[LOGO]
Quarterly Report
June 30, 1997
<PAGE>
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Dear Stockholders
================================================================================
The net asset value per share of The R.O.C. Taiwan Fund gained 11.8% in the
second quarter after adjustment for dividends. While this gain was less than the
12.8% rise in the Taiwan Stock Exchange Index (TAIEX), the underperformance came
as a result of the New Taiwan dollar's 1.0% depreciation against the U.S.
dollar. In local currency terms, the Fund was up 13.1% for the period.
Trading levels surpassed the record highs that had just been reached in the
first quarter. Investor attention was sharply focused on electronics stocks as
many of these companies continued to report strong sales. Accounting for most of
trading while making up about 25% of total market capitalization, this sector
gained more than 60% during the second quarter and was the clear market leader.
The only significant weakness came in late April and early May. This was once
again led by electronics stocks after some of the companies in this sector
announced weaker-than-expected first quarter earnings. At the same time, the
market was affected by political and economic uncertainties resulting from a few
high-profile, unsolved crimes, especially the late-April kidnapping and brutal
murder of the teenage daughter of a popular TV star.
The period of weakness, however, was overtaken by a rally in semiconductor
stocks. Most listed Taiwan chip-makers reported strengthening demand that has
filled production capacity for the next several months and, at some companies,
through the end of the year. In June, many banks also cut key interest rates (on
one-year deposits and prime loans) to eight-year lows.
The drop in interest rates reflects, in part, the virtual absence of inflation.
The consumer price index rose just 1.0% in the second quarter and 1.4% for the
first six months, the lowest in nine years. Given the lack of any inflationary
pressures on the horizon, the central bank should be able to maintain what it
calls an "appropriately loose" monetary policy.
In this setting, Taiwan's economy has continued its steady growth and should
have no trouble meeting our forecast of 6.2% for the year. After the economy
advanced 6.8% in the first quarter, growth in the most recent three-month period
most likely bettered the 5.6% official projection. For one thing, the booming
stock market helped boost consumer spending and provided a major lift to the
services sector of the economy. In addition, declining interest rates supported
a continued strengthening in private investment at the same time that government
also stepped up investment spending. The export sector was a minor blemish,
however, with growth slightly under the forecast level.
The high level of trading on Taiwan's stock market should continue in the near
term, but we expect the focus of such activity will broaden. As a result, we
have slightly readjusted the Fund's portfolio while maintaining our basic
strategy. It should be noted in this regard that our fairly heavy concentration
in the electronics sector, which led the market rally during the first half of
the year, was the main reason for the Fund's outperformance in this period. In
line with our view of market prospects in the next few months, however,
electronics holdings have recently been reduced somewhat to bring them more in
line with this sector's market weighting. While we still favor electronics
stocks, a cooling off period following their sharp run-up may be necessary
before further gains can be expected. At the same time, we have increased
positions in certain financials, blue-chip industrials and stocks of
domestically oriented companies that have lagged the market so far this year.
We are grateful for your continuing support and look forward to discussing our
market outlook and portfolio strategy with you in future reports.
Respectfully submitted,
/s/Daniel Chiang
Daniel Chiang
President
August 15, 1997
<PAGE>
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Portfolio Highlights
June 30, 1997
================================================================================
================================================================================
Security Classification
================================================================================
Value
Percent of Net Assets (000)
- -------------------------------------------------------- ---------
Common Stocks 93.87% $462,746
Short-Term Investments 4.51 22,250
------- --------
Total Investments 98.38 484,996
Other Assets Less
Liabilities 1.62 7,971
- --------------------------------------------------------------------------------
Net Assets 100.00% $492,967
================================================================================
================================================================================
Ten Largest Holdings
================================================================================
Percent of
Company Net Assets
- -------------------------- ----------
United Microelectronics Corp. 5.79%
Yageo Corp. 4.08
Yulon Motor Co. 3.83
First Commercial Bank 3.52
Hon Hai Precision Industry Co. 3.51
China Development Corp. 3.33
Formosa Plastics Corp. 3.30
Synnex Technology International Corp. 2.74
Umax Data Systems Inc. 2.68
Nan Ya Plastics Corp. 2.59
================================================================================
================================================================================
Industry Diversification
================================================================================
Percent of
Ten Largest Sectors Net Assets
- ----------------------------- ----------
Electronics 21.65%
Semiconductors 9.98
Banking 9.76
Other Financials 9.01
Plastics 7.16
Automobile 5.53
Construction 5.24
Electrical & Machinery 5.08
Textiles 4.56
Food 3.95
================================================================================
2
<PAGE>
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CONSOLIDATED SCHEDULE OF INVESTMENTS
The R.O.C. Taiwan Fund / June 30, 1997 (Unaudited)
================================================================================
COMMON STOCKS -- 93.87% % of Market Value
Automobile -- 5.53% Net Assets (U.S. Dollars)
- --------------------------------------------------------------------------------
10,500,000 shs. Yulon Motor Co., Ltd.............. 3.83 $ 18,875,387
2,010,000 * China Motor Corp.................. 0.94 4,625,009
1,875,000 * Chinese Automobile Co., Ltd....... 0.76 3,741,371
------------
27,241,767
Banking -- 9.76%
- --------------------------------------------------------------------------------
4,246,770 * The First Commercial Bank......... 3.52 17,329,704
3,186,000 * China Development Corp............ 3.33 16,437,442
2,506,000 * Chang Hwa Commercial Bank......... 2.11 10,406,378
594,800 * Hua Nan Commercial Bank........... 0.49 2,427,188
2,000,000 * Chung Shing Commercial Bank....... 0.27 1,308,694
209,000 * Dah An Commercial Bank............ 0.04 193,866
------------
48,103,272
Other Financials -- 9.01%
- --------------------------------------------------------------------------------
2,217,900 Cathay Life Insurance Co., Ltd.... 2.57 12,678,727
2,900,000 * Polaris Securities Co., Ltd....... 1.96 9,644,424
2,137,000 * Grand Cathay Securities Corp...... 1.48 7,299,022
1,884,290 * Yuan Ta Securities Co., Ltd....... 1.44 7,113,340
1,372,751 * Capital Securities Corp........... 0.79 3,899,019
1,200,000 * Taiwan International Securities
Corp. .......................... 0.61 2,998,490
291,000 * National Securities Corp.......... 0.16 789,908
------------
44,422,930
Cement -- 0.58%
- --------------------------------------------------------------------------------
1,047,900 Taiwan Cement Corp................ 0.38 1,846,088
716,000 Hsing Ta Cement Co., Ltd.......... 0.19 952,470
28,160 Asia Cement Corp.................. 0.01 44,548
------------
2,843,106
Chemical -- 0.60%
- --------------------------------------------------------------------------------
2,800,000 * Asia Chemical Corp. .............. 0.60 2,939,527
------------
2,939,527
See accompanying notes to consolidated financial statements
and accountants' review report.
3
<PAGE>
The R.O.C. Taiwan Fund
% of Market Value
Construction -- 5.24% Net Assets (U.S. Dollars)
- --------------------------------------------------------------------------------
3,420,081 shs. Cathay Construction Co., Ltd...... 1.20 $ 5,902,203
2,124,000 Hung Sheng Construction Co., Ltd.. 0.74 3,627,310
1,800,000 * Top Construction & Development
Co., Ltd. ...................... 0.73 3,624,074
2,114,000 * Hung Poo Construction Co., Ltd.... 0.69 3,405,019
2,200,000 * Pacific Construction Corp......... 0.48 2,349,177
1,000,000 * Kee Tai Properties Co., Ltd....... 0.43 2,121,234
2,167,000 * Horng Chung Construction Co., Ltd. 0.35 1,729,611
1,200,000 * BES Engineering Corp.............. 0.32 1,583,375
741,000 * Chief Construction Corp........... 0.30 1,491,911
------------
25,833,914
Electrical & Machinery -- 5.08%
- --------------------------------------------------------------------------------
5,692,812 Tatung Co., Ltd. ................. 2.24 11,052,414
4,229,129 * Taichung Machinery Works Co.,
Ltd. ........................... 1.85 9,123,023
2,440,000 * Teco Electric & Machinery Co.,
Ltd. ........................... 0.99 4,868,771
------------
25,044,208
Electronics -- 21.65%
- --------------------------------------------------------------------------------
4,785,000 * Yageo Corp........................ 4.08 20,128,173
2,350,000 * Hon Hai Precision Industry Co.,
Ltd. .......................... 3.51 17,320,414
2,031,221 * Synnex Technology International
Corp. ......................... 2.74 13,510,314
2,078,000 * Umax Data Systems Inc............. 2.68 13,223,772
1,570,800 * Delta Electronic Inc.............. 1.97 9,713,727
1,333,000 * Ritek Inc......................... 1.88 9,249,623
2,369,243 * CMC Magnetics Corp................ 1.43 7,070,079
829,400 * Inventec Corp..................... 1.02 5,009,679
1,302,000 * Acer Peripherals, Inc............. 0.95 4,681,096
1,300,000 * Unicap Electronics Industrial
Corp. ......................... 0.73 3,575,538
1,093,000 * Elitegroup Computer Systems Co.,
Ltd. .......................... 0.50 2,456,047
195,120 * Solomon Technology Corp........... 0.16 768,161
------------
106,706,623
Food -- 3.95%
- --------------------------------------------------------------------------------
2,300,000 * Taiwan Tea Corp................... 2.38 11,742,288
1,880,800 * President Enterprises Corp........ 0.76 3,719,134
2,459,216 * Wei Chuan Foods Corp.............. 0.55 2,723,228
635,000 * Standard Foods Taiwan Ltd......... 0.26 1,278,493
------------
19,463,143
Glass -- 1.13%
- --------------------------------------------------------------------------------
3,164,016 Taiwan Glass Industrial Corp...... 1.13 5,596,807
------------
5,596,807
Plastics -- 7.16%
- --------------------------------------------------------------------------------
6,752,415 Formosa Plastics Corp............. 3.30 16,265,615
4,384,000 Nan Ya Plastics Corp.............. 2.59 12,767,096
3,000,000 * China Petrochemical Development
Corp. ......................... 1.07 5,295,894
1,100,000 * Dahin Co., Ltd.................... 0.20 996,620
------------
35,325,225
See accompanying notes to consolidated financial statements
and accountants' review report.
4
<PAGE>
Schedule of Investments (Cont'd.)
% of Market Value
Retailing -- 0.67% Net Assets (U.S. Dollars)
- --------------------------------------------------------------------------------
870,000 shs. * Chun Hsin Co., Ltd................ 0.45 $ 2,205,184
692,060 * Far Eastern Department Stores
Ltd. 0.22 1,099,772
------------
3,304,956
Rubber -- 1.81%
- --------------------------------------------------------------------------------
3,769,030 Cheng Shin Rubber Ind. Co., Ltd... 1.81 8,943,553
------------
8,943,553
Semiconductors -- 9.98%
- --------------------------------------------------------------------------------
7,000,000 * United Microelectronics Corp...... 5.79 28,564,752
2,243,000 * Advanced Semiconductor
Engineering, Inc. ............. 1.73 8,507,820
2,898,000 * Orient Semiconductor
Electronics Ltd. .............. 1.69 8,335,371
1,124,000 * Siliconware Precision
Industries Co., Ltd. .......... 0.77 3,798,662
------------
49,206,605
Steel & Other Metals -- 3.91%
- --------------------------------------------------------------------------------
5,451,925 * China Steel Corp.................. 1.17 5,762,803
3,500,000 * Feng Hsin Iron & Steel Co., Ltd. . 0.97 4,769,181
6,576,900 * Chien Shing Stainless Steel Co.,
Ltd. .......................... 0.92 4,540,033
3,939,849 * Wei Chih Steel Co., Ltd........... 0.76 3,753,721
800,000 * Yieh Loong Enterprise Co., Ltd.... 0.09 457,324
------------
19,283,062
Textiles -- 4.56%
- --------------------------------------------------------------------------------
8,691,000 Far Eastern Textile Ltd........... 2.77 13,654,875
8,185,400 * Everest Textile Co., Ltd.......... 1.36 6,709,827
1,220,000 * Kwong Fong Industries Corp........ 0.39 1,938,736
143,000 * Formosa Taffeta Co., Ltd.......... 0.04 175,318
------------
22,478,756
Transportation -- 2.04%
- --------------------------------------------------------------------------------
4,355,000 * Yang Ming Marine Transport Corp... 1.04 5,104,372
2,971,392 Evergreen Marine Corp. (Taiwan)
Ltd. .......................... 1.00 4,946,266
------------
10,050,638
Others -- 1.21%
- --------------------------------------------------------------------------------
621,600 * Taiwan Secom Co., Ltd............. 0.56 2,748,860
916,000 * Taiwan Match Co., Ltd............. 0.41 2,041,850
532,400 Giant Manufacturing Co., Ltd...... 0.24 1,167,628
------------
5,958,338
TOTAL COMMON STOCKS (COST $340,284,066) ............ $462,746,427
------------
*These stocks did not pay a cash dividend during the six months ended June 30,
1997.
See accompanying notes to consolidated financial statements
and accountants' review report.
5
<PAGE>
The R.O.C. Taiwan Fund
<TABLE>
<CAPTION>
SHORT-TERM INVESTMENTS-- 4.51% % of Market Value
Commercial Paper--3.79% Net Assets (U.S. Dollars)
- -------------------------------------------------------------------------------------------------------
Principal
Amount Issuer (Guarantor)
- ---------- ----------------
<S> <C> <C> <C>
$ 359,531 Asia Hsu Computer Co., Ltd. (Grand Commercial Bank),
10.00%, Due 07/02/97..................................... 0.07 $ 359,433
53,930 Ta Chun Steel Co., Ltd. (Grand Commercial Bank),
7.50%, Due 07/02/97...................................... 0.01 53,919
7,190,623 Chinese Automibile Co., Ltd. (Dah An Commercial Bank),
7.50%, Due 07/03/97...................................... 1.46 7,187,676
1,078,594 Well Lei Electric Corp. (Grand Commercial Bank),
11.00%, Due 07/03/97..................................... 0.22 1,077,944
1,078,594 Wei Bei Industrial Corp. (Grand Commercial Bank),
8.50%, Due 07/03/97...................................... 0.22 1,078,092
2,157,187 Sun Yu Construction Co., Ltd. (China United Trust &
Investment), 10.00%, Due 07/04/97 0.44 2,155,417
719,062 21st Century Enterprises Corp. (Grand Commercial Bank),
10.00%, Due 07/04/97..................................... 0.15 718,474
539,297 Chung I Construction Co., Ltd. (Grand Commercial Bank),
10.00%, Due 07/04/97..................................... 0.11 538,855
179,766 Chang Sheng Investment Co., Ltd. (Grand Commercial Bank),
8.50%, Due 07/04/97...................................... 0.04 179,640
359,531 Chung Hi Spinning Co., Ltd. (International Bills Finance
Company), 10.00%, Due 07/05/97........................... 0.07 359,138
359,531 Kuei Hung Industrial Co., Ltd. (International Bills Finance
Company), 10.00%, Due 07/05/97........................... 0.07 359,138
719,062 Far East Steel Enterprises Co., Ltd. (Chinatrust Commercial
Bank), 10.00%, Due 07/07/97.............................. 0.15 717,883
1,078,594 E Lian Food Corp. (Grand Commercial Bank),
10.00%, Due 07/07/97..................................... 0.22 1,076,827
719,062 Dei Man Art Corp. (International Bills Finance Company),
10.00%, Due 07/07/97..................................... 0.15 717,886
287,625 Chun Sheng Industrial Co., Ltd. (Grand Commercial Bank),
8.25%, Due 07/08/97...................................... 0.06 287,172
719,062 Fu Sheng Industrial Corp. (Chiao Tung Bank),
6.00%, Due 07/09/97...................................... 0.15 718,128
1,078,594 Wus De Construction Co., Ltd. (China United Trust &
Investment), 5.70%, Due 07/11/97 ........................ 0.22 1,076,927
-----------
18,662,549
</TABLE>
See accompanying notes to consolidated financial statements
and accountants' review report.
6
<PAGE>
Schedule of Investments (Cont'd.)
% of Market Value
Bankers' Acceptances -- 0.73% Net Assets (U.S. Dollars)
- --------------------------------------------------------------------------------
Principal
Amount Accepting Bank (Issuer)
--------- --------------------
$3,595,312 Kredietbank N.V. (San Fu Chemical
Co., Ltd.), 10.00%,
Due 07/09/97.................... 0.73 $ 3,587,457
------------
TOTAL SHORT-TERM INVESTMENTS (AMORTIZED COST
$22,250,006) 22,250,006
------------
TOTAL INVESTMENTS IN SECURITIES AT MARKET VALUE 98.38 484,996,433
OTHER ASSETS (NET OF LIABILITIES) 1.62 7,970,995
------ ------------
NET ASSETS 100.00 $492,967,428
====== ============
See accompanying notes to consolidated financial statements
and accountants' review report.
7
<PAGE>
================================================================================
CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
The R.O.C. Taiwan Fund / June 30, 1997 (Expressed in US Dollars) (Unaudited)
================================================================================
Assets
Investments in securities at market value (Notes 3 and 6):
Common stocks (cost-- $340,284,066) ......................... $462,746,427
Short-term investments (amortized cost-- $22,250,006) ....... 22,250,006
------------
484,996,433
Cash ............................................................. 13,655,550
Receivable for sale of investments ............................... 2,512,849
Dividends and interest receivable ................................ 660,570
Prepaid expense .................................................. 79,395
Other receivables ................................................ 901,948
------------
Total assets ............................... 502,806,745
------------
Liabilities
Payable for securities purchased ................................. 7,798,483
Payable for shares retired (Note 7) .............................. 948,023
Management fee payable (Note 4) .................................. 482,303
Custodian fees payable (Note 5) .................................. 56,299
Accrued Republic of China taxes (Note 2) ......................... 363,681
Other payables ................................................... 190,528
------------
Total liabilities .......................... 9,839,317
------------
Net assets ....................................................... $492,967,428
============
Components of net assets (Note 8)
Par value of shares of beneficial interest ....................... 329,392
Additional paid-in capital ....................................... 321,431,347
Undistributed net investment income .............................. 4,701,027
Undistributed realized gain on investments ....................... 15,847,311
Unrealized appreciation on investments ........................... 122,462,361
Cumulative translation adjustment ................................ 28,195,990
------------
Net assets ....................................................... $492,967,428
============
Net asset value per share (32,939,176 shares
issued and outstanding) $ 14.97
============
See accompanying notes to consolidated financial statements
and accountants' review report.
8
<PAGE>
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CONSOLIDATED STATEMENT OF OPERATIONS
The R.O.C. Taiwan Fund / For the Six Months Ended June 30, 1997 (Expressed in
US Dollars) (Unaudited)
================================================================================
Investment Income
Dividends ............................................... $ 1,292,211
Interest ................................................ 993,753
-------------
2,285,964
Republic of China Taxes (Note 2) ............................. 1,327,917
-------------
958,047
-------------
Expenses
Management fee (Note 4) ................................. 2,842,442
Custodian fees (Note 5) ................................. 331,199
Professional fees ....................................... 192,305
Administrative fee ...................................... 45,250
Insurance expenses ...................................... 37,878
Trustee fees ............................................ 47,250
Other expenses .......................................... 126,131
-------------
3,622,455
-------------
Net investment loss .......................................... (2,664,408)
-------------
Net Realized and Unrealized Gain on Investments
and Foreign Currencies (Note 6)
Net realized gain on investments (Note 2) ............... 82,600,979
Net increase (decrease) in unrealized appreciation on:
investments (excluding short-term
investments) ................................ 73,538,856
translation of assets and liabilities
in foreign currencies ....................... (4,580,337)
-------------
Net realized and unrealized gain on
investments and foreign currencies ................. 151,559,498
-------------
Net increase in net assets resulting
from operations ..................................... $ 148,895,090
=============
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, 1997 and the Year
Ended December 31, 1996 (Expressed in US Dollars)
================================================================================
Six Months Ended Year Ended
June 30, 1997 December 31,
(Unaudited) 1996
------------ ------------
Net Increase in Net Assets
Resulting From Operations
Net investment loss ..................... $ (2,664,408) $ (3,900,067)
Net realized gain on investments ........ 82,600,979 28,549,362
Net increase in unrealized appreciation
on investments ...................... 73,538,856 58,325,709
Net decrease in unrealized appreciation
on translation of assets and
liabilities in foreign currencies .. (4,580,337) (2,763,569)
------------- -------------
Net increase in net assets resulting
from operations ..................... 148,895,090 80,211,435
------------- -------------
Share Transactions
Cost of retirement of shares (Note 7) ... (10,411,798) --
------------- -------------
Distributions to Shareholders From
Net realized gain on
investments (Note 2 and 8) ............. (40,259,010) --
------------- -------------
Increase in Net Assets ....................... 98,224,282 80,211,435
Net Assets, beginning of period .............. 394,743,146 314,531,711
------------- -------------
Net Assets, end of period .................... $ 492,967,428 $ 394,743,146
============= =============
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, 1997 --------------------------------------------
(Unaudited) 1996 1995 1994 1993 1992
----------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period ......... $11.67 $9.30 $13.12 $10.62 $ 8.51 $9.53
Net investment income (loss) ................. (0.08) (0.12) (0.15) (0.09) 0.16 (0.01)
Net realized and unrealized gain (loss) on
investments ............................... 4.66 2.57 (3.35) 2.66 2.35 (1.08)
Net realized and unrealized gain (loss)
on translation of foreign currencies ....... (0.14) (0.08) (0.35) (0.07) (0.25) 0.11
----- ----- ---- ----- ----- ----
Total from investment operations ......... 4.44 2.37 (3.85) 2.50 2.26 (0.98)
Net Effect of Share Transactions .................. 0.06 -- 0.03 -- -- (0.02)
Distributions to Shareholders From:
Net investment income......................... -- -- -- -- (0.15) --
Net realized gain on investments ............. (1.20) -- -- -- -- (0.02)
----- ----- ---- ----- ----- ----
Total distributions*................. (1.20) -- -- -- (0.15) (0.02)
----- ----- ---- ----- ----- ----
Net Asset Value, End of Period .................... 14.97 11.67 9.30 13.12 10.62 8.51
===== ===== ==== ===== ===== ====
Per Share Market Price, End of Period ............. 11.75 10.13 10.50 11.88 13.75 8.75
Total Investment Return (%)**:
Based on the Trust's market price ............ 28.65 (3.52) (11.62) (13.60) 59.42 (14.44)
Based on the Trust's net asset value ......... 39.54 25.48 (29.12) 23.54 26.73 (10.50)
Ratios and Supplemental Data:
Net Assets, end of period (in thousands) ..... 492,967 394,743 314,532 365,661 295,997 237,240
Ratio of expenses to average net assets (%) .. 1.53+ 1.75 1.98 1.99 2.18 2.47
Ratio of net investment income (loss) to
average net assets (%)..................... (1.12)+ (1.14) (1.38) (0.84) 1.79 (0.09)
Portfolio turnover ratio (%) ................. 123+ 148 81 97 151 45
Average commission rate***.................... 0.003 0.002 -- -- -- --
</TABLE>
* See Note 2 for information concerning the Trust's distribution policy.
** Investment return is calculated for the six months ended June 30, 1997 (not
annualized) and for each of the five years ended December 31, 1996.
*** For fiscal years beginning on or after September 1, 1995, a fund which
invests greater than 10% of the value of average net assets in equity
securities is required to disclose its average commission rate per share
for trades on which commissions are charged.
+ 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, 1997 (Expressed in US Dollars)
================================================================================
Note 1-- Organization and the Acquisition of The Taiwan (R.O.C.) Fund
- --------------------------------------------------------------------------------
The R.O.C. Taiwan Fund (the "Trust") is a Massachusetts business trust formed in
July 1988 and registered with the U.S. Securities and Exchange Commission as a
diversified, closed-end management investment company under the Investment
Company Act of 1940 (the "Investment Company Act").
The Trust was formed in connection with the reorganization (the
"Reorganization") of The Taiwan (R.O.C.) Fund (the "Fund"). The Fund, which
commenced operations in October 1983, was established under the laws of the
Republic of China as an open-end contractual investment fund pursuant to an
investment contract between International Investment Trust Company Limited and
Central Trust of China, as custodian. Pursuant to the Reorganization, which was
completed in May 1989, the Trust acquired the entire beneficial interest in the
assets constituting the Fund. For financial reporting purposes, the acquisition
has been accounted for as a purchase transaction. However, 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 as of the Reorganization
date.
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 intercompany
transactions and balances have been eliminated in consolidation.
B -- Valuation of investments -- Common 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 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, 1997, this rate was approximately NT$27.814 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.
The Trust does not separately record that portion of the results of operations
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 realized and unrealized gain or loss from
investments.
F -- Distributions to shareholders -- Income distributions and capital gain
distributions are determined in accordance with income tax
12
<PAGE>
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.
G -- 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 stock
dividends (except those which have resulted from capitalization of capital
surplus) 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 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, is levied.
Proceeds from sales of investments are net of securities transaction tax paid of
approximately $1,064,008 for the six months ended June 30, 1997.
H -- Use of estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and the accompanying notes. Actual results could differ from those
estimates.
Note 3 -- Investment Considerations
- --------------------------------------------------------------------------------
Because the Trust concentrates its investments in publicly traded equity and
debt securities issued by R.O.C. corporations, its portfolio involves
considerations not typically associated with investing in U.S. securities. In
addition, the Trust is more susceptible to factors adversely affecting the
R.O.C. economy than a fund not concentrated in these issuers to the same extent.
Since the Trust's investment securities are primarily denominated in New Taiwan
Dollars, changes in the relationship of the New Taiwan Dollar to the U.S. Dollar
may also significantly affect the value of the investments and the earnings of
the Trust.
Note 4 -- Investment Management
- --------------------------------------------------------------------------------
Pursuant to an investment contract (the "Investment Contract"), IIT (the
"Manager"), an R.O.C. corporation, is responsible, among other things, for
investing and managing the assets of the Trust and administering the Trust's
affairs. The Trust pays the Manager a fee in NT$, which is accrued daily and
paid monthly in arrears, at the annual rate of 1.40% of the net asset value
("NAV") with respect to Trust assets held in Taiwan under the Investment
Contract 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$12 billion.
Note 5 -- Custodians
- --------------------------------------------------------------------------------
Pursuant to the Investment Contract, the Central Trust of China ("CTC") serves
as custodian of the assets of the Trust held in the R.O.C. CTC owns
approximately 8% of the outstanding capital stock of IIT. The Trust pays the
custodian a monthly fee in NT$ at the annual rate of 0.16% of the NAV with
respect to Trust assets held in Taiwan under the Investment Contract 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, subject to a minimum annual fee of NT$2.4 million
(approximately $86,000).
Note 6 -- Investments in Securities
- --------------------------------------------------------------------------------
Purchases and proceeds from sales, excluding short-term investments, for the six
months ended June 30, 1997, included approximately
13
<PAGE>
$307,000,000 for stock purchases and approximately $353,000,000 for stock sales,
respectively.
At June 30, 1997, the cost of investments, excluding short-term investments and
bonds, for U.S. federal income tax purposes was approximately $349,000,000. At
June 30, 1997, for U.S. federal income tax purposes, the aggregate gross
unrealized appreciation on these investments was approximately $123,000,000 and
the aggregate gross unrealized depreciation on these investments was
approximately $9,000,000 or a net unrealized appreciation of approximately
$114,000,000. See Note 9 for information concerning the Trust's tax loss
carryforward as of June 30, 1997.
Note 7 -- Shares of Beneficial Interest
- --------------------------------------------------------------------------------
The Trust's "Declaration of Trust" permits the Trustees to issue an unlimited
number of shares of beneficial interest 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.
Under a program approved by the Board of Trustees, the Trust may repurchase up
to $25 million of its own shares. During the six months ended June 30, 1997, the
Trust retired 876,200 shares at a net cost of $10,411,798. The weighted average
discount per share between the cost of retirement and the net asset value
applicable to such shares at the date of retirement was 17.12%. At June 30,
1997, 32,939,176 shares were outstanding.
Note 8 -- Distribution
- --------------------------------------------------------------------------------
On May 12, 1997, the Trust declared a distribution of $1.20 per share, which was
paid on June 20, 1997, to shareholders of record on June 2, 1997. The
distribution has been treated as if declared from undistributed net realized
gain on investments; however, the exact tax characterization will be determined
shortly after December 31, 1997, and will be reported to U.S. shareholders in
connection with required U.S. federal tax reporting rules as well as included in
the Trust's 1997 annual report.
- --------------------------------------------------------------------------------
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, 1996. 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
President of International Investment Trust Co. (IIT), the Fund's investment
manager. Mr. Chiang has 13 years experience in the financial industry and for
the past 10 years has worked at IIT, where he previously served as Vice
President in charge of the dealing department.
- --------------------------------------------------------------------------------
14
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================================================================================
1997 ANNUAL MEETING OF STOCKHOLDERS
================================================================================
On June 3, 1997, the Fund held an annual meeting to:
1. Elect three trustees,
2. Ratify the appointment of KPMG Peat Marwick as the Fund's independent
accountants for 1997, and
3. Consider whether to convert the Fund from a closed-end investment company
into an open-end investment company. The Fund's Declaration of Trust
required a shareholder vote on this question, because the Fund's shares had
traded at an average discount of more than 10% to its net asset value over
a 12-week-period during the 12 months preceding the annual meeting.
Proxies representing 17,513,068, or 51.79% of the 33,815,376 eligible shares
outstanding, were voted. The results are shown below. The trustees of the Fund
recommended that stockholders vote against the conversion proposal, whose
passage would have required the affirmative vote of a majority of the shares
outstanding. Of the 33,815,376 shares outstanding, less than 12% were voted for
conversion. Management of the Fund expressed its appreciation for the support of
stockholders on this matter.
- --------------------------------------------------------------------------------
For Withheld
- --------------------------------------------------------------------------------
Nominees to the Board of Trustees
Pedro-Pablo Kuczynski 15,345,673 2,167,395
Lin-Yin Kung 15,464,250 2,048,818
Gregory Kuo-Hua Wang 15,465,073 2,047,995
Messrs. Theodore S.S. Cheng, Daniel K.L. Chiang, Raymund A. Kathe, David N.
Laux, and Alfred F. Miossi, whose terms did not expire in 1997, are the
remaining trustees.
- --------------------------------------------------------------------------------
For Against Abstain
- --------------------------------------------------------------------------------
KPMG Peat Marwick as independent
accountants for 1997 17,092,058 59,826 361,184
- --------------------------------------------------------------------------------
For Against Abstain
- --------------------------------------------------------------------------------
Conversion of the Fund from a
closed-end to an open-end
investment company 3,957,731 6,570,427 194,592
Proxies covering 6,790,318 shares, or 38.77% of the shares represented at the
meeting, were not voted on this proposal.
- --------------------------------------------------------------------------------
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, 1997,
and the related consolidated statement of operations, consolidated statement of
changes in net assets and the consolidated financial highlights for the six
months then ended. These consolidated financial statements and financial
highlights are the responsibility of the Trust's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. 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 conducted 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, 1996 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, 1996 and expressed an unqualified opinion on those consolidated
financial statements and financial highlights in our report dated January 8,
1997, but have not performed any auditing procedures since that date.
/s/KPMG Peat Marwick
Taipei, Taiwan
July 22, 1997
16
<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: (02) 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,
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.
