UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-4893
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THE TAIWAN FUND, INC.
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(Exact name of registrant as specified in charter)
225 FRANKLIN STREET
BOSTON, MA 02110
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(Address of principal executive offices in the United States)(Zip code)
(Name and Address of Agent for Service) Copy to:
The Taiwan Fund, Inc. Leonard B. Mackey, Jr.
c/o State Street Bank and Clifford Chance US LLP
Trust Company 31 West 52nd Street
Attention: William C. Cox New York, NY 10019
225 Franklin Street
Boston, MA 02110
Registrant's telephone number, including area code: (800) 636-9242
Date of fiscal year end: August 31, 2005
Date of reporting period: September 1, 2004-February 28, 2005
ITEM 1. REPORTS TO STOCKHOLDERS.
CHAIRMAN'S STATEMENT
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Dear Shareholders:
We are pleased to present the Semi-Annual Report of The Taiwan Fund, Inc. (the
"Fund") for the six months ended February 28, 2005.
On a market value basis, the return on the Fund's shares was 26.79% reflecting
the increase in the Fund's net asset value ("NAV") of 17.5% in U.S. dollar terms
for the six months ended February 28, 2005 after taking into consideration the
US$0.03044 per share distribution paid to the shareholders in January 2005 and a
significant reduction in the discount at which the Fund's shares traded at
February 28, 2005 as compared to August 31, 2004. During the same period, return
of the Taiwan Stock Exchange Index (the "TAIEX") increased by 17.7% in U.S.
dollar terms. The Fund underperformed the TAIEX by 0.2 percentage points.
On February 28, 2005, the Fund was trading at US$13.90 per share, reflecting a
discount of 7.2% to the Fund's NAV per share of US$14.98. During the past six
months, the Fund's shares traded at an average discount of around 11%, which was
lower than the average discount of around 11.9% in the previous year. We believe
that the narrowing of this discount reflects investors' growing optimism about
the prospects for the Taiwanese market.
The growth of the global economy is expected to continue near trend at 3.3% in
2005 but below the 4.1% growth recorded in 2004. Despite the slower global
economy expected, the United States and China will remain the principal engines
of global growth, and healthy growth rates are also expected in other Asian
emerging markets.
In China, the economy has witnessed strong growth with the real GDP growth rate
reaching 9.5% in 2004. With the Chinese government's ongoing efforts to ensure
that the economy grows at a steady and sustainable rate, it is expected that the
economy will grow around 8.2% after last year's tightening measures. The main
economic drivers will be strong domestic demand and exports. Meanwhile in Japan,
the economy is projected to slow to 1.5% growth in 2005 from 2.6% in 2004 as
domestic demand and exports slow.
Inflationary concerns have resurfaced recently on the back of higher oil prices,
hence the risk remains that the pace of interest rate hikes will quicken. Recent
economic data indicated continuing upbeat activity. U.S. real GDP grew at a 3.8%
in the fourth quarter of 2004. That was much stronger than the previous estimate
of 3.1% on the back of
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stronger trade and corporate investment performance. Economists have raised
their forecasts for economic growth in 2005 on expectations for stronger
consumption than in the prior survey, and increasing job creation will help
maintain the average unemployment rate at around 5.2% in 2005, against the
previous estimate of 5.3%.
The above scenario would be positive for the Taiwanese economy. After 5.7%
growth in 2004, Taiwan's real GDP growth is projected by the Directorate General
of Budget Accounting and Statistics to be 4.2% in 2005, which is stronger than
the average forecasted global rate. Despite the impact of a soft landing in
China, higher oil prices, rising interest rates, and instability in the Middle
East, Taiwan's exports grew by 20% in 2004 due to external global demand.
However, growth in Taiwan's export orders are projected to slow to 7.4% in 2005
from a stellar 20.9% in 2004 due to softer external demand and gains in the
Taiwan NT dollar. While domestic consumption this year is anticipated to grow at
a similar pace as in 2004 (3%), private investment is projected to slow to 8.9%
in 2005 from 28.2% in 2004 because the year-earlier level was so high. On the
interest rate front, we expect the Taiwanese Central Bank to keep up with the
rising U.S. rate pace to offset any imported inflation.
For 2005, we anticipate that favorable domestic demand and exports combined with
a healthy outlook for the U.S. and Chinese economies will support the market. In
this context, Taiwan's investment could slow, but the outlook remains favorable
due to the economic links that exist between China and Taiwan. However, an
unexpected slowdown in the U.S. economy or the imposition by China of additional
macro-economic cooling measures, would each have an adverse impact on Taiwan's
economy. Other uncertainties that could unsettle the market would be unfavorable
cross-strait relations or the oil price staying above US$55 per barrel.
Despite the expectation of global economic slowdown in 2005, we believe that
Taiwan will remain a favorable market for long-term investment. Against the
uncertain political backdrop, and slowing corporate earnings growth for the
current year, Taiwan companies' long-term competitiveness should remain the
same. This competitive strength on a global basis, plus taking advantage of the
lower cost of production in China, will underpin the positive longer-term
outlook for the stock market.
CHAIRMAN'S STATEMENT (continued)
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We believe that Taiwan's stock market will remain one of the more favorable
places for global investors in the future. The Board is confident about Taiwan's
investment outlook.
Thank you for your continued support of The Taiwan Fund, Inc. We look forward to
sharing with you our improving results over the longer term.
Sincerely,
/s/ S.Y. Wang
S. Y. Wang
Chairman
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REPORT OF THE INVESTMENT MANAGER
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INVESTMENT PERFORMANCE
The Fund's NAV per share was US$14.98 as of February 28, 2005. For the six
months ended February 28, 2005, the Fund underperformed the TAIEX by 0.2
percentage points.
The performance attribution report generated by FactSet (an investment research
service) shows that the Fund's positive performance contribution came from stock
selection during the same period. At the stock level, the Fund's portfolio
benefited from good stock selection in the IT hardware and integrated circuit
("IC") design stocks, but positions in selected financial and auto stocks
detracted value. In terms of sector, our underweight position in the memory IC
sector brought positive contributions, but was offset by the overweight
positions in the printed circuit board ("PCB") sector.
INVESTMENT OUTLOOK
Recent macro-data across regions indicated a clear-cut confirmation that the
global economy is recovering and sustainable. Macro-economic data across regions
indicated that all elements of U.S. business activity appear to be moving
forward, and positive data in emerging markets reflect strong fundamentals.
Accordingly, we expect that the Taiwan market will improve moderately in 2005
with vigorous economic results showing up from the middle of 2005. We expect
that the potential rebound in global growth from the middle of this year will
benefit Taiwan's export-driven economy. Hence, this should offer reasonable
investment opportunities for investors in the foreseeable future. We reiterate
our view that the following four major factors will be the focal drivers to the
market in 2005: (1) economic conditions; (2) market liquidity; (3) attractive
valuations; and (4) the second phase of the Morgan Stanley Capital
International's ("MSCI") re-weighting in May.
According to Taiwan government's estimates, the momentum of Taiwan's economic
growth is expected to show an up-tick in the second half of 2005. We anticipate
that Taiwan's economic fundamentals will remain resilient, supporting expansion
of domestic and external demand. A recent upturn in the Organization for
Economic Cooperation and Development ("OECD") leading indicators and
accelerating Chinese economic growth support our arguments that exports will be
the main driver of the Taiwan economy. For 2005, we anticipate global industrial
activity to bottom out in the middle of 2005 and then to improve further in the
second part of 2005. Furthermore, we expect an
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overflow from exports to domestic investment to emerge, with private investment
to grow at a favorable rate at 8.9% in 2005. These investments will be bolstered
by historically low interest rates, the government's policy incentives to
improve job creation and asset price reflation. For the year of 2005, the Taiwan
government is projecting a 4.05% GDP growth for the first half of 2005, while
momentum is expected to pick up nicely to a growth rate of 4.35% in the second
half of 2005. We also believe that the worldwide economy has enough strength to
keep expanding at around a 3.5% annual rate in the first half of 2005.
In terms of the market liquidity, recent data pointed to a healthy condition.
M2, the broadest measure of the island's money supply, rose 6.88% during the
past six-month period of August 2004 to January 2005, up from the same period a
year ago at 5.48%. Growth in M1B, which excludes time deposits and
foreign-currency deposits included in M2, dropped to 14.48% from 17.17% for the
same period. We expect the level of liquidity to be sustained due to: (1) a low
interest rate environment, (2) ongoing foreign fund inflows, (3) appreciation of
Taiwan NT dollars, and (4) improvement of non-performing loans.
In line with global market slowdown and slowing growth from an especially robust
performance the previous year, we project a 4.8% year-over-year decline in
corporate earnings in 2005 for our stock universe, against a stellar growth of
54% in 2004. In addition, we should expect to see consumer lending fall slightly
in 2005 in the face of rising interest rates, which tend to slow consumer
demand. On a positive note, we expect corporate lending to pick up on the back
of foreign currency loans and the increasing cost of equity premiums. In terms
of valuation, we note that the TAIEX is trading at the lower end of its range.
The TAIEX's current price-to-earning ratio is close to 12.9 times (as of the end
of February 2005) as compared to its five-year mean of 19.0 times.
The second phase of the MSCI's re-weighting should once again fuel the
investors' buying interests, and that in turn will benefit Taiwan large market
cap stocks. Such MSCI re-weighting will result in Taiwan becoming the country
with the largest weighting within the MSCI Emerging Market Index - a weighting
of more than 20% in May 2005. In the first phase, the limited investability
factor ("LIF") was increased to 75% from 55%, and in the second phase, the MSCI
will increase the LIF from 75% to 100% as of the end of March 31, 2005.
REPORT OF THE INVESTMENT MANAGER (continued)
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INVESTMENT STRATEGY
For 2005, our strategy aims to increase our exposure to high-beta stocks in our
portfolio, as we believe the market's focus will shift to a more aggressive pace
and high-beta technology stocks will offer better returns if cautiously
invested. Hence, our investment strategy for the current year will focus on
three themes: seasonal returns, new product development and cash dividend yield
themes. Defensive and yield stocks will make up some of our investment ideas in
the near-to-mid term to serve as cushion for our portfolio. However, in view of
relatively strong year-to-date performance within domestic-focused sectors, such
as cement, finance, property and transportation, and considering that good news
is being priced into these sectors, we see limited upside potential for domestic
sectors in the second half of 2005. In addition, we will also reduce our
low-beta stock holdings, such as telecommunication stocks, in the near-to-mid
term. Separately, Taiwan's healthy liquidity, NT dollar strength and historic
low interest rates will be key catalysts for domestic consumption and companies'
asset price reflation in Taiwan, but we expect narrowly range-bound trading for
those sectors.
We also embrace the positive effect of MSCI's second phase of re-weighting,
which is expected to draw foreign capital inflows, further boosting the Taiwan
market in the coming months. In this vein, we anticipate large market
capitalization stocks will be the first beneficiaries, which is similar to what
we witnessed in late 2004. We will continue to look for opportunities to
accumulate large-cap stocks in diverse sectors.
Starting from 2005, we have begun to shift our over-weighting from previous
technology downstream players (Information Technology consumer and hardware) to
selective technology upstream players (Dynamic Random Access Memory "DRAM",
foundry and IC packaging & testing) for the following reasons. Firstly, we
anticipate the utilization rate of several technology upstream sectors -- DRAM,
foundry and IC packaging- and testing to improve gradually throughout 2005.
Secondly, upstream technology stocks with wise CAPEX (capital expenditure)
practices will offer a range of benefits: sufficient cash to pay back to
shareholders, greater pricing power over the cycle, and less earnings
volatility. However, in process technology for IC fabrication, the combination
of the trend towards increased outsourcing and Taiwan's outstanding capability
in this sector should still favor IC foundry and packaging companies to drive
long-term growth. Although
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DRAM companies' significant capital spending in 2004 and 2005 may result in
oversupply and depressing profit margin concerns, we are inclined to look beyond
the current short-term operational situation toward the increasing prevalence of
new product (DDR2) to drive the sector's underlying performance from the later
part of 2005 and beyond. As for downstream consumer and hardware stocks, we
favor niche and selective players, particularly those companies that continue to
expand their market share through complete product offerings and market
penetration to grow earnings further. Another positive factor for the Taiwan
technology sector is the historic low valuation at around 12.2 times
price-to-earnings ratio, suggesting limited downside risks.
After demand for thin film transistor-liquid crystal displays ("TFT-LCD")
products failed to keep pace with production in late 2004, TFT-LCD shares
witnessed significant downturns. Despite this, we believe that rising demand for
TFT-LCD TVs will serve as the key catalyst for the sector and more affordable
prices will continue to stimulate demand in 2005 and beyond. It is projected
that a compound annual growth rate (CAGR) for the TFT-LCD TV segment will be 41%
in the next three years.
The increasing use in monitors, notebooks and televisions will continue to lead
to the proliferation of TFT-LCD products and increase investors' interest. In
the longer-term, the TFT-LCD industry is expected to double its growth to reach
US$42 billion in 2007. Other interesting areas within the new product theme
include: (1) 3G handsets (third generation mobile phone technology service), (2)
the "digital home", and (3) game console upgrades. Considering uncertainty about
the full integration of handsets and content, we believe the potential from
these might gradually increase in the current year.
As for the financial sector, we note that less emphasis has been placed on
financial reform by the Taiwan government to date, as two years of robust
economic growth has significantly reduced non-performing loans to 2.78% (as of
the end of January 2005) from 4.34% a year earlier. Pricey valuations of the
financial sector at price-to-book ratio of 1.8 times compared with the broader
market suggests that potential risk is on the downside as the pick up in
corporate lending is unable to offset the contraction of consumer lending.
In the year ahead, we intend to increase exposure in high-beta stocks to take
advantage of these diverse themes and attain better investment returns. We will
continue to strive to beat the benchmark through a
REPORT OF THE INVESTMENT MANAGER (continued)
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process of bottom-up stock selections. We are confident that the Taiwanese stock
market and healthy economic conditions will provide significant investment
opportunities for investors in the foreseeable future. We believe that the
fund's performance should provide satisfactory returns for investors over the
longer term.
Thank you for your support and we look forward to presenting our strategy again
in coming reports.
Sincerely,
/s/ Victor Shih /s/ Sally Chang
Victor Shih Sally Chang
Portfolio Manager Deputy Portfolio Manager
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PORTFOLIO SNAPSHOT*
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TOP TEN EQUITY HOLDINGS
HOLDINGS AS OF FEBRUARY 28, 2005 %
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Asustek Computer, Inc. 6.6
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MediaTek, Inc. 5.3
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Taiwan Semiconductor Manufacturing Co. 5.0
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Hon Hai Precision Industry Co. Ltd. 4.8
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China Steel Corp. 4.3
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Chunghwa Telecom Co. Ltd. 4.2
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Cathay Financial Holding Co. Ltd. 4.0
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Chinatrust Financial Holding Co. Ltd. 4.0
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Mega Financial Holding Co. Ltd. 3.3
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Formosa Chemicals & Fibre Corp. 3.3
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TOP TEN EQUITY INDUSTRY WEIGHTINGS
WEIGHTINGS AS OF FEBRUARY 28, 2005 %
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Semi-conductor 20.3
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Financial Services 16.7
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Electronics 12.6
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PC & Peripherals 12.2
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Telecommunications 10.8
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Plastics 8.7
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Iron & Steel 4.3
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General Merchandise Stores 3.3
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Others & Miscellaneous 3.2
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Petroleum Services 2.2
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TOP TEN EQUITY HOLDINGS
HOLDINGS AS OF AUGUST 31, 2004 %
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Taiwan Semiconductor Manufacturing Co. 7.9
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Asustek Computer, Inc. 6.1
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Chunghwa Telecom Co. Ltd. 6.0
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Cathay Financial Holding Co. Ltd. 5.3
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Hon Hai Precision Industry Co. Ltd. 4.5
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Mega Financial Holding Co. Ltd. 4.3
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Chinatrust Financial Holding Co. Ltd. 4.2
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China Steel Corp. 4.0
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Taishin Financial Holdings Co. Ltd. 3.8
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United Microelectronics Corp. Ltd. 3.6
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TOP TEN EQUITY INDUSTRY WEIGHTINGS
WEIGHTINGS AS OF AUGUST 31, 2004 %
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Financial Services 17.7
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Semi-conductor 17.6
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PC & Peripherals 14.3
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Electronics 11.5
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Telecommunications 9.9
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Plastics 4.6
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Iron & Steel 4.0
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Textiles & Apparel 2.6
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General Merchandise Stores 2.4
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Petroleum Services 2.1
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* Percentages based on total investments at February 28, 2005 and August 31,
2004.
INDUSTRY ALLOCATION
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INDUSTRY ALLOCATION (AS A PERCENTAGE OF TOTAL INVESTMENTS)
PIE CHART
Other 18.7%
Semi-conductor 20.3%
Financial Services 16.7%
Electronics 12.6%
PC & Peripherals 12.2%
Telecommunications 10.8%
Plastics 8.7%
Fund holdings are subject to change and percentages shown below are based on
total investments as of February 28, 2005. The pie chart illustrates the
allocation of the investment by industry. A complete list of holdings as of
February 28, 2005 is contained in the Portfolio of Investments included in this
report. The most current available data regarding portfolio holdings and sector
allocation can be found on our website, www.thetaiwanfund.com. You may also
obtain updated holdings by calling (800)-636-9242.
THE TAIWAN FUND, INC.
INVESTMENTS/FEBRUARY 28, 2005 (SHOWING PERCENTAGE OF TOTAL VALUE OF
INVESTMENT IN SECURITIES) (UNAUDITED)
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US$
VALUE
SHARES (NOTE 1)
------ --------
COMMON STOCKS -- 94.3%
BASIC INDUSTRIES -- 15.2%
IRON & STEEL -- 4.3%
China Steel Corp. ................... 9,200,000 $ 10,955,906
------------
PETROLEUM SERVICES -- 2.2%
Formosa Petrochemical Corp. ......... 2,774,000 5,490,860
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PLASTICS -- 8.7%
Formosa Chemicals & Fibre Corp. ..... 4,200,000 8,381,075
Formosa Plastic Corp. ............... 4,218,000 7,738,204
Nan Ya Plastics Corp. ............... 3,776,000 5,760,618
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21,879,897
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TOTAL BASIC INDUSTRIES............... 38,326,663
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DURABLES -- 1.8%
AUTOMOBILES, TIRES &
ACCESSORIES -- 1.8%
Cheng Shin Rubber Industry Co.
Ltd. .............................. 3,600,000 4,507,242
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FINANCE -- 16.7%
BANKS -- 2.1%
International Bank of Taipei......... 7,000,000 5,271,966
------------
FINANCIAL SERVICES -- 14.6%
Cathay Financial Holding Co. Ltd. ... 5,000,000 10,138,397
Chinatrust Financial Holding Co.
Ltd. ............................... 8,476,000 10,121,004
E. Sun Financial Holding Co. Ltd. ... 10,000,000 8,142,903
Mega Financial Holding Co. .......... 12,500,000 8,448,665
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36,850,969
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TOTAL FINANCE........................ 42,122,935
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RETAIL & WHOLESALE -- 3.3%
GENERAL MERCHANDISE STORES -- 3.3%
President Chain Store Corp. ......... 4,934,000 8,337,142
------------
TECHNOLOGY -- 55.9%
ELECTRONICS -- 12.6%
Asia Vital Components Co. Ltd. ...... 1,510,000 1,385,098
Au Optronics Corp. .................. 4,605,000 7,203,186
Career Technology (MFG.) Co. Ltd. ... 3,500,000 5,519,794
Cheng Uei Precision Industry Co.
Ltd. ............................... 2,340,000 6,062,762
Merry Electronics Co. Ltd. .......... 2,200,000 5,770,840
Tripod Technology Corp. ............. 3,200,000 4,892,179
Wus Printed Circuit Co. Ltd. ........ 2,000,000 955,906
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31,789,765
------------
US$
VALUE
SHARES (NOTE 1)
------ --------
PC & PERIPHERALS -- 12.2%
Asustek Computer, Inc. .............. 5,780,000 $ 16,556,807
Benq Corp. .......................... 2,000,000 2,233,666
Hon Hai Precision Industry Co.
Ltd. ............................... 2,596,000 12,073,447
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30,863,920
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SEMI-CONDUCTOR -- 20.3%
MediaTek, Inc. ...................... 1,800,000 13,498,552
Powerchip Semiconductor Corp. (a).... 9,000,000 7,560,348
Powertech Technology Inc. ........... 1,300,000 3,723,849
Sunplus Technology Co. Ltd. ......... 3,850,000 6,257,644
Taiwan Semiconductor Manufacturing
Co. ................................ 7,200,000 12,745,414
United Microelectronics Corp. Ltd.
(a)................................. 11,238,000 7,523,347
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51,309,154
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TELECOMMUNICATIONS -- 10.8%
Chunghwa Telecom Co. Ltd. ........... 5,100,000 10,505,310
Ichia Technologies, Inc. ............ 2,000,000 2,677,824
Taiwan Cellular Corp. ............... 5,600,000 6,037,979
Zyxel Communications Corp. .......... 3,600,000 8,110,718
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27,331,831
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TOTAL TECHNOLOGY..................... 141,294,670
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TRANSPORTATION -- 1.4%
TRANSPORTATION -- 1.4%
Yang Ming Marine Transport........... 3,720,000 3,663,727
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TOTAL COMMON STOCKS
(Identified Cost -- $170,659,281)... 238,252,379
------------
The accompanying notes are an integral part of the financial statements.
INVESTMENTS/FEBRUARY 28, 2005 (unaudited) (continued)
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PRINCIPAL US$
AMOUNT VALUE
NT$ (NOTE 1)
--------- --------
CERTIFICATES OF DEPOSIT -- 0.1%
China Airlines 1.05%, 3/18/05 (b).... 9,961,063 $ 320,600
------------
COMMERCIAL PAPER -- 5.4%
Allied Material Technology Corp.
1.05%, 5/16/05 (b)................. 99,847,159 3,210,956
China Trust Commercial Bank 1.05%,
4/14/05 (b)......................... 50,000,000 1,606,606
Les Enphants Co Ltd 1.10%, 4/11/05
(b)................................. 74,794,779 2,407,299
Taishin International Bank 1.10%,
6/30/05 (b)......................... 20,129,576 647,878
Tecom 1.10%, 5/31/05 (b)............. 179,188,641 5,767,256
------------
TOTAL COMMERCIAL PAPER
(Identified Cost -- $13,384,203).... 13,639,995
------------
MATURITY
AMOUNT
US$
--------
REPURCHASE AGREEMENT -- 0.2%
State Street Bank and Trust Co.
0.06% dated 2/28/05 due 3/7/05
(collateralized by U.S. Treasury
Note 3.625%, 1/15/10, market
value $520,176).................. $ 508,059 $ 508,000
------------
TOTAL INVESTMENTS -- 100%
(Cost -- $184,854,944)............. $252,720,974
============
LEGEND:
US$ - United States dollar
NT$ - New Taiwan dollar
(a) Non-income producing
(b) Certificates of Deposit and Commercial Paper that are traded through Bills
Finance Corporations must be guaranteed by either a bank, a trust company or
a Bills Finance Corporation. Since there is no recognized credit rating
system in the Republic of China, the guarantee may not be comparable to a
guarantee issued by a U.S. institution.
INCOME TAX INFORMATION:
At February 28, 2005, the aggregate cost basis of the Fund's investment
securities for income tax purposes was $185,067,273.
Net unrealized appreciation of the Fund's investment securities was $67,653,701
of which $68,916,925 related to appreciated investment securities and $1,263,224
related to depreciated investment securities. In addition, as of August 31,
2004, the Fund's last fiscal year end, the Fund had a capital loss carryforward
of $71,371,135 for Federal income tax purposes which may be utilized to offset
future capital gains through August 31, 2009 ($7,374,675), August 31, 2010
($39,995,101) and August 31, 2011 ($24,001,359.)
The accompanying notes are an integral part of the financial statements.
FINANCIAL STATEMENTS
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STATEMENTS OF ASSETS AND LIABILITIES
February 28, 2005 (Unaudited)
ASSETS
Investments in securities, at value
(cost $184,854,944) (Notes 1 and
2) - See accompanying schedule........ $252,720,974
Cash.................................... 10,303
Cash in New Taiwan dollars (cost
$2,133,601)............................ 2,143,348
Receivable for investments sold......... 757,059
Interest receivable..................... 15,256
------------
Total assets........................... 255,646,940
------------
LIABILITIES
Payable for investments purchased....... 10,133,818
Accrued management fee (Note 3)......... 145,797
Taiwan withholding tax payable (Note
1)..................................... 3,007
Other payables and accrued expenses..... 153,389
------------
Total liabilities...................... 10,436,011
------------
NET ASSETS.............................. $245,210,929
============
Net Assets consist of (Note 1):
Paid in capital......................... 244,846,401
Undistributed net investment loss....... (1,274,518)
Accumulated undistributed net realized
loss on investments in securities and
foreign currency....................... (66,201,434)
Net unrealized appreciation on
investment securities and foreign
currency............................... 67,840,480
------------
NET ASSETS.............................. $245,210,929
============
NET ASSET VALUE, per share
($245,210,929/ 16,365,572 shares
outstanding)........................... $14.98
============
STATEMENTS OF OPERATIONS
Six Months Ended February 28, 2005 (Unaudited)
INVESTMENT INCOME
Dividends................................. $ 19,436
Interest.................................. 49,501
-----------
68,937
Less: Taiwan withholding tax (Note 1)..... (8,419)
-----------
Total Income............................. 60,518
EXPENSES:
Management fee (Note 3)
Basic fee................................ $ 1,955,092
Performance adjustment................... (329,896)
Custodian fees and expenses............... 185,581
Administration and accounting fees (Note
3)....................................... 110,309
Directors compensation (Note 3)........... 210,716
Legal..................................... 136,577
Audit..................................... 43,675
Shareholder communications................ 36,538
Delaware franchise tax.................... 20,026
Insurance fees............................ 48,722
Miscellaneous............................. 8,425
Transfer agent fees....................... 8,658
-----------
Total expenses........................... 2,434,423
-----------
NET INVESTMENT LOSS...................... (2,373,905)
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 1)
Net realized gain on:
Investment securities.................... 5,281,040
Foreign currency transactions............ 100,837
-----------
5,381,877
Change in net unrealized appreciation
(depreciation) on:
Investment securities.................... 33,562,113
Assets and liabilities denominated in
foreign currencies..................... (26,792)
-----------
33,535,321
-----------
Net realized and unrealized gain.......... 38,917,198
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS............................... $36,543,293
===========
The accompanying notes are an integral part of the financial statements.
FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Six Months Ended
February 28, Year Ended
2005 August 31, 2004
---------------- ---------------
(Unaudited)
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss)............................... $ (2,373,905) $ 475,165
Net realized gain on investments and foreign currency
transactions............................................. 5,381,877 23,761,336
Change in net unrealized appreciation on investments and
foreign currency transactions............................ 33,535,321 (26,019,393)
------------ ------------
Net increase (decrease) in net assets resulting from
operations............................................... 36,543,293 (1,782,892)
------------ ------------
Distributions to shareholders
From net investment income................................. (498,168) --
------------ ------------
Total distributions to shareholders........................ (498,168) --
------------ ------------
Total increase in net assets............................... 36,045,125 (1,782,892)
------------ ------------
NET ASSETS
Beginning of period........................................ 209,165,804 210,948,696(a)
------------ ------------
End of period.............................................. 245,210,929 209,165,804
============ ============
Undistributed net investment income (loss) end of period... $ (1,274,518) $ 1,597,555
============ ============
(a) Restated (Note 5)
The accompanying notes are an integral part of the financial statements.
FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Six Months
Ended Year Ended August 31,
February 28, ----------------------------------------------------------------------
2005 2004 2003 2002 2001 2000(e)
------------ ---------- ---------- ---------- ---------- ----------
(Unaudited)
SELECTED PER SHARE DATA
Net asset value, beginning of
period....................... $ 12.78 $ 12.89(d) $ 11.37(d) $ 10.81(d) $ 21.49(d) $ 21.67(d)
---------- ---------- ---------- ---------- ---------- ----------
Income from Investment
Operations
Net investment loss (a)...... (0.15) 0.03 0.00(d) (0.12)(d) (0.22)(d) (0.35)(d)
Net realized and unrealized
gain (loss) on
investments................ 2.38 (0.14) 1.52 0.68 (10.26) 0.17
---------- ---------- ---------- ---------- ---------- ----------
Total from investment
operations................. 2.23 (0.11) 1.52(d) 0.56(d) (10.48)(d) (0.18)(d)
---------- ---------- ---------- ---------- ---------- ----------
Less Distributions
From net investment income... (0.03) -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
From net realized gains...... -- -- -- -- (0.20) --
---------- ---------- ---------- ---------- ---------- ----------
Total distributions.......... (0.03) -- -- -- (0.20) --
---------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of
period....................... $ 14.98 $ 12.78 $ 12.89(d) $ 11.37(d) $ 10.81(d) $ 21.49(d)
========== ========== ========== ========== ========== ==========
Market value, end of period... $ 13.90 $ 10.99 $ 11.09 $ 9.27 $ 9.88 $ 17.63
========== ========== ========== ========== ========== ==========
TOTAL RETURN
Per share market value........ 26.79% (0.90)% 19.63% (6.17)% (43.16)% (3.75)%
RATIO AND SUPPLEMENTAL DATA
Net assets, end of period (000
omitted)..................... $ 245,211 $ 209,166 $ 210,949(d) $ 186,032(d) $ 176,945(d) $ 351,741(d)
Ratio of expenses to average
net assets (b)............... 1.97%(c)(f) 2.07% 2.05%(d) 2.20%(d) 2.69%(d) 2.28%(d)
Ratio of expenses to average
net assets, excluding stock
dividend tax expense
(benefit).................... 1.99%(c)(f) 1.82% 1.76%(d) 1.98%(d) 2.21%(d) 1.92%(d)
Ratio of net investment income
(loss) to average net
assets....................... (1.92)%(c)(f) 0.21% 0.01%(d) (0.97)%(d) (1.56)%(d) (1.52)%(d)
Portfolio turnover rate....... 36% 76% 148% 167% 125% 139%
(a) Based on average shares outstanding during the period.
(b) Expense ratio includes 20% tax paid on stock dividends received by the
Fund.
(c) Annualized
(d) Restated (Note 5)
(e) Unaudited.
(f) Ratio includes one-time charge to the management fees; see Note 3. Without
this charge the ratios would be 1.74%, 1.76% and (1.68%), respectively.
The accompanying notes are an integral part of the financial statements.
NOTES TO FINANCIAL STATEMENTS (unaudited)
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Taiwan Fund, Inc. (the "Fund"), a Delaware corporation, is registered under
the Investment Company Act of 1940, as amended (the "Act"), as a diversified
closed-end management investment company.
The Fund is not permitted to invest directly in the securities of Republic of
China ("ROC") companies. Therefore, it invests through a contractual securities
investment trust fund arrangement. This arrangement was established by means of
the Securities Investment Trust, Investment Management and Custodian Contract
("Management Contract") among HSBC Asset Management (Taiwan) Limited
("Adviser"), the International Commercial Bank of China (Custodian) and the
Fund. Under the Management Contract, the Adviser manages and invests the assets
of the Fund and the Custodian holds the assets. The Fund is the sole beneficiary
of the assets held under the Management Contract and, as required by ROC
regulations, its interest in the assets is evidenced by units of beneficial
interest.
The Fund concentrates its investments in the securities listed on the Taiwan
Stock Exchange. Because of this concentration, the Fund may be subject to
additional risks resulting from future political or economic conditions in
Taiwan and the possible imposition of adverse governmental laws of currency
exchange restrictions affecting Taiwan.
The policies described below are consistently followed by the Fund in the
preparation of its financial statements in conformity with accounting principles
generally accepted in the United States of America.
Security Valuation. All securities, including those traded over-the-counter,
for which market quotations are readily available are valued at the last sales
price prior to the time of determination of the Fund's net asset value per share
or, if there were no sales on such date, at the closing price quoted for such
securities (but if bid and asked quotations are available, at the mean between
the last current bid and asked prices, rather than such quoted closing price).
In certain instances where the price determined above may not represent fair
market value, the value is determined in such manner as the Board of Directors
may prescribe. Short-term investments, having a maturity of 60 days or less are
valued at amortized cost, which approximates market value, with accrued interest
or discount earned included in interest receivable.
Repurchase Agreements. In connection with transactions in repurchase
agreements, it is the Fund's policy that its custodian take possession of the
underlying collateral securities, the fair value of which exceeds the principal
amount of the repurchase transaction, including accrued interest, at all times.
If the seller defaults, and the fair value of the collateral declines,
realization of the collateral by the Fund may be delayed or limited.
Foreign Currency Translation. The financial accounting records of the Fund are
maintained in U.S. dollars. Investment securities, other assets and liabilities
denominated in a foreign currency are translated into U.S. dollars at the
current exchange rate. Purchases and sales of securities, income receipts and
expense payments are translated into U.S. dollars at the exchange rate on the
dates of the transactions.
Reported net realized gains and losses on foreign currency transactions
represent net gains and losses from disposition of foreign currencies, currency
gains and losses realized between the trade dates and settlement dates of
security transactions, and the difference between the amount of net investment
income accrued and the U.S. dollar amount actually received. The effects of
changes in foreign currency exchange rates on investments in securities are not
segregated in the Statement of Operations from the effects of changes in market
prices of those securities, but are included in realized and unrealized gain or
loss on investments in securities.
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES - continued
Forward Foreign Currency Transactions. A forward foreign currency contract
("Forward") is an agreement between two parties to buy or sell currency at a set
price on a future date. The Fund may enter into Forwards in order to hedge
foreign currency risk or for other risk management purposes. Realized gains or
losses on Forwards include net gains or losses on contracts that have matured or
which the Fund has terminated by entering into an offsetting closing
transaction. Unrealized appreciation or depreciation of Forwards is included in
the Statement of Assets and Liabilities and is carried on a net basis. The
portfolio could be exposed to risk of loss if the counterparty is unable to meet
the terms of the contract or if the value of the currency changes unfavorably.
As of February 28, 2005, the Fund had no open Forwards.
Indemnification Obligations. Under the Trust's organizational documents, its
Officers and Trustees are indemnified against certain liabilities arising out of
the performance of their duties to the Trust. In addition, in the normal course
of business the Trust enters into contracts that provide general
indemnifications to other parties. The Trust's maximum exposure under these
arrangements is unknown as this would involve future claims that may be made
against the Trust that have not yet occurred.
Taxes. As a qualified regulated investment company under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the extent
that it distributes all of its investment company taxable income and net
realized capital gains for its fiscal year. In addition to federal income tax
for which the Fund is liable on undistributed amounts, the Fund is subject to
federal excise tax on undistributed investment company taxable income and net
realized capital gains. The Schedule of Investments includes information
regarding income taxes under the caption "Income Tax Information." The Fund is
organized in Delaware and as such is required to pay Delaware an annual
franchise tax. Also, the Fund is currently subject to a Taiwan security
transaction tax of 0.3% on equities and 0.1% on mutual fund shares of the
transaction amount.
The Fund's functional currency for tax reporting purposes is the New Taiwan
dollar.
Investment Income. Dividend income is recorded on the ex-dividend date, except
where the ex-dividend date may have passed; certain dividends from foreign
securities are recorded as soon as the Fund is informed of the ex-dividend date.
Taiwanese companies typically declare dividends in the Fund's third fiscal
quarter of each year. As a result, the Fund receives substantially less dividend
income in the first half of its year. Interest income, which includes accretion
of original discount, is accrued as earned.
Dividend and interest income generated in Taiwan is subject to a 20% withholding
tax. Stock dividends received (except those which have resulted from
capitalization of capital surplus) are taxable at 20% of the par value of the
stock dividends received.
Distributions to Shareholders. The distributable income from the assets held
under the Management Contract, which is limited to cash dividends and interest
income received, may be distributed to the Fund only once in each year at the
Fund's discretion and is recorded on the ex-dividend date. Realized capital
gains and stock dividends may also be distributed to the Fund. Within the above
limitations the Fund will, under current ROC regulations, be able to remit out
of the ROC the proceeds of income and capital gains distributions, unit
redemptions and other distributions of assets held under the Management
Contract.
The Fund distributes to shareholders at least annually, substantially all of its
taxable ordinary income and expects to distribute its taxable net realized
gains. Certain foreign currency gains (losses) are taxable as ordinary income
and, therefore, increase (decrease) taxable ordinary income available for
distribution. Pursuant to the Dividend Reinvestment and Cash Purchase Plan (the
"Plan"), shareholders may elect to have all distributions automatically
reinvested in Fund shares. (See the summary of the Plan.) Shareholders who do
not participate in the Plan will receive all distributions in cash paid by check
in U.S. dollars. Income and capital gain distributions are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles.
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES - continued
These differences are primarily due to differing treatments for foreign currency
transactions, losses deferred due to wash sales and excise tax regulations.
Permanent book and tax basis differences relating to shareholder distributions
will result in reclassifications to paid in capital.
Security Transactions. Security transactions are accounted for as of the trade
date. Gains and losses on securities sold are determined on the basis of
identified cost.
Use of Estimates. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.
2. PURCHASES AND SALES OF SECURITIES
For the six months ended February 28, 2005, purchases and sales of securities,
other than short-term securities, aggregated $79,211,596 and $76,271,755,
respectively.
3. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Management Fee. As the Fund's investment adviser, HSBC Asset Management
(Taiwan) Limited receives a fee that is computed daily at an annual rate of
1.30% of the Fund's average net assets. The basic fee is subject to a
performance adjustment (up to a maximum of +/-0.30%) based on the Fund's
investment performance as compared to the Taiwan Stock Exchange Index over a
rolling 36-month period.
For the six months ended February 28, 2005, the management fee, including the
performance adjustments, was equivalent to an annual rate of 1.00% of average
net assets, excluding the following one-time charge. During the period, the
basic fee included a one-time charge of approximately $525,000 as a further
revision to performance fee adjustments for the fiscal years prior to 2000. The
management fee including this charge is equivalent to an annual rate of 1.24% of
average net assets.
Directors Fees. No director, officer or employee of the Adviser or its
affiliates will receive any compensation from the Fund for serving as an officer
or director of the Fund. The Fund pays each of its directors who is not a
director, officer or employee of the Adviser an annual fee of $10,000 plus
$2,000 for each Board of Directors' meeting or Audit Committee meeting attended,
and $1,000 for each meeting attended by telephone. In addition, the Fund will
reimburse each of the directors for travel and out-of-pocket expenses incurred
in connection with Board of Directors' meetings.
Administration Fees. State Street Corporation ("State Street") provides, or
arranges for the provision of certain administrative and accounting services for
the Fund, including maintaining the books and records of the Fund, and preparing
certain reports and other documents required by federal and/or state laws and
regulations. The Fund pays State Street a fee at the annual rate of 0.11% of the
Fund's average daily net assets up to $150 million, 0.08% of the next $150
million and 0.05% of those assets in excess of $300 million, subject to certain
minimum requirements.
4. FUND SHARES
At February 28, 2005, there were 20,000,000 shares of $0.01 par value capital
stock authorized, of which 16,365,572 were issued and outstanding.
5. PRIOR PERIOD RESTATEMENT
On August 31, 2004, the Fund restated its statement of changes in net assets for
the year ended August 31, 2003 and its financial highlights for the years ended
August 31, 2000 through 2003 to reflect correction of errors in the calculation
of management fee performance adjustments recorded by the Fund during these
years and prior. The incorrect performance adjustments were calculated based on
average net assets of the Fund over a period different than the period over
which average net assets of the Fund should have been calculated as stipulated
in the management contract and resulted in overpayments being made to the
investment adviser. The cumulative effect at September 1, 1999, and the yearly
net effect, of these corrections
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
--------------------------------------------------------------------------------
5. PRIOR PERIOD RESTATEMENT - continued
on net assets, net asset value per share and the ratio of expenses were as
follows:
NAV PER EXPENSE
NET ASSETS SHARE RATIO
---------- ------- -------
Cumulative effect at
September 1, 1999 $1,088,492 $0.06 n/a
Effect on Year Ended
August 31, 2000 58,392 0.01 -0.02%
Effect on Year Ended
August 31, 2001 (163,948) (0.01) 0.06%
Effect on Year Ended
August 31, 2002 (4,479) 0.00 0.00%
Effect on Year Ended
August 31, 2003 121,015 0.01 -0.07%
OTHER INFORMATION (unaudited)
--------------------------------------------------------------------------------
RESULTS OF ANNUAL STOCKHOLDER MEETING VOTING HELD JANUARY 28, 2005
1.) Election of Directors -- The stockholders of the Fund elected M. Christopher
Canavan, Jr., Harvey Chang, Benny T. Hu, Christina Liu, Anthony Kai Yiu Lo,
Blair Pickerell, Joe O. Rogers, Lawrence Weber and Shao-Yu Wang to the Board of
Directors to hold office until their successors are elected and qualified.
FOR WITHHELD
--------- ---------
Christina Liu 8,271,904 1,693,543
Harvey Chang 8,271,354 1,694,093
Shao-Yu Wang 8,267,138 1,698,309
Lawrence F. Weber 8,266,689 1,698,758
Joe O. Rogers 7,515,683 2,449,764
FOR WITHHELD
--------- ---------
Anthony Kai Yiu Lo 7,482,104 2,483,343
M. Christopher Canavan
Jr. 7,482,063 2,483,384
Benny T. Hu 7,481,947 2,483,500
Blair Pickerell 7,480,888 2,484,559
SHARE REPURCHASE PROGRAM
The Board of Directors of the Fund, at a meeting held on April 23, 2001,
authorized the Fund to repurchase up to 15% of the Fund's outstanding shares of
common stock. The Fund will purchase such shares in the open market at times and
prices determined by management of the Fund to be in the best interest of
stockholders of the Fund. As of February 28, 2005, no shares have been
repurchased by the Fund since the program has been in place.
PRIVACY POLICY
PRIVACY NOTICE
The Taiwan Fund, Inc. collects nonpublic personal information about its
shareholders from the following sources:
[ ] Information it receives from shareholders on applications or other forms;
[ ] Information about shareholder transactions with the Fund, its affiliates, or
others; and
[ ] Information it receives from a consumer reporting agency.
THE FUND'S POLICY IS TO NOT DISCLOSE NONPUBLIC PERSONAL INFORMATION ABOUT ITS
SHAREHOLDERS TO NONAFFILIATED THIRD PARTIES (OTHER THAN DISCLOSURES PERMITTED BY
LAW).
The Fund restricts access to nonpublic personal information about its
shareholders to those agents of the Fund who need to know that information to
provide products or services to shareholders. The Fund maintains physical,
electronic, and procedural safeguards that comply with federal standards to
guard it shareholders' nonpublic personal information.
OTHER INFORMATION (unaudited) (continued)
--------------------------------------------------------------------------------
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that are used by the Fund's
investment adviser to vote proxies relating to the Fund's portfolio securities
is available (1) without charge, upon request, by calling 1-800-636-9242; and
(2) as an exhibit to the Fund's annual report on Form N-CSR, which is available
on the website of the Securities and Exchange Commission (the "Commission") at
http://www.sec.gov. Information regarding how the investment adviser votes these
proxies is available by calling the same number and on the Commission's website.
QUARTERLY PORTFOLIO OF INVESTMENTS
The Fund files with the Securities and Exchange Commission its complete schedule
of portfolio holdings on Form N-Q for the first and third quarters of each
fiscal year. Form N-Q has been filed as of January 31, 2005 for the first
quarter of this fiscal year and is available on the Securities and Exchange
Commission's website at http://www.sec.gov. Additionally, the Portfolio of
Investments may be reviewed and copied at the Securities and Exchange
Commission's Public Reference Room in Washington, D.C. Information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330. The most recent Form N-Q is available without charge, upon
request, by calling 1-800-636-9242.
SUMMARY OF DIVIDEND REINVESTMENT AND
CASH PURCHASE PLAN
--------------------------------------------------------------------------------
WHAT IS THE DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN?
The Dividend Reinvestment and Cash Purchase Plan (the "Plan") offers
shareholders of The Taiwan Fund, Inc. (the "Fund") a prompt and simple way to
reinvest their dividends and capital gains distributions in shares of the Fund.
The Fund will distribute to shareholders, at least annually, substantially all
of its net income and expects to distribute annually its net realized capital
gains. Equiserve Trust Company, N.A. ("Equiserve" or the "Plan Administrator"),
a federally chartered trust institution, acts as Plan Administrator for
shareholders in administering the Plan. The Plan also allows you to make
optional cash investments in Fund shares through the Plan Administrator.
WHO CAN PARTICIPATE IN THE PLAN?
If you own shares in your own name, you can elect to participate directly in the
Plan. If you own shares that are held in the name of a brokerage firm, bank, or
other nominee, you should contact your nominee to arrange for them to
participate on your behalf.
WHAT DOES THE PLAN OFFER?
The Plan has two components: reinvestment of dividends and capital gains
distributions, and a voluntary cash purchase feature.
REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
If you choose to participate in the Plan, your dividends and capital gains
distributions will be promptly invested for you, automatically increasing your
holdings in the Fund. If the Fund declares a dividend or capital gains
distribution payable in cash, you will automatically receive shares purchased by
the Plan Administrator on the New York Stock Exchange or otherwise on the open
market.
If a distribution is declared which is payable in shares or cash at the option
of the shareholder and if on the valuation date (generally the payable date) the
market price of shares is equal to or exceeds their net asset value, the Fund
will issue new shares to you at the greater of the following: (a) net asset
value per share or (b) 95% of the market price per share. If the market price
per share on the valuation date is less than the net asset value per share, the
Fund will issue new shares to you at the market price per share on the valuation
date.
All reinvestments are in full and fractional shares, carried to three decimal
places. In the case of foreign (non-U.S.) shareholders, reinvestment will be
made net of applicable withholding tax.
VOLUNTARY CASH PURCHASE OPTION
Plan participants have the option of making investments in Fund shares through
the Plan Administrator. You may invest any amount from $100 to $3,000
semi-annually. The Plan Administrator will purchase shares for you on the New
York Stock Exchange or otherwise on the open market on or about February 15 and
August 15. If you hold shares in your own name, you should deal directly with
the Plan Administrator. We suggest you send your check to the following address
to be received on or about February 5 or August 5 to allow time for processing:
Equiserve, c/o The Taiwan Fund, Inc. at P.O. Box 43010, Providence, RI
02940-3010. The Plan Administrator will return any cash payments received more
than thirty days prior to February 15 or August 15, and you will not receive
interest on uninvested cash payments. If you own shares that are held in the
name of a brokerage firm, bank, or other nominee, you should contact your
nominee to arrange for them to participate in the cash purchase option on your
behalf.
SUMMARY OF DIVIDEND REINVESTMENT AND
CASH PURCHASE PLAN (continued)
--------------------------------------------------------------------------------
IS THERE A COST TO PARTICIPATE?
Each participant will pay a pro rata portion of brokerage commissions payable
with respect to purchases of shares by the Plan Administrator on the New York
Stock Exchange or otherwise on the open market. Otherwise, there is no charge to
participants for reinvesting dividends and capital gains distributions, since
the Plan Administrator's fees are paid by the Fund. Brokerage charges for
purchasing shares through the Plan are expected to be less than the usual
brokerage charges for individual transactions, because the Plan Administrator
will purchase stock for all participants in blocks, resulting in lower
commissions for each individual participant.
For purchases from voluntary cash payments, participants are charged a service
fee of $.75 for each investment and a pro rata share of the brokerage
commissions.
Brokerage commissions and service fees, if any, will be deducted from amounts to
be invested.
WHAT ARE THE TAX IMPLICATIONS FOR PARTICIPANTS?
You will receive tax information annually for your personal records and to help
you prepare your federal income tax return. The automatic reinvestment of
dividends and capital gains distributions does not relieve you of any income tax
which may be payable on dividends or distributions.
If the Fund issues shares upon reinvestment of a dividend or capital gains
distribution, for U.S. federal income tax purposes, the amount reportable in
respect of the reinvested amount of the dividend or distribution will be the
fair market value of the shares received as of the payment date, which will be
reportable as ordinary dividend income and/or long term capital gains. The
shares will have a tax basis equal to such fair market value, and the holding
period for the shares will begin on the day after the payment date. State, local
and foreign taxes may also be applicable.
ONCE ENROLLED IN THE PLAN, MAY I WITHDRAW FROM IT?
You may withdraw from the Plan without penalty at any time by written notice to
the Plan Administrator.
If you withdraw, you will receive, without charge, stock certificates issued in
your name for all full shares, or, if you wish, the Plan Administrator will sell
your shares and send you the proceeds, less a service fee of $2.50 and less
brokerage commissions. The Plan Administrator will convert any fractional shares
you hold at the time of your withdrawal to cash at the current market price and
send you a check for the proceeds.
WHO SHOULD I CONTACT FOR ADDITIONAL INFORMATION?
If you hold shares in your own name, please address all notices, correspondence,
questions, or other communications regarding the Plan to: Equiserve, c/o The
Taiwan Fund, Inc. at P.O. Box 43010, Providence, RI 02940-3010, 1-800-426-5523.
If your shares are not held in your name, you should contact your brokerage
firm, bank, or other nominee for more information and to arrange for them to
participate in the Plan on your behalf.
Either the Fund or the Plan Agent may amend or terminate the Plan. Except in the
case of amendments necessary or appropriate to comply with applicable law, rules
or policies or a regulatory authority, participants will be mailed written
notice at least 90 days before the effective date of any amendment. In the case
of termination, participants will be mailed written notice at least 90 days
before the record date of any dividend or capital gains distribution by the
Fund.
DIRECTORS AND OFFICERS (unaudited)
--------------------------------------------------------------------------------
The following table sets forth certain information concerning each of the
directors and officers of the Fund.
PRINCIPAL
OCCUPATION OR EMPLOYMENT
NAME, ADDRESS PRESENT OFFICE DIRECTOR DURING PAST DIRECTORSHIPS IN
AND (AGE) WITH THE FUND SINCE FIVE YEARS PUBLICLY-HELD COMPANIES
------------- -------------- -------- ------------------------ -----------------------
DIRECTORS CONSIDERED INDEPENDENT PERSONS
Shao-Yu Wang (81) Chairman of the 1986 Chairman of the Board of Director, America
Apt. 5H Board and Director Trustees, Soochow California Bank
No. 56 Tun Hwa University (2003-present)
South Road, Section 2 (1987-present); Chairman
Taipei, Taiwan, ROC of the Board of
Trustees, Min Chuan
University, (1986-
present); Chairman of
the Board of Trustees,
Fu-Dan High School
(1986-present);
Chairman, Evernew
Biotech, Inc. (1985-
Present); Director, TSR
Corp. (1985-present)
Christina Liu (49) Director 2005 Consultative Board Director, Taiwan Stock
Suite 316, No. 3-1 Member, Commission On Exchange (1995-2002)
Jinan Road Economic Planning and
Taipei, Taiwan, ROC Development, Executive
Yuan, Taiwan, ROC (1996-
present); Consultative
Board Member, Central
Deposit Insurance Corp.
Taiwan, ROC (1996-2002)
DIRECTORS AND OFFICERS (unaudited)(continued)
--------------------------------------------------------------------------------
PRINCIPAL
OCCUPATION OR EMPLOYMENT
NAME, ADDRESS PRESENT OFFICE DIRECTOR DURING PAST DIRECTORSHIPS IN
AND (AGE) WITH THE FUND SINCE FIVE YEARS PUBLICLY-HELD COMPANIES
------------- -------------- -------- ------------------------ -----------------------
Harvey Chang (53) Director 2005 President and Chief Director, Taiwan
19F, No. 172-1, Section 2 Executive Officer, Cellular Corp.
Ji-Lung Road Taiwan Cellular Corp.
Taipei, Taiwan, ROC 106 (September 2003-
present); Senior Vice
President and Chief
Financial Officer,
Taiwan Semiconductor
Manufacturing Co.
(February 1998-
September 2003)
Joe O. Rogers (56) Director 1986 Organizing Member, The Director and Member of
2477 Foxwood Drive Rogers Team LLC, (July the Audit Committee,
Chapel Hill, NC 27514 2001-present); Manager, The China Fund, Inc.
The J-Squared Team LLC (1992-present)
(April 2003-May 2004);
Executive Vice
President, Business
Development, Planet
Portal Inc. (September
1999-May 2001);
Lawrence F. Weber (69) Director 1995 Independent Consultant --
156 Ide Rd. (1993- present)
Williamstown, MA 01267
DIRECTORS AND OFFICERS (unaudited)(continued)
--------------------------------------------------------------------------------
PRINCIPAL
OCCUPATION OR EMPLOYMENT
NAME, ADDRESS PRESENT OFFICE DIRECTOR DURING PAST DIRECTORSHIPS IN
AND (AGE) WITH THE FUND SINCE FIVE YEARS PUBLICLY-HELD COMPANIES
------------- -------------- -------- ------------------------ -----------------------
M. Christopher Canavan, Jr. (65) Director 2003 Independent Consultant Director and Chairman
73 Brook Street (2000- present); of The Audit Committee,
Wellesley, MA 02482 Partner, Pricewaterhouse Bruker Biosciences,
Coopers LLP (Coopers & Inc. (2000-present)
Lybrand) (1972-1999)
Anthony Kai Yiu Lo (56) Director 2003 Director, Advantage Ltd. Member of Listing
1201 Sun Hung Kai (2004-present); Founder Committee, Stock
Centre and Managing Director, Exchange of Hong Kong
30 Harbor Road Advantage Ltd. Ltd. (1996- present)
Wanchai, Hong Kong (1999-2004); Vice
Chairman, ABN Amro HG
Asia Ltd. (1998-1999)
DIRECTORS CONSIDERED INTERESTED PERSONS
*Benny T. Hu (55) President and 1993 Chairman, China Director, USI Far East
30 F, 99 Tun Hwa Director Development Industrial Corp. (2004-present);
South Road, Section 2 Bank (June 2003-May Supervisor, China Steel
Taipei, Taiwan, ROC 2004); Chairman, China Corp. (2004-present);
Development Asset Supervisor, Winbond
Management Corp. (June Electronics Corp.
2001-May 2004); (2002-present);
Ambassador-at-Large, Director, China
Republic of China (May Development Financial
2001-present) Holding Corp. (June
2001-May 2004)
Director, Yangming
Marine Transport Corp.
(2001-present)
DIRECTORS AND OFFICERS (unaudited)(continued)
--------------------------------------------------------------------------------
PRINCIPAL
OCCUPATION OR EMPLOYMENT
NAME, ADDRESS PRESENT OFFICE DIRECTOR DURING PAST DIRECTORSHIPS IN
AND (AGE) WITH THE FUND SINCE FIVE YEARS PUBLICLY-HELD COMPANIES
------------- -------------- -------- ------------------------ -----------------------
Adelina N. Y. Louie (38) Secretary, 2004 Chief Operating Officer, --
99 Tun Hwa South Road, Section 2 Treasurer and HSBC Asset Management
Taipei, Taiwan, ROC Chief Compliance (Taiwan) Ltd. (March
Officer 2004-Present); Area
Commercial Manager, HSBC
(U.K.) Ltd. (February
2003-March 2004); Senior
Vice President, Custody
& Clearing, HSBC
(Indonesia) Limited
(June 2002-February
2003); Vice President,
Custody & Clearing, HSBC
(Philippines) Ltd. (May
2000-June 2002)
*Blair Pickerell (48) Director 2005 Chairman, HSBC Asset --
Chief Executive, Asia-Pacific Management (Taiwan) Ltd.
HSBC Asset Management (Hong (May 2003-present);
Kong) Limited Chief Executive Officer,
Level 22 HSBC Main Building Asia-Pacific, HSBC Asset
1 Queen's Road Central Management Ltd. group of
Hong Kong, China entities in Asia Pacific
(May 2003-present);
Managing Director,
Capital Holdings Ltd.
(January 2003-May 2003);
Managing Director, JF
Asset Management Ltd.
(August 1999-December
2002)
---------------
* Director is considered to be an "interested person" (as defined in the
Investment Company Act of 1940, as amended (the "1940 Act")) of the Fund or of
the Fund's investment adviser. Mr. Hu is considered to be an interested person
because he is the President of the Fund. Mr. Pickerell is deemed to be an
interested person because of his affiliation with the Fund's investment
adviser.
--------------------------------------------------------------------------------
UNITED STATES ADDRESS
The Taiwan Fund, Inc.
225 Franklin Street
Boston, MA
1-800-636-9242
www.thetaiwanfund.com
INVESTMENT ADVISER
HSBC Asset Management (Taiwan) Limited
Taipei, Taiwan
DIRECTORS AND OFFICERS
S.Y. Wang, Chairman of the Board and Director
Benny T. Hu, President and Director
Christina Liu, Director
Joe O. Rogers, Director
Blair Pickerell, Director
Harvey Chang, Director
Lawrence F. Weber, Director
M. Christopher Canavan, Jr., Director
Anthony Kai Yiu Lo, Director
Adelina N.Y. Louie, Secretary, Treasurer and Chief Compliance Officer
Leonard B. Mackey, Jr., Assistant Secretary
ADMINISTRATOR AND ACCOUNTING AGENT
State Street Bank and Trust Company
Boston, MA
CUSTODIANS
The International Commercial Bank of China
Taipei, Taiwan
State Street Bank and Trust Company
Boston, MA
TRANSFER AGENT, DIVIDEND PAYING AGENT AND REGISTRAR
Equiserve Trust Company, N.A.
LEGAL COUNSEL
Clifford Chance US LLP
New York, NY
Lee and Li
Taipei, Taiwan
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
KPMG LLP
Boston, MA
ITEM 2. CODE OF ETHICS.
Not applicable to this semi-annual report.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable to this semi-annual report.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable to this semi-annual report.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to this semi-annual report.
ITEM 6. SCHEDULE OF INVESTMENTS.
A Schedule of Investments is included as part of the report to stockholders
filed under Item 1.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to this semi-annual report.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable at this time.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
REGISTRANT PURCHASES OF EQUITY SECURITIES
----------------------------------------------------------------------------------------------------------------------
Period (a) (b) (c) (d)
Total Number of Average Price Total Number of Shares Maximum Number (or Approximate
Shares (or Units) Paid per Share (or Units) Purchased as Dollar Value) of Shares (or
Purchased (or Unit) Part of Publicly Units) that may yet be Purchased
Announced Plans or Under the Plans or Programs
Programs
----------------------------------------------------------------------------------------------------------------------
September 1-30 0 N/A 0 0
----------------------------------------------------------------------------------------------------------------------
October 1-31 0 N/A 0 0
----------------------------------------------------------------------------------------------------------------------
November 1-30 0 N/A 0 0
----------------------------------------------------------------------------------------------------------------------
December 1-31 0 N/A 0 0
----------------------------------------------------------------------------------------------------------------------
January 1-31 0 N/A 0 0
----------------------------------------------------------------------------------------------------------------------
February 1-28 0 N/A 0 0
----------------------------------------------------------------------------------------------------------------------
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which shareholders may
recommend nominees to the registrant's board of directors.
ITEM 11. CONTROLS AND PROCEDURES.
(a) As of a date within 90 days of the filing date of this Form N-CSR, Benny T.
Hu, the registrant's President, and Adelina Louie, the registrant's Treasurer,
reviewed the registrant's disclosure controls and procedures (the "Procedures")
and evaluated their effectiveness. Based on their evaluation, Mr. Hu and Ms.
Louie determined that the Procedures adequately ensure that information required
to be disclosed by the registrant in its periodic reports is recorded,
processed, summarized and reported within the time periods required by the
Securities and Exchange Commission's rules and regulations.
(b) There was no change in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)))
that occurred during the registrant's first fiscal half-year that has materially
affected, or is reasonably likely to materially affect, the registrant's
internal control over financial reporting.
ITEM 12. EXHIBITS.
(a)(2) Certifications required by Rule 30a-2(a) of the Investment Company Act of
1940, as amended, are attached hereto.
(b) Certifications required by Section 906 of the Sarbanes-Oxley Act of 2002
are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
THE TAIWAN FUND, INC.
By: /s/ Benny T. Hu
------------------
Benny T. Hu
President of The Taiwan Fund, Inc.
Date: May 6, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Benny T. Hu
------------------
Benny T. Hu
President of The Taiwan Fund, Inc.
By: /s/ Adelina Louie
------------------
Adelina Louie
Treasurer of The Taiwan Fund, Inc.
Date: May 6, 2005