[LOGO]
=========================
THE
R. O. C.
TAIWAN FUND
=========================
Quarterly Report
June 30, 1996
<PAGE>
- --------------------------------------------------------------------------------
Dear Stockholders
- --------------------------------------------------------------------------------
The net asset value per share of The R.O.C. Taiwan Fund gained 21.7% in the
second quarter in a buoyant market environment that saw the Taiwan Stock
Exchange Index (TAIEX) rise 30.4%. During the period, the New Taiwan dollar
depreciated 1.0% against the U.S. dollar.
The underlying theme throughout the quarter was the Morgan Stanley plan to
add the Taiwan market to its global stock indices. First broached by the local
Securities & Exchange Commission in April, it was confirmed by the U.S.
investment bank on June 10 that Taiwan would be covered in three Morgan Stanley
stock indices from September 2. In the Emerging Markets Free Index, used by many
international institutional investors in allocating assets and as a performance
benchmark, Taiwan will have a 7.9% weighting and stocks included will represent
about 60% of the Taiwan market. This boosted investor sentiment since it was
expected that foreign demand for Taiwan stocks would be brisk.
The Morgan Stanley story was played out in a setting of optimism over
reduced tensions with China. There were even some indications that cross-strait
relations -- after a series of Chinese military maneuvers since mid-1995 aimed
at intimidating Taiwan -- would take a turn for the better. The most positive
developments were in the economic sphere. In mid-June, for instance, came the
signing of a long-delayed new air navigation accord between Hong Kong and
Taiwan, which required China's approval.
So far this year, Taiwan's economy has continued to be affected by the
fall-out from tensions with China and could use the boost that improved
relations would bring. China is Taiwan's second largest export market and the
recipient of more than $20 billion in investment by Taiwan companies. Following
first quarter growth of 5.3% -- higher than consensus estimated but below the
official 5.8% forecast -- Taiwan's economy almost certainly did not achieve the
government projection of 6.1% expansion in the second quarter. Growth in
merchandise exports, the equivalent of about 40% of Taiwan's gross national
product, fell from 9% in the first quarter to less than 4% in the recent period
when industrial production was flat.
Most available data show that the economy bottomed out in the second
quarter. Certain indicators, in fact, had already started to pick up by the end
of the period. Thus, while the government forecast of 6.2% growth for the whole
year is probably out of reach, the second half should see steady improvement.
This will come as the government continues its expansionary monetary policy,
which is steadily pushing down interest rates.
The primary focus of our investment strategy will be to increase holdings
of stocks -- mainly blue-chip industrials and large-capitalization financial
issues -- that will be included in the Morgan Stanley indices. We will also
target stocks of companies that stand to benefit from an increase in economic
activity with China. As noted above, economic relations have already started to
improve. In addition, the recent easing of austerity measures in China is
expected to boost cross-strait business.
We thank you for your support and look forward to discussing our market
outlook and investment strategy with you in future reports.
Respectively submitted,
/s/ Daniel Chiang
Daniel Chiang
President
August 15, 1996
1
<PAGE>
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Portfolio Highlights
Three Months Ended June 30, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Key Statistics
- --------------------------------------------------------------------------------
Change in N.A.V. ($8.93 to $10.87) $1.94
- --------------------------------------------------------------------------------
Total Net Assets $367.7 Million
================================================================================
- --------------------------------------------------------------------------------
Security Classification
- --------------------------------------------------------------------------------
Value
Percent of Net Assets (000)
- ----------------------------------------------------------- --------
Common & Preferred Stocks 103.00% $366,931
Short-Term Investments 3.20 11,772
------- --------
Total Investments 99.18 378,703
Other Assets Less
Liabilities -3.00 -11,029
- --------------------------------------------------------------------------------
Net Assets 100.00% $367,674
================================================================================
- --------------------------------------------------------------------------------
Ten Largest Holdings
- --------------------------------------------------------------------------------
Percent of
Company Net Assets
- ----------------------------------------------------------- ----------
Cathay Life Insurance Co. 7.95%
First Commercial Bank 6.43
Chang Hwa Commercial Bank 6.38
Hua Nan Commercial Bank 4.41
China Steel Corp. 4.28
Taiwan Cement Corp. 4.05
ChinaTrust Commercial Bank 3.47
Formosa Plastics Corp. 2.53
Evergreen Marine Corp. 2.22
Taiwan Glass Industrial Corp. 2.08
================================================================================
- --------------------------------------------------------------------------------
Industry Diversification
- --------------------------------------------------------------------------------
Percent of
Ten Largest Sectors Net Assets
- ----------------------------------------------------------- -----------
Banking 24.84%
Other Financials 14.28
Electronics 10.28
Steel & Other Metals 6.79
Textiles 6.36
Plastics 5.65
Electrical & Machinery 5.03
Cement 4.92
Construction 4.38
Transportation 3.29
================================================================================
2
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
The R.O.C. Taiwan Fund / June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
COMMON AND PREFERRED STOCKS -- 99.80% % of Market Value
Automobile -- 1.69%% Net Assets (U.S. Dollars)
- --------------------------------------------------------------------------------
5,968,000 * Yulon Motor Co., Ltd. ................... 1.42 $ 5,206,543
635,000 * China Motor Corp. ....................... 0.27 992,548
-----------
6,199,091
Banking -- 24.84%
- --------------------------------------------------------------------------------
4,140,180 * The First Commercial Bank ............... 6.43 23,628,071
4,082,000 * Chang Hwa Commercial Bank ............... 6.38 23,444,420
3,100,000 * Hua Nan Commercial Bank ................. 4.41 16,226,827
5,712,000 * China Trust Commercial Bank ............. 3.47 12,769,466
1,540,800 China Development Corp. ................. 1.38 5,068,789
1,470,000 Taipei Business Bank .................... 1.13 4,167,939
2,399,000 * Bank Sinopac ............................ 0.60 2,206,278
2,392,000 * Dah An Commercial Bank .................. 0.58 2,130,280
1,281,000 * E. Sun Commercial Bank .................. 0.33 1,210,687
515,000 Taishin International Commercial Bank ... 0.13 462,395
-----------
91,315,152
Other Financials -- 14.28%
- --------------------------------------------------------------------------------
4,146,000 Cathay Life Insurance Co., Ltd. ......... 7.95 29,237,513
1,725,000 Shinkong Fire & Marine Insurance Co., Ltd. 2.03 7,461,832
10,039,000 * International Bills Finance Co., Ltd. ... 1.88 6,897,023
1,718,000 * Yuan Ta Securities Corp. ................ 0.75 2,779,026
551,100 National Investment Trust Co., Ltd. ..... 0.39 1,422,323
1,467,750 * Capital Securities Corp. ................ 0.37 1,355,175
900,000 * Fubon Securities Co., Ltd. .............. 0.31 1,131,952
500,000 Fuh Hwa Securities Finance Co., Ltd. .... 0.27 981,461
491,000 * National Securities Corp. ............... 0.10 369,455
500,000 * Polaris Securities Co., Ltd. ............ 0.09 336,241
500,000 * Taiwan International Securities Co., Ltd. 0.09 328,971
200,000 Grand Cathay Securities Corp. ........... 0.05 183,206
-----------
52,484,178
Cement -- 4.92%
- --------------------------------------------------------------------------------
6,070,900 Taiwan Cement Corp ...................... 4.05 14,895,883
1,605,000 Asia Cement Corp. ....................... 0.87 3,179,662
-----------
18,075,545
Chemical -- 2.64%
- --------------------------------------------------------------------------------
4,837,000 * China Man-made Fiber Corp ............... 1.34 4,923,155
2,260,000 Oriental Union Chemical Corp. ........... 0.86 3,154,635
2,011,000 * Namchow Chemical Industrial Co., Ltd. ... 0.44 1,644,765
-----------
9,722,555
See accompanying notes to consolidated financial statements and
accountants' review report.
3
<PAGE>
The R.O.C. Taiwan Fund
% of Market Value
Construction -- 4.38% Net Assets (U.S. Dollars)
- --------------------------------------------------------------------------------
5,411,281 * Goldsun Development & Construction
Co., Ltd ............................... 1.32 $ 4,858,547
2,200,074 Cathay Construction Co., Ltd. ........... 1.17 4,318,575
2,200,000 * Pacific Construction Co., Ltd. .......... 0.60 2,199,200
2,400,000 * Tuntex Distinct Corp. ................... 0.58 2,146,129
911,000 * Long Bon Construction Corp. ............. 0.26 953,719
1,000,000 * Pao Shiang Industries ................... 0.23 843,330
1,000,000 * Chang Ku Building Co., Ltd. ............. 0.22 806,979
-----------
16,126,479
Electrical & Machinery -- 5.03%
- --------------------------------------------------------------------------------
2,489,477 Teco Electric and Machinery Co., Ltd. ... 1.39 5,112,884
2,372,494 * Taichung Machinery Works Co., Ltd. ...... 1.13 4,165,448
1,373,250 Tatung Co., Ltd. ........................ 0.86 3,144,847
1,395,690 Shihlin Electric & Engineering Corp. .... 0.84 3,094,769
1,283,600 * Phoenixtec Power Co., Ltd. .............. 0.59 2,160,330
800,000 * Sampo Corp. ............................. 0.22 822,974
-----------
18,501,252
Electronics -- 10.28%
- --------------------------------------------------------------------------------
5,778,825 * Orient Semiconductor Electronics Co., Ltd 1.72 6,322,888
2,419,000 * Hon Hai Precision Ind. Co., Ltd. ........ 1.60 5,897,837
3,598,268 * GVC Corp. ............................... 1.32 4,852,626
2,881,800 Primax Electronics Co., Ltd. ............ 1.30 4,797,762
1,481,000 * Synnex Technology International Corp. ... 1.05 3,876,118
2,094,000 * Wus Printed Circuit Co., Ltd. ........... 1.03 3,775,442
779,000 * Delta Electronic Inc. ................... 0.48 1,755,653
911,099 * Advanced Semiconductor Engineering Inc. . 0.41 1,490,347
821,480 * Siliconware Precision Industries Co., Ltd 0.32 1,179,515
1,306,000 * Mitac International Corp. ............... 0.29 1,053,915
735,000 * Megamedia Corp. ......................... 0.25 911,069
315,000 * Clevo Corp. ............................. 0.25 904,580
585,000 * Opto Tech. Corp. ........................ 0.13 469,956
154,000 * Umax Data Systems Inc. .................. 0.07 268,702
50,000 * Dyna Image Corp. ........................ 0.03 123,592
91,418 Taiwan Liteon Electronic Co., Ltd. ...... 0.03 101,686
1,000 * Acer Inc. ............................... 0.00 1,494
------------
37,783,182
See accompanying notes to consolidated financial statements and
accountants' review report.
4
<PAGE>
Schedule of Investments (Cont'd.)
% of Market Value
Food -- 2.01% Net Assets (U.S. Dollars)
- ------------------------------------------------------------------------------
1,285,000 shs. * Standard Foods Taiwan Ltd. ........... 0.81 $ 2,966,103
2,872,160 * Wei Chuan Foods Corp. ................ 0.78 2,871,116
2,461,000 * Eagle Holding Corp. .................. 0.42 1,556,576
-----------
7,393,795
Glass -- 2.08%
- ------------------------------------------------------------------------------
3,258,145 Taiwan Glass Industrial Corp. ........ 2.08 7,639,053
-----------
7,639,053
Paper -- 1.60%
- ------------------------------------------------------------------------------
7,807,388 * Cheng Loong Co., Ltd. ................ 1.58 5,817,937
96,000 * Long Chen Paper Co., Ltd. ............ 0.02 64,908
-----------
5,882,845
Plastics -- 5.65%
- ------------------------------------------------------------------------------
3,600,822 Formosa Plastics Corp. ............... 2.53 9,293,288
4,000,000 * China Petrochemical Development Corp. 1.29 4,740,094
1,322,073 Nan Ya Plastics Corp. ................ 0.84 3,075,706
1,500,000 * Tong Yang Industry Co., Ltd. ......... 0.66 2,442,748
610,740 Union Petrochemical Corp. ............ 0.19 699,321
480,000 Grand Pacific Petrochemical Corp. Pf . 0.14 537,405
-----------
20,788,562
Retailing -- 0.06%
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180,000 * Far Eastern Department Stores Ltd. ... 0.06 235,551
-----------
235,551
Rubber -- 1.45%
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1,694,697 China Synthetic Rubber Corp. ......... 0.80 2,926,140
1,381,391 Cheng Shin Rubber Ind. Co., Ltd. ..... 0.65 2,400,236
-----------
5,326,376
Semiconductors -- 0.49%
- ------------------------------------------------------------------------------
818,368 * Mosel Vitelic Inc. ................... 0.31 1,145,299
369,500 * Macronix International Co., Ltd. ..... 0.18 655,456
-----------
1,800,755
Steel & Other Metals -- 6.79%
- ------------------------------------------------------------------------------
15,197,000 * China Steel Corp. .................... 4.28 15,743,893
3,589,000 * Kao Hsing Chang Iron & Steel Corp. ... 1.01 3,718,157
4,265,000 * Ornatube Enterprise Co., Ltd. ........ 0.96 3,519,284
805,000 * Feng Hsin Iron & Steel Co., Ltd. ..... 0.24 895,420
726,000 * Tung Ho Steel Enterprise Corp. ....... 0.23 836,576
342,000 * Yieh Loong Co., Ltd. ................. 0.07 263,555
-----------
24,976,885
See accompanying notes to consolidated financial statements and
accountants' review report.
5
<PAGE>
The R.O.C. Taiwan Fund
% of Market Value
Textiles -- 6.36% Net Assets (U.S. Dollars)
- ------------------------------------------------------------------------------
6,000,000 shs. * Shinkong Synthetic Fibers Corp. ...... 1.59 $ 5,845,147
4,503,000 * Hualon Corp. ......................... 1.16 4,255,834
3,640,000 * Everest Textile Co., Ltd. ............ 0.85 3,135,878
2,375,000 * Nien Hsing Textile Co., Ltd. ......... 0.78 2,866,230
4,219,000 * Chung Fu Textile Corp. ............... 0.73 2,683,842
1,743,000 Formosa Taffeta Co., Ltd. ............ 0.56 2,040,153
910,685 Formosa Chemicals & Fiber Corporation. 0.34 1,267,875
1,500,000 * Kwong Fong Industries Corp. .......... 0.26 959,651
405,000 * Universal Textile Co., Ltd. .......... 0.09 326,827
-----------
23,381,437
Transportation -- 3.29%
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3,877,002 Evergreen Marine Corp. (Taiwan) Ltd... 2.22 8,173,978
1,120,000 Uniglory Marine Corp. ................ 0.58 2,117,048
1,200,000 * Yang Ming Marine Transport Corp. ..... 0.48 1,757,906
38,625 U-Ming Marine Transport Corp. ........ 0.01 39,594
-----------
12,088,526
Others -- 1.96%
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1,984,600 * Taiwan Secom Co., Ltd. ............... 1.39 5,122,014
400,000 * Taiwan Sogo Shinkong Security Co., Ltd 0.27 981,461
484,000 Giant Manufacturing Co., Ltd. ........ 0.24 870,883
196,000 * Eagle Cold Storage Enterprise Co., Ltd 0.06 234,402
1,037 Miscellaneous securities ............. 0.00 963
------------
7,209,723
------------
TOTAL COMMON & PREFERRED STOCKS (COST $315,998,073)...... $366,930,942
------------
* These stocks did not pay a cash dividend during the six months ended June
30, 1996.
See accompanying notes to consolidated financial statements and
accountants' review report.
6
<PAGE>
Schedule of Investments (Cont'd.)
SHORT-TERM INVESTMENTS -- 3.20% % of Market Value
Commercial Paper -- 2.41% Net Assets (U.S. Dollars)
- --------------------------------------------------------------------------------
Principal
Amount Issuer (Guarantor)
--------- ------------------
$ 436,205 An-U International Corp. (Shanghai Commercial
& Savings Bank), 4.90%, Due 07/02/96 ..... 0.12 $ 436,147
727,008 Vulcan Industrial Corp. (Grand Commercial
Bank), 4.60%, Due 07/02/96 ............... 0.20 726,917
363,504 Vulcan Industrial Corp. (Grand Commercial
Bank), 4.50%, Due 07/02/96 ............... 0.10 363,460
727,008 Vulcan Industrial Corp. (Grand Commercial
Bank), 4.50%, Due 07/02/96 ............... 0.20 726,919
3,271,538 Hong-sing Investment Corp. (Union Commercial
Bank), 4.50%, Due 07/03/96 ............... 0.88 3,270,734
1,090,513 Hung Poo Construction Co., Ltd. (Far Eastern
Int'l Bank), 4.65%, Due 07/05/96 ......... 0.29 1,089,958
727,008 Fu Hsing Construction Corp. (Grand Commercial
Bank), 4.50%, Due 07/06/96 ............... 0.20 726,562
363,504 Taiwan Pineapple Corp. (Union Commercial
Bank), 4.50%, Due 07/06/96 ............... 0.10 363,281
363,504 An Feng Steel Co., Ltd. (Grand Commercial
Bank), 4.50%, Due 07/08/96 ............... 0.10 363,193
727,008 An Feng Steel Co., Ltd. (Grand Commercial
Bank), 4.25%, Due 07/08/96 ............... 0.20 726,420
72,701 Crowell Development Corp. (Grand Commercial
Bank), 4.65%, Due 07/10/96 ............... 0.02 72,618
------------
8,866,209
Bankers' Acceptances -- 0.79%
- --------------------------------------------------------------------------------
Principal
Amount Issuer (Guarantor)
--------- ------------------
$ 1,454,017 Grand Commercial Bank (Shye Shyang Mechanical
Ind. Co., Ltd.), 4.25%, Due 07/02/96 ..... 0.40 $ 1,453,848
1,454,017 Banque Indosuez Taipei (Asia Chemical Corp.),
4.90%, Due 07/10/96 ...................... 0.39 1,452,265
------------
2,906,113
------------
TOTAL SHORT-TERM INVESTMENTS (AMORTIZED COST $11,772,322) 11,772,322
------------
TOTAL INVESTMENTS IN SECURITIES AT MARKET VALUE 103.00 378,703,264
LIABILITIES (NET OF OTHER ASSETS) (3.00) (11,029,085)
------ ------------
NET ASSETS 100.00 $367,674,179
====== ============
See accompanying notes to consolidated financial statements and
accountants' review report.
7
<PAGE>
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CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
The R.O.C. Taiwan Fund / June 30, 1996 (Expressed in US Dollars) (Unaudited)
================================================================================
Assets
Investments in securities at market value (Notes 8 and 11):
Common and preferred stocks (cost -- $315,998,073) .......... $366,930,942
Short-term investments (amortized cost -- $11,772,322) ...... 11,772,322
------------
378,703,264
Cash (Note 3) .................................................. 1,256,097
Receivable for sale of investments ............................. 4,383,194
Dividends and interest receivable .............................. 740,634
Prepaid insurance .............................................. 71,884
Other receivables .............................................. 1,177
------------
Total assets ........................................ 385,156,250
------------
Liabilities
Payable for securities purchased ............................... 16,487,130
Management fee payable (Note 4) ................................ 406,319
Custodian fees payable (Note 5) ................................ 53,614
Accrued Republic of China taxes ................................ 349,467
Other payables ................................................. 185,541
------------
Total liabilities ................................... 17,482,071
------------
Net assets (Note 9) ............................................ $367,674,179
============
Net asset value per share (33,815,376 shares issued
and outstanding) ............................................ $ 10.87
============
See accompanying notes to consolidated financial statements and
accountants' review report.
8
<PAGE>
================================================================================
CONSOLIDATED STATEMENT OF OPERATIONS
The R.O.C. Taiwan Fund / For the Six Months Ended June 30, 1996
(Expressed in US Dollars) (Unaudited)
================================================================================
Investment Income
Dividends .................................................... $ 1,551,696
Interest ..................................................... 688,885
------------
2,240,581
Republic of China Taxes (Note 2) ................................ (942,856)
------------
1,297,725
------------
Expenses
Management fee (Note 4) ...................................... 2,243,762
Custodian fees (Note 5) ...................................... 295,692
Professional fees ............................................ 184,826
Administrative fees (Note 6) ................................. 25,553
Insurance expenses ........................................... 38,311
Trustee fees (Note 7) ........................................ 66,584
Other expenses ............................................... 123,178
------------
2,977,906
------------
Net investment loss ............................................. (1,680,181)
------------
Realized and Unrealized Gain (Loss) from Investments
and Foreign Currency (Note 8)
Net realized loss from investments:
Proceeds from sales, net .................................. 240,564,459
Cost of securities sold ................................... 243,214,145
------------
Net realized loss ................................. (2,649,686)
------------
Net increase in unrealized appreciation (depreciation)
on investments (excluding short-term investments):
Balance, end of year ...................................... 50,932,869
Balance, beginning of year ................................ (9,402,204)
------------
Net increase in unrealized appreciation on investments ....... 60,335,073
------------
Net realized and unrealized gain from investments ............ 57,685,387
------------
Net decrease in unrealized appreciation from translation
of assets and liabilities in foreign currencies ............. (2,862,738)
------------
Net increase in net assets resulting from operations ... $ 53,142,468
============
See accompanying notes to consolidated financial statements and
accountants' review report.
9
<PAGE>
================================================================================
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
The R.O.C. Taiwan Fund / For the Six Months Ended June 30, 1996 and
the Year Ended December 31, 1995 (Expressed in U.S. Dollars)
================================================================================
Six Months Ended Year Ended
June 30, 1996 December 31,
(Unaudited) 1995
------------- -------------
Net Increase (Decrease) in Net Assets
Resulting From Operations
Net investment loss ....................... $ (1,680,181) $ (4,155,648)
Net realized loss from investments ........ (2,649,686) (17,965,281)
Net increase (decrease) in unrealized
appreciation on investments .............. 60,335,073 (71,398,476)
Net decrease in unrealized appreciation
on translation of assets and liabilities
in foreign currencies .................... (2,862,738) (10,082,188)
------------- -------------
Net increase (decrease) in net assets
resulting from operations ................ 53,142,468 (103,601,593)
Share Transactions
Net proceeds from sale of shares (Note 10) -- 52,472,397
------------- -------------
Increase (Decrease) in Net Assets ............ 53,142,468 (51,129,196)
Net Assets, beginning of period .............. 314,531,711 365,660,907
------------- -------------
Net Assets, end of period .................... $ 367,674,179 $ 314,531,711
============= =============
See accompanying notes to consolidated financial statements and
accountants' review report.
10
<PAGE>
================================================================================
CONSOLIDATED FINANCIAL HIGHLIGHTS
The R.O.C. Taiwan Fund (Expressed in U.S. Dollars)
================================================================================
<TABLE>
<CAPTION>
Six Months
Ended Years Ended December 31,
June 30, 1996 --------------------------------------------------------
(Unaudited 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period ........... $ 9.30 $ 13.12 $ 10.62 $ 8.51 $ 9.53 $ 9.15
Net investment income (loss) ................... (0.05) (0.15) (0.09) 0.16 (0.01) (0.01)
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 1.70 (3.35) 2.66 2.35 (1.08) 0.62
Net realized and unrealized gain (loss) on
translation of currency ..................... (0.08) (0.35) (0.07) (0.25) 0.11 0.52
-------- -------- -------- -------- -------- --------
Total from investment operations .... 1.57 (3.85) 2.50 2.26 (0.98) 1.13
Net Effect of Additional Shares Issued ............ -- 0.03 -- -- (0.02) --
Less:
Dividends from net investment income ........... -- -- -- (0.15) -- --
Distributions from capital gains ............... -- -- -- -- (0.02) (0.75)
-------- -------- -------- -------- -------- --------
Total distributions* ................ -- -- -- (0.15) (0.02) (0.75)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period .................... $ 10.87 $ 9.30 $ 13.12 $ 10.62 $ 8.51 $ 9.53
======== ======== ======== ======== ======== ========
Per Share Market Value, End of Period ............. 11.38 10.50 11.88 13.75 8.75 10.25
Total Investment Return (%)**:
Based on the Trust's market price .............. 8.33 (11.62) (13.60) 59.42 (14.44) 39.98
Based on the Trust's net asset value ........... 16.88 (29.12) 23.54 26.73 (10.50) 11.48
Ratios and Supplemental Data:
Net assets, end of period (in thousands) ....... 367,674 314,532 365,661 295,997 237,240 244,073
Ratio of expenses to average net assets (%) .... 1.87+ 1.98 1.99 2.18 2.47 2.11
Ratio of net investment income (loss) to
average net assets (%) ........................ (1.06)+ (1.38) (0.84) 1.79 (0.09) (0.15)
Portfolio turnover rate (%) .................... 165+ 81 97 151 45 35
</TABLE>
* In order to avoid taxation at the Trust level, the Trust has followed a
policy of distributing all ordinary income and net capital gains,
calculated for U.S. Federal income tax purposes. See Note 9 for information
concerning differences between the calculation of the Trust's capital gains
for tax and financial statement purposes. The Trustees of the Trust chose
to make an elective distribution in 1991, which constituted a return of
capital for U.S. Federal income tax purposes and a distribution from
previously undistributed capital gains for financial statement purposes.
** Investment return is calculated for the six months ended June 30, 1996 (not
annualized) and for each of the five years ended December 31, 1995.
+ Annualized.
See accompanying notes to consolidated financial statements and
accountants' review report.
11
<PAGE>
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The R.O.C. Taiwan Fund / June 30, 1996 (Expressed in US Dollars) (Unaudited)
================================================================================
Note 1 -- Organization and Acquisition of The Taiwan (R.O.C.) Fund
- ------------------------------------------------------------------------------
The R.O.C. Taiwan Fund (the "Trust") was established in July 1988 as a
Massachusetts business trust. The Trust is a closed-end diversified management
investment company and is registered under the Investment Company Act of 1940
(the "Act"). On March 15, 1989, International Investment Trust Company Limited
("IIT") subscribed for and purchased the Trust's initial issue of 1,000 shares
of beneficial interest ("shares") for $100,000. The activities of the Trust
between the date of its organization and March 15, 1989, were limited to
organizational matters and registration with the Securities and Exchange
Commission.
On May 19, 1989, the Trust acquired the entire beneficial interest in the
net assets of The Taiwan (R.O.C.) Fund (the "Fund") in exchange for
approximately 21,656,000 newly issued shares and issued an additional 6,407
shares to IIT in respect of its initial investment. On that date, the Trust also
completed a public offering of 4,112,626 shares at a price of $14.55 per share.
The acquisition was consummated pursuant to the authorization given by the
Unitholders of the Fund to reorganize the Fund by transferring the beneficial
interest on its net assets to the Trust at a special meeting of Unitholders on
April 18, 1989. The Fund, which commenced operations on October 27, 1983, was
established under the laws of the Republic of China as an open-end contractual
investment fund pursuant to an investment contract between IIT and Central Trust
of China, as custodian.
On May 19, 1989, the net assets of the Trust, excluding the proceeds of the
public offering, were approximately $110,000 and the net assets of the Fund were
approximately $308,000,000. For financial reporting purposes, the acquisition
has been accounted for as a purchase transaction. During the period from March
15, 1989 to May 19, 1989, the Trust's results of operations were insignificant.
For U.S. federal income tax purposes, the acquisition was treated as a
reorganization in which, pursuant to special rules and regulations of the
Internal Revenue Service, the Trust was deemed to have acquired the individual
assets and assumed the individual liabilities of the Fund at their fair values
at May 18, 1989.
Note 2 -- Summary of Significant Accounting
Policies
- ------------------------------------------------------------------------------
A -- Principles of Consolidation -- The consolidated financial statements
include the accounts of the Trust and the Fund. All significant inter-company
transactions and balances have been eliminated in consolidation.
B -- Valuation of Investments -- Common and preferred stocks represent
securities that are traded on the Taiwan Stock Exchange or the Taiwan
over-the-counter market. Such securities are valued at the closing market price,
or, if not quoted at the end of the period, generally at the last quoted closing
market price. Short-term investments are valued using the amortized cost method
which approximates market value. Under this method, securities are valued at
cost and the difference between the cost of each security and its value at
maturity is accrued into income on a straight-line basis over the days to
maturity.
C -- Security Transactions and Investment Income -- Security transactions are
recorded on the date the transactions are entered into (the trade date).
Dividend income is recorded on the ex-dividend date, and interest income is
recorded on the accrual basis as it is earned.
D -- Realized Gains and Losses -- Realized gains and losses on security
transactions are determined using the average cost method for the cost of
investments.
E -- Foreign Currency -- The Trust does not sep-arately record that portion of
the results of opera-tions resulting from changes in foreign exchange rates on
investments from the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net rea-lized and
unrealized gain or loss from investments.
12
<PAGE>
F -- Currency Translation -- Substantially all of the Trust's income is earned,
and its expenses are largely paid, in New Taiwan Dollars ("NT$"). The cost and
market value of securities, currency holdings and other assets and liabilities
which are denominated in NT$ are reported in the accompanying financial
statements after translation into United States dollars based on the closing
market rate for United States dollars in Taiwan at the end of the period. At
June 30, 1996, this rate was approximately NT$27.510 to $1.00. Investment income
and expenses are translated at an average exchange rate for the period. Currency
translation gains or losses are reported as a separate component of changes in
net assets resulting from operations.
G -- Distributions to Shareholders -- Income distributions and capital gain
distributions are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. These temporary book and
tax differences are primarily due to differing treatments for net capital losses
and deferral of wash sales.
H -- Taxes -- The Trust intends to continue to elect and to continue to qualify
as a regulated investment company under the Internal Revenue Code of 1986, as
amended (the "Code"). If the Trust complies with all of the applicable
requirements of the Code, it will not be subject to U.S. federal income taxes on
its investment company taxable income and capital gains that it distributes to
its shareholders, provided that, among other things, at least 90% of its
investment company taxable income for each taxable year is distributed. However,
under certain circumstances, the Trust may be subject to excise taxes unless it
meets distribution requirements as specified by the Code.
The Republic of China ("R.O.C.") levies a tax at the rate of 20% on cash
dividends and interest received by the Trust on investments in R.O.C.
securities. In addition, a 20% tax is levied based on the par value of certain
types of stock dividends received by the Trust.
Effective January 1, 1990, realized gains on securities transactions are
not subject to income tax in the R.O.C.; instead, a securities transaction tax
is levied of 0.3% of the market value of stocks sold or transferred, and 0.1% of
the market value of bonds and beneficial certificates sold or transferred.
Proceeds from sales of investments are net of securities transaction tax paid of
approximately $724,901 for the six months ended June 30, 1996.
I -- 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 reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of increases and decreases in
net assets from operations during the reporting period. Actual results could
differ from those estimates.
Note 3 -- Cash
- ------------------------------------------------------------------------------
Cash includes demand deposits located primarily at State Street Bank and Trust
Company and Central Trust of China or other permitted financial institutions
with offices in the R.O.C. and a time deposit of $430,000 with a maturity date
of July 4, 1996. The interest rate on the time deposit was 2.75%.
Note 4 -- Investment Management
- ------------------------------------------------------------------------------
Pursuant to an investment contract (the "Investment Contract"), IIT (the
"Manager"), an R.O.C. corporation, is responsible, among other things, for
investing and managing the assets of the Trust and administering the Trust's
affairs. Effective June 29, 1996, following Shareholder and R.O.C. Securities
and Exchange Commission approval, the fee schedule to the Investment Contract
was revised ("Revised Fee Schedule") such that the Trust pays the Manager a
monthly fee in NT$ at the annual rate of 1.40% of the net asset value ("NAV") up
to NT$6 billion, 1.20% of such NAV in excess of NT$6 billion up to NT$9 billion,
1.00% of such NAV in excess of NT$9 billion up to NT$12 billion, and 0.80% of
such NAV in excess of NT$12 billion of the total assets held in Taiwan under the
Investment Contract. The fee, which is paid monthly in arrears, accrues daily
and is calculated on each business day on which the Taiwan Stock Exchange is
open for
13
<PAGE>
business. Prior to June 29, 1996, the Trust paid the Manager a monthly fee in
NT$ at the annual rate of 1.45% of the NAV up to NT$7 billion, 1.30% of such NAV
in excess of NT$7 billion up to NT$10 billion, 1.15% of such NAV in excess of
NT$10 billion up to NT$13 billion, and 1.00% of such NAV in excess of NT$13
billion of the total assets held in Taiwan under the Investment Contract.
Note 5 -- Custodians
- --------------------------------------------------------------------------------
Pursuant to the Investment Contract, the Central Trust of China ("CTC") serves
as custodian of the assets of the Trust held in the R.O.C. CTC is controlled by
the government of the R.O.C. and owns approximately 8% of the outstanding
capital stock of IIT. In accordance with the Revised Fee Schedule, effective
June 29, 1996 the Trust pays the custodian a monthly fee in NT$ at the annual
rate of 0.16% of the NAV up to NT$6 billion, 0.14% of such NAV in excess of NT$6
billion up to NT$9 billion, 0.12% of such NAV in excess of NT$9 billion up to
NT$12 billion, and 0.10% of such NAV in excess of NT$12 billion of the total
assets held in Taiwan under the Investment Contract, subject to a minimum annual
fee of NT$2.4 million (approximately $88,000). Prior to June 29, 1996, the Trust
paid the custodian a monthly fee in NT$ at the annual rate of 0.19% of the NAV
up to NT$7 billion, 0.17% of such NAV in excess of NT$7 billion up to NT$10
billion, 0.15% of such NAV in excess of NT$10 billion up to NT$13 billion, and
0.13% of such NAV in excess of NT$13 billion of the total assets held in Taiwan
under the Investment Contract, subject to the previously stated minimum annual
fee.
State Street Bank and Trust Company ("SSBTC") acts as custodian for the
Trust's assets held in the United States. The Trust pays SSBTC a monthly
administrative fee and a transaction fee for those transactions executed in the
United States.
Note 6 -- Administrator
- --------------------------------------------------------------------------------
Since February 2, 1996, Dewe Rogerson Inc. (the "Administrator") has acted as
the administrator of the Trust. The Trust pays the Administrator a monthly
retainer of $6,000 for investor relations and financial communications services
and an additional fee of $3,000 for the preparation and production of each
quarterly and annual report. The Trust also reimburses the Administrator, at
cost, for out-of-pocket expenses. Prior to February 2, 1996, the current
Administrator provided only investor relations and financial communications
services and T. Rowe Price Services, Inc. acted as administrator of the Trust.
In consideration of such services, the Trust paid T. Rowe Price Services a
monthly fee at annual rates of 0.1% of the Trust's average weekly NAV up to $250
million, 0.075% of such value in excess of $250 million up to $500 million, and
0.05% of such value in excess of $500 million, subject to a minimum annual fee
of $200,000.
Note 7 -- Trustee Fees
- --------------------------------------------------------------------------------
The Trust pays each trustee who is not an "interested person" of the Manager (as
defined by U.S. securities laws) an annual fee of $7,500, plus $750 for each
trustees' meeting and committee meeting attended effective July 1, 1992. All
other trustees receive no separate compensation or reimbursement.
Note 8 -- Investments in Securities
- --------------------------------------------------------------------------------
Purchases and proceeds from sales, excluding short-term investments, for the six
months ended June 30, 1996, included approximately $251,000,000 for stock
purchases and approx-imately $241,000,000 for stock sales, respectively.
At June 30, 1996, the cost of investments, excluding short-term investments
and bonds, for U.S. federal income tax purposes was approximately $320,000,000.
At June 30, 1996, for U.S. federal income tax purposes, the aggregate gross
unrealized appreciation on these investments was approximately $51,000,000 and
the aggregate gross unrealized depreciation on these investments was
approximately $4,000,000 or a net unrealized appreciation of approximately
$47,000,000. See Note 9 for information concerning the Trust's tax loss
carryforward as of June 30, 1996.
14
<PAGE>
Note 9 -- Components of Net Assets
- --------------------------------------------------------------------------------
Par value of shares of
beneficial interest $ 338,154
Additional paid-in capital 345,866,491
Undistributed net investment loss (1,633,223)
Accumulated realized loss on
investments (60,507,270)
Unrealized appreciation on
investments 50,932,869
Cumulative translation adjustment 32,677,158
-----------
Net Assets 367,674,179
===========
The accumulated realized loss on investments in the amount of $60,507,270 at
June 30, 1996 represents certain book and tax temporary differences which mainly
are a capital loss carryforward from prior years of approximately $36,000,000,
deferred capital losses due to wash sales of approximately $15,000,000 and
capital losses incurred during the six month period ended June 30, 1996 of
approximately $9,500,000.
In connection with the Trust's acquisition of the entire beneficial
interest in the Fund, the cost basis of the portfolio securities then held by
the Fund was reset, for U.S. federal income tax purposes, at their market prices
on May 18, 1989 when, in general, such market prices exceeded the prices at
which such securities were acquired (See Note 1). Accordingly, since May 19,
1989, the Trust's capital gains calculated for U.S. federal income tax purposes
have been lower (and its losses, so calculated, have been higher) than its gains
calculated for financial statement purposes. At June 30, 1996, the Trust had a
net capital loss carryforward for U.S. federal income tax purposes of
approximately $53,000,000, of which approximately $3,000,000 may be used to
reduce future taxable gains through 2000, approximately $22,000,000 may be used
to reduce future taxable gains through the year 2001, approximately $11,000,000
may be used to reduce future taxable gains through the year 2003 and
approximately $17,000,000 may be used to reduce future taxable gains through the
year 2004. It is the intention of the Trustees of the Trust not to make any
distribution of realized gains until the net capital loss carryforwards have
been offset or expired.
Note 10 -- Shares of Beneficial Interest
- --------------------------------------------------------------------------------
The Trust's "Declaration of Trust" permits the Trustees to issue an unlimited
number of shares or additional classes of other securities. The shares have a
par value of $0.01, and no other classes of securities are outstanding at
present. At June 30, 1996, 33,815,376 shares were outstanding.
On November 10, 1995 the Trust completed the sale of 5,944,700 shares of
beneficial interest in a public offering. Proceeds to the Trust, before
deducting expenses of the offering of $435,433, amounted to $52,907,830.
Note 11 -- Investment Risks
- --------------------------------------------------------------------------------
The Trust invests primarily in publicly traded equity and debt securities of
R.O.C. issuers, including the R.O.C. government. The Trust's investments in
these securities involve considerations not typically associated with investing
in securities of U.S. issuers, including price volatility of the R.O.C.
securities market, policies on foreign investments and on repatriation of
capital invested in the R.O.C., dependence of the R.O.C. on an export-oriented
economy, external and domestic political considerations, taxation and economic
developments. Since foreign securities are primarily denominated in N.T.
dollars, changes in the relationship of the N.T. dollar to the U.S. dollar may
significantly affect the value of the investments and earnings of the Trust.
================================================================================
The Fund and its predecessor, The Taiwan (R.O.C.) Fund, have been certified as
distributing funds by the Board of Inland Revenue of the United Kingdom for the
period from their inception to December 31, 1995. The Fund intends to apply for
such status for succeeding accounting periods.
================================================================================
================================================================================
Daniel Chiang has been the portfolio manager and a trustee of the Fund, as well
as its President and Chief Executive Officer, since April 1994. He is also the
Executive Vice President of International Investment Trust Co. (IIT), the Fund's
investment manager. Mr. Chiang has 12 years experience in the financial industry
and for the past nine years has worked at IIT, where he previously served as
Vice President in charge of the dealing department.
================================================================================
15
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Trustees and Shareholders of
The R.O.C. Taiwan Fund:
We have reviewed the accompanying consolidated statement of assets and
liabilities of The R.O.C. Taiwan Fund, a Massachusetts business trust (the
Trust), including the consolidated schedule of investments, as of June 30, 1996,
and the related consolidated statement of operations, consolidated statements of
changes in net assets and the consolidated financial highlights for the six
months then ended. We conducted our review in accordance with standards
established by the American Institute of Certified Public Accountants. These
consolidated financial statements and financial highlights are the
responsibility of the Trust's management.
A review consists principally of making inquiries of persons responsible for
financial and accounting matters and applying analytical procedures to financial
data. It is substantially less in scope than an audit in accordance with
generally accepted auditing standards, the objective of which is the expression
of an opinion regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated financial statements and financial highlights
referred to above in order for them to be in conformity with generally accepted
accounting principles.
We have previously audited the consolidated financial statements as of and for
the year ended December 31, 1995 and the consolidated financial highlights of
The R.O.C. Taiwan Fund for each of the years in the five-year period ended
December 31, 1995 and expressed an unqualified opinion on those consolidated
financial statements and financial highlights in our report dated January 5,
1996, but have not performed any auditing procedures since that date.
/s/ KPMG Peat Marwick
Taipei, Taiwan
July 11, 1996
16
<PAGE>
================================================================================
1996 ANNUAL MEETING OF STOCKHOLDERS
================================================================================
On May 31, 1996, the Fund held an annual meeting to:
1. Elect two trustees,
2. Ratify the appointment of KPMG Peat Marwick as the Fund's independent
accountants for 1996, and
3. Consider whether to amend the existing contract with International
Investment Trust Company Limited (the "Adviser") and the Central Trust of
China (the "Custodian") in order to reduce the fees payable to the Adviser
and the Custodian.
Proxies representing 24,448,242, or 72.30% of the 33,815,376 eligible shares
outstanding, were voted. The results are shown below.
- --------------------------------------------------------------------------------
For Against
- --------------------------------------------------------------------------------
Nominees to the Board of Trustees
Daniel K.L. Chiang 23,824,608 623,633
Raymund A. Kathe 23,822,307 625,934
Messrs. Theodore S.S. Cheng, Pedro-Pablo Kuczynski, Li-Yin Kung, David N. Laux,
Alfred F. Miossi, and Gregory Kuo-Hua Wang, whose terms did not expire in 1996,
are the remaining trustees.
- --------------------------------------------------------------------------------
For Against Abstain
- --------------------------------------------------------------------------------
KPMG Peat Marwick as independent
accountants for 1996 23,850,964 30,256 567,021
- --------------------------------------------------------------------------------
For Against Abstain
- --------------------------------------------------------------------------------
Reduction of fees payable to the
Adviser and the Custodian* 23,257,017 39,193 1,152,032
* For details on the fee reductions, please see Notes 4 & 5 of the Notes to
Consolidated Financial Statements.
17
<PAGE>
THE R.O.C. TAIWAN FUND
Manager:
International Investment Trust Company Limited
17th Floor
167 Fuhsing North Road
Taipei, Taiwan, Republic of China
Telephone: (886) 2-713-7702
Fax: 886-2-717-3077
Officers and Trustees:
Theodore S. S. Cheng, Chairman and Trustee
Daniel Chiang, President and Chief Executive
Officer, Trustee, and Fund Manager
Raymund A. Kathe, Trustee and Audit Committee
Member
Pedro-Pablo Kuczynski, Trustee
David N. Laux, Trustee and Audit Committee
Member
Alfred F. Miossi, Trustee and Audit Committee
Member
Li-Yin Kung, Trustee and Audit Committee
Member
Gregory Kuo-Hua Wang, Trustee
James M. Wang, Chief Financial Officer,
Treasurer, and Secretary
Custodian:
Central Trust of China
49 Wuchang Street, Sec. 1
Taipei, Taiwan
Republic of China
Transfer Agent and U.S. Custodian,
Paying and Plan Agent:
State Street Bank and Trust Co.
P.O. Box 8200
Boston, Massachusetts 02266-8200
U.S.A.
U.S. Administrator:
Dewe Rogerson Inc
850 Third Avenue
New York, NY 10022
U.S.A.
Telephone: (212) 688-6840
U.S. Legal Counsel
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019-6064
Telephone: (212) 373-3000
For information on the Fund, including the NAV,
please call toll free 1-800-343-9567.
