--------------------
T H E
--------------------
R.O.C
--------------------
TAIWAN FUND
--------------------
QUARTERLY REPORT
June 30, 2001
--------------------------------------------------------------------------------
DEAR STOCKHOLDERS
--------------------------------------------------------------------------------
The Fund's net asset value per share (NAV) declined 20.5% in the second quarter,
underperforming the 15.8% fall in the Taiwan Stock Exchange Index (TAIEX)
largely because of the New Taiwan dollar's 4.6% depreciation against the U.S.
dollar during the period.
Hit by a barrage of weak economic signals, deteriorating corporate fundamentals
and persistent domestic political bickering, the TAIEX declined each month
during the second quarter. Even the sharp recovery of the Nasdaq, which is
usually closely watched in Taiwan as an indicator for its own technology-heavy
market, could offer only short respites to the otherwise downward movement that
sapped investor confidence. There were few individual winners as all market
segments fell.
The market was rattled early in the period by increased Sino-American tensions
after the April 1 mid-air collision between a U.S. military surveillance plane
and a Chinese jet fighter. The sluggish economy soon took over as the dominant
concern weighing on investors. Each month during the second quarter saw
double-digit declines in Taiwan's exports and a rise in the unemployment rate to
a new record high (although still low, at just over 4%, compared to most major
economies). In May the government announced that first-quarter economic growth
was 1.1%, the slowest pace in 26 years. At about the same time, Taiwan's
currency started to fall in value against the U.S. dollar and continued this
trend through the end of June.
The weakening economy was reflected in disappointing first-quarter results for
most listed companies. Exceptions were notebook computer producers and some
makers of PC components such as motherboards, which benefited from a growing
trend by the world's major computer brand owners to outsource production to
Taiwan manufacturers. The few positive corporate results, however, did little to
dispel the growing worries over a continuing fall of capital spending on
technology in the U.S. since the American market absorbs the lion's share of
Taiwan's technology exports. The gloom was perhaps most evident for the
semiconductor industry. Prices of main memory chips fell sharply, and one of
Taiwan's major foundry companies (contract manufacturers for other chipmakers
and designers) warned of a second-quarter operating loss and uncertain near-term
outlook.
Caught up in partisan political squabbles, the government was unable to lift the
cloud of pessimism about the economy. The major opposition party threatened to
propose a no-confidence vote over the government's failure to halt rising
unemployment and pared down a supplementary budget designed to boost the
economy. Even the enactment of a financial reform package came only after a
special legislative session had to be convened.
Investors' concerns about the economy were on the mark. We are projecting that
Taiwan's economic performance worsened in the second quarter, contracting
slightly less than 1%. As noted above, foreign demand fell sharply. Exports,
which represent about 40% of gross national product, declined 17%. Domestic
demand was also weak. Private investment fell as most companies, especially
small- to mid-sized manufacturers, cut expansion plans. Given rising
unemployment and the slumping stock market, private consumer spending suffered
as well. Only a big increase in public sector outlays added a significant lift
to domestic demand. We are projecting that the economy hit a low point in the
second quarter and have reduced our forecast of growth for the full year to
1.5%.
The moderate economic uptrend we are expecting in the second half of the year
should start to lend support to Taiwan's stock market, whose valuation in terms
of price/earnings multiple is quite low. The Fund intends to be at least 90%
invested in equities during most of the third quarter. By September it should be
clear whether there is a pick-up in global demand for the peak Christmas season.
If the outlook is weak, however, we may increase our cash position until the
year-end, when the market usually rallies.
We are grateful for your continuing support and look forward to reviewing our
market outlook and portfolio strategy with you in future reports.
Respectfully submitted,
/s/ Michael Ding
--------------------
Michael Ding
President
August 2, 2001
--------------------------------------------------------------------------------
PORTFOLIO HIGHLIGHTS
THREE MONTHS ENDED JUNE 30, 2001
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
KEY STATISTICS
--------------------------------------------------------------------------------
Change in N.A.V. ($6.59 to $5.24) -$1.35
--------------------------------------------------------------------------------
Total Net Assets $171.5 Million
================================================================================
--------------------------------------------------------------------------------
TEN LARGEST HOLDINGS
--------------------------------------------------------------------------------
Percent of
Company Net Assets
--------------------------------------------------------- -----------
Hon Hai Precision Industry Co., Ltd. 6.74%
--------------------------------------------------------------------------------
Taipei Bank 5.49
--------------------------------------------------------------------------------
Asustek Computer Inc. 5.14
--------------------------------------------------------------------------------
Winbond Electronics Corp. 4.86
--------------------------------------------------------------------------------
Cradle Technology Corp. 4.66
--------------------------------------------------------------------------------
Picvue Electronics Ltd. 4.63
--------------------------------------------------------------------------------
Inventec Corp. 4.42
--------------------------------------------------------------------------------
Synnex Technology International Corp. 4.35
--------------------------------------------------------------------------------
United Microelectronics Corp. 4.25
--------------------------------------------------------------------------------
Microstar International Co., Ltd. 3.89
--------------------------------------------------------------------------------
================================================================================
--------------------------------------------------------------------------------
SECURITY CLASSIFICATION
--------------------------------------------------------------------------------
Value
Percent of Net Assets (000)
--------------------------------------------------------- -----------
--------------------------------------------------------------------------------
Common Stocks 95.18% $163,227
--------------------------------------------------------------------------------
Short-term Investments 4.06 6,968
------- ----------
--------------------------------------------------------------------------------
Total Investments 99.24 170,194
------------------ -------------------------------------------------------------
Other Assets Less
Liabilities 0.76 1,298
--------------------------------------------------------------------------------
NET ASSETS 100.00% $171,492
================================================================================
--------------------------------------------------------------------------------
INDUSTRY DIVERSIFICATION
--------------------------------------------------------------------------------
Percent of
Net Assets
--------------------------------------------------------------------------------
Electronics 24.37%
--------------------------------------------------------------------------------
Banking 15.65
--------------------------------------------------------------------------------
Semiconductors 12.45
--------------------------------------------------------------------------------
Communications Equipment 9.80
--------------------------------------------------------------------------------
Computers & Office Equipment 6.84
--------------------------------------------------------------------------------
Computer Services & Software 4.66
--------------------------------------------------------------------------------
Retailing 4.35
--------------------------------------------------------------------------------
Other Financials 3.65
--------------------------------------------------------------------------------
Plastics 3.40
--------------------------------------------------------------------------------
Transportation 2.65
--------------------------------------------------------------------------------
================================================================================
2
--------------------------------------------------------------------------------------------------------
CONSOLIDATED SCHEDULE OF INVESTMENTS
THE R.O.C. TAIWAN FUND / JUNE 30,2001 (UNAUDITED)
--------------------------------------------------------------------------------------------------------
COMMON STOCKS-- 95.18% % of Market Value
Net Assets (U.S. Dollars)
========================================================================================================
Automobile-- 1.11%
========================================================================================================
4,202,160 Yulon Motor Co., Ltd............. 1.11 $ 1,903,694
--------------
1,903,694
Banking --15.65%
========================================================================================================
9,400,440 United World Chinese Commercial Bank..... 3.44 5,896,602
17,338,10 * Taipei Bank...................... 5.49 9,415,492
10,000,000 * Bank Sinopac..................... 2.69 4,617,395
6,427,000 * E. Sun Commercial Bank........... 1.37 2,342,351
10,000,000 * Taishin International Bank....... 2.66 4,559,315
--------------
26,831,155
Other Financials-- 3.65%
========================================================================================================
4,054,000 Cathay Life Insurance Co., Ltd... 2.85 4,885,756
2,400,000 * Yuan Ta Securities Co., Ltd...... 0.80 1,379,991
--------------
6,265,747
Communications Equipment-- 9.80%
========================================================================================================
12,000,000 * Picvue Electronics Ltd........... 4.63 7,945,404
5,652,500 * Wintek Corporation............... 3.07 5,269,210
1,875,000 AboCom Systems, Inc.............. 2.10 3,593,727
--------------
16,808,341
Computer Services & Software-- 4.66%
========================================================================================================
1,937,500 Cradle Technology Corp........... 4.66 7,989,691
--------------
7,989,691
Computers & Office Equipment-- 6.84%
========================================================================================================
7,005,000 * Behavior Tech Computer Corp...... 2.42 4,149,906
9,600,000 Inventec Corp.................... 4.42 7,582,982
--------------
11,732,888
Electrical & Machinery-- 1.01%
========================================================================================================
4,906,800 Teco Electric & Machinery Co., Ltd. 1.01 1,731,309
--------------
1,731,309
See accompanying notes to consolidated financial statements and accountants' review report.
3
The R.O.C. Taiwan Fund
% of Market Value
Electronics-- 24.37% Net Assets (U.S. Dollars)
===============================================================================================================
2,200,000 * Hon Hai Precision Industry Co., Ltd... 6.74 11,563,816
1,391,500 Glotech Industrial Corp............... 0.74 1,264,816
1,380,000 Sinbon Electronics Co., Ltd........... 1.24 2,124,002
5,625,000 CMC Magnetics Corp.................... 3.19 5,472,267
2,087,500 Asustek Computer Inc.................. 5.14 8,820,423
2,485,000 Microstar International Co., Ltd...... 3.89 6,675,258
3,999,000 * TXC Corp.............................. 3.43 5,864,658
-----------
41,785,240
Plastics-- 3.40%
===============================================================================================================
5,104,341 Formosa Plastics Corp................. 3.40 5,825,486
968 Nan Ya Plastics Corp.................. 0.00 978
-----------
5,826,464
Retailing-- 4.35%
===============================================================================================================
5,646,250 Synnex Technology International Corp.. 4.35 7,460,560
-----------
7,460,560
Semiconductors-- 12.45%
===============================================================================================================
5,495,000 * United Microelectronics Corp.......... 4.25 7,292,624
9,935,230 Winbond Electronics Corp.............. 4.86 8,338,265
9,120,600 Powerchip Semiconductor Corp.......... 3.34 5,721,068
-----------
21,351,957
Steel & Other Metals-- 1.85%
===============================================================================================================
6,362,000 * China Steel Corp...................... 1.85 3,177,767
-----------
3,177,767
Telephone Services-- 2.50%
===============================================================================================================
3,295,830 * Taiwan Cellular Corp.................. 2.50 4,297,452
-----------
4,297,452
Transportation-- 2.65%
===============================================================================================================
7,323,540 * Yang Ming Marine Transport Corp....... 1.09 1,860,924
5,959,000 * China Airlines Ltd.................... 1.56 2,682,285
-----------
4,543,209
Others-- 0.89%
===============================================================================================================
4,741,170 Kang Na Hsiung Enterprise Co., Ltd.... 0.89 1,521,415
-----------
1,521,415
TOTAL COMMON STOCKS (COST $203,743,721)................................. $ 163,226,889
* 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.
4
SCHEDULE OF INVESTMENTS (CONT'D)
SHORT TERM INVESTMENTS-- 4.06%
% of Value
Commercial Paper - 4.06% Net Assets (U.S. Dollars)
============================================================================================================
Principal
Amount Issuer (Guarantor)
------------- ------------------
$ 1,452,011 Tong Yang Leasing Corp. (Hollandshe Bank-Unie),
3.83%, Due 07/03/01.......................... 0.85 $1,451,708
1,452,011 Tong Yang Leasing Corp. (Hollandshe Bank-Unie),
3.80%, Due 07/03/01.......................... 0.85 1,451,710
1,452,011 Sinopac Securities Co., Ltd. (Taishin Int'l Bank),
3.65%, Due 07/04/01.......................... 0.85 1,451,576
1,452,011 Chou Ta Co., Ltd. (Chinatrust Commercial Bank),
3.80%, Due 07/05/01.......................... 0.84 1,451,409
1,161,609 Nan Do Motor Corp (Dai-Ichi Kangyo Bank),
3.80%, Due 07/05/01.......................... 0.67 1,161,126
------------
TOTAL SHORT-TERM INVESTMENTS (AMORTIZED COST $6,967,529) 6,967,529
------------
TOTAL INVESTMENTS IN SECURITIES~
AT MARKET VALUE (COST $210,711,250) 99.24 170,194,418
OTHER ASSETS (LESS LIABILITIES) 0.76 1,298,066
------- ------------
NET ASSETS 100.00 $171,492,484
======= ============
See accompanying notes to consolidated financial statements and accountants' review report.
5
======================================================================================
CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
The R.O.C. Taiwan Fund / June 30, 2001 (Expressed in US Dollars)(Unaudited)
======================================================================================
ASSETS
Investments in securities at market value (Notes 2B, 3 and 6):
Common stocks (cost-- $203,743,721) ............................... $163,226,889
Short-term investments (amortized cost-- $6,967,529) .............. 6,967,529
------------
Total investments in securities at market value
(cost-- $210,711,250) .................................. 170,194,418
Cash ................................................................. 1,142,688
Dividends receivable ................................................. 858,028
Other receivables .................................................... 1,188
------------
Total assets ........................................... 172,196,322
------------
LIABILITIES
Management fee payable (Note 4) ...................................... 193,525
Custodian fee payable (Note 5) ....................................... 21,507
Accrued Republic of China taxes (Note 2G) ............................ 327,634
Other payables ....................................................... 161,172
------------
Total liabilities ...................................... 703,838
------------
Net assets ........................................................... $171,492,484
============
COMPONENTS OF NET ASSETS
Par value of shares of beneficial interest (Note 7) .................. 326,990
Additional paid-in capital ........................................... 313,223,313
Accumulated net investment loss ...................................... (1,059,518)
Accumulated realized loss on investments ............................. (57,922,880)
Unrealized depreciation on investments (Note 6) ...................... (40,516,832)
Cumulative translation adjustment (Note 2E) .......................... (42,558,589)
------------
Net assets ........................................................... $171,492,484
============
Net asset value per share (32,698,976 shares issued and outstanding).. $ 5.24
============
See accompanying notes to consolidated financial statements and accountants' review report.
6
======================================================================================
CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
The R.O.C. Taiwan Fund / June 30, 2001 (Expressed in US Dollars)(Unaudited)
======================================================================================
INVESTMENT INCOME (NOTE 2C)
Dividends ....................................................... $ 1,534,156
Interest ........................................................ 454,244
------------
1,988,400
------------
Republic of China taxes (Note 2G) ................................... 1,072,818
------------
915,582
------------
Expenses
Management fee (Note 4) ......................................... 1,348,063
Custodian fee (Note 5) .......................................... 150,043
Professional fees ............................................... 270,658
Administrative fee .............................................. 50,000
Insurance expenses .............................................. 30,655
Trustee fees. ................................................... 61,000
Transfer agent fee .............................................. 12,126
Other expenses .................................................. 98,931
------------
2,021,476
------------
Net investment loss ................................................. (1,105,894)
------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS AND FOREIGN CURRENCIES
(NOTES 2 AND 6)
Net realized gain (loss) on:
investments (excluding short term investments) ................. (32,827,106)
foreign currency transactions .................................. 122,753
Net increase (decrease) in unrealized appreciation on:
investments (excluding short-term investments) ................. 25,623,729
translation of assets and liabilities in foreign currencies .... (9,259,626)
------------
Net realized and unrealized loss from investments and foreign
currencies ..................................................... (16,340,250)
------------
Net decrease in net assets resulting from operations ............ $(17,446,144)
============
See accompanying notes to consolidated financial statements and accountants' review report.
7
==========================================================================================================
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
The R.O.C. Taiwan Fund / For the Six Months Ended June 30, 2001 and the Year Ended
December 31, 2000 (Expressed in US Dollars)
==========================================================================================================
Six Months Ended Year Ended
June 30, 2001 December 31,
(Unaudited) 2000
---------------- ------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS
Net investment loss ............................................. $ (1,105,894) $ (3,512,341)
Net realized loss on investments and foreign
currency transactions ......................................... (32,704,353) (2,864,711)
Net increase (decrease) in unrealized appreciation
on investments ................................................ 25,623,729 (113,558,157)
Net decrease in unrealized appreciation on translation
of assets and liabilities in foreign currencies ............... (9,259,626) (13,548,838)
---------------- ------------
Net decrease in net assets resulting from
operations .................................................... (17,446,144) (133,484,047)
---------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 2F)
Net realized gain on investments ................................ -- (12,098,621)
---------------- ------------
Total distributions ............................................. -- (12,098,621)
---------------- ------------
DECREASE IN NET ASSETS .............................................. (17,446,144) (145,582,668)
NET ASSETS, BEGINNING OF PERIOD ..................................... 188,938,628 334,521,296
---------------- ------------
NET ASSETS, END OF PERIOD ........................................... $171,492,484 $188,938,628
================ ============
See accompanying notes to consolidated financial statements and accountants' review report.
8
====================================================================================================================================
CONSOLIDATED FINANCIAL HIGHLIGHTS
The R.O.C. Taiwan Fund (Expressed in US Dollars)
====================================================================================================================================
Six Months
Ended Years Ended December 31,
June 30, 2001 ----------------------------------------------------
(Unaudited) 2000 1999 1998 1997 1996
---------------- -------- -------- -------- -------- ---------
Per share operating performance:
Net asset value, beginning of period .................... 5.78 10.23 7.53 9.58 11.67 9.30
Net investment loss ..................................... (0.04) (0.11) (0.11) (0.11) (0.16) (0.12)
Net realized and unrealized gain (loss)
on investments and foreign
currency transactions ................................. (0.22) (3.56) 2.58 (1.73) 3.20 2.57
Net increase (decrease) in unrealized
appreciation on translation of foreign
currencies ............................................ (0.28) (0.41) 0.23 0.08 (1.88) (0.08)
------- ------- ------- ------- ------- -------
Total from investment operations ................... (0.54) (4.08) 2.70 (1.76) 1.16 2.37
NET EFFECT OF SHARE TRANSACTIONS ............................ -- -- -- -- 0.09 --
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Capital ................................................. -- -- -- (0.13) -- --
Net investment income ................................... -- -- -- (0.07) (0.39) --
Net realized gain on investments ........................ -- (0.37) -- (0.09) (2.95) --
------- ------- ------- ------- ------- -------
Total distributions* .................. -- (0.37) -- (0.29) (3.34) --
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD .............................. 5.24 5.78 10.23 7.53 9.58 11.67
======= ======= ======= ======= ======= =======
PER SHARE MARKET PRICE, END OF PERIOD ....................... 4.62 4.56 8.44 6.19 8.13 10.13
TOTAL INVESTMENT RETURN (%)**:
Based on the Trust's market price ....................... 1.32 (41.71) 36.35 (20.31) 10.55 (3.52)
Based on the Trust's net asset value .................... (9.34) (39.94) 35.86 (18.42) 9.41 25.48
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period ('000's) ...................... 171,492 188,939 334,521 246,348 313,344 394,743
Ratio of expenses to average
net assets (%) ........................................ 1.98+ 1.67 1.81 1.77 1.51 1.75
Ratio of net investment loss to
average net assets (%) ................................ (1.08)+ (1.09) (1.35) (1.28) (1.13) (1.14)
Portfolio turnover ratio (%)** .......................... 94 165 191 133 106 148
* 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, 2001
(not annualized) and for each of the five years ended December 31, 2000.
+ Annualized
See accompanying notes to consolidated financial statements and accountants' review report.
9
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE R.O.C. TAIWAN FUND / JUNE 30, 2001 (UNAUDITED)(EXPRESSED IN US DOLLARS)
================================================================================
NOTE 1 -- ORGANIZATION AND 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 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
("IIT") and Central Trust of China, as custodian. Pursuant to the
Reorganization, which was completed in May 1989, the Trust acquired the entire
beneficial interest in the assets constituting the Fund.
NOTE 2-- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
================================================================================
A -- Basis of presentation and principles of consolidation -- The accompanying
financial statements of the Trust have been prepared in accordance with
accounting principles generally accepted in the United States of America. 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. Short-term
investments are valued at amortized cost, which approximates market value. Under
this method, 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, 2000, the
Trust generated a post-October net capital loss of $26,651,342. This loss may be
used to offset any future capital gains generated by the Trust and, if unused,
will expire on December 31, 2009.
E -- Foreign currency translation--Substantially all of the Trust's income is
earned, and its expenses are largely paid, in New Taiwan Dollars ("NT$"). 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, 2001, this rate was approximately NT$34.435 to $1.00.
Investment income and expenses are translated at an average exchange rate for
the period.
10
Currency translation gains or losses are reported as a separate component of
changes in net assets resulting from operations.
The Trust does not separately record that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
F -- Distributions to shareholders -- 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 $420,654 for the six
months ended June 30, 2001.
H -- Use of estimates -- The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and the accompanying notes. Actual results
could differ from those estimates.
Note 3 -- Investment Considerations
================================================================================
Because the Trust concentrates its investments in publicly traded equity and
debt securities issued by R.O.C. corporations, its portfolio involves
considerations not typically associated with investing in U.S. securities. In
addition, the Trust is more susceptible to factors adversely affecting the
R.O.C. economy than a fund not concentrated in these issuers to the same extent.
Since the Trust's investment securities are primarily denominated in New Taiwan
Dollars, changes in the relationship of the New Taiwan Dollar to the U.S. Dollar
may also significantly affect the value of the investments and the earnings of
the Trust.
Note 4 -- Investment Management
================================================================================
Pursuant to an investment contract (the "Investment Contract"), IIT (the
"Manager"), an R.O.C. corporation, is responsible, among other things, for
investing and managing the assets of the Trust and administering the Trust's
affairs. Through June 30, 2001, the Trust paid the Manager a fee in NT$, which
is accrued daily and paid monthly in arrears, at the annual rate of 1.35% of the
net asset value ("NAV") with respect to Trust assets held in Taiwan under the
Investment Contract up to NT$6 billion, 1.15% of such NAV in excess of NT$6
billion up to NT$8 billion, 0.95% of such NAV in excess of NT$8 billion up to
NT$10 billion, and 0.75% of such NAV in excess of NT$10 billion.
11
Note 5 -- Custodian
================================================================================
Pursuant to the Investment Contract, Central Trust of China ("CTC") serves as
custodian of the assets of the Trust held in the R.O.C. CTC owns 7.74% of the
outstanding capital stock of IIT. Through June 30, 2001, the Trust paid CTC a
monthly fee in NT$ at the annual rate of 0.15% of the NAV with respect to Trust
assets held in Taiwan under the Investment Contract up to NT$6 billion, 0.13% of
such NAV in excess of NT$6 billion up to NT$8 billion, 0.11% of such NAV in
excess of NT$8 billion up to NT$10 ~billion, and 0.09% of such NAV in excess of
NT$10 billion, subject to a minimum annual fee of NT$2.4 million.
Note 6 -- Investments in Securities
================================================================================
Purchases and proceeds from sales, excluding bonds and short-term investments,
for the six months ended June 30, 2001, included approximately $174,936,328 for
stock purchases and approximately $139,656,599 for stock sales, respectively.
At June 30, 2001, the cost of investments, excluding bonds and short-term
investments, for U.S. federal income tax purposes was approximately equal to the
cost of such investments for financial reporting purposes. At June 30, 2001, the
unrealized depreciation of $40,516,832 for financial reporting purposes
consisted of $3,313,909 of gross unrealized appreciation and $43,830,741 of
gross unrealized depreciation.
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, 2001, 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, 2000. The Fund intends to apply for
such status for succeeding accounting periods.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Michael Ding has been portfolio manager of the Fund since July 1999, its
President since September 1999 and a trustee since June 2001. He had been the
Fund's deputy manager since March 1999. Mr. Ding is also the President and Chief
Investment Officer of International Investment Trust Co. (IIT), the Fund's
investment manager. He has worked for the past two years at IIT, where he was
previously senior vice ~president. 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.
--------------------------------------------------------------------------------
12
================================================================================
2001 ANNUAL MEETING OF STOCKHOLDERS
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On June 21, 2001, the Fund held an annual meeting to:
1. Elect five trustees,
2. 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 most recent such vote.
Proxies representing 17,455,974, or 53.38% 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 13% were
voted for conversion. Management of the Fund expressed its appreciation for the
support of stockholders on this matter.
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FOR WITHHELD
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NOMINEES TO THE BOARD OF TRUSTEES
Theodore S.S. Cheng 15,826,790 1,629,184
Michael Ding 15,827,822 1,628,152
David N. Laux 17,154,340 301,634
Yung-San Lee 17,155,772 300,202
Alfred F. Miossi 17,154,270 301,704
Messrs. Daniel K. L. Chiang, Edward P. Collins, Pedro-Pablo Kuczynski and Robert
P. Parker, whose terms did not expire in 2001, remained as trustees. Mr.
Kuczynski resigned as a trustee on June 28 in order to become Economy and
Finance Minister of Peru.
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FOR AGAINST ABSTAIN
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CONVERSION OF THE FUND FROM A 4,184,388 5,326,001 4,039,300
CLOSED-END TO AN OPEN-END INVESTMENT
COMPANY
Proxies covering 7,905,192 shares, or 45.29% of the shares represented at the
meeting, were not voted on this issue.
13
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Trustees 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,
2001, and the related consolidated statements of operations and changes in net
assets and financial highlights for the six-month period ended June 30, 2001, in
accordance with Statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants. All
information included in these consolidated financial statements and financial
highlights is the representation of the Trust's management.
A review consists principally of inquiries of Trust personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit conducted in ~accordance with auditing standards generally accepted in the
United States of America, 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 accounting
principles generally accepted in the United States of America.
We have previously audited the consolidated statement of changes in net assets
for the year ended December 31, 2000 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, 2000 and expressed an unqualified opinion on the consolidated
statement of changes in net assets and financial ~highlights in our report dated
January 19, 2001, but have not performed any auditing ~procedures since that
date.
/s/ KMPG
----------------
KMPG
Taipei, Taiwan
July 20, 2001
14
THE R.O.C. TAIWAN FUND
www.roctaiwanfund.com
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
Michael Ding, President and Trustee
Daniel Chiang, Trustee
Ed-ward B. Collins, Trustee and Audit Committee Member
Da-vid N. Laux, Trustee and Audit Committee
Member
Yung-San Lee, Trustee
Alfred F. Miossi, Trustee and Audit Committee Member
Robert P. Parker, Trustee and Audit Committee Member
Peggy Chen, 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: 1-800-426-5523
U.S. ADMINISTRATOR:
Citigate 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.