federal income tax purposes to defer $9,650,144 in current year post
October 31 capital losses as though the losses were incurred on the first day of
the next fiscal year.
10 The accompanying notes are an integral part of the financial statements.
FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
February 29, 2004 (Unaudited)
ASSETS
Investments in securities, at value (cost
$157,438,608) (Notes 1 and 2) - See
accompanying schedule.................. $247,195,444
Cash..................................... 952
Cash in New Taiwan dollars (cost
$258,146)............................... 256,981
Receivable for investments sold.......... 23,085,804
Interest receivable...................... 2,239
------------
Total assets............................ 270,541,420
------------
LIABILITIES
Payable for investments purchased........ 21,762,386
Accrued management fee (Note 3).......... 154,036
Taiwan withholding tax payable (Note
1)...................................... 443
Other payables and accrued expenses...... 184,824
-----------
Total liabilities....................... 22,101,689
------------
NET ASSETS............................... $248,439,731
============
Net Assets consist of (Note 1):
Paid in capital.......................... 242,144,109
Undistributed net investment loss........ (1,849,656)
Accumulated undistributed net realized
loss on investments in securities and
foreign currency........................ (81,604,741)
Net unrealized appreciation on investment
securities and foreign currency......... 89,750,019
------------
NET ASSETS............................... $248,439,731
============
NET ASSET VALUE, per share ($248,439,731/
16,365,572 shares outstanding).......... $15.18
============
STATEMENTS OF OPERATIONS
Six Months Ended February 29, 2004 (Unaudited)
INVESTMENT INCOME
Dividends................................. $ 103,421
Interest.................................. 15,163
------------
118,584
Less: Taiwan withholding tax (Note 1)..... (10,771)
------------
Total Income............................. 107,813
EXPENSES:
Management fee (Note 3)
Basic fee................................ $ 1,439,244
Performance adjustment................... (337,371)
Custodian fees and expenses............... 186,609
Administration and accounting fees (Note
3)....................................... 110,946
Directors compensation (Note 3)........... 168,024
Legal..................................... 223,686
Audit..................................... 28,568
Shareholder communications................ 20,626
Delaware franchise tax.................... 23,303
Insurance fees............................ 40,040
Miscellaneous............................. 22,163
Transfer agent fees....................... 11,102
Taiwan stock dividend tax (Note 1)........ 20,529
-----------
Total expenses........................... 1,957,469
------------
NET INVESTMENT LOSS...................... (1,849,656)
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 1)
Net realized gain on:
Investment securities.................... 10,992,844
Foreign currency transactions............ 21,852
-----------
11,014,696
Change in net unrealized appreciation on:
Investment securities.................... 29,439,596
Assets and liabilities denominated in
foreign currencies..................... (14,129)
-----------
29,425,467
------------
Net realized and unrealized gain.......... 40,440,163
------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS............................... $ 38,590,507
============
The accompanying notes are an integral part of the financial statements. 11
FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Six Months Ended
February 29, Year Ended
2004 August 31, 2003
---------------- ---------------
(Unaudited)
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment loss........................................ $ (1,849,656) $ (101,994)
Net realized gain (loss) on investments and foreign
currency transactions.................................... 11,014,696 (18,213,889)
Change in net unrealized appreciation on investments and
foreign currency transactions............................ 29,425,467 43,111,605
------------ ------------
Net increase in net assets resulting from operations....... 38,590,507 24,795,722
------------ ------------
NET ASSETS
Beginning of period........................................ 209,849,224 185,053,502
------------ ------------
End of period.............................................. 248,439,731 209,849,224
============ ============
Undistributed Net Investment Loss
End of period.............................................. $ (1,849,656) $ --
============ ============
12 The accompanying notes are an integral part of the financial statements.
FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Six Months
Ended Year Ended August 31,
February 29, ------------------------------------------------------------
2004 2003 2002 2001 2000 1999
------------ -------- -------- -------- -------- --------
(Unaudited)
SELECTED PER SHARE DATA
Net asset value, beginning of period.... $ 12.82 $ 11.31 $ 10.75 $ 21.42 $ 21.61 $ 15.36
-------- -------- -------- -------- -------- --------
Income from Investment Operations
Net investment loss(a)................. (0.11) (0.01) (0.12) (0.21) (0.36) (0.20)(d)
Net realized and unrealized gain (loss)
on investments....................... 2.47 1.52 0.68 (10.26) 0.17 7.46
-------- -------- -------- -------- -------- --------
Total from investment operations....... 2.36 1.51 0.56 (10.47) (0.19) 7.26
-------- -------- -------- -------- -------- --------
Less Distributions
From net realized gains................ -- -- -- (0.20) -- (1.01)
-------- -------- -------- -------- -------- --------
Total distributions.................... -- -- -- (0.20) -- (1.01)
-------- -------- -------- -------- -------- --------
Net asset value, end of period.......... $ 15.18 $ 12.82 $ 11.31 $ 10.75 $ 21.42 $ 21.61
======== ======== ======== ======== ======== ========
Market value, end of period............. $ 13.61 $ 11.09 $ 9.27 $ 9.88 $ 17.63 $ 18.31
======== ======== ======== ======== ======== ========
TOTAL RETURN
Per share market value.................. 22.72% 19.63% (6.17)% (43.16)% (3.75)% 79.41%
RATIO AND SUPPLEMENTAL DATA
Net assets, end of period (000
omitted)............................... $248,440 $209,849 $185,054 $175,962 $350,595 $353,614
Ratio of expenses to average net
assets(b).............................. 1.77%(c) 2.12% 2.20% 2.63% 2.30% 2.21%
Ratio of expenses to average net assets,
excluding stock dividend tax expense... 1.75%(c) 1.83% 1.98% 2.15% 1.94% 1.88%
Ratio of net investment loss to average
net assets............................. (1.67)%(c) (0.06)% (0.97)% (1.50)% (1.54)% (1.15)%
Portfolio turnover rate................. 30% 148% 167% 125% 139% 125%
(a) Based on average shares outstanding during the period.
(b) Expense ratio includes 20% tax paid on stock dividends received by the
Fund.
(c) Annualized
(d) Net investment loss per share reflects a regular dividend from China Steel
Corp. of $0.04 per share. (Based on shares outstanding at 8/31/99.)
The accompanying notes are an integral part of the financial statements. 13
NOTES TO FINANCIAL STATEMENTS (unaudited)
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Taiwan Fund, Inc. (the "Fund"), a Delaware corporation, is registered under
the Investment Company Act of 1940, as amended (the "Act"), as a diversified
closed-end management investment company.
The Fund is not permitted to invest directly in the securities of Republic of
China ("ROC") companies. Therefore, it invests through a contractual securities
investment trust fund arrangement. This arrangement was established by means of
the Securities Investment Trust, Investment Management and Custodian Contract
("Management Contract") among HSBC Asset Management (Taiwan) Limited
("Adviser"), the International Commercial Bank of China (Custodian), and the
Fund. Under the Management Contract the Adviser manages and invests the assets
of the Fund and the Custodian holds the assets. The Fund is the sole beneficiary
of the assets held under the Management Contract and, as required by ROC
regulations, its interest in the assets is evidenced by units of beneficial
interest.
The Fund concentrates its investments in the securities listed on the Taiwan
Stock Exchange. Because of this concentration, the Fund may be subject to
additional risks resulting from future political or economic conditions in
Taiwan and the possible imposition of adverse governmental laws of currency
exchange restrictions affecting Taiwan.
The policies described below are consistently followed by the Fund in the
preparation of its financial statements in conformity with accounting principles
generally accepted in the United States of America.
Security Valuation. All securities, including those traded over-the-counter,
for which market quotations are readily available are valued at the last sales
price prior to the time of determination of the Fund's net asset value per share
or, if there were no sales on such date, at the closing price quoted for such
securities (but if bid and asked quotations are available, at the mean between
the last current bid and asked prices, rather than such quoted closing price).
In certain instances where the price determined above may not represent fair
market value, the value is determined in such manner as the Board of Directors
may prescribe. Short-term investments, having a maturity of 60 days or less are
valued at amortized cost, which approximates market value, with accrued interest
or discount earned included in interest receivable.
Repurchase Agreements. In connection with transactions in repurchase
agreements, it is the Fund's policy that its custodian take possession of the
underlying collateral securities, the fair value of which exceeds the principal
amount of the repurchase transaction, including accrued interest, at all times.
If the seller defaults, and the fair value of the collateral declines,
realization of the collateral by the Fund may be delayed or limited.
Foreign Currency Translation. The financial accounting records of the Fund are
maintained in U.S. dollars. Investment securities, other assets and liabilities
denominated in a foreign currency are translated into U.S. dollars at the
current exchange rate. Purchases and sales of securities, income receipts, and
expense payments are translated into U.S. dollars at the exchange rate on the
dates of the transactions.
Reported net realized gains and losses on foreign currency transactions
represent net gains and losses from disposition of foreign currencies, currency
gains and losses realized between the trade dates and settlement dates of
security transactions, and the difference between the amount of net investment
income accrued and the U.S. dollar amount actually received. The effects of
changes in foreign currency exchange rates on investments in securities are not
segregated in the Statement of Operations from the effects of changes in market
prices of those securities, but are included in realized and unrealized gain or
loss on investments in securities.
Forward Foreign Currency Transactions. A forward foreign currency contract
("Forward") is an agreement between two parties to buy or sell currency at a set
price on a future
14
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES - continued
date. The Fund may enter into Forwards in order to hedge foreign currency risk
or for other risk management purposes. Realized gains or losses on Forwards
include net gains or losses on contracts that have matured or which the Fund has
terminated by entering into an offsetting closing transaction. Unrealized
appreciation or depreciation of Forwards is included in the Statement of Assets
and Liabilities and is measured by the difference between the forward foreign
exchange rates at the dates of entry into the contracts and the rates at the
reporting date. The portfolio could be exposed to risk of loss if the
counterparty is unable to meet the terms of the contract or if the value of the
currency changes unfavorably. As of February 29, 2004, the Fund had no open
Forwards.
Taxes. As a qualified regulated investment company under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the extent
that it distributes all of its investment company taxable income and net
realized capital gains for its fiscal year. In addition to federal income tax
for which the Fund is liable on undistributed amounts, the Fund is subject to
federal excise tax on undistributed investment company taxable income and net
realized capital gains. The Schedule of Investments includes information
regarding income taxes under the caption "Income Tax Information." The Fund is
organized in Delaware and as such is required to pay Delaware an annual
franchise tax. Also, the Fund is currently subject to a Taiwan security
transaction tax of 0.3% on equities and 0.1% on mutual fund shares of the
transaction amount.
The Fund's functional currency for tax reporting purposes is the New Taiwan
dollar.
Investment Income. Dividend income is recorded on the ex-dividend date, except
where the ex-dividend date may have passed; certain dividends from foreign
securities are recorded as soon as the Fund is informed of the ex-dividend date.
Taiwanese companies typically declare dividends in the fund's third fiscal
quarter of each year. As a result, the Fund receives substantially less dividend
income in the first half of its year. Interest income, which includes accretion
of original discount, is accrued as earned.
Dividend and interest income generated in Taiwan is subject to a 20% withholding
tax. Stock dividends received (except those which have resulted from
capitalization of capital surplus) are taxable at 20% of the par value of the
stock dividends received.
Distributions to Shareholders. The distributable income from the assets held
under the Management Contract, which is limited to cash dividends and interest
income received, may be distributed to the Fund only once in each year at the
Fund's discretion and is recorded on the ex-dividend date. Realized capital
gains and stock dividends may also be distributed to the Fund. Within the above
limitations the Fund will, under current ROC regulations, be able to remit out
of the ROC the proceeds of income and capital gains distributions, unit
redemptions and other distributions of assets held under the Management
Contract.
The Fund distributes to shareholders at least annually, substantially all of its
taxable ordinary income and expects to distribute its taxable net realized
gains. Certain foreign currency gains (losses) are taxable as ordinary income
and, therefore, increase (decrease) taxable ordinary income available for
distribution. Pursuant to the Dividend Reinvestment and Cash Purchase Plan (the
"Plan"), shareholders may elect to have all distributions automatically
reinvested in Fund shares. (See the summary of the Plan.) Shareholders who do
not participate in the Plan will receive all distributions in cash paid by check
in U.S. dollars. Income and capital gain distributions are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments for foreign currency transactions, losses deferred due to wash sales,
and excise tax regulations. Permanent
15
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES - continued
book and tax basis differences relating to shareholder distributions will result
in reclassifications to paid in capital.
Security Transactions. Security transactions are accounted for as of the trade
date. Gains and losses on securities sold are determined on the basis of
identified cost.
Use of Estimates. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.
2. PURCHASES AND SALES OF SECURITIES
For the six months ended February 29, 2004, purchases and sales of securities,
other than short-term securities, aggregated $67,393,796 and $65,996,161,
respectively.
3. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Management Fee. As the Fund's investment adviser, HSBC receives a fee that is
computed daily at an annual rate of 1.30% of the Fund's average net assets. The
basic fee is subject to a performance adjustment (up to a maximum of + or
-0.30%) based on the Fund's investment performance as compared to the Taiwan
Stock Exchange Index over a rolling 36-month period.
For the six months ended February 29, 2004, the management fee, including the
performance adjustments, was equivalent to an annual rate of 1.00% of average
net assets.
Directors Fees. No director, officer or employee of the Adviser or its
affiliates will receive any compensation from the Fund for serving as an officer
or director of the Fund. The Fund pays each of its directors who is not a
director, officer or employee of the Adviser an annual fee of $10,000 plus
$2,000 for each Board of Directors' meeting or Audit Committee meeting attended,
and $1,000 for each meeting attended by telephone. In addition, the Fund will
reimburse each of the directors for travel and out-of-pocket expenses incurred
in connection with Board of Directors' meetings.
Administration Fees. State Street Corporation ("State Street") provides, or
arranges for the provision of certain administrative and accounting services for
the Fund, including maintaining the books and records of the Fund, and preparing
certain reports and other documents required by federal and/or state laws and
regulations. The Fund pays State Street a fee at the annual rate of 0.11% of the
Fund's average daily net assets up to $150 million, 0.08% of the next $150
million, and 0.05% of those assets in excess of $300 million, subject to certain
minimum requirements.
4. FUND SHARES
At February 29, 2004, there were 20,000,000 shares of $0.01 par value capital
stock authorized, of which 16,365,572 were issued and outstanding.
16
OTHER INFORMATION
--------------------------------------------------------------------------------
RESULTS OF ANNUAL STOCKHOLDER MEETING VOTING HELD JANUARY 26, 2004
1. Election of Directors -- The stockholders of the Fund elected M. Christopher
Canavan Jr., David Dean, Benny T. Hu, Lawrence J. Lau, Anthony Kai Yiu Lo, Joe
O. Rogers, Jack C. Tang, Gloria Wang, Lawrence Weber, and Shao-Yu Wang to the
Board of Directors to hold office until their successors are elected and
qualified.
FOR WITHHELD
--------- ---------
Benny T. Hu 9,566,360 44,114
Anthony Kai Yiu Lo 9,566,189 44,285
M. Christopher Canavan
Jr. 9,565,678 44,796
Lawrence J. Lau 9,562,878 47,596
Joe O. Rogers 9,559,814 50,659
FOR WITHHELD
--------- ---------
Lawrence F. Weber 9,552,805 57,669
Gloria Wang 8,440,062 1,170,412
Jack C. Tang 8,428,848 1,181,626
David Dean 8,428,381 1,182,092
Shao-Yu Wang 8,426,554 1,183,919
SHARE REPURCHASE PROGRAM
The Board of Directors of the Fund, at a meeting held on April 23, 2001,
authorized the Fund to repurchase up to 15% of the Fund's outstanding shares of
common stock. The Fund will purchase such shares in the open market at times and
prices determined by management of the Fund to be in the best interest of
stockholders of the Fund. As of February 29, 2004, no shares had been
repurchased by the Fund.
PRIVACY POLICY
PRIVACY NOTICE
The Taiwan Fund, Inc. collects nonpublic personal information about its
shareholders from the following sources:
[ ] Information it receives from shareholders on applications or other forms;
[ ] Information about shareholder transactions with the Fund, its affiliates, or
others; and
[ ] Information it receives from a consumer reporting agency.
THE FUND'S POLICY IS TO NOT DISCLOSE NONPUBLIC PERSONAL INFORMATION ABOUT ITS
SHAREHOLDERS TO NONAFFILIATED THIRD PARTIES (OTHER THAN DISCLOSURES PERMITTED BY
LAW).
The Fund restricts access to nonpublic personal information about its
shareholders to those agents of the Fund who need to know that information to
provide products or services to shareholders. The Fund maintains physical,
electronic, and procedural safeguards that comply with federal standards to
guard it shareholders' nonpublic personal information.
17
OTHER INFORMATION (continued)
--------------------------------------------------------------------------------
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that are used by the Fund's
investment adviser to vote proxies relating to the Fund's portfolio securities
is available (1) without charge, upon request, by calling 1-800-636-9242; and
(2) as an exhibit to the Fund's annual report on Form N-CSR, which is available
on the website of the Securities and Exchange Commission (the "Commission") at
http://www.sec.gov. Information regarding how the investment adviser votes these
proxies will become available by calling the same number and on the Commission's
website when the Fund files its first report on Form N-PX, which is due by
August 31, 2004, covering the Fund's proxy voting record for the 12-month period
ending June 30, 2004.
18
SUMMARY OF DIVIDEND REINVESTMENT AND
CASH PURCHASE PLAN
--------------------------------------------------------------------------------
WHAT IS THE DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN?
The Dividend Reinvestment and Cash Purchase Plan (the "Plan") offers
shareholders of The Taiwan Fund, Inc. (the "Fund") a prompt and simple way to
reinvest their dividends and capital gains distributions in shares of the Fund.
The Fund will distribute to shareholders, at least annually, substantially all
of its net income and expects to distribute annually its net realized capital
gains. Equiserve Trust Company, N.A. ("Equiserve" or the "Plan Administrator"),
a federally chartered trust institution, acts as Plan Administrator for
shareholders in administering the Plan. The Plan also allows you to make
optional cash investments in Fund shares through the Plan Administrator.
WHO CAN PARTICIPATE IN THE PLAN?
If you own shares in your own name, you can elect to participate directly in the
Plan. If you own shares that are held in the name of a brokerage firm, bank, or
other nominee, you should contact your nominee to arrange for them to
participate on your behalf.
WHAT DOES THE PLAN OFFER?
The Plan has two components; reinvestment of dividends and capital gains
distributions, and a voluntary cash purchase feature.
REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
If you choose to participate in the Plan, your dividends and capital gains
distributions will be promptly invested for you, automatically increasing your
holdings in the Fund. If the Fund declares a dividend or capital gains
distribution payable in cash, you will automatically receive shares purchased by
the Plan Administrator on the New York Stock Exchange or otherwise on the open
market.
If a distribution is declared which is payable in shares or cash at the option
of the shareholder and if on the valuation date (generally the payable date) the
market price of shares is equal to or exceeds their net asset value, the Fund
will issue new shares to you at the greater of the following: (a) net asset
value per share or (b) 95% of the market price per share. If the market price
per share on the valuation date is less than the net asset value per share, the
Fund will issue new shares to you at the market price per share on the valuation
date.
All reinvestments are in full and fractional shares, carried to three decimal
places. In the case of foreign (non-U.S.) shareholders, reinvestment will be
made net of applicable withholding tax.
VOLUNTARY CASH PURCHASE OPTION
Plan participants have the option of making investments in Fund shares through
the Plan Administrator. You may invest any amount from $100 to $3,000
semi-annually. The Plan Administrator will purchase shares for you on the New
York Stock Exchange or otherwise on the open market on or about February 15 and
August 15. If you hold shares in your own name, you should deal directly with
the Plan Administrator. We suggest you send your check to the following address
to be received on or about February 5 or August 5 to allow time for processing:
Equiserve, c/o The Taiwan Fund, Inc. at P.O. Box 43010, Providence, RI
02940-3010. The Plan Administrator will return any cash payments received more
than thirty days prior to February 15 or August 15, and you will not receive
interest on uninvested cash payments. If you own shares that are held in the
name of a brokerage firm, bank, or other nominee, you should contact your
nominee to arrange for them to participate in the cash purchase option on your
behalf.
19
SUMMARY OF DIVIDEND REINVESTMENT AND
CASH PURCHASE PLAN (continued)
--------------------------------------------------------------------------------
IS THERE A COST TO PARTICIPATE?
Each participant will pay a pro rata portion of brokerage commissions payable
with respect to purchases of shares by the Plan Administrator on the New York
Stock Exchange or otherwise on the open market. Otherwise, there is no charge to
participants for reinvesting dividends and capital gains distributions, since
the Plan Administrator's fees are paid by the Fund. Brokerage charges for
purchasing shares through the Plan are expected to be less than the usual
brokerage charges for individual transactions, because the Plan Administrator
will purchase stock for all participants in blocks, resulting in lower
commissions for each individual participant.
For purchases from voluntary cash payments, participants are charged a service
fee of $.75 for each investment and a pro rata share of the brokerage
commissions.
Brokerage commissions and service fees, if any, will be deducted from amounts to
be invested.
WHAT ARE THE TAX IMPLICATIONS FOR PARTICIPANTS?
You will receive tax information annually for your personal records and to help
you prepare your federal income tax return. The automatic reinvestment of
dividends and capital gains distributions does not relieve you of any income tax
which may be payable on dividends or distributions.
If the Fund issues shares upon reinvestment of a dividend or capital gains
distribution, for U.S. federal income tax purposes, the amount reportable in
respect of the reinvested amount of the dividend or distribution will be the
fair market value of the shares received as of the payment date, which will be
reportable as ordinary dividend income and/or long term capital gains. The
shares will have a tax basis equal to such fair market value, and the holding
period for the shares will begin on the day after the payment date. State, local
and foreign taxes may also be applicable.
ONCE ENROLLED IN THE PLAN, MAY I WITHDRAW FROM IT?
You may withdraw from the Plan without penalty at any time by written notice to
the Plan Administrator.
If you withdraw, you will receive, without charge, stock certificates issued in
your name for all full shares, or, if you wish, the Plan Administrator will sell
your shares and send you the proceeds, less a service fee of $2.50 and less
brokerage commissions. The Plan Administrator will convert any fractional shares
you hold at the time of your withdrawal to cash at the current market price and
send you a check for the proceeds.
WHOM SHOULD I CONTACT FOR ADDITIONAL INFORMATION?
If you hold shares in your own name, please address all notices, correspondence,
questions, or other communications regarding the Plan to: Equiserve, c/o The
Taiwan Fund, Inc. at P.O. Box 43010, Providence, RI 02940-3010, 1-800-426-5523.
If your shares are not held in your name, you should contact your brokerage
firm, bank, or other nominee for more information and to arrange for them to
participate in the Plan on your behalf.
Either the Fund or the Plan Agent may amend or terminate the Plan. Except in the
case of amendments necessary or appropriate to comply with applicable law, rules
or policies or a regulatory authority, participants will be mailed written
notice at least 90 days before the effective date of any amendment. In the case
of termination, participants will be mailed written notice at least 90 days
before the record date of any dividend or capital gains distribution by the
Fund.
20
DIRECTORS AND OFFICERS (Unaudited)
--------------------------------------------------------------------------------
The following table sets forth certain information concerning each of the
directors and officers of the Fund.
PRINCIPAL
OCCUPATION OR EMPLOYMENT
NAME, ADDRESS PRESENT OFFICE DIRECTOR DURING PAST DIRECTORSHIPS IN
AND (AGE) WITH THE FUND SINCE FIVE YEARS PUBLICLY-HELD COMPANIES
------------- -------------- -------- ------------------------ -----------------------
Shao-Yu Wang (80) Chairman of the 1986 Chairman of the Board of --
Apt. 5H Board and Director Trustees, Soochow
No. 56 Tun Hwa University
South Road, Section 2 (1987-present); Chairman
Taipei, Taiwan, ROC of the Board of
Trustees, Min Chuan
University, (1986-
present); Chairman of
the Board of Trustees,
Fu-Dan High School
(1986-present) Chairman,
Evernew Biotech, Inc.
(1985-Present);
Director, TSR Corp.
(1985-present)
David Dean (77) Director 1991 Senior Advisor of the --
8361 B. Greensboro Chiang-Ching-Kuo
Drive Foundation (1990-
McLean, Virginia 22102 present)
Lawrence J. Lau (58) Director 1998 Kwoh-Ting Li Professor Director, Media
Stanford University of Economic Development, Partners International
Landau Economics Stanford University Holdings, Inc.
Building, Room 340 (1992-present); (2001-present)
579 Serra Mall Director, Stanford
Stanford, CA Institute for Economic
94305-6072 Policy Research at
Stanford University
(1997-1999)
Joe O. Rogers (55) Director 1986 Manager, The J-Squared Director, The China
2477 Foxwood Drive Team LLC (2003-present) Fund, Inc.
Chapel Hill, NC 27514 The Rogers Team LLC, (1992-present)
Organizing Member (July
2001-present); Executive
Vice President, Business
Development, Planet
Portal Inc. (September
1999-May 2001);
President, Rogers
International, Inc.
(September 1986-
September 1999); Vice
President, Business
Development, Thomson
Consulting (1998-1999)
21
DIRECTORS AND OFFICERS (continued) (unaudited)
--------------------------------------------------------------------------------
PRINCIPAL
OCCUPATION OR EMPLOYMENT
NAME, ADDRESS PRESENT OFFICE DIRECTOR DURING PAST DIRECTORSHIPS IN
AND (AGE) WITH THE FUND SINCE FIVE YEARS PUBLICLY-HELD COMPANIES
------------- -------------- -------- ------------------------ -----------------------
Jack C. Tang (75) Director 1989 Honorary Chairman (April --
Tristate Holdings Ltd. 2001-present), Co-
66-72 Lei Muk Road Chairman (April 1999-
Kwai Chung April 2001), Chairman &
New Territories CEO (June 1998-April
Hong Kong 1999), Chairman Emeritus
(January 1997-June
1998), Tristate Holdings
Ltd.
Lawrence F. Weber (69) Director 1995 Independent Consultant --
156 Ide Rd. (1993-present)
Williamstown, MA 01267
M. Christopher Director 2003 Independent Consultant Director and Chairman
Canavan, Jr. (64) (2000-present); of The Audit Committee,
73 Brook Street Pricewaterhouse Coopers Bruker Biosciences,
Wellesley, MA 02482 LLP (Coopers & Lybrand) Inc.
(1972-1999)
Anthony Kai Yiu Lo Director 2003 Founder and Managing Member of Listing
(54) Director, Advantage Ltd. Committee, Stock
1201 Sun Hung Kai (1999-present); Vice Exchange of Hong Kong
Centre Chairman, ABN Amro HG Ltd. (1996-present)
30 Harbor Road Asia Ltd. (1998-1999)
Wanchai, Hong Kong
22
DIRECTORS AND OFFICERS (continued) (unaudited)
--------------------------------------------------------------------------------
PRINCIPAL
OCCUPATION OR EMPLOYMENT
NAME, ADDRESS PRESENT OFFICE DIRECTOR DURING PAST DIRECTORSHIPS IN
AND (AGE) WITH THE FUND SINCE FIVE YEARS PUBLICLY-HELD COMPANIES
------------- -------------- -------- ------------------------ -----------------------
Directors Considered Interested Persons
*Benny T. Hu (54) President and 1993 Chairman, China Director, Compal
29 F, 97 Tun Hwa Director Development Industrial Electronics Inc. (2003-
South Road, Section 2 Bank (June present); Supervisor,
Taipei, Taiwan, ROC 2003-present); Chairman, Winbond Electronics
China Development Asset Corp. (2002-present);
Management Corp. (June Director, China
2001-present); Development Financial
Ambassador-at-Large, Holding Corp. (June
Republic of China (May 2001-present)
2001-present)
*Gloria Wang (48) Director 1998 President, HSBC Asset --
99 Tun Hwa South Management (Taiwan)
Road, Section 2 Limited (February 2002-
Taipei, Taiwan, ROC Present); Vice
President, HSBC Asset
Management (Taiwan)
Limited (1996-February
2002); Secretary and
Treasurer of the Fund
(1994-October 1998)
Carol Wang (38) Secretary and Manager of Legal --
99 Tun Hwa South Treasurer Department, HSBC Asset
Road, Section 2 Management (Taiwan)
Taipei, Taiwan, ROC Limited (April 1994-June
2002); Manager of
General Administration
Office, HSBC Asset
Management (Taiwan)
Limited (June
2002-present)
---------------
* Director is considered to be an "interested person" (as defined in the
Investment Company Act of 1940, as amended (the "1940 Act")) of the Fund or of
the Fund's investment adviser. Ms. Wang is deemed to be an interested person
because of her affiliation with the Fund's investment adviser. Mr. Hu is
considered to be an interested person because he is the President of the Fund.
23
--------------------------------------------------------------------------------
UNITED STATES ADDRESS
The Taiwan Fund, Inc.
225 Franklin Street
Boston, MA
1-800-636-9242
www.thetaiwanfund.com
INVESTMENT ADVISER
HSBC Asset Management (Taiwan) Limited
Taipei, Taiwan
DIRECTORS AND OFFICERS
S.Y. Wang, Chairman of the Board and Director
Benny T. Hu, President and Director
David Dean, Director
Joe O. Rogers, Director
Jack C. Tang, Director
Lawrence J. Lau, Director
Gloria Wang, Director
Lawrence F. Weber, Director
M. Christopher Canavan, Jr., Director
Anthony Kai Yiu Lo, Director
Carol Wang, Secretary and Treasurer
Laurence E. Cranch, Assistant Secretary
ADMINISTRATOR AND ACCOUNTING AGENT
State Street Bank and Trust Company
Boston, MA
CUSTODIANS
The International Commercial Bank of China
Taipei, Taiwan
State Street Bank and Trust Company
Boston, MA
TRANSFER AGENT, DIVIDEND PAYING AGENT AND REGISTRAR
Equiserve Trust Company, N.A.
LEGAL COUNSEL
Clifford Chance US LLP
New York, NY
Lee and Li
Taipei, Taiwan
INDEPENDENT AUDITORS
KPMG LLP
Boston, MA
ITEM 2. CODE OF ETHICS.
Not applicable to this semi-annual report.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable to this semi-annual report.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable to this semi-annual report.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to this semi-annual report.
ITEM 6. SCHEDULE OF INVESTMENTS.
Not applicable at this time.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to this semi-annual report.
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES.
(a) Within 90 days of the filing date of this Form N-CSR, Benny T. Hu, the
registrant's President, and Carol Wang, the registrant's Treasurer, reviewed the
registrant's disclosure controls and procedures (the "Procedures") and evaluated
their effectiveness. Based on their evaluation, Mr. Hu and Ms. Wang determined
that the Procedures adequately ensure that information required to be disclosed
by the registrant in its periodic reports is recorded, processed, summarized and
reported within the time periods required by the Securities and Exchange
Commission's rules and regulations.
(b) Following the discovery of errors in past monthly reports to shareholders,
the registrant's procedures for calculating, reviewing and verifying figures in
monthly reports have been enhanced significantly, including by adding a
reasonability check on historical ratios and verifying historical data, and the
registrant's independent accountants have agreed to conduct certain procedures
with respect to the monthly reports.
ITEM 10. EXHIBITS
(a) Certifications required by Rule 30a-2(a) of the Investment Company Act of
1940, as amended, and Sections 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.
THE TAIWAN FUND, INC.
By: /s/ Benny T. Hu
----------------------------------------
Benny T. Hu
President of The Taiwan Fund, Inc.
Date: May 6, 2004
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: /s/ Benny T. Hu
----------------------------------------
Benny T. Hu
President of The Taiwan Fund, Inc.
Date: May 6, 2004
By: /s/ Carol Wang
----------------------------------------
Carol Wang
Treasurer of The Taiwan Fund, Inc.
Date: May 6, 2004