<PAGE> 1
THE TAIWAN FUND, INC.(Registration Mark)
- ------------------------------------------
Annual Report
August 31, 1999
THE TAIWAN
FUND, INC.
WHAT'S INSIDE
PAGE
Chairman's Statement 2
Portfolio Manager's
Message 4
Portfolio Snapshot 7
Investments 8
Financial Statements 11
Notes to Financial
Statements 14
Reports of Independent
Accounts 17
Other Information 18
Summary of Dividend
Reinvestment and
Cash Purchase Plan 19
<PAGE> 2
CHAIRMAN'S STATEMENT
- --------------------------------------------------------------------------------
Dear Shareholders:
We are pleased to present the Annual Report of The Taiwan Fund, Inc. (the
"Fund") for the fiscal year ended August 31, 1999. During this period, the
Fund's net asset value ("NAV") increased approximately 49.41% in U.S. Dollar
terms, which reflects an adjustment for the US$1.01 per share distribution paid
to shareholders in January 1999. During the same period, the New Taiwan Dollar
appreciated against the U.S. dollar by 8.78% and the Taiwan Stock Exchange
("TAIEX") Index increased by 36.52% in U.S. Dollar terms. The Fund has
outperformed its benchmark, the TAIEX Index, since adopting its "core and
active" portfolio management strategy in March 1998.
In January 1999 the Fund paid a dividend of US$1.01 per share from realized
gains. On August 31, 1999, the Fund's shares were trading at US$18.31 per share,
representing a discount of 15.27% from the Fund's NAV per share of US$21.61. The
Fund's shares were trading at a discount of 28.39% on August 31, 1998.
During the first half of the Fund's fiscal year ended August 31, 1999, the
Taiwan Central Bank ("CBC") adopted an eased monetary policy. However, the
demand for loans remained subdued because of the slow domestic economy as well
as negative export growth. In order to revive the domestic economy and stimulate
the stock market, the CBC lowered its required reserve ratio from 7.35% to
7.00%. However, due to negative market sentiment and concern regarding the Asian
currency crisis, investment activities and local consumption continued to be
constrained. Investor confidence was also affected by a series of debt defaults
by major companies in the construction and financial sectors. The government
attempted to prevent a further loss in confidence in the stock market by
organizing a NT$280 billion stabilization fund from banks, insurance companies
and public pension funds for investment in major blue-chip companies. This
effort did not prevent further market declines.
In the second half of the fiscal year ended August 31, 1999, Asian countries,
which experienced an economic crisis in late 1997, demonstrated signs of
recovery. Current trade balances have shown positive signs, while demand for
imported goods has increased significantly. This is due in part to the rebound
in prices of commodities such as oil. Historically, Asian export growth has
relied heavily on commodity related products such as plastics, textiles, steel,
rubber, paper and pulp. The increase in commodity prices, may indicate that the
worldwide deflation pressure has subsided. The Asian economic recovery has also
been aided by continued economic growth in the U.S. and major European
countries. With the improved market fundamentals in Asia, we have seen increased
inflows of foreign capital. This has contributed to the stabilization
2
<PAGE> 3
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of many Asian currencies and the strengthening of their financial markets.
As a result of the recovery in Asia, Taiwan's export growth and GDP growth
accelerated in the second quarter of 1999. Corporate revenues and earnings of
the exporting and commodity sectors have shown signs of recovery. The stock
market has embraced the positive results by surging almost 57% since its lows in
early February 1999, reaching a high of 8,593 in early July 1999. However, the
market entered a consolidation phase after President Lee's remark in July 1999
that the Taiwan and China relationship should be managed under a "special
state-to-state" basis. The TAIEX Index was at 8,157 on August 31, 1999.
The strained relations between Taiwan and China and the coming March 2000
Presidential election are likely to enhance political uncertainty in the region,
thus affecting investment sentiment in the stock market. We believe that these
events will have a short term impact. We also believe that there will be a
temporary negative impact on the Taiwan economy as a result of the earthquake
that hit the island on September 21, 1999. However, in the long term, Taiwan
still should benefit from an increase in overall global demand. We anticipate
that the trend of increasing foreign investments in the Taiwan financial markets
will continue. Therefore, the Board maintains its long-term confidence in the
investment fundamentals in Taiwan.
Thank you for your continued support of the Fund. If you have any questions
concerning the Fund, we invite you to call (toll free) 1-800-636-9242.
Sincerely,
/s/ S.Y. WANG
S.Y. Wang
Chairman
Albert King on Sector Returns:
The volatility of the Stock Market is
reflected not only in the overall index
but also among sectors. The following
table shows sectoral returns in the last
three semi-annual periods.
INDICES RETURNS (IN NTD)
6 Months 6 Months 6 Months
Ending Ending Ending
8/31/98 2/28/99 8/31/99
Electronics -34.7% 6.3% 67.2%
Plastics -35.5% 18.7% 41.6%
Taiwan Fund -25.1% -3.0% 41.0%
TAIEX Ex Financial -27.1% -7.3% 39.3%
TAIEX Index -28.8% -3.5% 29.1%
Paper & Pulp -27.6% -11.5% 26.9%
Steel -7.4% -27.3% 24.5%
Others -13.3% -32.6% 20.1%
Textile -27.7% -12.0% 18.5%
Electrical -15.5% -14.4% 11.7%
Chemical -24.7% -11.0% 8.7%
Cement -16.1% -18.2% 5.5%
Rubber -10.6% -13.6% 3.0%
Retail -23.1% 0.5% 2.7%
Financial -33.8% 7.5% 2.6%
Transportation -20.5% 8.2% -2.5%
Cable & Wire -15.5% -17.9% -3.6%
Tourism -26.3% -1.9% -3.6%
Construction -28.4% -39.5% -8.2%
Food 17.0% -33.6% -11.0%
Auto -4.7% -24.9% -15.8%
Glass -17.2% -14.0% -19.3%
Source: Ta-Fu Broker Database
3
<PAGE> 4
PORTFOLIO MANAGER'S MESSAGE
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[Albert King photo]
A Message From
Albert King,
Portfolio Manager of
the Taiwan Fund, Inc.
ECONOMIC OVERVIEW
Taiwan's GDP grew 6.54% during the second quarter of 1999. This was due largely
to the rebound in export growth. (Please see Albert King on the Taiwan's
Exports). It is estimated that GDP growth could reach 5.74% for 1999, compared
to 4.65% GDP growth in 1998. For the first eight months of 1999, total exports
from Taiwan increased by 6.9% in US Dollar terms as compared to a decrease of
7.3% during the same period in 1998. Meanwhile the trade surplus reached US$ 7.6
billion at August 1999, an increase of 107.8% over last year.
The Taiwan Central Bank ("CBC") continues to maintain a relatively loose
monetary policy. During this reporting period, the CBC lowered the required
reserve ratio from 7.35% to 7.00%, hoping to stimulate local demand. As a result
of this loose monetary policy, the money supply (M2) growth rate has gradually
increased to 9.69% in July 1999, compared to 7.95% in July 1998.
The rebound in export growth and the recovery in prices of major commodity
products has led to an increase in revenues and profits for major exporting and
cyclical sectors. The stock market has embraced the positive results by surging
almost 57% since its lows in early February 1999, reaching a high of 8,593 in
early July 1999. The Taiwan Stock Exchange ("TAIEX") Index was at 8,157 on
August 31, 1999.
INVESTMENT STRATEGY
Taiwan's stock market has experienced high volatility recently. (Please see
Albert King on Sector Returns). Since March 1998, the Fund has been following an
investment strategy of dividing the Fund's holdings into two parts: core
portfolio and active portfolio. In the core portfolio, we use a "top-down
approach" to select, within each sector, companies that provide good earnings
potential over the long term and are well managed. In the active portfolio, we
use a "bottom-up approach" to pick outperforming stocks that may be growth,
value or momentum plays. The Fund now allocates approximately 70% of its assets
to the core portfolio, and the remaining portion to the active portfolio.
The results of this strategy have been positive for the Fund. During this
reporting period, the Fund's net asset value ("NAV") increased approximately
49.41% in U.S. Dollar terms, while the TAIEX Index increased by 36.52% in U.S.
Dollar terms. The Fund outperformed the TAIEX Index because the Fund was
overweighted in the technology and plastics sectors. Both sectors outperformed
the market by 53.18% and 43.58%, respectively, in NT dollar terms.
It is important to emphasize the Fund's primary reliance on fundamental research
to identify well-managed companies with strong balance sheets and promising
long-term earnings growth. The Fund
4
<PAGE> 5
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is not only focusing on the companies or industry leaders that are able to
create shareholder value in the long run while competing on a global basis, but
is also focusing on the fundamental changes in the commodity price cycle. Based
on these criteria, the Fund has increased its weighting in the technology and
commodity related sectors.
In the technology sector, the Fund added shares in semiconductors by selecting
IC foundry related companies, such as Taiwan Semiconductor Manufacturing Co.
("TSMC") and United Microelectronics Corp. ("UMC"). The weakness in
semiconductor prices has reduced major IC-manufacturers' capabilities to
increase capital expenditures ("CAPEX") without negatively impacting their
cashflows. CAPEX growth is expected to face further contraction in 1999 for the
third consecutive year. As a result, we are anticipating a better demand-supply
balance for the next year. Both TSMC and UMC are financially sound, increasing
their capital expenditures and are consistently leaders in terms of
technological advancements.
Of the more cyclical sectors, the Fund is focusing on plastics and textile
companies, where major demand comes from Asia. Recently, there have been signs
of recovery in major Asian countries' currencies and stock markets. Current
trade balances have shown positive figures, while demand for imported goods has
increased. Moreover, oil prices have rebounded along with the other commodities
in the CRB Industrial Index. In this scenario, we would favor companies such as
Formosa Plastics Group, Taiwan's largest petrochemical manufacturer. With the
completion of its Sixth Naphtha Cracker ("SNC"), the company hopes to be able to
further improve its worldwide competitiveness.
The Fund has also added shares only selectively in the financial sector, as we
believe that this sector may continue to experience volatility. Although we
believe that the government is moving in the right direction of strengthening
the banking system by amending banking laws to improve competitiveness and
encouraging consolidation, the government still needs to overcome political
obstacles presented by the Legislative Yuan. However, within the sector, there
are a few stocks we consider attractive investments. Our criteria for picking
stocks in the financial sector includes healthy balance sheets, low
non-performing loans ratios, low price to book value ratios and higher loan loss
provisions, which are found in our choice of China Trust Bank.
Albert King on the Taiwan's Exports:
Taiwan's exports increased in the first two quarters of 1999 (See Chart
I), and may further accelerate in the coming third quarter. The increase
in exports has been mainly due to the recovery in Asian demand. (See
Chart II) While export to Europe has slowed slightly, exports to the
U.S. continues to grow. Due to the importance of exports in Taiwan's
economy, Taiwan benefits from a recovering global demand.
Chart I. Taiwan's Quarterly Trade Figures:
In US$ billion
Period Q3 98 Q4 98 Q1 99 Q2 99
Figures
Total Export 28.12 28.11 27.81 29.67
YoY % Chg -9.50 -13.00 3.50 7.30
Total Import 24.62 26.89 25.13 26.07
YoY % Chg -15.40 -10.70 -6.80 -0.80
Trade Balance 3.50 1.22 2.67 3.60
YoY % Chg 78.10 -44.60 n.m 166.10
Chart II. Geographic Breakdown of Taiwan's Exports:
In US$ billion
Period Q3 98 Q4 98 Q1 99 Q2 99
Figures
Asia 12.35 12.75 12.93 14.60
YoY % Chg -21.56 -19.74 6.39 13.15
Europe 4.76 5.24 5.09 4.73
YoY % Chg 13.58 0.94 2.83 0.85
U.S.A 7.92 7.53 7.25 7.60
YoY % Chg 2.43 -5.78 5.26 8.07
Source: Department of Statistics, Ministry of Finance.
5
<PAGE> 6
PORTFOLIO MANAGER'S MESSAGE (CONTINUED)
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OUTLOOK
The Cross-Strait relationship between Taiwan and China has been strained by
President Lee's recent remarks that the Taiwan and China relationship should be
managed on a "special state-to-state" basis. However, we believe that these
comments were made to achieve the internal political purpose of enhancing the
popularity of KMT's Presidential candidate, current Vice-President Lien Chan. We
believe that political uncertainty caused by this situation will be short-term.
In the long run, Taiwan with an export-driven economy will benefit from
recovering global demand.
We thank you for your continued support and look forward to discussing our
investment strategy again in coming reports.
Sincerely yours,
/s/ Albert King
Albert King
Portfolio Manager
6
<PAGE> 7
PORTFOLIO SNAPSHOT
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TOP TEN EQUITY HOLDINGS
<TABLE>
<S> <C> <C>
HOLDINGS AS OF AUGUST 31, 1999 %
- --------------------------------------------------
Taiwan Semiconductor Manufacturing Co. 9.5
- --------------------------------------------------
Asustek Computer, Inc. 5.7
- --------------------------------------------------
United Microelectronics Corp. Ltd. 5.3
- --------------------------------------------------
Hon Hai Precision Industry 4.2
- --------------------------------------------------
Formosa Plastic 3.4
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China Steel Corp. 3.3
- --------------------------------------------------
Advanced Semiconductor Engineering, Inc. 3.2
- --------------------------------------------------
Winbond Electronics Corp. 3.2
- --------------------------------------------------
Cathay Life Insurance Co. Ltd. 3.1
- --------------------------------------------------
Nan Ya Plastics Corp. 3.0
- --------------------------------------------------
</TABLE>
TOP TEN EQUITY INDUSTRY WEIGHTINGS
<TABLE>
<S> <C> <C>
WEIGHTINGS AS OF AUGUST 31, 1999 %
- --------------------------------------------------
Semi-conductor 22.2
- --------------------------------------------------
Office Equipment & PC 15.1
- --------------------------------------------------
Plastics 10.5
- --------------------------------------------------
Banks 9.7
- --------------------------------------------------
Textiles & Apparel 9.3
- --------------------------------------------------
Electronics 9.1
- --------------------------------------------------
Insurance 4.1
- --------------------------------------------------
Iron & Steel 3.3
- --------------------------------------------------
Shipping 2.3
- --------------------------------------------------
Chemicals 1.7
- --------------------------------------------------
</TABLE>
TOP TEN EQUITY HOLDINGS
<TABLE>
<S> <C> <C>
HOLDINGS AS OF AUGUST 31, 1998 %
- --------------------------------------------------
Taiwan Semiconductor Manufacturing Co. 4.0
- --------------------------------------------------
Cathay Life Insurance Co. Ltd 3.5
- --------------------------------------------------
Hon Hai Precision Industry 3.4
- --------------------------------------------------
Mitac International Corp. 3.0
- --------------------------------------------------
Inventec Co. Ltd. 2.8
- --------------------------------------------------
Wus Printed Circuit Co. Ltd. 2.7
- --------------------------------------------------
Nien Hsing Textile Co. Ltd. 2.6
- --------------------------------------------------
China Motor Co. 2.6
- --------------------------------------------------
Delta Electronics, Inc. 2.4
- --------------------------------------------------
China Steel Corp. 2.4
- --------------------------------------------------
</TABLE>
TOP TEN EQUITY INDUSTRY WEIGHTINGS
<TABLE>
<S> <C> <C>
WEIGHTINGS AS OF AUGUST 31, 1998 %
- --------------------------------------------------
Electronics 19.4
- --------------------------------------------------
Computers & Business Equipment 18.0
- --------------------------------------------------
Textiles & Apparel 9.3
- --------------------------------------------------
Banks 9.0
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Automobiles, Tires & Accessories 6.1
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Insurance 5.0
- --------------------------------------------------
Construction & Real Estate 4.5
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Plastics 4.4
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Shipping 4.4
- --------------------------------------------------
Foods 4.3
- --------------------------------------------------
</TABLE>
7
<PAGE> 8
THE TAIWAN FUND, INC.
INVESTMENTS/AUGUST 31, 1999 (SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT
IN SECURITIES)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
US$
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
COMMON STOCKS - 97.2%
BASIC INDUSTRIES - 18.9%
CEMENT - 0.9%
Asia Cement............................. 2,050,356 $ 1,650,601
Taiwan Cement Corp. .................... 2,282,004 1,485,456
------------
3,136,057
------------
CHEMICALS - 1.7%
Eternal Chemical Co. Ltd. .............. 3,402,000 4,782,057
Oriental Union Chemical................. 752,064 740,239
Yung Shin Pharmaceutical Industries
Co. ................................... 379,284 572,504
------------
6,094,800
------------
ELECTRICAL EQUIPMENT - 0.0%
Taichung Machinery (a).................. 116 0
------------
GLASS - 0.3%
Taiwan Glass............................ 1,350,513 1,027,749
------------
IRON & STEEL - 3.3%
China Steel Corp. ...................... 14,759,053 11,510,205
------------
OTHERS & MISCELLANEOUS - 0.2%
Ton Yi Industrial Corp. (a)............. 1,306,401 612,119
------------
PAPER & FOREST PRODUCTS - 0.3%
Yuen Foong Yu Paper Manufacturing (a)... 2,200,836 934,317
------------
PLASTICS - 10.5%
Asia Polymer Corp. ..................... 2,500,000 4,520,440
Formosa Plastic......................... 6,205,412 11,903,463
Nan Ya Plastics Corp. .................. 6,329,027 10,448,866
Taita Chemical Co. Ltd. (a)............. 2,500,000 2,421,384
USI Far East Corp. (a).................. 7,424,000 7,844,227
------------
37,138,380
------------
RUBBER - 0.6%
Cheng Shin Rubber Industrial Co. ....... 1,354,861 1,410,248
Taiwan Synthetic Rubber (a)............. 1,543,500 762,043
------------
2,172,291
------------
</TABLE>
<TABLE>
<CAPTION>
US$
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
TEXTILE - 0.6%
Zig Sheng Industry Co., Ltd. (a)........ 5,000,000 $ 2,248,428
------------
WIRE & CABLE - 0.5%
Pacific Electrical Wire & Cable (a)..... 1,787,720 921,969
Walsin Lihwa Corp. (a).................. 1,620,004 789,624
------------
1,711,593
------------
TOTAL BASIC INDUSTRIES.................. 66,585,939
------------
CONSTRUCTION & REAL ESTATE - 1.2%
Cathay Construction..................... 2,856,277 1,365,265
Hung Poo Construction Corp. ............ 1,030,000 442,123
Kindom Construction Co. Ltd. (a)........ 3,750,000 2,582,547
------------
TOTAL CONSTRUCTION & REAL ESTATE........ 4,389,935
------------
DURABLES - 11.3%
AUTOMOBILES, TIRES & ACCESSORIES - 1.0%
China Motor Co. ........................ 1,407,351 1,814,509
Yue Loong Motor......................... 1,760,647 1,672,061
------------
3,486,570
------------
OTHERS & MISCELLANEOUS - 1.0%
Giant Manufacturing..................... 880,734 1,174,313
Pou Chen (a)............................ 1,218,464 2,662,995
------------
3,837,308
------------
TEXTILES & APPAREL - 9.3%
Far Eastern Textile Ltd. ............... 5,949,100 8,624,324
Formosa Chemical & Fiber................ 7,573,548 7,621,181
Formosa Taffeta Co. Ltd. ............... 1,310,595 816,031
Lan Fa Textiles (a)..................... 2,000,000 874,214
Lealea Enterprise (a)................... 7,620,000 3,115,094
Nien Hsing Textile Co. Ltd. ............ 4,540,000 9,065,724
Shinkong Synthetic Fibers Corp. (a)..... 5,060,000 2,084,465
Tainan Spinning (a)..................... 1,710,000 564,623
------------
32,765,656
------------
TOTAL DURABLES.......................... 40,089,534
------------
</TABLE>
8 The accompanying notes are an integral part of the financial statements.
<PAGE> 9
INVESTMENTS/AUGUST 31, 1999 (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
US$
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
COMMON STOCKS - continued
FINANCE - 13.8%
BANKS - 9.7%
Chang Hwa Commercial Bank............... 2,005,021 $ 2,496,819
China Trust Commercial Bank (a)......... 6,816,000 6,816,000
Chung Hsing Bills Finance (a)........... 3,956,773 1,785,525
E. Sun Commercial Bank (a).............. 3,085,000 1,435,786
First Commercial Bank................... 4,655,603 7,305,491
Hwa Nan Commercial Bank Ltd. ........... 2,600,220 4,292,816
ICBC.................................... 2,530,550 2,920,478
Taipei Bank............................. 913,000 881,418
Taipei Business Bank (a)................ 1,800,000 2,133,962
United World Chinese.................... 3,136,000 4,210,918
------------
34,279,213
------------
INSURANCE - 4.1%
Cathay Life Insurance Co. Ltd. ......... 3,622,601 10,879,195
Shin Kong Life Insurance Co. ........... 2,205,000 3,536,321
------------
14,415,516
------------
TOTAL FINANCE........................... 48,694,729
------------
NONDURABLES - 1.4%
FOODS - 1.2%
AGV Products Corp. (a).................. 4,809,000 1,822,278
President Enterprises Corp. ............ 3,300,000 2,303,774
------------
4,126,052
------------
LEISURE RELATED - 0.2%
Leofoo Development...................... 666,660 792,445
------------
TOTAL NONDURABLES....................... 4,918,497
------------
RETAIL & WHOLESALE - 0.7%
GENERAL MERCHANDISE STORES
Far Eastern Department Stores........... 1,058,538 539,255
President Chain Store Corp. ............ 613,836 1,814,484
------------
TOTAL RETAIL & WHOLESALE................ 2,353,739
------------
TECHNOLOGY - 47.3%
ELECTRICAL EQUIPMENT - 0.6%
Phoenixtec Power Co. Ltd. .............. 578,565 1,209,892
Teco Electric & Machinery Co. .......... 1,100,286 906,525
------------
2,116,417
------------
</TABLE>
<TABLE>
<CAPTION>
US$
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
ELECTRONICS - 9.1%
CMC Magnetics Corp. (a)................. 948,258 $ 3,891,436
Compeq Manufacturing Co. Inc. (a)....... 715,673 3,600,871
Delta Electronics, Inc. ................ 1,552,103 6,320,671
Hon Hai Precision Industry (a).......... 2,267,097 14,757,519
Liton Electronics....................... 648,000 1,010,717
Ritek, Inc. (a)......................... 420,951 2,581,303
------------
32,162,517
------------
OFFICE EQUIPMENT & PC - 15.1%
Acer Peripherals, Inc. ................. 1,242,000 3,222,170
Acer, Inc. (a).......................... 2,668,000 5,705,157
Asustek Computer, Inc. ................. 1,881,970 20,240,055
Compal Electronics, Inc. ............... 1,032,615 3,458,286
D-Link Corp. ........................... 180,000 365,094
Inventec Co. Ltd. (a)................... 2,556,364 6,551,688
Quanta Computer, Inc. .................. 724,840 7,066,051
Synnex Technology International......... 471,040 2,503,326
Systex Corp. (a)........................ 520,000 1,741,510
Tatung Co. (a).......................... 2,000,905 2,422,479
------------
53,275,816
------------
OTHERS & MISCELLANEOUS - 0.3%
Taiwan Secom Co. ....................... 403,928 971,714
------------
SEMI-CONDUCTOR - 22.2%
Advanced Semiconductor Engineering, Inc.
(a)................................... 3,782,235 11,358,599
Macronix International Co. Ltd. (a)..... 1,496,000 1,825,308
Siliconware Precision Industry (a)...... 1,058,232 2,079,859
Taiwan Semiconductor Manufacturing Co.
(a).................................... 7,857,930 33,359,138
United Microelectronics Corp. Ltd.
(a).................................... 7,309,721 18,619,101
Winbond Electronics Corp. (a)........... 6,000,750 11,133,468
------------
78,375,473
------------
TOTAL TECHNOLOGY........................ 166,901,937
------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 9
<PAGE> 10
INVESTMENTS/AUGUST 31, 1999 (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
US$
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
COMMON STOCKS - continued
TRANSPORTATION - 2.6%
AIR TRAVEL - 0.3%
China Airlines (a)...................... 1,840,000 $ 1,168,805
------------
SHIPPING - 2.3%
Evergreen Marine Corp. (a).............. 1,606,921 1,662,507
U-Ming Marine Transport (a)............. 2,028,000 793,981
Wan Hai Lines Ltd. ..................... 960,000 978,113
Yang Ming Marine Transport (a).......... 7,878,424 4,484,260
------------
7,918,861
------------
TOTAL TRANSPORTATION.................... 9,087,666
------------
TOTAL COMMON STOCK (Identified Cost -
$234,364,469).......................... 343,021,976
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
NT$
---------
<S> <C> <C>
CERTIFICATES OF DEPOSIT - 0.3%
ICBC Downtown Branch
4.70%, 11/25/99 (b) (Identified Cost -
$951,610).............................. 31,170,000 980,188
------------
COMMERCIAL PAPER - 2.2%
Chin Hisn Cement Corp. 4.75%, 9/10/99... 39,778,326 1,250,891
Nan-Yang Inc. 4.50%, 9/03/99 (b)........ 149,311,098 4,695,318
Yuan Fang Investment 4.75%, 9/13/99..... 52,813,249 1,660,794
------------
TOTAL COMMERCIAL PAPER (Identified Cost-
$7,587,886)............................ 7,607,003
------------
<CAPTION>
MATURITY
AMOUNT
US$
-------------
<S> <C> <C>
REPURCHASE AGREEMENT - 0.3%
With State Street Bank and Trust Co. at
3.25%, dated 8/30/99, due 9/7/99
(collateralized by U.S. Treasury Bond
8.125%, 5/15/21,market value
$1,159,574)........................... $ 1,132,818 $ 1,132,000
------------
TOTAL INVESTMENTS - 100%
(COST - $244,035,965).................. $352,741,167
============
</TABLE>
LEGEND:
NT$ - New Taiwan dollar
US$ - United States 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 August 31, 1999 the aggregate cost basis of the Fund's investment securities
for income tax purposes was $245,099,149.
Net unrealized appreciation of the Fund's investment securities was
$107,642,018, of which $119,270,664 related to appreciated investment securities
and $11,628,646 was related to depreciated investment securities for the fiscal
year ended August 31, 1999. In addition, the Fund had a capital loss
carryforward of $7,668,967 for the year ended August 31, 1999. The capital loss
carryfoward may be utilized to offset capital gains through August 31, 2007.
10 The accompanying notes are an integral part of the financial statements.
<PAGE> 11
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investment in securities, at value
(including repurchase agreement of
$1,132,000) (cost $244,035,965) (Notes 1
and 2) - See accompanying schedule...... $352,741,167
Cash...................................... 184
Cash in New Taiwan dollars (cost
$6,274,015).............................. 6,281,695
Receivable for investments sold........... 1,049,777
Dividends receivable...................... 200,702
Interest receivable....................... 20,261
------------
Total assets............................. 360,293,786
------------
LIABILITIES
Payable for investments purchased......... $5,873,042
Accrued management fee (Note 3)........... 455,214
Taiwan withholding tax payable (Note 1)... 44,959
Other payables and accrued expenses....... 306,188
----------
Total liabilities........................ 6,679,403
------------
NET ASSETS................................ $353,614,383
============
Net Assets consist of (Note 1):
Paid in capital........................... $263,196,276
Accumulated undistributed net realized
loss on investments and foreign
currency................................. (18,294,389)
Net unrealized appreciation on:
Investment securities.................... 108,705,202
Assets and liabilities denominated in
foreign currencies..................... 7,294
------------
NET ASSETS................................ $353,614,383
============
NET ASSET VALUE, per share ($353,614,383 /
16,365,572 shares outstanding)........... $21.61
-----
-----
</TABLE>
STATEMENT OF OPERATIONS
Year Ended August 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends................................ $ 3,321,653
Interest................................. 411,755
------------
3,733,408
Less: Taiwan witholding tax (Note 1)..... (716,997)
------------
Total Income............................ 3,016,411
EXPENSES
Management fee (Note 3)
Basic fee............................... $ 3,707,369
Performance adjustment.................. 290,444
Taiwan stock dividend tax (Note 1)....... 948,255
Custodian fees and expenses.............. 452,039
Administration and accounting fees (Note
3)...................................... 204,277
Directors compensation................... 142,999
Shareholder communications............... 136,999
Legal.................................... 120,000
Audit.................................... 98,623
Insurance fees........................... 84,446
Delaware franchise tax................... 66,299
Miscellaneous............................ 33,015
Transfer agent fees...................... 16,000
------------
Total expenses.......................... 6,300,765
------------
NET INVESTMENT LOSS..................... (3,284,354)
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 1)
Net realized loss on:
Investment securities................... (16,094,264)
Foreign currency transactions........... (5,951,691)
------------
(22,045,955)
Change in net unrealized appreciation
(depreciation) on:
Investment securities................... 144,135,798
Assets and liabilities denominated in
foreign currencies.................... (18,022)
------------
144,117,776
------------
Net gain................................. 122,071,821
------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS.............................. $118,787,467
============
</TABLE>
The accompanying notes are an integral part of the financial statements. 11
<PAGE> 12
FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended Year Ended
August 31, August 31,
1999 1998
------------ -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment loss........................................ $ (3,284,354) $ (5,411,099)
Net realized loss on investments and foreign currency
transactions............................................. (22,045,955) (34,529,693)
Change in net unrealized appreciation (depreciation) on
investments and foreign currency transactions............ 144,117,776 (222,168,829)
------------ -------------
Net increase (decrease) in net assets resulting from
operations............................................... 118,787,467 (262,109,621)
------------ -------------
Distributions to shareholders
From net realized gains.................................... (16,529,228) (75,445,287)
------------ -------------
Total distributions to shareholders........................ (16,529,228) (75,445,287)
------------ -------------
Total increase (decrease) in net assets.................... 102,258,239 (337,554,908)
------------ -------------
NET ASSETS
Beginning of period....................................... 251,356,144 588,911,052
------------ -------------
End of period.............................................. $353,614,383 $ 251,356,144
============ =============
OTHER INFORMATION
Shares (Note 4)
Issued in reinvestment of distributions from net investment
income................................................... 0 0
------------ -------------
Net increase (decrease).................................... 0 0
============ =============
</TABLE>
12 The accompanying notes are an integral part of the financial statements.
<PAGE> 13
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Years Ended August 31,
----------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA (a)
Net asset value, beginning of period........................ $ 15.36 $ 35.98 $ 22.25 $ 18.28 $ 32.26
-------- -------- -------- -------- --------
Income from Investment Operations
Net investment income (loss)............................... (0.20)(d) (0.33)(c) (0.50) (0.18)(b) (0.19)
Net realized and unrealized gain (loss) on investments..... 7.46 (15.68) 14.24 4.18 (7.27)
-------- -------- -------- -------- --------
Total from investment operations........................... 7.26 (16.01) 13.74 4.00 (7.46)
-------- -------- -------- -------- --------
Less Distributions
In excess of net investment income......................... -- -- (0.01) (0.03) --
From net realized gains.................................... (1.01) (4.61) -- -- (5.88)
In excess of net realized gains............................ -- -- -- -- (0.21)
-------- -------- -------- -------- --------
Total distributions........................................ (1.01) (4.61) (0.01) (0.03) (6.09)
-------- -------- -------- -------- --------
Antidilution/(Dilution) resulting from additional offering
of shares at market
and reinvestment of dividends at market.................... -- -- -- 0.02 (0.40)
Offering expenses........................................... -- -- -- (0.02) (0.03)
-------- -------- -------- -------- --------
Net asset value, end of period.............................. $ 21.61 $ 15.36 $ 35.98 $ 22.25 $ 18.28
======== ======== ======== ======== ========
Market value, end of period................................. $ 18.31 $ 11.00 $ 25.56 $ 23.50 $ 21.63
======== ======== ======== ======== ========
TOTAL RETURN
Per-share market value...................................... 79.41% (48.87)% 8.8% 8.8% (12.0)%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted)..................... $353,614 $251,356 $588,911 $364,159 $271,095
Ratio of expenses to average net assets(e).................. 2.21% 2.29%(f) 2.56% 2.24% 2.43%
Ratio of expenses to average net assets, excluding stock
dividend tax expense....................................... 1.88% 1.87%(f) 2.25% 1.81% 2.02%
Ratio of net investment income (loss) to average net
assets..................................................... (1.15)% (1.51)% (1.74)% (0.92)% (0.78)%
Portfolio turnover rate..................................... 125% 97% 126% 131% 159%
</TABLE>
(a) Based on average shares outstanding during the period.
(b) Investment Income per share reflects a regular dividend from China Steel
Corp. of $0.05 per share. (Based on shares outstanding at 8/31/96.)
(c) Investment Income per share reflects a regular dividend from China Steel
Corp. of $0.02 per share. (Based on shares outstanding at 8/31/98.)
(d) Investment Income per share reflects a regular dividend from China Steel
Corp. of $0.04 per share. (Based on shares outstanding at 8/31/99.)
(e) Expense ratio includes 20% tax paid on stock dividends received by the Fund.
(f) Ratio of expenses after waiver (See Note 3).
The accompanying notes are an integral part of the financial statements. 13
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 China Securities Investment Trust Corporation
(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 Fund is treated as a Qualified Foreign Institutional Investor (QFII) which
limits the Fund's ownership of a company's shares to no more than 15% of such
shares. In addition, all QFIIs together can not own more than 30% of a company's
shares. All Funds managed by China Securities Investment Trust Company (CSITC)
are limited in aggregate to 10% ownership of a company's shares.
The policies described below are consistently followed by the Fund in the
preparation of its financial statements in conformity with U.S. generally
accepted accounting principles.
Security Valuation. All securities 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 was no sales price 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). Securities which are traded
over-the-counter are valued at the mean between the current bid and asked prices
or, if no quotations are available, are valued as determined in good faith by
the Board of Directors of the Fund. In certain instances where the price
determined above may not represent fair market value, the value is determined in
such manner as the Board may prescribe. Short-term investments, having a
maturity of 60 days or less are valued at cost which approximates market value,
with accrued interest or discount earned included in interest receivable.
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.
14
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES - continued
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 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 carried on a net basis. 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 August 31, 1999 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 corporate bonds and 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 securi-
ties are recorded as soon as the Fund is informed of the
ex-dividend date.
Dividends are typically declared by Taiwanese companies 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 book
15
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES - continued
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
generally accepted accounting principles 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
Purchases and sales of securities, other than short-term securities, aggregated
$341,419,123 and $361,710,902, respectively.
3. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Management Fee. As the Fund's investment adviser, CSITC 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 P.30%)
based on the Fund's investment performance as compared to the Taiwan Stock
Exchange Index over a rolling 36-month period.
Effective February 14, 1998, the Fund's shareholders approved the proposal to
reduce the Fund's Investment Advisory basic fee from 1.50% to an annual rate of
1.30% and to reduce the performance adjustment from P.50% to a maximum of
P0.30%. The revised contract to reduce the Investment Advisory basic fee and the
performance fee was approved on April 30, 1998 by the Republic of China
Securities and Exchange Commission (SEC). Until such approval was received,
CSITC voluntarily agreed to reduce its basic fee and performance fee to 1.30%
and P0.30%, respectively, as approved by the Fund's shareholders.
For the year ended August 31, 1999, the management fee, including the
performance adjustments, was equivalent to an annual rate of 1.40% of average
net assets.
Directors Fees. No director, officer or employee of the Investment Manager 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 Investment Manager an annual fee of
$10,000 plus $1,000 for each Board of Directors' meeting or Audit Committee
meeting attended. 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 Bank and Trust Company ("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. For these services, the Fund pays State Street a fee
at the annual rate of 0.09% of the Fund's average daily net assets up to $150
million, 0.06% of the next $150 million, and 0.04% of those assets in excess of
$300 million, subject to certain minimum requirements.
4. FUND SHARES
At August 31, 1999, there were 20,000,000 shares of $0.01 par value capital
stock authorized, of which 16,365,572 were issued and outstanding.
16
<PAGE> 17
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE BOARD OF DIRECTORS OF THE TAIWAN FUND, INC.
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, 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 The Taiwan Fund, Inc. at August 31,
1999 and the results of its operations, the changes in its net assets and the
financial highlights for the periods indicated, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of The Taiwan Fund, Inc.'s management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at August 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
October 11, 1999
17
<PAGE> 18
OTHER INFORMATION
- --------------------------------------------------------------------------------
YEAR 2000
Many computer programs employed throughout the world use two digits rather than
four to identify the year. These programs, if not adapted, may not correctly
handle the change from "99" to "00" on January 1, 2000, and may not be able to
perform necessary functions. The Year 2000 issue affects virtually all companies
and organizations.
The Investment Adviser has advised the Fund that it is implementing steps
intended to ensure that its computer systems are capable of Year 2000
processing. In addition, the Fund is inquiring with third parties to assess the
adequacy of their Year 2000 compliance efforts. The Fund intends to develop
contingency plans intended to ensure that third-party noncompliance will not
materially affect the Fund's operations. The Fund does not currently anticipate
that the Year 2000 issue will have an adverse effect on the Investment Adviser's
ability to continue to provide the services currently provided to the Fund.
Companies in which the Fund invests could be adversely affected by the Year 2000
issue, but the Fund cannot predict the consequential effect on its investment
return. To the extent the impact on a portfolio holding is negative, the Fund's
investment return could be adversely affected.
AMENDMENT TO BYLAWS OF THE FUND
The Board of Directors of the Fund, at its meeting held on October 11, 1999,
approved an amendment to the Fund's Bylaws which requires that stockholders of
the Fund provide advance notice to the Fund should such stockholder desire to
present a proposal at a stockholders' meeting. The Fund filed an amendment to
its registration statement for the purposes of filing the Amended and Restated
Bylaws of the Fund on October 27, 1999.
OTHER
Due to an accounting error in the prior period, the weekly published NAV's of
the fund were overstated by between $0.08 to ($0.10) per share for the period
June 25, 1998 through September 10, 1998. The error resulted from the processing
of stock dividends and rights issues that were not recorded in a timely manner.
The Fund believes that steps have been taken to prevent the re-occurrence of
this problem in the future. The previously issued August 31, 1998 Financial
Statements properly reported the Fund's Net Asset Value.
18
<PAGE> 19
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. State Street Bank and Trust Company acts as Plan Agent for shareholders
in administering the Plan. The Plan also allows you to make optional cash
investments in Fund shares through the Plan Agent.
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 Agent 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 Agent. You may invest any amount from $100 to $3,000 semi-annually. The
Plan Agent 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 Agent. 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: State Street Bank and Trust
Company, P.O. Box 8200, Boston, MA 02266. The Plan Agent 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
<PAGE> 20
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 Agent 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 Agent'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 Agent 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 Agent.
If you withdraw, you will receive, without charge, stock certificates issued in
your name for all full shares, or, if you wish, the Plan Agent will sell your
shares and send you the proceeds, less a service fee of $2.50 and less brokerage
commissions. The Plan Agent 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: State Street Bank and
Trust Company, P.O. Box 8200, Boston, MA 02266, 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
<PAGE> 21
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<PAGE> 22
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<PAGE> 23
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<PAGE> 24
- --------------------------------------------------------------------------------
UNITED STATES ADDRESS
The Taiwan Fund, Inc.
225 Franklin Street
Boston, MA
1-800-636-9242
INVESTMENT ADVISER
China Securities Investment Trust Corporation
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
Vicki Hau, Secretary and Treasurer
Laurence E. Cranch, Assistant Secretary
ADMINISTRATOR, ACCOUNTING AGENT,
TRANSFER AGENT, DIVIDEND PAYING
AGENT, AND REGISTRAR
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
LEGAL COUNSEL
Rogers & Wells LLP, New York, NY
Lee and Li, Taipei, Taiwan
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
Boston, MA
