Dear Stockholders
The net asset value per share (NAV) of the R.O.C. Taiwan Fund gained 30.0% in
the second quarter, outperforming the 23.0% rise in the Taiwan Stock Exchange
Index (TAIEX). During the period, the New Taiwan dollar appreciated 2.6% against
the U.S. dollar.
Heavy trading helped propel a rally in technology stocks that led the market
upward for most of the second quarter. This was kicked off by record-high March
sales achieved by several Taiwan electronics and computer makers along with
rising stock prices of many U.S. Internet companies that rely on Taiwan
suppliers. It was kept alive on reports that showed demand outstripping
expectations for companies as diverse as semiconductor foundries (manufacturers
doing contract work for other chipmakers and designers) and recordable compact
disc makers. But the biggest buying frenzy came after a couple of deals
involving consolidation in Taiwan's semiconductor industry were announced in
June. For the whole period technology stocks gained almost 50%.
No other group of Taiwan stocks matched the TAIEX performance. However, the
financial sector enjoyed a double-digit increase. Banks' strong profit reports
and lower interest rates outweighed concern over a rising level of bad loans.
Such concern moderated with the passage of a law in June that cuts business
taxes on financial institutions. Stocks of companies in certain cyclical
industries such as plastics and steel also did reasonably well. They benefited
from optimism over improving economies in the region as some large Taiwan
manufacturers were able to raise prices on export products.
Indeed, strong foreign demand from East Asia played a major role in boosting
Taiwan's economy in the second quarter. As a result, exports -- the equivalent
of about 40% of gross national product -- rose 7.5% in the period compared to
the 4.1% government forecast. While consumption remained relatively weak,
private investment picked up speed, as indicated by the 15% increase in imports
of capital equipment. Economic growth most likely exceeded the 5.0% official
forecast for the second quarter and should range from 5.0%-5.5% for the whole
year.
The Fund beat the market in the second quarter primarily because of our
significant investments in the technology area. Many of our top holdings,
ranging from those in electronics (CMC Magnetics) to computers (Quanta) and
semiconductors (United Microelectronics), were market leaders during the period.
Looking forward, we have adopted a more cautious stance for the near term as a
result of increasing uncertainty.This is mainly due to heightened tensions with
China since the efforts of Taiwan's President Lee Teng-hui in early July to
redefine cross-strait relations. Foreign institutional investors have also begun
to realize profits after the run-up in stock prices throughout the region, and
Taiwan will not be exempt from this trend. Although such investment is quite
small compared to the size of the Taiwan market, domestic investors often follow
the lead of foreign capital.
I would like to take this opportunity to introduce Michael Ding, who took over
as portfolio manager on July 15, 1999. He had been the Fund's deputy manager
since March of this year, when he was appointed senior vice president in charge
of research and fund management at International Investment Trust Co., the
Fund's investment manager. Mr. Ding served as chief economist and head of
research at Citicorp International Securities Ltd. in Taipei from 1996 to 1999
and as head of research and information for the greater China region at McKinsey
& Co. from 1994 to 1996. I am confident that your Fund will benefit from his
able leadership and offer him my best wishes. Finally, I would like to express
my sincere gratitude for your support during my tenure as fund manager.
Respectfully submitted,
/s/ Daniel Chiang
-----------------
Daniel Chiang
President
July 29, 1999
<PAGE>
Portfolio Highlights
Three Months Ended June 30, 1999
Key Statistics
Change in N.A.V. ($7.20 to $9.36) $2.16
- --------------------------------------------------
Total Net Assets $306.1 Million
- --------------------------------------------------
Ten Largest Holdings
Percent of
Company Net Assets
- ------------------------------------- ----------
CMC Magnetics Corp. 8.41%
Systex Corp. 3.66
Inventec Corp. 3.48
Quanta Computer Inc. 3.44
United Microelectronics Corp. 3.23
Delta Electronics Inc. 2.99
Taiwan Semiconductor Manufacturing Co. 2.92
Compeq Manufacturing Co., Ltd. 2.75
China Development Industrial Bank 2.66
Advanced Semiconductor Engineering, Inc. 2.64
- --------------------------------------------------
Security Classification
Value
Percent of Net Assets (000)
- ------------------------------------- -----
Common Stocks 94.86% $290,333
Short-Term Investments 4.68 14,334
----- --------
Total Investments 99.54 304,667
Other Assets Less
Liabilities 0.46 1,397
- -----------------------------------------------------
Net Assets 100.00% $306,064
- -----------------------------------------------------
Industry Diversification
Percent of
Ten Largest Sectors Net Assets
- ----------------------------- ----------
Electronics 24.92%
Computers & Office Equipment 12.51
Banking 10.56
Plastics 10.07
Semiconductors 7.24
Other Financials 7.04
Textiles 5.12
Paper 3.44
Chemical 2.38
Steel & Other Metals 1.87
- ---------------------------------------------------
2
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
CONSOLIDATED SCHEDULE OF INVESTMENTS
The R.O.C. Taiwan Fund/June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------------------------------------
COMMON STOCKS-- 94.86% % of Market Value
Automobile -- 0.70% Net Assets (U.S. Dollars)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1,350,950shs. *China Motor Corp. .......................................... 0.70 $ 2,131,891
------------
2,131,891
Banking -- 10.56%
- --------------------------------------------------------------------------------------------------------------
1,700,000 *International Bank of Taipei ............................... 0.71 2,161,953
1,499,000 *Chang Hwa Commercial Bank Ltd. ............................. 0.71 2,170,048
3,600,000 *Chinatrust Commercial Bank.................................. 1.41 4,322,050
4,000,395 *The First Commercial Bank................................... 2.49 7,612,609
5,100,000 United World Chinese Commercial Bank........................ 2.58 7,890,340
3,272,250 *China Development Industrial Bank .......................... 2.66 8,150,756
------------
32,307,756
Other Financials -- 7.04%
- --------------------------------------------------------------------------------------------------------------
1,278,000 *Grand Cathay Securities Corp. .............................. 0.33 1,012,340
2,000,000 *Fubon Securities Co., Ltd................................... 0.53 1,627,576
4,164,000 *Capital Securities Co., Ltd. ............................... 1.28 3,929,761
3,700,000 Shin Kong Life Insurance Co., Ltd. ......................... 2.32 7,098,212
2,200,902 Cathay Life Insurance Co., Ltd. ............................ 2.58 7,899,766
------------
21,567,655
Cement -- 1.01%
- --------------------------------------------------------------------------------------------------------------
4,000,000 *Taiwan Cement Corp. ........................................ 1.01 3,094,251
------------
3,094,251
Chemical -- 2.38%
- --------------------------------------------------------------------------------------------------------------
1,350,000 *Yung Chi Paint & Varnish Mfg. Co., Ltd...................... 0.91 2,798,750
2,900,000 *Taiwan Fertilizer Co., Ltd.................................. 1.47 4,486,664
------------
7,285,414
Computers & Office Equipment -- 12.51%
- --------------------------------------------------------------------------------------------------------------
2,025,710 Compal Electronics Inc. .................................... 2.60 7,960,430
1,650,000 *Delta Electronics Inc. ..................................... 2.99 9,138,870
880,320 Quanta Computer Inc. ....................................... 3.44 10,541,613
3,172,336 *Inventec Corp. ............................................. 3.48 10,650,364
------------
38,291,277
Construction -- 1.79%
- --------------------------------------------------------------------------------------------------------------
1,650,000 *Ever Fortune Industrial Co., Ltd. .......................... 0.26 786,249
3,624,000 *Goldsun Development & Construction Co., Ltd. ............... 0.37 1,138,177
2,750,000 Delpha Construction Co., Ltd. .............................. 0.39 1,191,287
2,000,000 *CTCI Corp................................................... 0.77 2,370,196
------------
5,485,909
</TABLE>
See accompanying notes to consolidated financial statements and accountants'
review report.
3
<PAGE>
<TABLE>
<CAPTION>
The R.O.C. Taiwan Fund
% of Market Value
Electrical & Machinery -- 1.81% Net Assets (U.S. Dollars)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
437,000shs. *Rexon Industrial Corp. ..................................... 0.26 $ 784,269
350,000 *Basso Industry Corp......................................... 0.75 2,306,764
3,500,000 *Pacific Electric Wire & Cable Co., Ltd...................... 0.80 2,436,723
------------
5,527,756
Electronics -- 24.92%
- --------------------------------------------------------------------------------------------------------------
305,000 *Ulead Systems Inc........................................... 0.44 1,340,120
549,000 *Sunplus Technology Co., Ltd................................. 1.00 3,057,739
560,000 *Prodisc Technology Inc...................................... 1.06 3,257,627
3,000,000 *Orient Semiconductor Electronics Ltd........................ 1.52 4,641,376
2,000,000 *Wus Printed Circuit Co., Ltd................................ 1.56 4,765,146
2,400,000 *D-Link Corp................................................. 1.88 5,755,307
2,400,000 *Advanced Semiconductor Engineering, Inc. ................... 2.64 8,094,560
1,440,000 *Compeq Manufacturing Co., Ltd. ............................. 2.75 8,421,313
3,918,600 *Systex Corp. ............................................... 3.66 11,215,743
5,620,300 *CMC Magnetics Corp.......................................... 8.41 25,738,115
------------
76,287,046
Paper -- 3.44%
- --------------------------------------------------------------------------------------------------------------
1,499,000 *Shihlin Paper Corp. ........................................ 1.35 4,128,071
8,939,000 *Chung Hwa Pulp Corp. ....................................... 2.09 6,389,346
------------
10,517,417
Plastics -- 10.07%
- --------------------------------------------------------------------------------------------------------------
3,900,000 *China Petrochemical Development Corp........................ 0.77 2,365,245
4,000,000 *USI Far East Corp........................................... 1.06 3,255,152
5,000,000 *Taiwan Styrene Monomer Corp. ............................... 1.60 4,904,388
3,500,384 Nan Ya Plastics Corp........................................ 1.89 5,794,620
10,000,000 *Union Petrochemical Corp. .................................. 2.33 7,116,777
3,520,508 Formosa Plastics Corp....................................... 2.42 7,407,468
------------
30,843,650
Steel & Other Metals -- 1.87%
- --------------------------------------------------------------------------------------------------------------
4,000,000 *Yieh Phui Enterprise Co., Ltd............................... 0.83 2,537,286
4,200,000 China Steel Corp. .......................................... 1.04 3,170,988
------------
5,708,274
Semiconductors -- 7.24%
- --------------------------------------------------------------------------------------------------------------
1,500,000shs. *Vanguard International Semiconductor Corp................... 0.42 1,253,172
3,000,000 *Powerchip Semiconductor Corp................................ 0.67 2,060,771
2,342,535 *Taiwan Semiconductor Manufacturing Co., Ltd. ............... 2.92 8,951,763
4,600,000 *United Microelectronics Corp................................ 3.23 9,892,320
------------
22,158,026
</TABLE>
See accompanying notes to consolidated financial statements and accountants'
review report.
4
<PAGE>
<TABLE>
<CAPTION>
Schedule of Investments (Cont'd)
% of Market Value
Textiles -- 5.12% Net Assets (U.S. Dollars)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
2,500,000shs. *Lea Lea Enterprise Co., Ltd. ............................... 0.31 $ 963,086
1,000,000 Formosa Chemicals & Fiber Corp. ............................ 0.40 1,219,135
6,436,000 *Tainan Spinning Co., Ltd.................................... 0.71 2,170,691
779,930 *Tainan Enterprises Co, Ltd. ................................ 0.91 2,787,360
6,370,000 *Everest Textile Co., Ltd. .................................. 1.33 4,060,338
3,000,113 *Far Eastern Textile Ltd. ................................... 1.46 4,455,889
-------------
15,656,499
Transportation -- 1.59%
- --------------------------------------------------------------------------------------------------------------
500,000 *Far Eastern Air Transport Corp.............................. 0.09 267,653
2,000,000 *Yang Ming Marine Transport Corp. ........................... 0.42 1,299,585
2,640,000 *Evergreen Marine Corp. (Taiwan) Ltd. ....................... 1.08 3,300,204
-------------
4,867,442
Others -- 2.81%
- --------------------------------------------------------------------------------------------------------------
1,709 *Miscellaneous securities ................................... 0.00 1,727
500,000 *Kent World Ltd. ............................................ 0.08 247,540
393,000 *Jan Fusun Fancyworld Corp. ................................. 0.15 466,960
456,000 *World Peace Industrial Co., Ltd. ........................... 0.56 1,707,284
1,318,817 Taiwan Secom Co., Ltd. ..................................... 0.93 2,836,122
1,028,927 *Pou Chen Corp. ............................................. 1.09 3,342,946
-------------
8,602,579
-------------
TOTAL COMMON STOCKS (COST $236,107,145) ........................................ $ 290,332,842
-------------
</TABLE>
*: Non-income producing: these stocks did not pay a cash dividend during the six
month period.
See accompanying notes to consolidated financial statements and accountants'
review report.
5
<PAGE>
The R.O.C. Taiwan Fund
<TABLE>
<CAPTION>
SHORT-TERM INVESTMENTS -- 4.68% % of Market Value
Bankers' Acceptances -- 0.47% Net Assets (U.S. Dollars)
- --------------------------------------------------------------------------------------------------------------
Principal
Amount Accepting Bank (Issuer)
--------- ----------------------
<S> <C> <C> <C>
$ 33,115 Hua Nan Commercial Bank (Tai-Yau Co., Ltd.),
4.60%, Due 07/03/99....................................... 0.01 $ 33,107
113,832 Grand Commercial Bank (Guey Yung Trading Co., Ltd.),
4.65%, Due 07/03/99....................................... 0.04 113,803
115,934 Cooperative Bank of Taiwan (China Steel Corp.),
4.65%, Due 07/05/99....................................... 0.04 115,875
154,713 The Chinese Bank (Shin Shin Credit Corp.),
4.65%, Due 07/06/99....................................... 0.05 154,614
773,563 The Chinese Bank (Shin Shin Credit Corp.),
4.65%, Due 07/07/99....................................... 0.25 772,975
123,770 The Chinese Bank (Jih Sun International Leasing and
Finance Co.), 4.65%, Due 07/09/99.......................... 0.04 123,645
123,770 The Chinese Bank (Jih Sun International Leasing and
Finance Co.), 4.65%, Due 07/09/99.......................... 0.04 123,645
------------
1,437,664
Commercial Paper -- 4.21%
- --------------------------------------------------------------------------------------------------------------
Principal
Amount Issuer (Guarantor)
--------- ------------------
$ 1,547,125 Hwa-Hsia Leasing Ltd. (Fubon Bank),
4.65%, Due 07/02/99....................................... 0.51 $ 1,546,928
1,392,413 Tung Taur (Taiwan) Ltd. (Dai-Ichi Kangyo Bank),
4.65%, Due 07/02/99....................................... 0.45 1,392,236
309,425 Chyuan Maw Construction Co., Ltd. (Taishin Int'l Bank),
4.65%, Due 07/02/99....................................... 0.10 309,386
1,547,125 An-Fu-Li Co., Ltd. (Standard Chartered Bank),
4.65%, Due 07/02/99....................................... 0.51 1,546,929
154,713 Hung Haur Co., Ltd. (Grand Commercial Bank),
4.65%, Due 07/03/99....................................... 0.05 154,673
1,547,125 Abtron Group Co., Ltd.(Shanghai Commercial & Savings
Bank), 4.65%, Due 07/03/99................................ 0.51 1,546,733
1,547,125 Tai-Shin Leasing Corp. (Union Commercial Bank),
4.65%, Due 07/05/99....................................... 0.51 1,546,342
1,547,125 First Securities Co., Ltd. (Cosmos Bank),
4.65%, Due 07/06/99....................................... 0.51 1,546,146
309,425 San Yang Investment Corp. (Union Commercial Bank),
4.70%, Due 07/07/99....................................... 0.10 309,187
309,425 Cherng-Shinn Investment Co., Ltd. (Chinatrust Commercial
Bank), 4.85%, Due 07/07/99................................. 0.10 309,179
309,425 Chaur-Chin Co., Ltd. (Dah An Commercial Bank)
4.65%, Due 07/08/99....................................... 0.10 309,150
216,598 Yue-Po Co., Ltd. (Dai-Ichi Kangyo Bank),
4.60%, Due 07/09/99....................................... 0.07 216,380
</TABLE>
See accompanying notes to consolidated financial statements and accountants'
review report.
6
<PAGE>
Schedule of Investments (Cont'd)
<TABLE>
<CAPTION>
% of Market Value
Commercial Paper -- 4.21% Net Assets (U.S. Dollars)
- --------------------------------------------------------------------------------------------------------------
Principal
Amount Issuer (Guarantor)
--------- ---------------------
<S> <C> <C> <C>
$ 1,856,551 Delpha Construction Co. Ltd. (Chinatrust Commercial
Bank), 4.70%, Due 07/09/99................................. 0.61 $ 1,854,642
309,425 Ya-Yu Trading Co., Ltd. (Grand Commercial Bank),
4.85, Due 07/12/99........................................ 0.10 308,974
------------
12,896,885
TOTAL SHORT-TERM INVESTMENTS (AMORTIZED COST $14,334,548) 14,334,548
------------
TOTAL INVESTMENTS IN SECURITIES
AT MARKET VALUE (COST $250,441,693) 99.54 304,667,390
OTHER ASSETS (LESS LIABILITIES) 0.46 1,397,106
------ ------------
NET ASSETS 100.00 $306,064,496
====== ============
</TABLE>
See accompanying notes to consolidated financial statements and accountants'
review report.
7
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
The R.O.C. Taiwan Fund / June 30, 1999 (Expressed in US Dollars) (Unaudited)
- --------------------------------------------------------------------------------------------------------------
<S> <C>
Assets
Investments in securities at market value (Notes 2B, 3 and 6):
Common stocks (cost -- $236,107,145)............................................. $290,332,842
Short-term investments (amortized cost -- $14,334,548)........................... 14,334,548
------------
Total investments in securities at market value
(cost -- $250,441,693)........................................ 304,667,390
Cash ................................................................................. 739,959
Receivable for sale of investments.................................................... 1,350,899
Dividends and interest receivable..................................................... 251,089
Other receivables..................................................................... 1,188
------------
Total assets.................................................... 307,010,525
------------
Liabilities
Payable for securities purchased...................................................... 180,873
Management fee payable (Note 4)....................................................... 311,709
Custodian fee payable (Note 5)........................................................ 35,884
Accrued Republic of China taxes (Note 2G)............................................. 248,152
Other payables........................................................................ 169,411
------------
Total liabilities............................................... 946,029
------------
Net assets............................................................................ $306,064,496
============
Components of net assets (Note 2)
Par value of shares of beneficial interest (Note 7)................................... 326,990
Additional paid-in capital............................................................ 313,789,368
Accumulated net investment loss....................................................... (3,180,684)
Accumulated realized loss on investments.............................................. (31,044,591)
Unrealized appreciation on investments (Note 6)....................................... 54,225,698
Cumulative translation adjustment..................................................... (28,052,285)
------------
Net assets............................................................................ $306,064,496
============
Net asset value per share (32,698,976 shares issued and outstanding).................. $ 9.36
============
</TABLE>
See accompanying notes to consolidated financial statements and accountants'
review report.
8
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
The R.O.C. Taiwan Fund / For the Six Months Ended June 30, 1999 (Expressed in US Dollars) (Unaudited)
- --------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income (Note 2C)
Dividends........................................................................ $ 1,112,676
Interest......................................................................... 329,703
-----------
1,442,379
Republic of China taxes (Note 2G)..................................................... 625,223
-----------
817,156
-----------
Expenses
Management fee (Note 4).......................................................... 1,655,378
Custodian fee (Note 5)........................................................... 190,120
Professional fees................................................................ 210,595
Administrative fee............................................................... 42,000
Insurance expenses............................................................... 22,250
Trustee fees..................................................................... 65,000
Other expenses................................................................... 110,164
-----------
2,295,507
-----------
Net investment loss .................................................................. (1,478,351)
-----------
Net realized and unrealized loss on investments and foreign currencies (Note 2 & 6)
Net realized loss on:
investments (excluding short term investments)................................. (9,545,919)
Net increase (decrease) in unrealized appreciation on:
investments (excluding short-term investments)................................. 71,547,664
translation of assets and liabilities in foreign currencies.................... (806,454)
-----------
Net realized and unrealized gain from investments and foreign
currencies..................................................................... 61,195,291
-----------
Net increase in net assets resulting from operations.................................. $59,716,940
===========
</TABLE>
See accompanying notes to consolidated financial statements and accountants'
review report.
9
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
The R.O.C. Taiwan Fund / For the Six Months Ended June 30, 1999 and the Year Ended December 31, 1998
(Expressed in US Dollars)
- --------------------------------------------------------------------------------------------------------------
Six Months Ended Year Ended
June 30, 1999 December 31,
(Unaudited) 1998
---------------- ------------
<S> <C> <C>
Net increase (decrease) in net assets resulting from
operations
Net investment loss............................................. $ (1,478,351) $ (3,711,209)
Net realized loss on investments and foreign currency
transactions.................................................. (9,545,919) (9,161,619)
Net increase (decrease) in unrealized appreciation on
investments .................................................. 71,547,664 (46,950,003)
Net increase (decrease) in unrealized appreciation on
translation of assets and liabilities in foreign currencies .. (806,454) 2,309,163
------------ ------------
Net increase (decrease) in net assets resulting from
operations ................................................... 59,716,940 (57,513,668)
------------ ------------
Distributions to Shareholders from (Note 2F)
Capital......................................................... -- (4,243,980)
Net investment income........................................... -- (2,229,516)
Net realized gain on investments................................ -- (3,009,207)
------------ ------------
Total distributions............................................. -- (9,482,703)
------------ ------------
Increase (decrease) in net assets.................................... 59,716,940 (66,996,371)
Net assets, beginning of period...................................... 246,347,556 313,343,927
------------ ------------
Net assets, end of period............................................ $306,064,496 $246,347,556
============ ============
</TABLE>
See accompanying notes to consolidated financial statements and accountants'
review report.
10
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL HIGHLIGHTS
The R.O.C. Taiwan Fund (Expressed in U.S. Dollars)
- ------------------------------------------------------------------------------------------------------------------
Six Months
Ended Years Ended December 31,
June 30, 1999 --------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
----------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance:
Net asset value, beginning of period.......... $7.53 $9.58 $11.67 $9.30 $13.12 $10.62
Net investment loss........................... (0.04) (0.11) (0.16) (0.12) (0.15) (0.09)
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions............................... 1.89 (1.73) 3.20 2.57 (3.35) 2.66
Net increase (decrease) in unrealized
appreciation on translation of foreign
currencies.................................. (0.02) 0.08 (1.88) (0.08) (0.35) (0.07)
------ ------ ------ ------ ------ ------
Total from investment operations ......... 1.83 (1.76) 1.16 2.37 (3.85) 2.50
Net effect of share transactions................... -- -- 0.09 -- 0.03 --
Distributions to Shareholders from:
Capital ..................................... -- (0.13) -- -- -- --
Net investment income......................... -- (0.07) (0.39) -- -- --
Net realized gain on investments.............. -- (0.09) (2.95) -- -- --
------ ------ ------ ------ ------ ------
Total distributions*................. -- (0.29) (3.34) -- -- --
------ ------ ------ ------ ------ ------
Net asset value, end of period..................... 9.36 7.53 9.58 11.67 9.30 13.12
====== ====== ====== ====== ====== ======
Per share market price, end of period.............. 8.06 6.19 8.13 10.13 10.50 11.88
Total investment return (%)**:
Based on the Trust's market price............. 30.25 (20.31) 10.55 (3.52) (11.62) (13.60)
Based on the Trust's net asset value.......... 24.30 (18.42) 9.41 25.48 (29.12) 23.54
Ratios and supplemental data:
Net Assets, end of period ('000's)............ 306,064 246,348 313,344 394,743 314,532 365,661
Ratio of expenses to average net assets (%) .. 1.85+ 1.77 1.51 1.75 1.98 1.99
Ratio of net investment loss to average
net assets (%).............................. (1.19)+ (1.28) (1.13) (1.14) (1.38) (0.84)
Portfolio turnover ratio (%)**................ 84 133 106 148 81 97
</TABLE>
* See Note 2F for information concerning the Trust's distribution policy.
** Investment return and portfolio turnover ratio are calculated for the six
months ended June 30, 1999 (not annualized) and for each of the five years
ended December 31, 1998.
+ 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, 1998 (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 ("IIT") acquired the entire beneficial interest
in the assets constituting the Fund.
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 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. Bonds
represent investments in unlisted debt securities for which market quotations
are not available. Accordingly, the fair value of such investments has been
estimated in good faith by the Trust's management using a yield-to-maturity
basis. Short-term investments are valued using the cost, 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 for financial reporting purposes using the average
cost method for the cost of investments. For federal income tax purposes,
realized gains and losses on security transactions are determined using the
first-in-first-out method. For the fiscal year ended December 31, 1998, the
Trust generated a net capital loss of $15,024,768. This loss may be used to
offset any future capital gains generated by the Trust and, if unused, will
expire on December 31, 2006.
E -- Foreign currency translation--Substantially all of the Trust's income is
earned, and its expenses are largely paid, in New Taiwan Dollars ("NT$"). 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, 1999, this rate was approximately NT$32.318 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.
12
<PAGE>
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 -- It is the Trust's policy to distribute all
ordinary income and net capital gains, calculated in accordance with U.S.
federal income tax regulations. Such calculations may differ from those based on
generally accepted accounting principles.
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 and
excise taxes provided that it distributes all of its investment company taxable
income and net capital gains to its shareholders.
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.
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 $600,223 for the six
months ended June 30, 1999.
H -- Use of estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and the accompanying notes. Actual results could differ from those
estimates.
Note 3 -- Investment Considerations
- --------------------------------------------------------------------------------
Because the Trust concentrates its investments in publicly traded equity and
debt securities issued by R.O.C. corporations, its portfolio involves
considerations not typically associated with investing in U.S. securities. In
addition, the Trust is more susceptible to factors adversely affecting the
R.O.C. economy than a fund not concentrated in these issuers to the same extent.
Since the Trust's investment securities are primarily denominated in New Taiwan
Dollars, changes in the relationship of the New Taiwan Dollar to the U.S. Dollar
may also significantly affect the value of the investments and the earnings of
the Trust.
Note 4 -- Investment Management
- --------------------------------------------------------------------------------
Pursuant to an investment contract (the "Investment Contract"), IIT (the
"Manager"), an R.O.C. corporation, is responsible, among other things, for
investing and managing the assets of the Trust and administering the Trust's
affairs. The Trust pays the Manager a fee in NT$, 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$12 billion.
13
<PAGE>
Note 5 -- Custodian
- --------------------------------------------------------------------------------
Pursuant to the Investment Contract, the Central Trust of China ("CTC") serves
as custodian of the assets of the Trust held in the R.O.C. CTC owns
approximately 8% of the outstanding capital stock of IIT. The Trust pays the
custodian a monthly fee in NT$ 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 $74,000).
Note 6 -- Investments in Securities
- --------------------------------------------------------------------------------
Purchases and proceeds from sales, excluding bonds and short-term investments,
for the six months ended June 30, 1999, included approximately $196,000,000 for
stock purchases and approximately $199,000,000 for stock sales, respectively.
At June 30, 1999, the cost of investments, excluding bonds and short-term
investments, for U.S. federal income tax purposes, was approximately
$234,000,000. At June 30, 1999, for U.S. federal income tax purposes, the
aggregate gross unrealized appreciation on these investments was approximately
$64,000,000 and the aggregate gross unrealized depreciation on these investments
was approximately $8,000,000 or a net unrealized appreciation of approximately
$56,000,000. This amount differs from the amount reflected as unrealized
appreciation on investments under components of net assets in the Consolidated
Statement of Assets and Liabilities because of the difference between tax and
financial accounting referred to in Note 2D.
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. At June 30, 1999, 32,698,976 shares were
outstanding.
- --------------------------------------------------------------------------------
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, 1998. The Fund intends to apply for
such status for succeeding accounting periods.
- --------------------------------------------------------------------------------
14
<PAGE>
- --------------------------------------------------------------------------------
1999 ANNUAL MEETING OF STOCKHOLDERS
- --------------------------------------------------------------------------------
On June 3, 1999, 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 1999, 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 beginning after the preceding annual meeting.
Proxies representing 14,998,622, or 45.87% of the 32,698,976 eligible shares
outstanding, were voted. The results are shown below. The trustees of the Fund
recommended that stockholders vote against the conversion proposal. The
affirmative vote of a majority of the shares outstanding was required in order
to pass the proposal. Of the 32,698,976 shares outstanding, less than 7% were
voted for conversion. Management of the Fund expressed its appreciation for the
support of stockholders on this matter.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
For Withheld
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Nominees to the Board of Trustees
Daniel K.L. Chiang 13,698,048 142,474
Robert P. Parker 13,690,398 150,124
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 1999, are the remaining trustees.
- --------------------------------------------------------------------------------------------------------------------
For Against Abstain
- --------------------------------------------------------------------------------------------------------------------
KPMG Peat Marwick as independent
accountants for 1999 13,777,119 39,008 24,395
- --------------------------------------------------------------------------------------------------------------------
For Against Abstain
- --------------------------------------------------------------------------------------------------------------------
Conversion of the Fund from a closed-end
to an open-end investment company 2,039,936 6,283,792 116,159
Proxies covering 6,558,735 shares, or 43.73% of the shares represented at the
meeting, were not voted on this issue.
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
INDEPENDENT AUDITORS' 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,
1999, and the related consolidated statements of operations, changes in net
assets and financial highlights for the six-month period ended June 30, 1999.
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
applying analytical procedures to financial data and making inquiries or persons
responsible for financial and accounting matters. 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 statement of changes in net assets
for the year ended December 31, 1998 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, 1998 and expressed an unqualified opinion on the consolidated
statement of changes in net assets and financial highlights in our report dated
January 18, 1999, but have not performed any auditing procedures since that
date.
/s/ KPMG
Taipei, Taiwan
July 28, 1999
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: (886) 2-2713-7702
Fax: 886-2-2717-3077
Officers and Trustees:
Theodore S. S. Cheng, Chairman and Trustee
Daniel Chiang, President and Chief Executive
Officer, and Trustee
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
Robert P. Parker, 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.
Telephone: 800-426-5523
U.S. Administrator:
Dewe Rogerson Inc
1440 Broadway, 16th Floor
New York, NY 10018
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.
Quarterly Report
June 30, 1999
