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: 811-04893
---------------------------------------------
THE TAIWAN FUND, INC.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
C/O STATE STREET BANK AND TRUST COMPANY,
2 AVENUE DE LAFAYETTE, 6TH FLOOR, PO BOX 5049,
BOSTON, 02111
--------------------------------------------------------------------------------
(Address of principal executive offices)(Zip code)
(Name and Address of Agent for Service) Copy to:
State Street Bank and Trust Company Leonard B. Mackey, Jr., Esq.
Attention: Mary Moran Zeven Clifford Chance US LLP
Assistant Secretary 31 West 52nd Street
2 Avenue de Lafayette, 6th Floor New York, New York 10019-6131
Boston, Massachusetts 02111
Registrant's telephone number, including area code: 1-800-636-9242
Date of fiscal year end: August 31
Date of reporting period: August 31, 2007
ITEM 1. REPORT TO STOCKHOLDERS.
2
THE TAIWAN FUND, INC. (R)
Annual Report August 31, 2007
THE TAIWAN FUND, INC.
WHAT'S INSIDE
Page
Chairman's Statement 2
Report of the Investment Manager 4
Portfolio Snapshot 9
Sector Allocation 10
Investments 11
Financial Statements 13
Notes to Financial Statements 16
Report of Independent Registered Public Accounting Firm 20
Other Information 21
Summary of Dividend Reinvestment and Cash Purchase Plan 23
Directors and Officers 26
CHAIRMAN'S STATEMENT
------------------------------------------------------------------------
Dear Shareholders,
It is my pleasure to present the Annual Report of The Taiwan Fund, Inc. (the
"Fund") for the fiscal year ended August 31, 2007. The Fund's net asset value
(NAV) was US$23.73 on August 31, 2007, which increased by 36.5%* in U.S. dollar
terms for the fiscal year. The Taiwan Stock Exchange Index (TAIEX), during the
same period, increased by 35.4%* in U.S. dollar terms in comparison. The Fund
outperformed the TAIEX by 0.8% during the fiscal year.
Beginning from this year, the world stock markets have been shaken by two
incidents, namely, the sharp fall of Chinese shares at the end of February and
the reverse of global markets resulting from sub-prime issues. The Fund
outperformed the TAIEX by 1.92% in the first quarter and, 0.64% in August of
this year.
At its April 2007 Board meeting, the Board regretfully accepted the resignation
of two Board members-my predecessor S. Y. Wang as well as Blair Pickerell. We
would like to express our deepest gratitude to Mr. Wang and Mr. Pickerell for
their contributions to the Fund over past years. On the other hand, the Board
has been joined by two new directors- Mr. Bing Shen and Mr. Michael Holland. We
sincerely welcome them and look forward to sharing their wisdom.
On behalf of the Board, I would like to thank you for your continued investment
and support of the Fund. We believe that Taiwan will remain one of the favorable
places to invest in the Greater China Region.
Sincerely,
/s/ Harvey Chang
Harvey Chang
Chairman
* "Returns for the Fund are historical total returns that reflect changes in
net asset value per share during each period and assume that dividends and
capital gains, if any, were reinvested. Returns for the TAIEX are not total
returns and reflect only changes in share price but do not assume that cash
dividends, if any, were reinvested, and thus are not strictly comparable to
the Fund returns. Past performance is not indicative of future results of
the Fund."
2
[THIS PAGE INTENTIONALLY LEFT BLANK]
3
REPORT OF THE INVESTMENT MANAGER
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INVESTMENT PERFORMANCE
The Fund's net asset value (NAV) increased by 36.5%(*) in U.S. dollar terms for
the fiscal year ended August 31, 2007. During the same period, the Taiwan Stock
Exchange Index (TAIEX) increased by 35.4%* in U.S. dollar terms. The Fund
outperformed the TAIEX by 0.8% during the year.
The out-performance was due to stock selection. Stock selection in personal
computer ("PC") & peripheral, retail, and shipping sectors all contributed to
performance during the year.
In the technology sector, the Fund's exposure to the networking company D-Link
and IC design company MediaTek positively contributed to performance due to
strong earnings growth. PC & peripheral companies such as Hon Hai Precision
Industry and Synnex also added to performance. That the Fund was underweight in
the financial sector generated a positive performance contribution relative to
the benchmark. On the negative side, our overweight position in handset related
companies and underweight position in petrochemicals detracted from relative
performance during the year.
ECONOMIC OUTLOOK
In the second quarter of 2007, Taiwan's gross domestic product ("GDP") grew by
5.07% year over year, representing the strongest growth since 2005. Thanks to
strong fixed capital formation and modest growth in private consumption, real
domestic demand showed a 4.72% rebound. In the external sectors, export and
import of goods and services increased by 4.62% and 3.98%, respectively. Looking
ahead to the second half of 2007, domestic demand is expected to continue to
improve. The external sector should remain robust thanks to the export of
consumer electronic products and Thin Film Transistor-related products. For the
year 2007 as a whole, real GDP is forecasted to grow by 4.58%.
----------
(*) "Returns for the Fund are historical total returns that reflect changes in
net asset value per share during each period and assume that dividends and
capital gains, if any, were reinvested. Returns for the TAIEX are not total
returns and reflect only changes in share price but do not assume that cash
dividends, if any, were reinvested, and thus are not strictly comparable to
the Fund returns. Past performance is not indicative of future results of
the Fund."
4
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According to the latest world economic forecast, the world economy in 2008
should continue to show moderate growth. Given Taiwan's strong correlation with
the global economy, Taiwan's exports are expected to continue to grow. Taiwan's
real GDP is forecasted to grow by 4.51% in 2008, due to a combination of robust
exports as well as improved contribution from domestic sectors.
The upcoming presidential election plus resilient demand from China should
continue to give strong support to the Taiwan economy well into the first
quarter of 2008, with the biggest risk to growth coming mainly from possible
weakening of external demand. Because Taiwan is still exposed to the US economy,
exports to US will decline if the sub-prime crisis in the US negatively impacts
US consumption and business investment. There is increasing speculation on
possible improvement in cross-strait relationship after the presidential
election in March 2008. Therefore, we believe downside may be limited because of
a possible return of capital back into the Taiwan market.
MARKET REVIEW
The Taiwan equity market was very bullish during the fiscal year ended August
31, 2007. The TAIEX increased by 35.85% in local NT$. The index consolidated
between the 6,500 and 7,500 levels for several months. With the increasing
participation of retail investors in the second quarter of 2007, the TAIEX
finally broke the 9,000 level to reach 9,807 in mid-July, a seven year high.
Concerns about possible ramifications of the US sub-prime crisis led to a
pullback. The subsequent sharp correction resulted in the TAIEX trading between
9,807 and 7,987. Late panic selling took the TAIEX briefly below 8,000 in mid-
August, followed by a quick rebound to close at 8,982 in the fiscal year ended
August 31, 2007.
In terms of sector performance, rubber (up 112.8%), cement (up 101.2%) and
textile (up 84.6%) were the best performing sectors. While the worst-performing
sectors were tourism (down 4.6%), automobile (up 8.9%) and banking (up 13.2%).
Technology sectors in aggregate were up 31.4%.
INVESTMENT OUTLOOK AND STRATEGY
After a strong rally in the past twelve months, we believe the market will
remain volatile in the near term due to issues such as US
5
REPORT OF THE INVESTMENT MANAGER (continued)
------------------------------------------------------------------------
sub-prime related problems. The market remains liquidity driven with domestic
investors playing an important role.
Over the mid term, we remain positive on Taiwan, due to: (1) strong corporate
earnings (from the China market and tech cycle upturn); (2) liquid conditions;
and (3) more market-friendly government policies in the run up to the
presidential election in March next year.
As to corporate earnings results and guidance, any disappointment could cause
selling since the market has already rebounded strongly and retail investors may
prefer to lock in gains if the outlook does not match expectations. Analysis of
second-quarter earning results showed that corporate earnings were mostly
positive. Consensus numbers are being revised upward, but we have not seen any
significant upgrade to 2008 earnings forecasts. Most technology companies
delivered decent results but do not have overly exciting outlooks for the second
half of 2007. The tech sector pull back was due mostly to concerns about the
impact of US sub-prime crisis and its negative impact on US consumer demand. The
United States still constitutes approximately 20-25% of global tech demand but
the rise of emerging markets in recent years has reduced the dominance of the US
market and we anticipate a lower impact on Asian economies from a possible US
downturn.
China and emerging markets play a more important role than ever before. As the
Chinese economy continues its strong growth, Taiwanese companies that have
significant Chinese operations will continue to benefit from their China
exposure. China-concept plays are therefore an important theme in the market.
While most investors associate sectors such as materials and petrochemicals as
beneficiaries of higher growth trends in emerging markets, we believe that
technology stocks also may be winners. From consumer electronic to software used
for emerging market infrastructure projects, we believe that technology-related
stocks will benefit from rapid growth in emerging markets. It appears that
exports of computers and electronics may be on the upswing of a new cycle that
is likely to last for some time. We think that strong emerging market demand
could potentially prove a buffer against any US economic slowdown.
Coordinated moves by central banks worldwide have lowered the risks of a global
economic slowdown and uncertainty. This recovery was driven by central banks'
efforts to inject funds into the financial system as well as the expectation of
interest rate reductions by the US Federal Reserve. As the likely direction of
US monetary policy
6
------------------------------------------------------------------------
has shifted from tightening to neutral, we expect the Taiwanese central bank to
follow the Federal Reserve. Therefore we believe domestic rates in Taiwan will
rise only gradually for the reminder of this year.
Based on statistics released by the Financial Supervisory Commission, Taiwanese
financial institutions have relatively low exposure to sub-prime mortgage-linked
products. The total estimated exposure among Taiwanese financial institutions is
estimated to be NT$75bn, with potential loss estimated at around NT$2.7bn. The
most pessimistic estimate is for a larger loss of up to NT$7.5bn or around 10%
of investments. Nevertheless the total amount of loss is small and the potential
negative impact remains well under control.
We remain positive on the Taiwan market in general. The Taiwan government's
announcement of a cut in the corporate tax rate to 15% indicates the
government's strong determination to boost the stock market. The recent
corrections have provided good opportunities to accumulate quality stocks in the
expectation of a presidential election cycle rally.
In the year ahead, we will continue to work hard to achieve solid performance
through bottom-up stock selection. We believe that the Taiwan stock market and
healthy economic conditions will provide good investment opportunities for
investors in the foreseeable future. Thank you for your support, and we look
forward to presenting our strategy again in the coming reports.
Sincerely,
Shirley Yang
Shirley Yang(1)
Portfolio Manager
(1) Chih-Hui Lee resigned from his position as Portfolio Manager of the Fund,
effective June 30, 2007. Ms. Shirley Yang succeeded Mr. Lee as the Fund's
lead Portfolio Manager.
7
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8
PORTFOLIO SNAPSHOT*
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TOP TEN EQUITY HOLDINGS
HOLDINGS AS OF AUGUST 31, 2007 %
---------------------------------
MediaTek, Inc. 6.1
---------------------------------
Hon Hai Precision Industries Co. 5.8
---------------------------------
Taiwan Semiconductor Manufacturing
Co. 3.9
---------------------------------
China Steel Corp. 3.6
---------------------------------
Synnex Technology International Corp. 3.5
---------------------------------
Cathay Financial Holding Co. Ltd. 3.0
---------------------------------
Au Optronics Corp. 2.9
---------------------------------
Silicon Precision Industries Co. 2.9
---------------------------------
Merry Electronics Co. Ltd. 2.9
---------------------------------
Ruentex Development Co. Ltd. 2.7
---------------------------------
TOP TEN EQUITY INDUSTRY WEIGHTINGS
WEIGHTINGS AS OF AUGUST 31, 2007 %
---------------------------------
PC & Peripherals 15.5
---------------------------------
IC Design 12.0
---------------------------------
Semiconductor Manufacturing 9.5
---------------------------------
Electronic Components 8.6
---------------------------------
Telecommunications 7.6
---------------------------------
Financial Services 6.0
---------------------------------
TFT-LCD 5.6
---------------------------------
Construction 4.3
---------------------------------
Iron & Steel 4.3
---------------------------------
Electronics 3.5
---------------------------------
TOP TEN EQUITY HOLDINGS
HOLDINGS AS OF AUGUST 31, 2006 %
---------------------------------
Hon Hai Precision Industry Co. Ltd. 7.4
---------------------------------
High Tech Computer Corp. 6.4
---------------------------------
Taiwan Semiconductor Manufacturing
Co. 4.4
---------------------------------
MediaTek 4.3
---------------------------------
Siliconware Precision Industries Co. 4.1
---------------------------------
Largan Precision Co. Ltd. 3.9
---------------------------------
Cathay Financial Holding Co. Ltd. 3.6
---------------------------------
D-Link Corp. 3.4
---------------------------------
Au Optronics Corp. 3.3
---------------------------------
Cheng Uei Precision Industry Co. Ltd. 3.0
---------------------------------
TOP TEN EQUITY INDUSTRY WEIGHTINGS
WEIGHTINGS AS OF AUGUST 31, 2006 %
---------------------------------
Telecommunications 19.3
---------------------------------
Electronic Components 14.2
---------------------------------
Semiconductor Manufacturing 13.0
---------------------------------
PC & Peripherals 12.5
---------------------------------
Financial Services 6.9
---------------------------------
IC Design 6.8
---------------------------------
TFT-LCD 6.2
---------------------------------
Electronics 6.1
---------------------------------
Memory IC 4.0
---------------------------------
Construction 3.5
---------------------------------
* Percentages based on total investments at August 31, 2007 and August 31, 2006.
9
SECTOR ALLOCATION
------------------------------------------------------------------------
INDUSTRY ALLOCATION (AS A PERCENTAGE OF TOTAL INVESTMENTS)
PIE CHART
Other 2.9%
Basic 8.1%
Indus-
tries
Finance 6.9%
Technol- 82.1%
ogy
Fund holdings are subject to change and percentages shown above are based on
total investments as of August 31, 2007. The pie chart illustrates the
allocation of the investment by sector. A complete list of holdings as of August
31, 2007 is contained in the Portfolio of Investments included in this report.
The most currently available data regarding portfolio holdings and industry
allocation can be found on our website, www.thetaiwanfund.com. You may also
obtain updated holdings by calling (800)-636-9242.
10
THE TAIWAN FUND, INC.
SCHEDULE OF INVESTMENTS/AUGUST 31, 2007 (SHOWING PERCENTAGE OF NET ASSETS)
------------------------------------------------------------------------
US$
VALUE
SHARES (NOTE 1)
------ --------
COMMON STOCKS -- 95.2%
BASIC INDUSTRIES -- 21.4%
CHEMICALS -- 1.0%
Asia Polymer Co. Ltd. ....... 6,000,000 $ 3,909,209
------------
CONSTRUCTION -- 4.3%
Goldsun Development &
Construction Co. Ltd. ..... 11,271,000 6,387,094
Ruentex Development Co.
Ltd. ...................... 8,500,000 10,303,343
------------
16,690,437
------------
GLASS -- 1.1%
Taiwan Glass Industrial
Corp. ..................... 4,500,000 4,091,033
------------
IRON & STEEL -- 4.2%
China Steel Corp. ........... 10,300,000 13,983,454
Tung Ho Steel Enterprise
Corp. ..................... 1,800,000 2,410,982
------------
16,394,436
------------
PAPER -- 0.8%
Long Chen Paper Co. Ltd. .... 7,565,162 3,163,709
------------
PETROLEUM SERVICES -- 1.1%
Formosa Petrochemical
Corp. ..................... 1,600,000 4,460,741
------------
PLASTICS -- 1.4%
Nan Ya Plastics Corp. ....... 2,266,000 5,493,500
------------
RETAIL -- 0.9%
Far Eastern Department Stores
Co Ltd..................... 3,500,000 3,494,803
------------
TEXTILE -- 3.5%
Far Eastern Textile Co
Ltd. ...................... 3,200,500 3,763,126
Formosa Taffeta Co. Ltd. .... 8,500,000 9,659,384
------------
13,422,510
------------
TRANSPORTATION -- 3.1%
U-Ming Marine Transport
Corp.*..................... 3,200,000 9,522,713
Yang Ming Marine Transport
*.......................... 3,645,000 2,573,669
------------
12,096,382
------------
TOTAL BASIC INDUSTRIES....... 83,216,760
------------
FINANCE -- 7.8%
BANKS -- 1.8%
Far Eastern International
Bank....................... 16,000,000 7,151,732
------------
FINANCIAL SERVICES -- 6.0%
Cathay Financial Holding Co.
Ltd. ...................... 5,248,593 11,690,402
Fubon Financial Holding Co
Ltd........................ 7,000,000 6,035,031
Fuhwa Financial Holding Co.
Ltd.*...................... 5,270,000 3,002,394
KGI Securities Co. Ltd. ..... 4,750,000 2,288,706
------------
23,016,533
------------
TOTAL FINANCE................ 30,168,265
------------
MISCELLANEOUS -- 1.8%
ATHLETIC FOOTWARE -- 1.8%
Pou Chen Corp. .............. 7,069,531 7,069,745
------------
GOLF EQUIPMENT -- 0.0%
Advanced International
Multitech Co., Ltd. ....... 71,684 187,470
------------
TOTAL MISCELLANEOUS.......... 7,257,215
------------
TECHNOLOGY -- 64.2%
ELECTRONIC COMPONENTS -- 8.6%
Cyntec Co. Ltd. ............. 162,096 278,519
Epistar Corp. ............... 1,234,267 5,797,490
Everlight Electronics Co.
Ltd. ...................... 1,029,920 4,463,122
Kinsus Interconnect
Technology Corp. .......... 2,737,029 9,455,477
Nan Ya Printed Circuit Board
Corp. ..................... 1,000,000 6,500,197
Tripod Technology Corp. ..... 161,000 663,535
Unimicron Technology Corp. .. 3,876,000 6,084,330
------------
33,242,670
------------
ELECTRONICS -- 3.5%
Synnex Technology
International Corp. ....... 4,926,000 13,524,519
------------
IC DESIGN -- 11.8%
MediaTek, Inc. .............. 1,386,000 23,520,713
Novatek Microelectronics
Corp. Ltd. ................ 1,471,703 5,931,589
Orise Technology Co. Ltd.*... 1,600,000 4,368,617
Realtek Semiconductor
Corp. ..................... 1,050,000 5,138,792
RichTek Technology Corp. .... 639,500 7,015,334
------------
45,975,045
------------
MEMORY IC -- 2.5%
Inotera Memories, Inc. ...... 9,646,000 9,631,677
------------
The accompanying notes are an integral part of the financial statements. 11
SCHEDULE OF INVESTMENTS/AUGUST 31, 2007 (continued)
------------------------------------------------------------------------
US$
VALUE
SHARES (NOTE 1)
------ --------
TECHNOLOGY -- (CONTINUED)
PC & PERIPHERALS -- 15.3%
Asia Vital Components Co.
Ltd.*...................... 6,500,000 $ 6,647,929
Asustek Computer Inc. ....... 3,000,363 8,955,900
Catcher Technology Co.
Ltd.*...................... 987,921 7,903,607
Foxconn Technology Co.
Ltd. ...................... 1,035,000 9,409,376
GeoVision Inc. .............. 100,000 725,780
Hon Hai Precision Industry
Co. Ltd. .................. 3,029,760 22,494,354
Portwell Inc. ............... 1,300,000 3,242,219
------------
59,379,165
------------
SEMICONDUCTOR MANUFACTURING -- 9.4%
Advanced Semiconductor
Engineering, Inc. ......... 6,313,627 6,246,854
Ardentec Corp. .............. 2,747,054 2,235,170
King Yuan Electronics Co.
Ltd. ...................... 2,551,214 1,577,162
Siliconware Precision
Industries Co. ............ 5,609,074 11,303,477
Taiwan Semiconductor
Manufacturing Co. Ltd. .... 8,000,009 15,200,478
------------
36,563,141
------------
TELECOMMUNICATIONS -- 7.6%
CyberTAN Technology Inc. .... 1,000,000 3,075,851
D-Link Corp. ................ 2,120,000 4,670,566
High Tech Computer Corp. .... 390,000 5,288,797
Merry Electronics Co. Ltd. .. 3,272,866 11,108,245
Zyxel Communications Corp. .. 2,982,920 5,188,630
------------
29,332,089
------------
TFT-LCD -- 5.5%
Au Optronics Corp. .......... 7,852,674 11,374,824
InnoLux Display Corp. ....... 1,039,840 4,380,065
Wintek Corp. ................ 5,000,000 5,727,446
------------
21,482,335
------------
TOTAL TECHNOLOGY............. 249,130,641
------------
TOTAL COMMON STOCKS
(Identified
Cost -- $254,133,725)...... 369,772,881
------------
PRINCIPAL US$
AMOUNT VALUE
NT$ (NOTE 1)
--------- --------
COMMERCIAL PAPER -- 3.5%
Bai-Ding Investment Co. (a).. $149,503,714 4,530,553
Fcb Leasing Co Ltd:
1.9200%, 10/12/2007 (a).... 99,736,598 3,022,413
1.9500%, 10/12/2007 (a).... 99,516,005 3,015,728
First Commerical Bank (a).... 99,484,338 3,014,768
------------
TOTAL COMMERCIAL PAPER
(Identified
Cost -- $13,646,385)....... 13,583,462
------------
MATURITY
AMOUNT
US$
------------
REPURCHASE AGREEMENT -- 0.2%
State Street Bank and Trust
Co. at
1.5% dated 8/27/07 due
9/4/07 (collateralized
by U.S. Treasury Note
4.375%, 8/15/12, market
value $875,838)......... $ 857,000 $ 857,000
------------
TOTAL INVESTMENTS -- 98.9%
(COST -- $268,637,110)..... $384,213,343
============
OTHER ASSETS AND LIABILITIES,
NET -- 1.1%................ 4,102,544
------------
NET ASSETS -- 100%........... $388,315,887
============
LEGEND:
NT$ - New Taiwan dollar
US$ - United States dollar
* Non-income producing
(a) 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 August 31, 2007, the aggregate cost basis of the Fund's investment securities
for income tax purposes was $268,648,963.
Net unrealized appreciation of the Fund's investment securities was $115,564,380
of which $125,893,129 related to appreciated investment securities and
$10,328,749 related to depreciated investment securities. In addition, as of
August 31, 2007, the Fund's last fiscal year end, the Fund utilized all of the
available capital loss carryforward of $32,501,720 for Federal income tax
purposes.
12 The accompanying notes are an integral part of the financial statements.
FINANCIAL STATEMENTS
------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
August 31, 2007
ASSETS
Investments in securities, at
value (cost $268,637,110)
(Notes 1 and 2) - See
accompanying schedule........ $384,213,343
Cash........................... 609
Cash in New Taiwan dollars
(cost $793,937).............. 796,712
Dividend receivable............ 3,876,415
Receivable for securities
sold......................... 3,365,198
Prepaid expenses............... 62,492
Interest receivable............ 23,386
------------
Total assets................. 392,338,155
------------
LIABILITIES
Payable for securities
purchased.................... $2,670,137
Accrued management fee (Note
3)........................... 371,778
Taiwan withholding tax payable
(Note 1)..................... 809,676
Other payables and accrued
expenses..................... 170,677
----------
Total liabilities............ 4,022,268
------------
NET ASSETS..................... $388,315,887
============
Net Assets consist of (Note 1):
Paid in capital................ $249,972,915
Undistributed net investment
income....................... 2,329,181
Accumulated over distributed
net realized gain on
investments in securities and
foreign currency............. 20,442,210
Net unrealized appreciation on
investment securities and
foreign currency............. 115,571,581
------------
NET ASSETS..................... $388,315,887
============
NET ASSET VALUE, per share
($388,315,887/16,365,572
shares outstanding).......... $23.73
======
STATEMENT OF OPERATIONS
For the Year Ended August 31, 2007
INVESTMENT INCOME
Dividends..................... $ 10,616,574
Interest...................... 130,148
------------
10,746,722
Less: Taiwan witholding tax
(Note 1).................... (2,115,420)
------------
Total Income................ 8,631,302
EXPENSES:
Management fee (Note 3)
Basic fee................... $ 4,272,341
Performance adjustment...... (129,176)
Custodian fees and expenses... 536,128
Administration and accounting
fees (Note 3)............... 306,556
Directors compensation (Note
3).......................... 370,833
Legal......................... 214,676
Audit......................... 105,015
Shareholder communications.... 47,496
Insurance fees................ 95,928
Delaware franchise tax........ 81,567
Miscellaneous................. 78,071
Transfer agent fees........... 14,074
Taiwan stock dividend tax
(Note 1).................... 401,404
-----------
Total expenses.............. 6,394,913
------------
Management Fee Waiver......... (403,159)
------------
Net Expenses.................. 5,991,754
------------
NET INVESTMENT INCOME....... 2,639,548
------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENT AND
FOREIGN CURRENCY
TRANSACTIONS (NOTE 1)
Net realized gain (loss) on:
Investment securities....... 53,134,225
Foreign currency
transactions............. (2,305,538)
-----------
50,828,687
Change in net unrealized
appreciation (depreciation)
on:
Investment securities....... 50,284,378
Assets and liabilities
denominated in foreign
currencies............... 2,120
-----------
50,286,498
------------
Net investment and foreign
currency transactions....... 101,115,185
------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS... $103,754,733
============
The accompanying notes are an integral part of the financial statements. 13
FINANCIAL STATEMENTS (continued)
------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended Year Ended
August 31, 2007 August 31, 2006
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment gain (loss)................................... $ 2,639,548 $ 42,635
Net realized gain on investments and foreign currency
transactions.............................................. 50,828,687 27,993,384
Change in net unrealized appreciation on investments and
foreign currency transactions............................. 50,286,498 15,827,889
------------ ------------
Net increase in net assets resulting from operations......... 103,754,733 43,863,908
------------ ------------
Distributions to shareholders
From net investment income................................... -- (856,410)
------------ ------------
Total increase in net assets................................. 103,754,733 43,007,498
------------ ------------
NET ASSETS
Beginning of year............................................ 284,561,154 241,553,656
------------ ------------
End of year.................................................. 388,315,887 284,561,154
============ ============
Undistributed net investment income End of period............ $ 2,329,181 $ --
============ ============
14 The accompanying notes are an integral part of the financial statements.
FINANCIAL STATEMENTS (continued)
------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Year Ended August 31,
----------------------------------------------------------------
2007 2006 2005 2004 2003
-------- -------- -------- -------- --------
SELECTED PER SHARE DATA
Net asset value, beginning of year............. $ 17.39 $ 14.76 $ 12.78 $ 12.89(c) $ 11.37(c)
-------- -------- -------- -------- --------
Income from Investment Operations
Net investment income (loss)(a).............. .16 0.00* 0.08 0.03 0.00(c)*
Net realized and unrealized gain (loss) on
investments............................... 6.18 2.68 1.93 (0.14) 1.52
-------- -------- -------- -------- --------
Total from investment operations............. 6.34 2.68 2.01 (0.11) 1.52(c)
-------- -------- -------- -------- --------
Less Distributions
From net investment income................... -- (0.05) (0.03) -- --
-------- -------- -------- -------- --------
Total distributions.......................... -- (0.05) (0.03) -- --
-------- -------- -------- -------- --------
Net asset value, end of year................... $ 23.73 $ 17.39 $ 14.76 $ 12.78 $ 12.89(c)
-------- -------- -------- -------- --------
Market value, end of year...................... $ 21.43 $ 15.83 $ 13.34 $ 10.99 $ 11.09
======== ======== ======== ======== ========
TOTAL RETURN
Per share market value......................... 35.38% 19.05% 21.68% (0.90)% 19.63%
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL
DATA
Net assets, end of period (000 omitted)........ $388,316 $284,561 $241,554 $209,166 $210,949(c)
Ratio of expenses before fee waiver (b)........ 1.94% 1.92%(e) 2.23%(d) 2.07% 2.05%(c)
Ratio of expenses before fee waiver, excluding
stock dividend tax expense................... 1.82% 1.77%(e) 1.93%(d) 1.82% 1.76%(c)
Ratio of expenses after fee waiver............. 1.82% 1.77%(e) 1.93%(d) 1.82% 1.76%(c)
Ratio of net investment income (loss).......... 0.80% 0.02%(e) 0.45%(d) 0.21% 0.01%(c)
Portfolio turnover rate........................ 78% 110% 80% 76% 148%
(a) Based on average shares outstanding during the period.
(b) Expense ratio includes 20% tax paid on stock dividends received by the
Fund.
(c) Restated (Note 6)
(d) Ratio includes charge to the Management fee; see Note 3. Without this
charge the ratios would be 2.00%, 1.70% and 0.68%, respectively.
(e) Ratio includes reduction of the Management fee; see Note 3. Without this
reduction the ratios would be 1.98%, 1.82% and -0.04%, respectively.
* Amount represents less than $0.005 per share.
The accompanying notes are an integral part of the financial statements. 15
NOTES TO FINANCIAL STATEMENTS
------------------------------------------------------------------------
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 Investments (Taiwan) Limited ("Adviser"), the
Mega International Commercial Bank Co., Ltd., previously known as, 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 U.S. generally
accepted accounting principles.
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. Foreign securities may be valued at fair value according to
procedures approved by the Board of Directors if the closing price is not
reflective of current market values due to trading or events occurring in the
valuation time of the Fund. In addition, substantial changes in values in the
U.S. markets subsequent to the close of a foreign market may also affect the
values of securities traded in the foreign market. The value of foreign
securities may be adjusted if such movements in the U.S. market exceed a
specified threshold. 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.
16
NOTES TO FINANCIAL STATEMENTS (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 August 31, 2007 the Fund had no open Forwards.
Indemnification Obligations. Under the Fund's organizational documents, its
Officers and Trustees are indemnified against certain liabilities arising out of
the performance of their duties to the Fund. In addition, in the normal course
of business the Fund enters into contracts that provide general indemnifications
to other parties. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
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
17
NOTES TO FINANCIAL STATEMENTS (continued)
------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES - continued
U.S. generally accepted accounting principles. No capital gain distributions
shall be made until any capital loss carryforwards have been fully utilized or
expired.
These differences are primarily due to differing treatments for foreign currency
transactions, losses deferred due to wash sales and net operating losses.
Permanent book and tax basis differences relating to shareholder distributions
will result in reclassifications to paid in capital. For the period ended August
31, 2007, the Fund decreased undistributed net investment income by $310,367,
decreased paid-in capital by $1,816,793, and increased accumulated net realized
gain by $2,127,160. These reclassifications have no effect on the net assets or
net asset value per share.
Security Transactions. Security transactions are accounted 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
U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
increases and decreases in net assets from operations during the reporting
period. Actual results could differ from those estimates.
2. PURCHASES AND SALES OF SECURITIES
For the fiscal year ended August 31, 2007, purchases and sales of securities,
other than short-term securities, aggregated $249,822,367 and $265,318,178,
respectively.
3. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Management Fee. As the Fund's investment adviser, HSBC Investments (Taiwan)
Limited receives a basic 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 monthly
performance adjustment based on the Fund's investment performance as compared to
the Taiwan Stock Exchange Index over a rolling 36-month period (the "performance
adjustments"). The basic fee may increase or decrease by + or -0.30% depending
on the fund's performance.
During the period ending August 31, 2006, the basic fee included a one-time
charge of approximately $154,000 as a further revision to correct errors in the
calculation of performance fee adjustments for the fiscal years prior to 2000
(See footnote 6).
Effective February 1, 2007, the Adviser has agreed to waive a portion of the
basic fee so that the basic fee will not exceed 1.10% of the Fund's average
daily net assets through October 31, 2008. The performance adjustments remain
unchanged by this fee waiver.
For the year ended August 31, 2007, the management fee, including the
performance adjustments, and management fee waiver was equivalent to an annual
rate of 1.14% 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 $15,000 plus
$2,000 for each Board of Directors' meeting or Other Committee meeting attended,
and $2,000 for each meeting attended by telephone. On July 17, 2007 the Board of
Directors approved an increase in the annual fee from $15,000 to $20,000 and an
increase in the meeting fees from $2,000 to $2,500, including phone meetings
effective that day. 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. The fund also pays State Street $130,000 per year for
certain legal administrative services, including corporate secretarial services
and preparing regulatory filings.
18
NOTES TO FINANCIAL STATEMENTS (continued)
------------------------------------------------------------------------
4. FUND SHARES
At August 31, 2007, there were 20,000,000 shares of $0.01 par value capital
stock authorized, of which 16,365,572 were issued and outstanding.
5. DISTRIBUTIONS
The Fund did not make any distributions from ordinary income or capital gains
during the year ended August 31, 2007. The fund made a distribution of $856,410
from ordinary income during the year ended August 31, 2006. As of August 31,
2007, the components of distributable earnings on a tax basis were $2,329,181 of
Undistributed Ordinary Income, $20,454,064 of Undistributed Long-Term Capital
Gain and $115,559,727 of Unrealized Appreciation.
The difference between book basis and tax basis unrealized appreciation and
depreciation is attributable primarily to the tax deferral of losses on wash
sales.
6. PRIOR PERIODS 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 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%)
7. RECENT ACCOUNTING PRONOUNCEMENT
In June 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48 - Accounting for Uncertainty in Income Taxes, which
requires the tax effects of certain tax positions to be recognized. These tax
positions must meet a "more likely than not" standard that based on their
technical merits, have a more than 50 percent likelihood of being sustained upon
examination. FASB Interpretation No. 48 is effective for fiscal periods
beginning after December 15, 2006. At adoption, the financial statements must be
adjusted to reflect only those tax positions that are more likely than not to be
sustained. Management of the fund is currently evaluating the impact that FASB
Interpretation No. 48 will have on the fund's financial statements.
In September 2006, the Financial Accounting Standard Board issued Statement of
Financial Accounting Standards ("SFAS") 157, Fair Value Measurements, which
clarifies the definition of fair value and requires companies to expand their
disclosure about the use of fair value to measure assets and liabilities in
interim and annual periods subsequent to initial recognition. Adoption of SFAS
157 requires the use of the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants at the measurement date. SFAS 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years. At this time, management is in the
process of reviewing the Standard against its current valuation policies to
determine future applicability.
8. CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTANT
On April 23, 2007, the Fund's Board of Directors (the "Directors"), upon the
recommendation of the Audit Committee, appointed Tait, Weller & Baker LLP as the
Fund's independent registered public accountant.
19
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
------------------------------------------------------------------------
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF THE TAIWAN FUND, INC.
We have audited the accompanying statement of assets and liabilities of The
Taiwan Fund, Inc. (the "Fund"), including the schedule of investments, as of
August 31, 2007, and the related statement of operations, the statement of
changes in net assets and the financial highlights for the year then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit. The statement
of changes in net assets for the year ended August 31, 2006 and the financial
highlights for each of the four years in the period ended August 31, 2006 have
been audited by other auditors, whose report dated October 19, 2006 expressed an
unqualified opinion on such statement and financial highlights.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of August 31, 2007, by correspondence with the custodian and brokers or
by other appropriate auditing procedures where replies from brokers were not
received. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Taiwan Fund, Inc. as of August 31, 2007, the results of its operations, the
changes in its net assets, and the financial highlights for the year then ended,
in conformity with accounting principles generally accepted in the United States
of America.
TAIT, WELLER & BAKER LLP
PHILADELPHIA, PENNSYLVANIA
OCTOBER 26, 2007
20
OTHER INFORMATION (unaudited)
------------------------------------------------------------------------
Federal Tax Information. The Taiwan Fund, Inc. has made an election under
Internal Revenue Code Section 853 to pass through foreign taxes paid by the Fund
to its shareholders. For the year ended August 31, 2007, the total amount that
will be passed through to shareholders and foreign source income for information
reporting purposes will be $2,564,065 (representing taxes withheld plus taxes on
stock dividends) and $10,989,829, respectively.
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 August 31, 2007 no shares have been repurchased
by the Fund.
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.
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 voted these
proxies during the most recent 12-month period ended June 30 is available with
out change, upon request, by calling the same number 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. The Fund's Form N-Q's are available on the Commission's website at
http://www.sec.gov. Additionally, the Portfolio of Investments may be reviewed
and copied at the Commission's Public Reference Room in
21
OTHER INFORMATION (unaudited) (continued)
------------------------------------------------------------------------
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.
CERTIFICATIONS
The Fund's chief executive officer has certified to the New York Stock Exchange
that, as of February 16, 2007, he was not aware of any violation by the Fund of
applicable New York Stock Exchange corporate governance listing standards. The
Fund also has included the certifications of the Fund's chief executive officer
and chief financial officer required by Section 302 and Section 906 of the
Sarbanes-Oxley Act of 2002 in the Fund's Form N-CSR file with the Securities and
Exchange Commission, for the period of this report.
22
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 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. Computershare
Trust Company, N.A. (formerly, EquiServe Trust Company, N.A.) (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. Checks should be made payable to "Computershare". The
Plan Administrator will not accept cash, traveler's checks, money orders, or
third party checks for voluntary cash purchase. We suggest you send your check
to the following address to be received at least two business days before the
investment date: Computershare, 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
23
SUMMARY OF DIVIDEND REINVESTMENT AND
CASH PURCHASE PLAN (continued)
------------------------------------------------------------------------
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.
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 calling the Plan
Administrator at 1-800-426-5523, by accessing your Plan account at the Plan
Administrator's web site, www.computershare.com/equiserve or 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.
All sale requests having an anticipated market value of $100,000.00 or more are
expected to be submitted in the written form. In addition, all sale requests
within thirty (30) days of an address change are expected to be submitted in
written form.
24
SUMMARY OF DIVIDEND REINVESTMENT AND
CASH PURCHASE PLAN (continued)
------------------------------------------------------------------------
WHOM 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: Computershare, c/o The
Taiwan Fund, Inc. at P.O. Box 43010, Providence, RI 02940-3010, by telephone at
1-800-426-5523 or through the Internet at www.computershare.com/equiserve. 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 Administrator 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 30 days before the effective date of any
amendment. In the case of termination, participants will be mailed written
notice at least 30 days before the record date of any dividend or capital gains
distribution by the Fund.
25
DIRECTORS AND OFFICERS (unaudited)
------------------------------------------------------------------------
The following table sets forth certain information concerning each of the
directors and officers of the Fund.
PRESENT
OFFICE PRINCIPAL OCCUPATION OR DIRECTORSHIPS IN
NAME, ADDRESS WITH THE EMPLOYMENT DURING PAST PUBLICLY-
AND (AGE) FUND DIRECTOR SINCE FIVE YEARS HELD COMPANIES
------------- ----------- -------------- ------------------------ ------------------------
DIRECTORS CONSIDERED INDEPENDENT PERSONS
Harvey Chang (56) Chairman of 2005 President and Chief Director, Taiwan Mobile
21/F, No. 172-1, Section 2 the Board Executive Officer, Company Limited (2003-
Ji-Lung Road (since July Taiwan Mobile Company present)
Taipei, Taiwan, ROC 106 2005) and Limited (September 2003
Director - present); Senior Vice
President and Chief
Financial Officer,
Taiwan Semiconductor
Manufacturing Co.
(February 1998-September
2003)
Christina Liu (50) Director 2005 Legislator, Legislative Director, Taiwan Stock
Suite 312, No. 3-1 Yuan, ROC (2002- Exchange (1995-2002)
Jinan Road present), Chairperson,
Taipei, Taiwan, ROC Finance Committee,
Legislative Yuan, ROC
(2002-2005), Chairman,
Director and Professor,
Department of Finance,
National Taiwan
University (1993-2001),
Consultative Board
Member, Commission On
Economic Planning and
Development, Executive
Yuan, Taiwan, ROC (1996-
2001); Consultative
Board Member, Central
Deposit Insurance Corp.
Taiwan, ROC (1996-2001)
Joe O. Rogers (58) Director 1986 Organizing Member, The Director and Member of
2477 Foxwood Drive Rogers Team LLC, (July the Audit Committee, The
Chapel Hill, NC 27514 2001-present); Manager, China Fund, Inc. (1992-
The J-Squared Team LLC present)
(April 2003-May 2004);
M. Christopher Canavan, Jr. Director 2003 Independent Consultant Director and Chairman of
(68) (2000-present); Partner, The Audit Committee,
73 Brook Street Pricewaterhouse Coopers Bruker Biosciences, Inc.
Wellesley, MA 02482 LLP (Coopers & Lybrand) (2000-May 2007)
(1972-1999)
26
DIRECTORS AND OFFICERS (unaudited) (continued)
------------------------------------------------------------------------
PRESENT
OFFICE PRINCIPAL OCCUPATION OR DIRECTORSHIPS IN
NAME, ADDRESS WITH THE EMPLOYMENT DURING PAST PUBLICLY-
AND (AGE) FUND DIRECTOR SINCE FIVE YEARS HELD COMPANIES
------------- ----------- -------------- ------------------------ ------------------------
Anthony Kai Yiu Lo (58) Director 2003 Chairman and Co-CEO, Member of Listing
23/F, Shun Ho Tower Shanghai Century Committee, Stock
24-30 Ice House Street Acquisition Inc. Exchange of Hong Kong
Central, Hong Kong (October 2005-present); Ltd. (1996-May 2006)
Director, Advantage Ltd.
(2004-January 2006);
Founder and Managing
Director, Advantage Ltd.
(1999-2004);
Bing Shen (58) Director 2007 Independent Consultant Supervisor, CTCI
1755 Jackson Street, #405 (2005-present); Corporation; Independent
San Francisco, CA 94109 Director, Delta Non-Executive Director,
Networks, Inc. (June Delta Networks, Inc.,
2007-present); Chairman, Audit
President, CDIB & Committee, Delta
Partners Investment Networks, Inc. (June
Holding Corporation (May 2007-present)
2004-August 2005);
Executive Vice
President, China
Development Industrial
Bank ("CDIB') (March
1999-May 2004); Mr. Shen
retired in September
2005.
Michael F. Holland (62) Director 2007 Chairman, Holland & Director, The Holland
375 Park Avenue Company L.L.C. (1995- Balanced Fund, Inc., The
New York, New York 10152 present) China Fund, Inc. and
Reaves Utility Income
Fund; Trustee, State
Street Master Funds and
State Street
Institutional Investment
Trust.
DIRECTOR CONSIDERED INTERESTED PERSON
*Benny T. Hu (58) President 1993 Chairman, China Director, USI Far East
6F, 76 Tun Hwa South Road and Development Industrial Corp. (2004-present);
Section 2, Director 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. (2002-
2001-May 2004); present); Director,
Ambassador-at-Large, China Development
Republic of China (May Financial Holding Corp.
2001-May 2006) (June 2001-May 2004);
Director, Yangming
Marine Transport Corp
(2001-present)
27
DIRECTORS AND OFFICERS (unaudited) (continued)
------------------------------------------------------------------------
PRESENT
OFFICE PRINCIPAL OCCUPATION OR DIRECTORSHIPS IN
NAME, ADDRESS WITH THE EMPLOYMENT DURING PAST PUBLICLY-
AND (AGE) FUND OFFICER SINCE FIVE YEARS HELD COMPANIES
------------- ----------- ------------- ------------------------- -------------------------
OFFICERS
Adelina N Y Louie (41) Secretary 2004 Deputy Chief Operating --
Deputy Chief Operating and Officer, Asia Pacific,
Officer, Asia Pacific Treasurer HSBC Investments (Hong
HSBC Investments (Hong Kong) Kong) Limited (May 2006 -
Limited present), Chief Operating
Level 22 HSBC Main Building Officer, HSBC Investments
1 Queen's Road Central (Taiwan) Limited (March
Hong Kong 2004-April 2006); Area
Commercial Manager, HSBC
(UK) Ltd (February 2002-
March 2004); Senior Vice
Prresident, Custody &
Clearing, HSBC
(Indonesia) Limited (June
2000 - February 2002)
Richard F. Cook, Jr. (56) Chief 2007 Employee of Foreside Fund --
Foreside Compliance Compliance Services, LLC (November
Services, LLC. Officer 2005-January 2006),
Two Portland Square Director of Foreside
Portland, ME 04101 Compliance Services LLC,
(January 2006-present).
Chief Compliance Officer
of the Guinness Atkinson
Funds (November 2006-
present), and the Japan
Fund, Inc. (April 2007-
present). Founder and
Managing Member of
NorthLake, LLC (2002-
present). Executive
Officer, Director and
Shareholder of Century
Capital Management, Inc.
and Secretary of Century
Shares Trust (1985-2002).
Mary Moran Zeven (46) Assistant 2005 Senior Vice President and --
Secretary Senior Managing Counsel,
State Street Bank and
Trust Company (2002-
present); and Vice
President and Counsel,
State Street Bank and
Trust Company (2000-2002)
28
DIRECTORS AND OFFICERS (unaudited) (continued)
------------------------------------------------------------------------
--------
* 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.
29
------------------------------------------------------------------------
UNITED STATES ADDRESS
The Taiwan Fund, Inc.
c/o State Street Bank and Trust Company
2 Avenue de Lafayette
P.O. Box 5049
Boston, MA
1-800-636-9242
www.thetaiwanfund.com
INVESTMENT ADVISER
HSBC Investments (Taiwan) Limited
Taipei, Taiwan
DIRECTORS AND OFFICERS
Harvey Chang, Chairman of the Board and Director
Benny T. Hu, President and Director
Bing Shen, Director
Christina Liu, Director
Joe O. Rogers, Director
Michael Holland, Director
M. Christopher Canavan, Jr., Director
Anthony Kai Yiu Lo, Director
Adelina N.Y. Louie, Secretary and Treasurer
Richard F. Cook, Jr., Chief Compliance Officer
Mary Moran Zeven, Assistant Secretary
ADMINISTRATOR AND ACCOUNTING AGENT
State Street Bank and Trust Company
Boston, MA
CUSTODIANS
The Mega International Commercial Bank Co., Ltd.
Taipei, Taiwan
State Street Bank and Trust Company
Boston, MA
TRANSFER AGENT, DIVIDEND PAYING AGENT AND REGISTRAR
Computershare Trust Company, N.A.
LEGAL COUNSEL
Clifford Chance US LLP
New York, NY
Lee and Li
Taipei, Taiwan
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Tait, Weller & Baker, LLP
Philadelphia, PA
ITEM 2. CODE OF ETHICS.
(a) The Taiwan Fund, Inc. (the "Fund") has adopted a Code of Ethics that
applies to the Fund's principal executive officer and principal financial
officer.
(b) No information need be disclosed pursuant to this paragraph.
(c) There have been no amendments to the Fund's Code of Ethics during the
reporting period for Form N-CSR.
(d) There have been no waivers granted by the Fund to individuals covered by
the Fund's Code of Ethics during the reporting period for Form N-CSR.
(e) Not applicable.
(f) A copy of the Fund's Code of Ethics is attached as exhibit 12(a)(1) to
this Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
(a) (1) The Board of Directors of The Taiwan Fund, Inc. (the "Fund") has
determined that the Company has one member serving on the Fund's
Audit Committee that possesses the attributes identified in
Instruction 2(b) of Item 3 to Form N-CSR to qualify as "audit
committee financial expert."
(2) The name of the audit committee financial expert is M. Christopher
Canavan, Jr. Mr. Canavan has been deemed to be "independent" as that
term is defined in Item 3(a)(2) of Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The Fund changed independent registered public accounting firms for the fiscal
year ended August 31, 2007.
(a) Audit Fees
For the fiscal year ended August 31, 2007, Tait Weller & Baker LLP ("Tait
Weller"), the Fund's independent registered public accounting firm, billed the
Fund aggregate fees of US$55,000 for professional services rendered for the
audit of the Fund's annual financial statements and review of financial
statements included in the Fund's annual report to shareholders.
For the fiscal years ended August 31, 2006 KPMG LLP ("KPMG") billed the
Fund aggregate fees of US$58,500 for professional services rendered for the
audit of the Fund's annual financial statements and review of financial
statements included in the Fund's annual report to shareholders.
(b) Audit-Related Fees
For the fiscal year ended August 31, 2007, Tait Weller billed the Fund
aggregate fees of US$6,500 for assurances and related services that are
reasonably related to the performance of the audit or review of the Fund's
financial statements and are not reported under the section Audit Fees above.
Audit-Related Fees represent procedures applied to the semi-annual financial
statement amounts (reading
3
the semi-annual report and valuation and existence procedures on investments) as
requested by the registrant's audit committee.
For the fiscal year ended August 31, 2006, KPMG billed the Fund aggregate
fees of US$7,500 for assurances and related services that are reasonably related
to the performance of the audit or review of the Fund's financial statements and
are not reported under the section Audit Fees above. Audit-Related Fees
represent procedures applied to the semi-annual financial statement amounts
(reading the semi-annual report and valuation and existence procedures on
investments) as requested by the registrant's audit committee.
(c) Tax Fees
For the fiscal year ended August 31, 2007, Tait Weller billed the Fund
aggregate fees of US$12,500 for professional services rendered for tax
compliance, tax advice, and tax planning. The nature of the services comprising
the Tax Fees was the review of the Fund's income tax returns and tax
distribution requirements.
For the fiscal year ended August 31, 2006, KPMG billed the Fund aggregate
fees of US$12,900 for professional services rendered for tax compliance, tax
advice, and tax planning. The nature of the services comprising the Tax Fees was
the review of the Fund's income tax returns and tax distribution requirements.
(d) All Other Fees
For the fiscal year ended August 31, 2007, Tait Weller did not bill the
Fund any fees for products and services other than those disclosed above.
For the fiscal year ended August 31, 2007, KPMG did not bill the Fund any
fees for products and services other than those disclosed above.
(e) The Fund's Audit Committee Charter requires that the Audit Committee
pre-approve all audit and non-audit services to be provided to the Fund by the
Fund's independent registered public accounting firm; provided, however, that
the pre-approval requirement with respect to non-auditing services to the Fund
may be waived consistent with the exceptions provided for in the Securities
Exchange Act of 1934, as amended (the "1934 Act"). All of the audit and tax
services described above for which Tait Weller and KPMG billed the Fund fees for
the fiscal years ended August 31, 2007 and August 31, 2006 were pre-approved by
the Audit Committee.
For the fiscal years ended August 31, 2007 and August 31, 2006, the Fund's
Audit Committee did not waive the pre-approval requirement of any non-audit
services to be provided to the Fund by Tait Weller or KPMG, respectively.
(f) No disclosures are required by this Item 4(f).
(g) For the fiscal year ended August 31, 2007, Tait Weller did not bill the Fund
any non-audit fees. During this period, Tait Weller did not provide any services
to HSBC Investments (Taiwan) Limited (the "Investment Adviser").
For the fiscal year ended August 31, 2006, KPMG did not bill the Fund any
non-audit fees. During this period, KPMG did not provide any services to the
Investment Adviser.
4
(h) Tait Weller notified the Fund's Audit Committee of all non-audit services
that were rendered by Tait Weller to the Fund's Investment Adviser and any
entity controlling, controlled by, or under common control with the Investment
Adviser that provides ongoing services to the Fund that were not pre-approved
pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X, allowing the
Fund's Audit Committee to consider whether such services were compatible with
maintaining Tait Weller's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
(a) The Fund has a separately-designated audit committee established in
accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The
members of the Fund's audit committee are M. Christopher Canavan, Jr., Joe
Rogers, Anthony K.Y. Lo, Bing Shen and Michael F. Holland.
ITEM 6. SCHEDULE OF INVESTMENTS.
Schedule of Investments is included as part of Item 1.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
INVESTMENT COMPANIES.
The registrant has delegated to its investment adviser the voting of proxies
relating to the registrant's portfolio securities. The policies and procedures
used by the investment adviser to determine how to vote proxies relating to the
registrant's portfolio securities, including the procedures used when a vote
presents a conflict of interest involving the investment adviser or any of its
affiliates, are contained in the investment adviser's Proxy Voting Guidelines,
which are attached hereto as Exhibit 12(a)(4).
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANY.
(a)(1) As of September 30, 2007, the portfolio manager of the registrant is as
follows:
SHIRLEY YANG
Ms. Yang has been the Portfolio Manager of the Taiwan Fund, Inc. since June 30,
2007. Ms. Yang is an Assistant Vice President of HSBC Investments (Taiwan)
Limited.
Prior to joining HSBC Investments (Taiwan) Limited, Ms. Yang worked at INVESCO
Taiwan where she was a Senior Fund Manager (March 2004 to June 2007). Prior to
March 2004, Ms. Yang worked at Prudential Asset Management, Taiwan (June 2003 to
March 2004) as an Investment Manager. Prior to June 2003, Ms. Yang worked at
E-Sun Financial Holding Company (June 2002 to March 2003) as an Investment
Manager.
(a)(2)
As of September 30, 2007, Ms. Yang managed the Taiwan Fund, Inc. with a total of
approximately $412.2 million in assets.
As of September 30, 2007, Ms. Yang does not manage any mutual funds nor pooled
investment vehicles.
CONFLICTS OF INTEREST: While the portfolio manager does not currently manage any
other fund or account, actual or potential conflicts of interest may arise when
a portfolio manager has management responsibilities with respect to more than
one fund. For example, a portfolio manager may identify a limited investment
opportunity that may be appropriate for the Fund as well as for the other
5
funds or accounts he or she manages. A conflict of interest also might arise
where a portfolio manager has a larger personal investment in one fund than in
another. A portfolio manager may purchase a particular security for one or more
funds while selling the security for one or more other funds; this could have a
detrimental effect on the price or volume of the securities purchased or sold by
a fund. A portfolio manager might devote unequal time and attention to the funds
he or she manages. The adviser has adopted trade allocation and other policies
and procedures that it believes are reasonably designed to address these and
other conflicts of interest. As a result, the adviser does not believe that any
of these potential sources of conflicts of interest will affect the portfolio
manager's professional judgment in managing the Fund. However, there is no
guarantee that such procedures will detect each and every situation where a
conflict arises.
COMPENSATION:
The adviser has structured a compensation program based on factors designed to
attract and retain key personnel as well as to provide incentives for top
quality performance. The program is designed to recognise the long-term nature
of the firm's business, and to encourage retention and continuity of service of
the people who contribute to the organization's success.
The adviser, through a performance review system rewards both team and
individual contribution. Each individual has a job profile and a set of Key
Performance Measures ("KPMs") to ensure that the year's objectives are clear and
attainable. KPMs do not just reflect tangible outputs of an individual's role;
they also incorporate the behaviours and team efforts displayed by each member
of staff. Thus, the firm's portfolio managers are not assessed solely on the
performance of the funds that they manage.
Investment professionals typically receive a base salary and an incentive bonus.
The total sum set aside for bonus payments each year is a function of HSBC
Investment's profitability as a whole. In determining the amount to allocate to
each individual, three factors are assessed:
- The performance of the local company;
- The performance of the investment team; and
- The performance of the individual.
During the annual appraisal process, each department manager reviews his/her
team's performance and contribution to the adviser for the past year on an
individual basis. Bonuses and raises are awarded based on the individual's
contribution to the team. Promotions are awarded to individuals who have
performed well beyond what was expected for their level.
OWNERSHIP OF SECURITIES: The following table sets forth, for each portfolio
manager, the aggregate dollar range of the registrant's equity securities
beneficially owned as of September 30, 2007.
Portfolio Manager Dollar Range of Fund Shares Beneficially
Owned
Shirley Yang none
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
6
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 during the period
covered by this Form N-CSR filing.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers have
concluded that the registrant's disclosure controls and procedures (as
defined in Rule 30a-3(c) under the Investment Company Act of 1940, as
amended (the "1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a
date within 90 days of the filing date of this Form N-CSR based on their
evaluation of these controls and procedures required by Rule 30a-3(b)
under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b)
under the 1934 Act (17 CFR 240.13a-15(b) or 240.15d-15(b)).
(b) There were no changes 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 second fiscal quarter
that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting.
ITEM 12. EXHIBITS
(a)(1) Code of Ethics is attached hereto in response to Item 2(f).
(a)(2) The certifications required by Rule 30a-2 of the 1940 Act are attached
hereto.
(a)(3) Not applicable.
(a)(4) Proxy voting policies and procedures of the Fund and its investment
advisers are attached hereto in response to Item 7.
(b) The certifications required by Rule 30a-2(b) of the 1940 Act and Section
906 of the Sarbanes-Oxley Act of 2002 are attached hereto.
7
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/ Andrew Chen
------------------------------------------
Andrew Chen
President of The Taiwan Fund, Inc.
Date: November 8, 2007
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/ Andrew Chen
-------------------------------------------
Andrew Chen
President of The Taiwan Fund, Inc.
Date: November 8, 2007
By: /s/ Adelina Louie
--------------------------------------------
Adelina Louie
Treasurer of The Taiwan Fund, Inc.
Date: November 8, 2007
8