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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: 811-05617
THE R.O.C. TAIWAN FUND
(Exact name of registrant as specified in charter)
17th Floor
167 Fu Hsing North Road
Taipei, Taiwan
Republic of China
(Address of principal executive offices) (Zip code)
Citigate Financial Intelligence
62 West 45th Street
4th Floor
New York, New York 10036
(Name and address of agent for service)
Registrant's telephone number, including area code: 1-800-343-9567
Date of fiscal year end: DECEMBER 31, 2002
Date of reporting period: DECEMBER 31, 2002
ITEM 1. REPORTS TO STOCKHOLDERS:
DEAR STOCKHOLDERS
================================================================================
Dear Stockholders
The net asset value per share (NAV) of The R.O.C. Taiwan Fund declined 19.1% in
2002, slightly outperforming the Taiwan Stock Exchange Index (TAIEX), which fell
19.8%. During the year the New Taiwan dollar appreciated 1.0% against the U.S.
dollar.
The year proved deeply frustrating for Taiwan investors. Most of them had
harbored great expectations that the stock rally in late 2001, following
terrorist attacks in the U.S., would continue through 2002. Optimism sprang from
the belief that a rebounding American economy would spur demand for Taiwan's
technology companies. Additionally, the appointment in January of a new premier,
known as a pragmatic leader, raised hopes that the government would focus on
boosting the economy after its first-ever yearly contraction in 2001.
The market performed well in the early months of the year as a result of
improving fundamentals, especially in the semiconductor industry. Rising prices
of memory chips lifted producers into profitable territory again for the first
time in about a year. Taiwan's two foundries separately entered into
international alliances to help maintain their global leadership in contract
manufacturing of semiconductors.
The improved outlook extended into other areas of technology. Flush with bulging
order books, numerous makers of personal computer components raised their
forecasts for the year. The American economy also seemed to be recovering well,
prompting many U.S. economists to hike first-quarter growth projections to 5% or
more. Even Taiwan's government showed a willingness to eliminate previous
indecisiveness by disclosing its plan to partially lift the ban on Taiwan's
semiconductor firms investing in China. As a result of these developments, the
TAIEX climbed more than 16% to the year's high in April.
It then entered a long slump, however, declining each month during the second
and third quarters as earlier positive trends unraveled. The steep fall in late
April of the Nasdaq -- which declined 20% in the second quarter -- aroused
misgivings about an American-led technology recovery. More unnerving U.S. news
came in May with the first fall in seven months in leading economic indicators
and a rise in the unemployment rate. Adding to these woes was the spate of U.S.
corporate accounting scandals that rattled markets worldwide.
Confirmation of investor fears came repeatedly over the next few months.
International technology giants Intel and Microsoft slashed annual forecasts
amid signs of weakening demand. The second-quarter decline in memory-chip prices
was greater than expected in the industry's traditional slow season while prices
of some major computer components leveled off after rising earlier. At mid-year
Taiwan's two largest semiconductor companies warned of falling revenues and
reduced capital spending.
These trends deepened in late summer. A slew of Taiwan computer-related
companies cut earnings targets and cautioned that customers were pressing for
lower prices after sales had failed to rebound. Meanwhile, as signs of a
weakening U.S. economy accumulated with repeated monthly dips in consumer
confidence, the Federal Reserve expressed concern about slowing growth.
By early October the Taiwan market had reached the year's low after falling 40%
from April. A surge in the U.S. markets then sparked a fourth-quarter rally,
supported by heavy foreign institutional buying. Anticipation of the U.S. Fed's
November interest-rate cut also helped boost Taiwan equities. The rally,
however, was short-lived and failed to lift the TAIEX back into positive
territory for the year. Among the main factors breaking the market's advance was
the
Taiwan government's backtracking from its financial reforms in an attempt to
placate vested interests. Investor concerns in the last few weeks of the year
were dominated by rising oil prices due to labor strife in Venezuela, as well as
increasing geopolitical tensions over possible war with Iraq and North Korea's
resumption of its nuclear program.
Taiwan's economy was just about the only thing that exceeded expectations during
the year as foreign demand lifted it out of recession and boosted growth to an
estimated 3.4%. Merchandise exports -- equivalent to about 40% of gross national
product -- increased 6.3%. Most notable was a 29% jump in shipments to China
(including Hong Kong), which took almost a third of total exports. Although
domestic demand was fairly weak, there were signs of improvement. Private
investment grew at a double-digit rate in the second half of the year after
contracting in the first six months. Despite the poorly performing stock market
and unemployment that hovered near record-high levels, private consumption
advanced slightly in 2002.
Our outlook for the year ahead remains positive. The U.S. economy is, in our
analysis, healthier than the projections of some economists, especially those
who are beginning to mention the possibility of a "double-dip" back into
recession. Even if there is war in the Middle East, it is not expected to affect
Taiwan as much as the U.S. or Europe. In addition, government efforts in Taiwan
to boost employment should produce some moderate improvement even though the
jobless rate may still remain above historical levels of 1.5%-3.0%. We are thus
forecasting that Taiwan's economy in 2003 should better last year's performance.
Strong Asian demand centered in China will continue to be the primary economic
growth engine. As a result, about half of the Fund's portfolio is made up of
stocks of Taiwanese companies whose business ties are growing with China, and we
expect to continue exploring new opportunities in this regard. Taiwan's
financial services companies, for example, are in the early stages of entering
the Chinese market. Given their long experience, they stand to benefit as
restrictions on their activities are eased. Taiwan's producers of industrial
materials such as steel, petrochemicals and paper are also enjoying strong
growth, largely because of surging demand from China. Although the prospects for
technology are somewhat uneven, the Fund is focusing on several bright spots.
These in clude makers of cellular phones and related components, broadband
networking equipment and digital cameras.
We appreciate your support over the past year and look forward to discussing our
market outlook and portfolio strategy with you in future reports.
Respectfully submitted,
/s/ Michael Ding
-----------------------
Michael Ding
President
January 27, 2003
2
Portfolio Highlights
Year Ended December 31, 2002
================================================================================
TEN LARGEST HOLDINGS
PERCENT OF
COMPANY NET ASSETS
------- ----------
Taiwan Semiconductor Manufacturing Co., Ltd. 6.00%
Taiwan Green Point Enterprises Co., Ltd. 5.75
Pihsiang Machinery Manufacturing Co., Ltd. 4.40
Synnex Technology International Corp. 4.27
Chunghwa Telecom Co., Ltd. 4.15
Zyxel Communications Corp. 3.84
Lite-on Technology Corp. 3.78
Sonix Technology Co., Ltd. 3.78
United Microelectronics Corp. 3.71
Taiwan Paiho Ltd. 3.51
INDUSTRY DIVERSIFICATION
PERCENT OF
COMPANY NET ASSETS
------- ----------
Electronics 16.96%
Semiconductors 16.71
Banking 9.93
Computers & Office Equipment 8.28
Communications Equipment 6.73
Plastics 5.36
Chemicals 4.40
Retailing 4.27
Telephone Services 4.15
Textiles 3.86
3
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4
================================================================================
THE R.O.C. TAIWAN FUND
Consolidated Schedule of Investments / December 31, 2002
================================================================================
COMMON STOCKS -- 96.48% % OF MARKET VALUE
Automobile -- 1.94% NET ASSETS (U.S. DOLLARS)
--------------------------------------------------------------------------------
193,004 shs. Yulon Motor Co., Ltd. ........ 0.15 221,588
1,400,000 * China Motor Corp. ............ 1.79 2,558,053
-----------
2,779,641
Banking -- 9.93%
--------------------------------------------------------------------------------
8,000,000 * Bank of Kaohsiung Co., Ltd. .. 3.08 4,396,743
4,768,860 * Fubon Financial Holding
Co., Ltd. .................... 2.65 3,787,314
8,714,164 * Sinopac Holdings Co. ......... 2.55 3,648,349
2,900,000 Chinatrust Financial Holding
Company Ltd. ................. 1.65 2,361,523
-----------
14,193,929
Other Financials -- 3.38%
--------------------------------------------------------------------------------
6,200,290 Yuan Ta Securities Co., Ltd. . 2.08 2,979,450
6,500,000 * Asia Securities Inc. ......... 1.30 1,851,639
-----------
4,831,089
Chemicals -- 4.40%
--------------------------------------------------------------------------------
2,134,626 Pihsiang Machinery
Manufacturing Co., Ltd. ...... 4.40 6,295,835
-----------
6,295,835
Communications Equipment -- 6.73%
--------------------------------------------------------------------------------
1,270,000 Ambit Microsystems Corp. ..... 2.89 4,129,428
2,576,000 * Zyxel Communications Corp. ... 3.84 5,485,109
-----------
9,614,537
Computers & Office Equipment -- 8.28%
--------------------------------------------------------------------------------
3,800,000 BenQ Corp. ................... 2.98 4,253,446
2,530,000 Quanta Computer Inc. ......... 2.90 4,149,570
3,000,000 * Amtran Technology Co., Ltd. .. 2.40 3,427,042
-----------
11,830,058
Electrical & Machinery -- 1.86%
--------------------------------------------------------------------------------
3,046,000 China Metal Products Co., Ltd. 1.86 2,655,707
-----------
2,655,707
Electronics -- 16.96%
--------------------------------------------------------------------------------
4,800,000 Lite-on Technology Corp. ..... 3.78 5,400,397
1,000,500 Hon Hai Precision
Industry Co., Ltd. ........... 2.42 3,454,666
3,186,000 Phihong Enterprise Co., Ltd. . 1.84 2,631,088
5,600,000 * Taiwan Green Point
Enterprises Co., Ltd. ........ 5.75 8,217,996
4,500,000 * Glotech Industrial Corp. ..... 0.64 919,345
845,000 * XAC Automation Corp. ......... 1.23 1,762,797
1,135,000 * I-Sheng Electric Wire &
Cable Co., Ltd. .............. 1.30 1,861,566
-----------
24,247,855
See accompanying notes to consolidated financial statements
5
Schedule of Investments (Cont'd.)
% OF MARKET VALUE
Paper -- 0.67% NET ASSETS (U.S. DOLLARS)
--------------------------------------------------------------------------------
2,800,000 shs. * Chung Hwa Pulp Corp. ......... 0.67 950,709
-----------
950,709
Plastics -- 5.36%
--------------------------------------------------------------------------------
2,809,578 Formosa Plastics Corp. ....... 2.58 3,686,495
4,602,149 Nan Ya Plastics Corp. ........ 2.78 3,972,735
-----------
7,659,230
Retailing -- 4.27%
--------------------------------------------------------------------------------
4,041,675 Synnex Technology
International Corp. .......... 4.27 6,105,601
-----------
6,105,601
Semiconductors -- 16.71%
--------------------------------------------------------------------------------
8,736,837 * United Microelectronics Corp. 3.71 5,304,499
7,000,000 * Taiwan Semiconductor
Manufacturing Co., Ltd ....... 6.00 8,580,554
560,560 Mediatek Inc. ................ 3.22 4,597,002
2,700,000 Sonix Technology Co., Ltd. ... 3.78 5,399,534
-----------
23,881,589
Steel & Other Metals -- 0.07%
--------------------------------------------------------------------------------
194,677 China Steel Corp. ............ 0.07 108,674
-----------
108,674
Telephone Services -- 4.15%
--------------------------------------------------------------------------------
4,000,000 Chunghwa Telecom Co. Ltd ..... 4.15 5,927,546
-----------
5,927,546
Textiles -- 3.86%
--------------------------------------------------------------------------------
10,000,000 * Shinkong Synthetic Fibers Corp. 1.11 1,582,597
3,710,000 Formosa Chemicals & Fiber Corp. 2.75 3,928,524
-----------
5,511,121
Others -- 7.91%
--------------------------------------------------------------------------------
3,700,000 * Great China Metal
Industry Co., Ltd. ........... 1.10 1,570,368
2,310,000 Taiwan Secom Co., Ltd. ....... 1.22 1,748,137
10 Kang Na Hsiung Enterprise
Co., Ltd ..................... 0.00 4
2,250,000 * Giant Manufacturing Co., Ltd. 2.08 2,971,686
4,616,000 Taiwan Paiho Ltd. ............ 3.51 5,020,712
-----------
11,310,907
TOTAL COMMON STOCKS (COST $158,454,793) ......... 137,904,028
-----------
* Non-income producing: these stocks did not pay a cash dividend during the
year.
See accompanying notes to consolidated financial statements.
6
================================================================================
THE R.O.C. TAIWAN FUND
Consolidated Schedule of Investments (continued) / December 31, 2002
================================================================================
SHORT-TERM INVESTMENTS -- 2.01%
% OF MARKET VALUE
Commercial Paper -- 2.01% NET ASSETS (U.S. DOLLARS)
--------------------------------------------------------------------------------
Principal Amount Issuer (Guarantor)
---------------- ------------------
$1,438,725 GE Capital (JPMorgan Chase Bank),
1.30%, Due 01/13/03 .......... 1.01 1,438,111
1,438,725 Prodisc Technology Inc.
(Citibank, N.A.),
1.25%, Due 01/15/03........... 1.00 1,438,036
-----------
Total short-term investments
(AMORTIZED COST $2,876,147) ................... 2,876,147
-----------
TOTAL INVESTMENTS IN SECURITIES
AT MARKET VALUE (COST $161,330,940)............ 98.49 140,780,175
OTHER ASSETS (LESS LIABILITIES).................... 1.51 2,155,542
------ ------------
NET ASSETS ........................................ 100.00 $142,935,717
====== ============
See accompanying notes to consolidated financial statements.
7
================================================================================
THE R.O.C. TAIWAN FUND
Consolidated Statement of Assets and Liabilities
December 31, 2002 (Expressed in US Dollars)
================================================================================
Assets
Investments in securities at market value (Notes 2B, 3 and 6):
Common stocks (cost -- $158,454,793) ................... $137,904,028
Short-term investments (amortized cost -- $2,876,147) .. 2,876,147
Total investments in securities at
market value (cost -- $161,330,940)................ 140,780,175
Cash ......................................................... 3,460,405
Prepaid expenses ............................................. 61,413
Other receivables ............................................ 1,188
Total assets ...................................... 144,303,181
------------
Liabilities
Payable for investment securities purchased .................. 999,385
Management fee payable (Note 4) .............................. 171,548
Custodian fee payable (Note 5) ............................... 19,061
Professional fees payable .................................... 129,620
Accrued Republic of China taxes (Note 2G) .................... 1,013
Other payables ............................................... 46,837
------------
Total liabilities ................................. 1,367,464
------------
Net assets ................................................... $142,935,717
============
Components of net assets
Par value of shares of beneficial interest (Note 7) .......... 326,990
Additional paid-in capital ................................... 306,671,110
Accumulated net investment income ............................ 4,945,551
Accumulated realized loss on investments ..................... (104,176,303)
Unrealized depreciation on investments (Note 6) .............. (20,550,765)
Cumulative translation adjustment (Note 2E) .................. (44,280,866)
------------
Net assets ................................................... $142,935,717
============
Net asset value per share (32,698,976 shares,
par value $0.01 issued and outstanding) .................. $4.37
============
See accompanying notes to consolidated financial statements.
8
================================================================================
THE R.O.C. TAIWAN FUND
Consolidated Statement of Operations
For the Year ended December 31, 2002 (Expressed in US Dollars)
================================================================================
Investment income (Note 2C)
Dividends ................................................ $2,557,925
Interest ................................................. 72,116
Others ................................................... 25,195
------------
2,655,236
Republic of China taxes (Note 2G) ............................ 1,078,370
------------
1,576,866
------------
Expenses
Management fee (Note 4) .................................. 2,231,267
Custodian fee (Note 5) ................................... 248,033
Professional fees ........................................ 603,058
Administrative fee ....................................... 101,000
Insurance expenses ....................................... 69,192
Trustee fees ............................................. 65,000
Other expenses ........................................... 288,265
------------
3,605,815
Net investment loss .......................................... (2,028,949)
------------
Net realized and unrealized gain (loss) on investments
and foreign currencies (Notes 2 and 6)
Net realized loss on:
investments (excluding short-term investments) ....... (10,154,829)
foreign currency transactions ........................ (63)
------------
net realized loss on investments and
foreign currency transactions .................... (10,154,892)
------------
Net changes in unrealized appreciation/depreciation on:
investments (excluding short-term investments) ....... (23,135,792)
translation of assets and liabilities in
foreign currencies ............................... 1,729,215
------------
Net realized and unrealized loss from
investments and foreign currencies ................... (31,561,469)
------------
Net decrease in net assets resulting from operations ..... $(33,590,418)
============
See accompanying notes to consolidated financial statements.
9
================================================================================
THE R.O.C. TAIWAN FUND
Consolidated Statement of Changes in Net Assets
For the Years ended December 31, 2002 and 2001 (Expressed in US Dollars)
================================================================================
2002 2001
------------- ----------
Net decrease in net assets resulting from operations
Net investment loss ...................................... $ (2,028,949) (1,768,293)
Net realized loss on investments and foreign
currency transactions ................................ (10,154,892) (66,658,671)
Net changes in unrealized appreciation/depreciation
on investments ....................................... (23,135,792) 68,725,588
Net changes in unrealized appreciation/depreciation
on translation of assets and liabilities in
foreign currencies ................................... 1,729,215 (12,711,118)
------------- ----------
Net decrease in net assets resulting from operations ......... (33,590,418) (12,412,493)
------------- ----------
Net assets, beginning of year ................................ 176,526,135 188,938,628
------------- ----------
Net assets, end of year ...................................... $ 142,935,717 176,526,135
============= ===========
See accompanying notes to consolidated financial statements.
10
================================================================================
THE R.O.C. TAIWAN FUND
Consolidated Financial Highlights
(Expressed in US Dollars)
================================================================================
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------
2002 2001 2000 1999 1998
------- ------- ------- ------- -------
Per share operating performance:
Net asset value, beginning of year ......... 5.40 5.78 10.23 7.53 9.58
Net investment loss ........................ (0.06) (0.05) (0.11) (0.11) (0.11)
Net realized and unrealized gain (loss)
on investments and foreign
currency transactions .................. (1.02) 0.06 (3.56) 2.58 (1.73)
Net changes in unrealized
appreciation/depreciation
on translation of foreign currencies ... 0.05 (0.39) (0.41) 0.23 0.08
------- ------- ------- ------- -------
Total from investment operations .. (1.03) (0.38) (4.08) 2.70 (1.76)
Distributions to Shareholders from:
Capital .................................... -- -- -- -- (0.13)
Net investment income ...................... -- -- -- -- (0.07)
Net realized gain on investments ........... -- -- (0.37) -- (0.09)
------- ------- ------- ------- -------
Total distributions* .............. -- -- (0.37) -- (0.29)
------- ------- ------- ------- -------
Net asset value, end of year ................... 4.37 5.40 5.78 10.23 7.53
======= ======= ======= ======= =======
Per share market price, end of year ............ 4.05 4.75 4.56 8.44 6.19
Total investment return (%):
Based on the Trust's market price ......... (14.74) 4.17 (41.71) 36.35 (20.31)
Based on the Trust's net asset value ...... (19.07) (6.57) (39.94) 35.86 (18.42)
Ratios and supplemental data:
Net assets, end of year (in thousands) .... 142,936 176,526 188,939 334,521 246,348
Ratio of expenses to average
net assets (%) ......................... 2.19 2.01 1.67 1.81 1.77
Ratio of net investment loss to
average net assets (%) ................. (1.23) (1.01) (1.09) (1.35) (1.28)
Portfolio turnover ratio (%) .............. 107 173 165 191 133
* See Note 2F for information concerning the Trust's distribution policy.
See accompanying notes to consolidated financial statements.
11
================================================================================
THE R.O.C. TAIWAN FUND
Notes to Consolidated Financial Statements / December 31, 2002 (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.
As required by the Trust's "Declaration of Trust," if the shares trade on the
market at an average discount to NAV of more than 10% in any consecutive 12-week
period after the most recent such vote, the Trust must submit to the
shareholders for a vote at its next annual meeting a binding resolution that the
Trust be converted from a closed-end to an open-end investment company. The
affirmative vote of a majority of the Trust's outstanding shares is required to
approve such a conversion.
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 and convertible corporate bonds represent securities that are
traded on the Taiwan Stock Exchange or the Taiwan over-the-counter market.
Except when price movements are constrained by collars imposed by Republic of
China regulations, in which case the Trust's Board of Trustees has provided for
the use of fair valuation procedures, 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, 2002, the Trust generated a net capital loss of
$16,589,494, which includes a post-October 31, 2001 net capital loss of
$7,449,824, and maintained a cumulative prior year capital loss carryover of
$89,141,756, resulting in a total capital loss carryover of $105,731,250. This
capital loss carryover may be used to offset any future capital gains generated
by the Trust, and if unused, $89,141,756 of such loss will expire on December
31, 2009, and $16,589,494 of such loss will expire on December 31, 2010. In
addition, the Trust generated a post-October 31, 2002 net capital loss of
$253,890, which, if unused, will expire on December 31, 2011.
12
================================================================================
THE R.O.C. TAIWAN FUND
Notes to Consolidated Financial Statements / December 31, 2002 (Expressed in US
Dollars)
================================================================================
E -- Foreign currency translation --
Substantially all of the Trust's income is earned, and its expenses are largely
paid, in New Taiwan Dollars ("NT$"). The cost and market value of securities,
currency holdings and other assets and liabilities which are denominated in NT$
are reported in the accompanying consolidated 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 December 31, 2002,
this rate was approximately NT$34.753 to $1.00. Investment income and expenses
are translated at an average exchange rate for the period. Currency translation
gains or losses are reported as a separate component of changes in net assets
resulting from operations.
The Trust does not separately record that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
F -- Distributions to shareholders --
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 accounting principles generally
accepted in the United States of America ("GAAP"). Permanent book and tax
differences primarily relate to the treatment of the Trust's gains from the
disposition of passive foreign investment company shares as well as the
nondeductibility of net operating losses for U.S. federal income tax purposes.
As a result, accumulated net investment income was increased and additional paid
in capital was decreased to reflect the impact of the aforementioned permanent
differences in accordance with GAAP. Such reclassification does not impact the
net asset value of the Fund. Temporary book and tax differences are primarily
due to differing treatments for certain foreign currency losses.
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. For the twelve months ended December 31, 2002,
the total par value of stock dividends received was $2,685,351.
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 $501,461 for
the twelve months ended December 31, 2002.
H -- Use of estimates --
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts reported in the consolidated
financial statements, consolidated financial highlights and the accompanying
notes. Actual results could differ from those estimates.
Note 3 -- Investment Considerations
--------------------------------------------------------------------------------
Because the Trust concentrates its investments in publicly traded equity and
debt securities issued by R.O.C. corporations, its portfolio involves
considerations not typically associated with investing in U.S. securities. In
addition, the Trust is more susceptible to factors adversely affecting the
R.O.C. economy than a fund not concentrated in these issuers to the same extent.
Since the Trust's investment securities are primarily denominated in New Taiwan
Dollars, changes in the relationship of the New Taiwan Dollar to the U.S. Dollar
may also significantly affect the value of the investments and the earnings of
the Trust.
13
Note 4 -- Investment Management
--------------------------------------------------------------------------------
Pursuant to an investment contract (the "Investment Contract"), IIT (the
"Manager"), an R.O.C. corporation, is responsible, among other things, for
investing and managing the assets of the Trust and administering the Trust's
affairs. Through December 31, 2002, the Trust paid the Manager a fee in NT$,
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$10 billion.
Note 5 -- Custodian
--------------------------------------------------------------------------------
Pursuant to the Investment Contract, the Central Trust of China ("CTC") serves
as custodian of the assets of the Trust held in the R.O.C. CTC owns 7.74% of the
outstanding capital stock of IIT. Through December 31, 2002, the Trust paid CTC
a monthly fee in NT$ 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 short-term investments, for the
twelve months ended December 31, 2002, included approximately $171,984,139 for
stock and bond purchases and approximately $170,287,677 for stock and bond
sales, respectively.
At December 31, 2002, the cost of investments, excluding bonds and short-term
investments, for U.S. federal income tax purposes was $159,522,103. At December
31, 2002, the net unrealized depreciation on investments of $18,741,928 computed
on a U.S. federal income tax basis consisted of $5,655,911 of gross unrealized
appreciation and $24,397,839 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 December 31, 2002, 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, 2001. 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 four 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.
--------------------------------------------------------------------------------
14
[GRAPHIC OMITTED - LOGO KPMG]
[LETTERHEAD OF KPMG]
INDEPENDENT AUDITORS' REPORT
The Trustees and Shareholders of
The R.O.C. Taiwan Fund:
We have audited 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 December 31,
2002, and the related consolidated statement of operations for the year then
ended, the consolidated statements of changes in net assets for each of the
years in the two-year period then ended, and the consolidated financial
highlights for each of the years in the five-year period then ended. These
consolidated financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements and financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the consolidated financial statements and financial
highlights. Our procedures included physical inspection or confirmation of
securities owned as of December 31, 2002, by correspondence with the Trust's
custodian and brokers. As to securities purchased but not yet received, we
performed other appropriate auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements and consolidated financial
highlights referred to above present fairly, in all material respects, the
financial position of The R.O.C. Taiwan Fund as of December 31, 2002, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended, and the financial highlights
for each of the five years in the period then ended, in conformity with
accounting principles generally accepted in the United States of America.
/s/ KPMG
Taipei, Taiwan
January 10, 2003
15
Information Concerning Trustees and Officers
================================================================================
----------------------------------------------------------------------------------------------------------------
POSITION(S) TERM OF OFFICE AND PRINCIPAL OCCUPATION(S)
NAME (AGE) AND HELD WITH THE LENGTH OF TIME DURING THE PAST
ADDRESS TRUST SERVED FIVE YEARS
----------------------------------------------------------------------------------------------------------------
Interested Trustees *
---------------------
Chi-Chu Chen (60) Trustee and Trustee since Chairman of the Manager since
167 Fuhsing North Road Chairman September 2002 and May 2002;
Taipei, Taiwan, R.O.C. until the 2004 Annual Executive Vice President,
Meeting of International Commercial
Shareholders or the Bank of China, from prior to
special meeting 1998 to May 2002
in lieu thereof; and
Chairman since
September 2002
Michael Ding (45) Trustee and Trustee since 2001 President of the Manager
167 Fuhsing North Road President and until the 2005 since February 2001;
Taipei, Taiwan, R.O.C. Annual Meeting of Senior Vice President of
Shareholders or the Manager from March
the special meeting in 1999 to February 2001;
lieu thereof;and Chief Economist and
President since Head of Research, Citicorp
September 1999 International Securities Ltd.,
Taipei, Taiwan, from prior
to 1998 to 1999
Cheng-Cheng Tung (63) Trustee Trustee since President, United World
167 Fuhsing North Road February 2002 and Chinese Commercial Bank
Taipei, Taiwan, R.O.C. until the 2003 ("UWCCB"), since
Annual Meeting of November 2000;
Shareholders or General Manager, UWCCB,
the special meeting since 1998;
in lieu thereof Executive Vice President,
UWCCB, from prior to
1998 to 2000
----------------------------------------------------------------------------------------------------------------
Non-Interested Trustees
-----------------------
Edward B. Collins (60) Trustee Trustee since 2000 and Managing Director, China
China Vest LLC until the 2003 Annual Vest Group (Venture Capital
160 Sansome Street Meeting of Shareholders Investment), since prior
18th Floor or the special meeting to 1998
San Francisco, California 94104 in lieu thereof
U.S.A.
Alex Hammond-Chambers (60) Trustee Trustee since June 2002 Chairman, Alex Hammond-
29 Rutland Square and until the 2003 Chambers & Company
Edinburgh EH1 2BW Annual Meeting of (Directorial Services),
United Kingdom Shareholders or the since prior to 1998
special meeting
in lieu thereof
----------------------------------------------------------------------------------------------------------------
16
Information Concerning Trustees and Officers
================================================================================
----------------------------------------------------------------------------------------------------------------
POSITION(S) TERM OF OFFICE AND PRINCIPAL OCCUPATION(S)
NAME (AGE) AND HELD WITH THE LENGTH OF TIME DURING THE PAST
ADDRESS TRUST SERVED FIVE YEARS
----------------------------------------------------------------------------------------------------------------
Pedro-Pablo Kuczynski (64) Trustee Trustee from 1989 to Minister of Economy and
2665 S. Bayshore Drive June 2001 and since Finance of Peru from July 2001
Suite 1101 September 2002 and to July 2002;
Coconut Grove, Florida 33153 until the 2005 Annual President and Chief Executive
U.S.A. Meeting of Shareholders Officer, Latin American
or the special meeting Enterprise Fund Managers, LLC,
in lieu thereof since 1998; President and
Chief Executive Officer,
Latin America Enterprise
Capital Corporation, since
prior to 1998; President and
Chief Executive Officer,
Westfield Capital Ltd., since
prior to 1998
David N. Laux (75) Trustee Trustee since 1992 and President, US-Taiwan Business
2560 N. 23rd Road until the 2004 Annual Forum, since 2000;
Arlington, Virginia 22207 Meeting of Shareholders President, US-ROC (Taiwan)
U.S.A. or the special meeting Business Council, from prior
in lieu thereof to 1998 to 2000
Robert P. Parker (61) Trustee Trustee since 1998 and Chairman, Parker Price Venture
44 Montgomery Street until the 2005 Annual Capital, Inc. (formerly known as
Suite 3800 Meeting of Shareholders Allegro Capital, Inc.),
San Francisco, California 94104 or the special meeting since prior to 1998
U.S.A. in lieu thereof
----------------------------------------------------------------------------------------------------------------
Non-Trustee Officer
-------------------
Peggy Chen (40) Secretary, Officer since 2000 Vice President (Finance) of
167 Fuhsing North Road Treasurer the Manager since 2000;
Taipei, Taiwan, R.O.C. and Chief Manager of Finance,
Financial Shin Fu Life Insurance Co.,Ltd.,
Officer from prior to 1998 to 2000
----------------------------------------------------------------------------------------------------------------
* These Trustees are considered to be "interested persons" (as defined in the
Investment Company Act of 1940, as amended) of the Trust. Mr. Chen is deemed
to be an interested person of the Trust because of his affiliation with the
Manager. Mr. Ding is deemed to be an interested person of the Trust because
of his affiliation with the Manager and his position as President of the
Trust. Mr. Tung is deemed to be an interested person of the Trust because of
his affiliation with UWCCB, a shareholder of the Manager.
17
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18
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19
[GRAPHIC OMITTED - LOGO THE R.O.C. TAIWAN FUND]
Annual Report
December 31, 2002
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:
Chi-Chu Chen, Chairman and Trustee
Michael Ding, President and Trustee
Edward B. Collins, Trustee and Audit Committee
Member
Alex Hammond-Chambers, Trustee and Audit
Committee Member
Pedro-Pablo Kuczynski, Trustee and Audit Committee Member
David N. Laux, Trustee and Audit Committee
Member
Robert P. Parker, Trustee and Audit Committee
Member
Cheng-Cheng Tung, Trustee
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:
Equiserve Trust Company, NA
P.O. Box 43011
Providence, RI 02940-3011
U.S.A.
Telephone: 1-800-426-5523
U.S. Administrator:
Citigate Financial Intelligence
62 West 45th Street, 4th Floor
New York, NY 10036
U.S.A.
Telephone: (212) 840-0008
U.S. Legal Counsel:
Paul, Weiss, Rifkind, Wharton & Garrison LLP
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.
ITEM 2. CODE OF ETHICS:
This information is not required to be disclosed as the annual report covered by
this Form N-CSR is for a fiscal year that ended before July 15, 2003.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT:
This information is not required to be disclosed as the annual report covered by
this Form N-CSR is for a fiscal year that ended before July 15, 2003.
ITEM 9. CONTROLS AND PROCEDURES:
This information is not required to be disclosed as this Form N-CSR is being
filed prior to March 31, 2003.
ITEM 10. EXHIBITS
10(a) CODE OF ETHICS:
Not applicable.
10(b) CERTIFICATIONS:
See Exhibit 99.CERT attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
The R.O.C. Taiwan Fund
By: /s/ Michael Ding
------------------------
Name: Michael Ding
Title: President and Chief Executive Officer
Date: March 3, 2003
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/ Michael Ding
------------------------
Name: Michael Ding
Title: President and Chief Executive Officer
By: /s/ Peggy Chen
------------------------
Name: Peggy Chen
Title: Chief Financial Officer
Date: March 3, 2003