<PAGE> 1
THE TAIWAN
FUND, INC.
SEMI-ANNUAL REPORT
FEBRUARY 29, 2000
THE TAIWAN
FUND, INC.
WHAT'S INSIDE
<TABLE>
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PAGE
----
<S> <C>
Chairman's Statement 2
Portfolio Manager's Message 4
Portfolio Snapshot 7
Investments 8
Financial Statements 11
Notes to Financial Statements 14
Other Information 17
Summary of Dividend Reinvestment and Cash Purchase Plan 18
</TABLE>
<PAGE> 2
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, 2000. During this period, the
Fund's net asset value ("NAV") increased by approximately 19.04% in U.S. Dollar
terms. During the same period the New Taiwan Dollar appreciated against the U.S.
Dollar by 3.42% and the Taiwan Stock Exchange Index ("TAIEX") increased by
19.76% in U.S. Dollar terms.
On February 29, 2000, the Fund's shares were trading at US$23.13 per share,
representing a discount of 10.07% from the Fund's NAV per share of US$25.72. The
Fund's shares were trading at a discount of 15.27% on August 31, 1999.
The massive earthquake that hit Taiwan on September 21, 1999 claimed over 2,000
lives and over 8,000 people were injured. The epicenter of the earthquake was in
the central part of the island, which is less populated and close to a
mountainous area. The major impact on the economy was not due to the destruction
of buildings and infrastructure facilities, such as highways, railways and
harbors, but due to the power outage, which forced many businesses to close for
several working days. Within a few days after the earthquake, the government's
decision to provide power to Hsin-Chu Science Park on a priority basis minimized
the potential damage to the economy. Indeed, Taiwan's economic growth regained
its momentum the next succeeding quarter primarily due to exports, especially to
Asian countries, as well as continued growth in exports to the U.S. and Europe.
Taiwan's GDP growth rate accelerated to 6.77% in the 4th quarter of 1999 as a
result of the export growth rate. Export growth increased sharply in the second
half of 1999 as a result of increased demand in Asia and globally. During 1999,
Taiwan's GDP growth reached 5.67%, increasing from 4.57% in 1998.
Total exports for 1999 increased by 9.96% (in U.S. Dollar terms) from the
previous year, while total imports increased by 5.76% from the previous year.
The results of the presidential election won by the opposition party, the
Democratic Progressive Party ("DPP") surprised many people in Taiwan and around
the world. The new President, Chen, Shui-Bian, has stated that he would like to
resume the dialogue between Taiwan and China in the near future, and stated that
he supports China's entrance into the World Trade Organization ("WTO"). Many
observers believe these positions should help to relieve tensions across the
Strait. The Chinese government will most likely monitor Taiwan's new leader
during the short-term before deciding its political strategy. Overall, we
believe that the election results indicate pro-reform sentiment among the
electorate rather than
2
<PAGE> 3
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Albert King on Sector Returns:
The volatility of the stock market is reflected not only in the index itself but
also in changes in sectors. The following table shows returns for sectors in the
last three semi-annual periods.
Table 1. Sector Returns: % in terms of NT$
RETURNS (IN NTD)
6 Months 6 Months 6 Months
Ended Ended Ended
INDICES 2/28/99 8/31/99 2/29/00
- ------- ---------------------------
Cable & Wire -17.9% -3.6% 64.7%
Cement -18.2% 5.5% 47.7%
Electronics 6.3% 67.2% 28.0%
Paper & Pulp -11.5% 26.9% 18.0%
Textile -12.0% 18.5% 17.7%
Retail -0.5% 2.7% 14.9%
Food -33.6% -11.0% 13.7%
Plastics 18.7% 41.6% 13.3%
Electrical -14.4% 11.7% 10.0%
Others -32.6% 20.1% 3.0%
Construction -39.5% -8.2% 2.8%
Transportation 8.2% -2.5% 1.6%
Steel -27.3% 24.5% 0.8%
Glass -14.0% -19.3% -1.2%
Financial 7.5% 2.6% -4.7%
Chemical -11.0% 8.7% -8.8%
Tourism -1.9% -3.6% -9.3%
Rubber -13.6% 3.0% -13.6%
Auto -24.9% -15.8% -16.0%
OTC Market -11.9% 16.4% 41.6%
TAIEX Ex
Financial -7.3% 39.3% 21.4%
TAIEX Index -3.5% 29.1% 15.7%
Taiwan Fund -3.0% 41.0% 15.1%
Source: Ta-Fu Broker Database
support for independence. The immediate challenges for the new government will
be to ease tensions with China and to manage a successful transfer of
government. Although we expect the stock market to remain volatile in the near
future due to shifts in sentiment, it should stabilize since the chance of a
cross-strait conflict is slim. Given the continued improvements in the
fundamentals in Taiwan, continued foreign portfolio investments, and lower stock
prices of certain sound companies, the Investment Adviser believes there are
many new attractive investment opportunities in Taiwan, and the Fund maintains
its long-term confidence in the investment fundamentals in Taiwan.
Thank you for your continued support of The Taiwan Fund, Inc. If you have any
questions concerning the Fund, including information on the Fund's holdings, we
invite you to call (toll free) 1-800-636-9242.
Sincerely,
/s/ S.Y. WANG
S.Y. Wang
Chairman
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
The earthquake that hit Taiwan on September 21 claimed over 2,000 lives and over
8,000 people were injured. Although all major infrastructure facilities, such as
highways, railways and harbors remained intact, there was a failure in the power
grid that caused major damage because it forced many businesses to close for
several days. Power rationing remained in place for almost 2 weeks. In the
aftermath of the earthquake, Taiwan's economic growth has regained its momentum
as a result of exports, due to global growth and demand in Asia.
Because of the earthquake, Taiwan's GDP growth rate decreased to
5.14% (on an annual basis) for the 3rd quarter of 1999, compared to 6.55% in the
2nd quarter. The GDP growth rate accelerated in the 4th quarter of 1999,
reaching 6.77% as a result of export growth, which was the major driving force
of economic growth. The stock market did not perform well due to lack of
consumer confidence after the earthquake. During the 4th quarter of 1999, the
Taiwan Stock Exchange Index ("TAIEX"), however, remained stable before rallying
to reach the high of 10,393 by mid-February 2000. The continued inflow of
foreign investments has also contributed to the strong demand for the NT Dollar
and the surge in the stock market. The total amount of portfolio investments
inflow during this reporting period reached NT$ 218.4 billion (US$ 7.1 billion),
which represents approximately 1.6% of the total market capitalization of the
TAIEX.
INVESTMENT STRATEGY
The Taiwan stock market has been extremely volatile of late. Since March 1998,
we have adopted a new investment strategy whereby we divided the Fund into two
parts: the core portfolio and the 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 which 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 65% of its assets to the core portfolio, and the remaining portion
to the active portfolio.
During the six month period ended February 29, 2000, the Fund's NAV increased by
approximately 19.04% in U.S. Dollar terms, while the TAIEX increased by 19.76%
in U.S. Dollar terms. The slight underperformance of the Fund compared to the
TAIEX was due to the fact that the Fund was overweighted in cyclical sectors
such as plastics and shipping, while both sectors underperformed the market by
2.4% and 14.1%, respectively.
By the end of February 2000, the Fund was focusing on the technology sector,
especially the upper-stream and electronics components-
4
<PAGE> 5
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Albert King on Taiwan's Earthquake:
The immediate impact of the earthquake on the economy in Taiwan was a
contraction in export growth, which is a driving force for Taiwan's
economic growth. The major reason for the contraction in export growth was
the power outage. However, the government was able to minimize potential
damage to the economy. From an economic perspective, the earthquake caused
a dip rather than a downward trend in the economy and the financial
markets.
Table 2. Taiwan's Presidential Election Voting Statistics
Presidential
Election(%) 3/96 3/00
- --------------------------------------------------------------------------------
DPP 21.13 39.30
KMT 54.00 23.10
James Soong 0.00 36.84
Independents 24.87 0.76
- --------------------------------------------------------------------------------
Legislative
Yuan (Seats)(1) 11/98
- --------------------------------------------------------------------------------
DPP 72
KMT 126
New Party 11
Independents 16
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National
Assembly (Seats)(2) 5/96
- --------------------------------------------------------------------------------
DPP 88
KMT 179
New Party 39
Independents 10
(1) Legislative Yuan is equivalent to the United States Congress. The next
elections will be held November 2000.
(2) The National Assembly amends the Constitution. The next elections will
be held May 2000.
related sectors. In particular, attention was directed towards the semiconductor
sub-sector which includes companies in the IC ("Integrated Circuit")
foundry-related business, such as Taiwan Semiconductor Manufacturing Co.
("TSMC") and United Micro Electronics Co. ("UMC"). Also, the Fund added shares
in chip memory makers, such as Winbond Electronics Co. and Macronix
International. The weakness in the prices of semiconductor companies during the
past 3 years has reduced major IC-manufacturers' capabilities to increase
capital expenditures ("CAPEX") due to concerns about deteriorating cash flows.
CAPEX growth is expected to increase in the year 2000. As a result, we are
anticipating a better demand-supply balance in 2000 and 2001. We are also
relatively bullish on PC component related companies, such as Hon-Hai Precision
Industry and Asustek Computer. Both of these companies were able to maintain
their gross margin levels well above the industry average in 1999.
Other than the technology sectors, we are optimistic about plastics and textile
companies, because of increased demand from Asia. In addition, oil prices have
recently rebounded along with the CRB Industrial Index. For many years, Asian
export growth has relied on commodity related products such as plastics,
textiles, steel, rubber, paper and pulp. Specifically, we prefer the Formosa
Plastics Group, Taiwan's largest petrochemical manufacturer, as we believe the
implementation of its Sixth Naphtha Cracker ("SNC") will improve its worldwide
competitiveness.
In the over-the-counter market, the Fund increased its investment in PC
component-related companies, such as Team Young Advanced Ceramics and Catcher
Technology. Also, the Fund increased its investment in securities of
finance-related companies, such as Polaris and Jih-Sun Securities Co.
OUTLOOK
We believe that the victory of the DPP in the presidential election indicates
that the majority of voters want reform. More than 75% of the votes cast were
for non-KMT candidates. The new leader, Chen, Shui-Bian, faces two major
challenges. The first challenge is easing tensions with China. The second
challenge is managing a successful government transfer. Mr. Chen has
demonstrated his desire to improve Taiwan's relationship with China on both the
political and economic fronts. He has stated that he wants to resume the
dialogue between Taiwan and China in the near future, and supports China's
entrance into the WTO. Both statements are considered positive signs in the
effort to relieve the tensions across the Strait. The Chinese government most
likely will monitor Taiwan's new leader for a while before deciding its
political strategy. We believe that there should be no immediate risk of a
cross-strait conflict, and thus, we believe the market will resume its upward
trend.
5
<PAGE> 6
PORTFOLIO MANAGER'S MESSAGE (CONTINUED)
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In the short term, however, the stock market may remain volatile due to shifts
in sentiment. The government transfer may temporarily slow investment and
consumption further delaying the recovery of the domestic economy. The banking
sector may suffer from short-term weakness as investors expect a rise in
non-performing loans due to defaults on political loans. However, given the
DPP's record in running the city/county governments, we expect increased
efficiency in government and a more open economy, which should bring more
business opportunities in the longer term. From an investment strategy
point-of-view, we prefer to focus on the export-driven technology sector, which
has the least exposure to domestic politics and the domestic economy.
We thank you for your continued support and look forward to presenting 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 FEBRUARY 29, 2000 %
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Taiwan Semiconductor Manufacturing Co. 9.3
- --------------------------------------------------
United Microelectronics Corp. Ltd. 8.0
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Asustek Computer Inc. 4.8
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Hon Hai Precision Industry 4.3
- --------------------------------------------------
Nan Ya Plastics Corp. 3.4
- --------------------------------------------------
Winbond Electronics Corp. 2.9
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Formosa Plastic 2.9
- --------------------------------------------------
Nien Hsing Textile Co. Ltd. 2.5
- --------------------------------------------------
Formosa Chemical & Fiber 2.4
- --------------------------------------------------
Cathay Life Insurance Co. Ltd. 2.4
- --------------------------------------------------
</TABLE>
TOP TEN EQUITY INDUSTRY WEIGHTINGS
<TABLE>
<S> <C> <C>
WEIGHTINGS AS OF FEBRUARY 29, 2000 %
- --------------------------------------------------
Semi-conductor 22.6
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Electronics 16.7
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Office Equipment & PC 15.0
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Banks 8.8
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Textiles & Apparel 7.2
- --------------------------------------------------
Plastics 7.0
- --------------------------------------------------
Insurance 3.0
- --------------------------------------------------
Others & Miscellaneous 2.8
- --------------------------------------------------
Shipping 1.9
- --------------------------------------------------
Iron & Steel 1.7
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</TABLE>
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
- --------------------------------------------------
China Steel Corp. 3.3
- --------------------------------------------------
Advanced Semiconductor Engineering, Inc. 3.2
- --------------------------------------------------
Winbond Electronics Corp. 3.2
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Cathay Life Insurance Co. Ltd. 3.1
- --------------------------------------------------
Nan Ya Plastics Corp. 3.0
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</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
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Insurance 4.1
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Iron & Steel 3.3
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Shipping 2.3
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Chemicals 1.7
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</TABLE>
7
<PAGE> 8
THE TAIWAN FUND, INC.
INVESTMENTS/FEBRUARY 29, 2000 (SHOWING PERCENTAGE OF TOTAL VALUE OF
INVESTMENT IN SECURITIES) (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
US$
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
COMMON STOCKS - 98.2%
BASIC INDUSTRIES - 12.3%
CEMENT - 1.2%
Asia Cement............................. 1,999,999 $ 2,136,807
Taiwan Cement Corp. .................... 2,199,999 3,088,598
------------
5,225,405
------------
CHEMICALS - 0.4%
Eternal Chemical Co. Ltd. .............. 400,000 527,687
Oriental Union Chemical................. 752,000 605,030
Yung Shin Pharmaceutical Industries
Co. ................................... 379,000 519,736
------------
1,652,453
------------
ELECTRICAL EQUIPMENT - 0.0%
Taichung Machinery (a).................. 116 0
------------
GLASS - 0.3%
Taiwan Glass............................ 1,350,000 1,099,348
------------
IRON & STEEL - 1.7%
China Steel Corp. ...................... 9,500,000 7,364,821
------------
PAPER & FOREST PRODUCTS - 0.4%
Yuen Foong Yu Paper Manufacturing (a)... 2,200,000 1,490,554
------------
PLASTICS - 7.0%
Formosa Plastic......................... 5,604,999 12,323,694
Nan Ya Plastics Corp. .................. 6,428,999 14,240,128
USI Far East Corp. (a).................. 3,300,000 3,042,019
------------
29,605,841
------------
RUBBER - 0.5%
Cheng Shin Rubber Industrial Co. ....... 1,354,000 1,265,791
Taiwan Synthetic Rubber (a)............. 1,543,000 663,440
------------
1,929,231
------------
WIRE & CABLE - 0.8%
Pacific Electrical Wire & Cable (a)..... 1,787,000 1,856,850
Walsin Lihwa Corp....................... 1,700,000 1,544,951
------------
3,401,801
------------
TOTAL BASIC INDUSTRIES.................. 51,769,454
------------
</TABLE>
<TABLE>
<CAPTION>
US$
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
CONSTRUCTION & REAL ESTATE - 0.9%
Cathay Construction..................... 2,856,000 $ 1,209,381
Hung Poo Construction Corp. ............ 1,030,000 379,120
Kindom Construction Co. Ltd. (a)........ 3,750,000 2,381,922
------------
TOTAL CONSTRUCTION & REAL ESTATE........ 3,970,423
------------
DURABLES - 7.9%
AUTOMOBILES, TIRES & ACCESSORIES - 0.7%
China Motor Co. ........................ 1,407,000 1,530,742
Yue Loong Motor......................... 1,759,999 1,490,553
------------
3,021,295
------------
TEXTILES & APPAREL - 7.2%
Far Eastern Textile Ltd. ............... 3,000,000 6,547,231
Formosa Chemical & Fiber................ 6,800,000 10,188,925
Formosa Taffeta Co. Ltd. ............... 1,310,000 1,066,775
Lealea Enterprise (a)................... 2,800,000 975,896
Nien Hsing Textile Co. Ltd. ............ 4,500,000 10,773,615
Shinkong Synthetic Fibers Corp. (a)..... 2,800,000 957,655
------------
30,510,097
------------
TOTAL DURABLES.......................... 33,531,392
------------
FINANCE - 13.3%
BANKS - 8.8%
Bank Sinopac............................ 7,000,000 4,811,075
Chang Hwa Commercial Bank (a)........... 2,005,000 2,403,388
Chiao Tung Bank......................... 1,500,000 2,516,287
China Trust Commercial Bank (a)......... 3,016,000 3,241,954
Chung Hsing Bills Finance (a)........... 3,956,000 1,662,293
E. Sun Commercial Bank (a).............. 3,085,000 1,557,573
First Commercial Bank (a)............... 5,155,000 7,505,814
Hwa Nan Commercial Bank Ltd. (a)........ 2,600,000 3,599,348
ICBC.................................... 2,530,000 2,843,159
Taipei Bank (a)......................... 1,186,900 1,074,782
Taishin International Bank (a).......... 3,000,000 2,013,029
United World Chinese.................... 3,136,000 3,963,414
------------
37,192,116
------------
</TABLE>
8 The accompanying notes are an integral part of the financial statements.
<PAGE> 9
INVESTMENTS/FEBRUARY 29, 2000 (continued)
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<TABLE>
<CAPTION>
US$
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
COMMON STOCKS - continued
FINANCIAL SERVICES - 1.5%
Jih Sun Securities Co. Ltd. ............ 2,500,000 $ 3,013,030
Polaris Securities Co. Ltd. (a)......... 2,500,000 3,289,902
------------
6,302,932
------------
INSURANCE - 3.0%
Cathay Life Insurance Co. Ltd. ......... 3,622,000 10,028,338
Shin Kong Life Insurance Co. ........... 2,205,000 3,095,619
------------
13,123,957
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TOTAL FINANCE........................... 56,619,005
------------
NONDURABLES - 1.2%
FOODS - 1.1%
AGV Products Corp. (a).................. 2,700,000 1,050,977
Great Wall Enterprises.................. 1,000,000 392,508
President Enterprises Corp. ............ 3,580,000 3,288,469
------------
4,731,954
------------
LEISURE RELATED - 0.1%
Leofoo Development...................... 666,000 600,919
------------
TOTAL NONDURABLES....................... 5,332,873
------------
OTHERS & MISCELLANEOUS - 2.8%
Giant Manufacturing..................... 879,999 1,051,986
Pou Chen (a)............................ 1,218,000 2,797,036
Taiwan Secom Co. ....................... 403,000 1,069,853
Team Young Advanced Ceramics Co. Ltd.
(a).................................... 1,500,000 6,938,111
------------
TOTAL OTHERS & MISCELLANEOUS............ 11,856,986
------------
RETAIL & WHOLESALE - 0.8%
GENERAL MERCHANDISE STORES - 0.8%
Far Eastern Department Stores........... 1,058,000 637,557
President Chain Store Corp. ............ 613,000 2,675,635
------------
TOTAL RETAIL & WHOLESALE................ 3,313,192
------------
</TABLE>
<TABLE>
<CAPTION>
US$
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
TECHNOLOGY - 56.8%
COMPUTER SERVICE & SOFTWARE - 0.9%
Systex Corp. (a)........................ 550,000 $ 3,636,808
------------
ELECTRICAL EQUIPMENT - 0.7%
Phoenixtec Power Co. Ltd. .............. 600,000 1,328,990
Teco Electric & Machinery Co. .......... 1,099,999 1,583,712
------------
2,912,702
------------
ELECTRONICS - 16.7%
Advanced Semiconductor Engineering, Inc.
(a)................................... 2,049,999 6,844,459
Catcher Technology Co. Ltd. (a)......... 799,200 5,310,645
CMC Magnetics Corp. (a)................. 800,000 4,091,205
Compeq Manufacturing Co. Inc. (a)....... 715,000 4,401,791
Delta Electronics, Inc. ................ 1,900,000 9,159,609
Hon Hai Precision Industry (a).......... 1,967,000 18,324,495
Micro-Star International Co. Ltd. (a)... 800,000 4,716,612
Ritek, Inc. (a)......................... 450,000 2,799,674
Siliconware Precision Industry (a)...... 1,000,000 2,084,691
Ton Yi Industrial Corp. (a)............. 1,305,999 548,775
Via Technologies, Inc. (a).............. 280,000 3,228,664
Wintek Corp. (a)........................ 1,000,000 4,885,993
Yageo Corp.............................. 3,000,000 4,543,974
------------
70,940,587
------------
OFFICE EQUIPMENT & PC - 15.0%
Acer, Inc. (a).......................... 2,400,000 6,527,687
Acer Peripherals, Inc. ................. 1,771,000 8,220,439
Acer Sertek, Inc. ...................... 700,000 4,423,453
Asustek Computer, Inc. ................. 1,631,000 20,347,654
Compal Electronics, Inc. ............... 1,034,000 3,603,843
Inventec Co. Ltd. (a)................... 1,056,000 2,786,189
Quanta Computer, Inc. .................. 724,000 5,400,521
Synnex Technology International......... 1,310,000 9,174,267
Tatung Co. (a).......................... 2,200,000 3,067,101
------------
63,551,154
------------
SEMI-CONDUCTOR - 22.6%
Macronix International Co. Ltd. (a)..... 2,220,000 5,242,671
Powerchip Semiconductor Corp. (a)....... 3,000,000 5,081,433
Taiwan Semiconductor Manufacturing Co.
(a).................................... 6,000,000 39,283,386
United Microelectronics Corp. Ltd.
(a).................................... 9,200,000 33,713,354
Winbond Electronics Corp. (a)........... 5,000,000 12,377,850
------------
95,698,694
------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 9
<PAGE> 10
INVESTMENTS/FEBRUARY 29, 2000 (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
US$
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
COMMON STOCKS - continued
TELECOMMUNICATIONS - 0.9%
Ambit Microsystems Corp. ............... 300,000 $ 3,087,947
D-Link Corp. ........................... 300,000 830,619
------------
3,918,566
------------
TOTAL TECHNOLOGY........................ 240,658,511
------------
TRANSPORTATION - 2.2%
AIR TRAVEL - 0.3%
China Airlines (a)...................... 1,840,000 1,330,554
------------
SHIPPING - 1.9%
Evergreen Marine Corp. (a).............. 6,106,000 5,747,993
U-Ming Marine Transport (a)............. 2,028,000 865,368
Wan Hai Lines Ltd. ..................... 960,000 888,078
Yang Ming Marine Transport (a).......... 1,378,000 763,062
------------
8,264,501
------------
TOTAL TRANSPORTATION.................... 9,595,055
------------
TOTAL COMMON STOCKS (Identified Cost -
$258,287,097).......................... 416,646,891
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
NT$
---------
<S> <C> <C>
CERTIFICATES OF DEPOSIT - 1.1%
Kaohsiung Business Bank:
4.35%, 3/17/00......................... 30,174,252 982,872
4.35%, 3/21/00......................... 20,058,000 653,353
4.35%, 3/24/00......................... 20,058,000 653,354
4.35%, 3/25/00......................... 20,058,000 653,354
4.35%, 3/29/00......................... 5,000,000 162,866
Union Bank of Taiwan 4.725%, 3/04/00.... 50,321,624 1,639,138
------------
TOTAL CERTIFICATES OF DEPOSIT
(Identified Cost - $4,745,120)......... 4,744,937
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL US$
AMOUNT VALUE
NT$ (NOTE 1)
--------- --------
COMMERCIAL PAPER - 0.5%
Huang Tsen 4.60%, 3/07/00 (b)
(Identified Cost - $1,952,473)........ 59,940,920 $ 1,952,473
------------
<CAPTION>
MATURITY
AMOUNT
US$
--------
<S> <C> <C>
<S> <C> <C>
REPURCHASE AGREEMENT - 0.2%
With State Street Bank and Trust Co. at
2.00%, dated 2/28/00, due 3/6/00
(collateralized by US Treasury Notes
5.625%, 5/15/08, market value of
$659,904)............................. $ 644,250 $ 644,000
------------
TOTAL INVESTMENTS - 100%
(COST - $265,628,690).................. $423,988,301
============
</TABLE>
LEGEND:
NT$ - 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 February 29, 2000, the aggregate cost basis of the Fund's investment
securities for income tax purposes was $266,691,874. Net unrealized appreciation
of the Fund's investment securities was $157,296,427, of which $170,655,732
related to appreciated investment securities and $13,359,305 related to
depreciated investment securities for the six months ended February 29, 2000. In
addition, the Fund had a capital loss carryforward of $7,668,967 for the year
ended August 31, 1999. The capital loss carryforward 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
February 29, 2000 (Unaudited)
<TABLE>
<S> <C> <C>
ASSETS
Investment in securities, at value
(including repurchase agreement of
$644,000) (cost $265,628,690 (Notes 1 and
2) - See accompanying schedule........... $423,988,301
Cash...................................... 394
Cash in New Taiwan dollars (cost
$95,154)................................. 95,154
Receivable for investments sold........... 1,887,203
Interest receivable....................... 9,916
------------
Total assets............................. 425,980,968
------------
LIABILITIES
Payable for investments purchased......... $4,310,064
Accrued management fee (Note 3)........... 497,233
Taiwan withholding tax payable (Note 1)... 1,895
Other payables and accrued expenses....... 269,095
----------
Total liabilities........................ 5,078,287
------------
NET ASSETS................................ $420,902,681
============
Net Assets consist of (Note 1):
Paid in capital........................... $263,196,276
Accumulated net investment loss........... (3,586,985)
Accumulated undistributed net realized
gain on investments and foreign
currency................................. 2,934,891
Net unrealized appreciation (depreciation)
on:
Investment securities.................... 158,359,611
Assets and liabilities denominated in
foreign currencies..................... (1,112)
------------
NET ASSETS................................ $420,902,681
============
NET ASSET VALUE, per share ($420,902,681 /
16,365,572 shares outstanding)........... $25.72
=====
</TABLE>
STATEMENT OF OPERATIONS
Six Months Ended February 29, 2000 (Unaudited)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends................................. $ 17,343
Interest.................................. 171,653
-----------
188,996
Less: Taiwan witholding tax (Note 1)...... (32,256)
-----------
Total Income............................. 156,740
EXPENSES
Management fee (Note 3)
Basic fee................................ $ 2,401,031
Performance adjustment................... 517,684
Custodian fees and expenses............... 308,694
Administration and accounting fees (Note
3)....................................... 148,617
Directors compensation.................... 72,284
Audit..................................... 61,661
Legal..................................... 59,920
Shareholder communications................ 44,754
Delaware franchise tax.................... 41,599
Taiwan stock dividend tax (Note 1)........ 31,531
Insurance fees............................ 29,837
Transfer agent fees....................... 9,804
Miscellaneous............................. 16,309
-----------
Total expenses........................... 3,743,725
-----------
NET INVESTMENT LOSS...................... (3,586,985)
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 1)
Net realized gain on:
Investment securities.................... 21,207,763
Foreign currency transactions............ 21,517
-----------
21,229,280
Change in net unrealized appreciation
(depreciation) on:
Investment securities.................... 49,654,409
Assets and liabilities denominated in
foreign currencies..................... (8,406)
-----------
49,646,003
-----------
Net gain.................................. 70,875,283
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS............................... $67,288,298
===========
</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>
Six Months Ended Year Ended
February 29, 2000 August 31,
(Unaudited) 1999
----------------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment loss........................................ $ (3,586,985) $ (3,284,354)
Net realized gain (loss) on investments and foreign
currency transactions.................................... 21,229,280 (22,045,955)
Change in net unrealized appreciation on investments and
foreign currency transactions............................ 49,646,003 144,117,776
------------ ------------
Net increase in net assets resulting from operations....... 67,288,298 118,787,467
------------ ------------
Distributions to shareholders
From net realized gains.................................... 0 (16,529,228)
------------ ------------
Total distributions to shareholders........................ 0 (16,529,228)
------------ ------------
Total increase (decrease) in net assets.................... 67,288,298 102,258,239
------------ ------------
NET ASSETS
Beginning of period....................................... 353,614,383 251,356,144
------------ ------------
End of period (including accumulated net investment loss of
$3,586,985 and $0 respectively).......................... $420,902,681 $353,614,383
============ ============
OTHER INFORMATION
Shares (Note 4)
Sold....................................................... 0 0
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>
Six Months Ended
February 29, Years Ended August 31,
2000 --------------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
---------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
Net asset value, beginning of period............... $ 21.61 $ 15.36 $ 35.98 $ 22.25 $ 18.28 $ 32.26
-------- -------- -------- -------- -------- --------
Income from Investment Operations
Net investment loss(a)............................ (0.22) (0.20)(d) (0.33)(c) (0.50) (0.18)(b) (0.19)
Net realized and unrealized gain (loss) on
investments..................................... 4.33 7.46 (15.68) 14.24 4.18 (7.27)
-------- -------- -------- -------- -------- --------
Total from investment operations.................. 4.11 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..................... $ 25.72 $ 21.61 $ 15.36 $ 35.98 $ 22.25 $ 18.28
======== ======== ======== ======== ======== ========
Market value, end of period........................ $ 23.13 $ 18.31 $ 11.00 $ 25.56 $ 23.50 $ 21.63
======== ======== ======== ======== ======== ========
TOTAL RETURN
Per-share market value............................. 26.28% 79.41% (48.87)% 8.80% 8.80% (12.00)%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted)............ $420,903 $353,614 $251,356 $588,911 $364,159 $271,095
Ratio of expenses to average net assets(e)......... 2.02%* 2.21% 2.29%(f) 2.56% 2.24% 2.43%
Ratio of expenses to average net assets, excluding
stock dividend tax expense........................ 2.01%* 1.88% 1.87%(f) 2.25% 1.81% 2.02%
Ratio of net investment loss to average net
assets............................................ (1.94)%* (1.15)% (1.51)% (1.74)% (0.92)% (0.78)%
Portfolio turnover rate............................ 61% 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.
* Annualized.
The accompanying notes are an integral part of the financial statements. 13
<PAGE> 14
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 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, 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 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). 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 of the Fund 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 (unaudited) (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 February 29, 2000 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
securities 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.
15
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES - continued
Permanent 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
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
$225,084,545 and $222,133,930, 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 .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, 2000, the management fee, including the
performance adjustments, was equivalent to an annual rate of 1.58% 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. Prior to November 1, 1999 for these services, the
Fund paid 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. Effective November 1, 1999 the fund approved an increase in the
administration fees to an 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, 2000, 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
OTHER INFORMATION (unaudited)
- --------------------------------------------------------------------------------
RESULTS OF ANNUAL STOCKHOLDER MEETING VOTING HELD FEBRUARY 28, 2000
1.) ELECTION OF DIRECTORS - The stockholders of the fund elected David Dean,
Benny T. Hu, Lawrence J. Lau, 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.
<TABLE>
<CAPTION>
For Withheld
--- --------
<S> <C> <C>
David Dean 8,379,613.430 31,378.277
Benny T. Hu 8,377,861.732 33,129.975
Lawrence J. Lau 8,377,861.732 33,129.975
Joe O. Rogers 8,377,861.732 33,129.975
Jack C. Tang 8,377,861.732 33,629.975
Gloria Wang 8,377,861.732 33,129.975
Lawrence F. Weber 8,377,861.732 33,129.975
Shao-Yu Wang 8,377,861.732 33,629.975
</TABLE>
2.) RATIFICATION OR REJECTION OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS - The
stockholders of the Fund ratified the selection of PricewaterhouseCoopers
LLP as independent public accountants of the Fund for the fiscal year ending
August 31, 2000.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C>
8,391,041.638 10,944.092 9,005.000
</TABLE>
BYLAW AMENDMENT
The Board of Directors of the Fund, at a meeting held on October 11, 1999,
approved an amendment to the Fund's Bylaws which requires that a stockholder 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 purpose of filing the Amended and Restated
Bylaws on October 27, 1999.
AMENDED CODE OF ETHICS
At a meeting of the Board of Directors of the Fund held on April 11, 2000, the
Directors adopted an amended Code of Ethics to conform to the amendments to Rule
17j-1 under the Investment Company Act of 1940, adopted by the Securities and
Exchange Commission on August 27, 1999. In accordance with Rule 17j-1, the Fund
intends to file an amendment to its Registration Statement on or about May 2,
2000 to reflect the adoption of an amended Code of Ethics.
17
<PAGE> 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. 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.
18
<PAGE> 19
- --------------------------------------------------------------------------------
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.
19
<PAGE> 20
- --------------------------------------------------------------------------------
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
Clifford Chance Rogers & Wells LLP, New York, NY
Lee and Li, Taipei, Taiwan
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
Boston, MA
