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
Taiwan
Greater China Fund
(Exact
name of registrant as specified in charter)
Bank
Tower, Room 1001
205
Dun
Hua North Road
Taipei
105, Taiwan
Republic
of China
(Address
of principal executive offices) (Zip
code)
Brown
Brothers Harriman
40
Water
Street, P. O. 962047,
Boston,
MA 02196-2047
(Name
and
address of agent for service)
Registrant’s
telephone number, including area code: 1-617-742-1818
Date
of
fiscal year end: December
31
Date
of
reporting period: December
31, 2006
TAIWAN
GREATER CHINA FUND
|
www.taiwangreaterchinafund.com
|
Taiwan
Office:
|
Room
1001, 205 DunHua North Road
Taipei,
Taiwan, Republic of China
Tel:
886-2-2715-2988
Fax:
886-2-2715-3166
|
Officers
and Trustees:
David
N. Laux, Chairman and Trustee
Frederick
C. Copeland Jr., Vice Chairman and Trustee
Steven
R. Champion, President, Chief Executive
Officer
and Portfolio Manager
Tsung-Ming
Chung, Trustee and Audit Committee
Member
Edward
B. Collins, Trustee and Audit Committee
Member
Pedro-Pablo
Kuczynski, Trustee
Robert
P. Parker, Trustee and Audit Committee
Member
Cheryl
Chang, Chief Financial Officer,
Treasurer
and
Secretary
|
Administrator
& Custodian:
Brown
Brothers Harriman & Co.
40
Water Street
Boston,
MA 02109
U.S.A.
Tel:
(617) 742-1818
|
Transfer
Agent,
Paying
and Plan Agent:
American
Stock Transfer & Trust Company
59
Maiden Lane - Plaza Level
New
York, NY 10038
U.S.A.
Telephone:
1-866-624-4110
|
Investor
Relations & Communications:
The
Altman Group, Inc.
60
East 42nd Street, Suite 405
New
York, NY 10165
Telephone:
(212) 681-9600
|
U.S.
Legal Counsel:
Clifford
Chance U.S. LLP
31
West 52nd Street
New
York, NY 10019-6131
U.S.A.
Tel:
(212) 878-8000
|
For
information on the Fund, including the NAV, please
call toll free 1-800-343-9567.
|
The
rally
which began in mid-July extended through year-end 2006 with the Taiwan Stock
Exchange index (TAIEX) rising 25.5% in local currency terms during this period.
For the full year, the TAIEX rose a healthy 18.7% in NT$ terms, but did not
match the extremely robust performance levels of some emerging markets, such
as
Brazil (32.9%), Russia (71.4%), India (48.8%), and China (135.4%). The New
Taiwan dollar appreciated 0.8% against the U.S. dollar during the
year.
Fund
Performance
The
US$
total returns for the fund’s benchmark indexes were very positive for the year,
with the Taiwan China Strategy index* returning 20.3% to investors; the MSCI
Taiwan index returning 20.0%, and the TAIEX returning 25.4%. The Fund’s stock
price rose 24.7% and its net asset value increased 20.4% during the
corresponding period. Net asset value total returns for the Fund are net
of
expenses of 2.55%, tax on cash dividends of 0.71%, and tax on stock dividends
of
0.14%. It should be noted that TAIEX’s total returns for 2006 were bolstered by
strong gains in domestic, non-technology companies, which are outside the
scope
of the Fund’s investment strategy. Additionally, the TAIEX does not publish
returns that are net of taxes, while the Fund’s net asset value, MSCI Taiwan and
the Taiwan China Strategy indices are all net of applicable withholding
taxes.
The
Fund’s discount to net asset value averaged 7.3% for the year compared to 7.6%,
10.0%, 11.4% and 15.0% for the four previous years, respectively. The lowest
closing discount for the year was 1.6% on February 1, and the highest closing
discount was 11.2% on September 19.
The
Fund’s mean and median trading volumes for the year were 32,486 shares and
22,200 shares respectively, slightly higher than the 30,231 shares and 16,400
shares, respectively, in 2005.
The
Fund’s net asset value performance remains highly correlated with the
performance of both TAIEX and the MSCI Taiwan index with R2
of 0.91
and 0.96, respectively, since the inception of its China-focused strategy
in
early 2004.** The Fund’s beta relative to the TAIEX is 1.09, and it is 0.99
relative to the MSCI Taiwan. The Fund continues to produce attractive alphas,
defined as excess returns which cannot be explained by the risk level, of
0.07
per week against the TAIEX and 0.09 per week against the MSCI Taiwan
index.
Performance
Attribution
In
May of
2006, the Fund contracted with MSCI Barra*** to provide attribution data
from
their Aegis Performance Analyst model. The attribution model compares the
NT$
returns of the MSCI Taiwan Index with the NT$ returns of the Fund’s
portfolio.
For
the
12 months ending December 31, 2006, the NT$ gross return for the MSCI Taiwan
index in the Aegis model was 20.93% while the portfolio only return for the
Fund
in the model was 23.63%. This implies that 2.70 percentage points of the
return
can be attributed to the active management of the Fund. Sector selection
contributed about 50% of that active return of the fund during the year.
Looking
at attribution over a longer period of time, from the end of February 2004
when
the Fund implemented its current strategy, sector selection has contributed
about 40% of active returns.
Style
factors were also major contributors to active return during 2006, providing
approximately 47% of active return. Aegis considers 10 style factors such
as
momentum, size, growth, yield, value, etc. Within total style factors, momentum
was the greatest contributor with size being a close second. Since inception,
style factors have been less of a feature of active return, contributing
only
about 24% but momentum and size were again the main individual contributors.
In
2006, asset selection was a lesser determinate of active returns, contributing
only about 3% of total active returns. However, over the longer period of
time,
asset selection has contributed about 36% of total active returns in excess
of
the MSCI Taiwan Index.
Portfolio
Valuation Measures
As
the
Taiwan market has risen, valuations within the portfolio have become richer,
but
remain relatively low for a high-growth and technology dominated fund. As
of
year-end, the Fund’s portfolio was composed of companies with a weighted average
price-earnings ratio of 18.9, a weighted average price-book ratio of 4.3,
a
weighted average dividend yield of 3.2%, and a weighted average return on
equity
of 21.2%.
Taiwan’s
Economy
Taiwan’s
economy had a strong year in 2006, with the Taiwan Research Institute estimating
that GDP growth will come in for the year at 4.4%. Taiwan also reported a
2006
trade surplus of US$21.3 billion, a three year high and the third largest
surplus since 1991. Despite the lack of formal diplomatic ties or direct
transportation links, Taiwan’s annual trade with China rose by 18% to US$108
billion, according to Chinese government sources. Exports to China grew 16.6%
to
US$87.1 billion while imports from China of US$20.7 billion were up 25.3%
from
2005. Taiwan’s exports to China accounted for slightly over 28% of the country’s
total exports. Additionally, during 2006 the Taiwan government approved 1,090
China-bound investment projects for an aggregate of US$7.6 billion. This
represented a 27.2% increase over 2005.
Taiwan
China Relations
Taiwan
and China took significant steps toward improving cross-strait relations
during
the year. In June, an agreement was signed to allow as many as 168 non-stop
charter flights annually during four major public holidays. This extends
arrangements made in each of the last two years for such flights during Chinese
New Year. Direct cargo charter flights will also be allowed for the first
time
but are limited to carrying equipment and components for use by Taiwanese
factories in China. While a formal agreement is not expected until the first
quarter of 2007, Taiwan and China have also been in extensive discussions
on
allowing up to 30,000 tourists to visit Taiwan monthly. In anticipation of
that
agreement, Taiwan announced that it would allow limited trading of the
renminbi
on
a
trial basis to serve the needs of those tourists.
Taiwan
also liberalized its China investment policy in regard to semiconductors
as
China is a key global market in that industry. In late April, the government
allowed the packaging and test industry to make investments in their core
business in China. Then in December, it approved the use of 0.18 micron
technology in China, an improvement of one generation, as well as approving
two
long standing applications to construct fabs in China. There also has been
much
discussion on changing the limits on overall investment in China by Taiwan
companies, but the government is still holding to its current policy which
is
based on a formula allowing investment of approximately 20% up to 40% of
capital, depending on the size of company.
Share
Repurchase
The
Fund
announced on January 3, 2007 that it had completed the repurchase of shares
in
connection with the semi-annual repurchase offer which expired on December
15,
2006. The repurchase price per share was $7.06 (100% of the net asset value
per
share as determined at the close of regular trading on the Taiwan Stock Exchange
on December 29, 2006, to which a 2% repurchase fee was applied, such that
the
net amount paid was $6.92 per share). Approximately 61.5% of the Fund’s
16,881,479 outstanding shares of common stock on December 15, 2006 were
submitted for repurchase with approximately 8.1% of those shares repurchased
by
the Fund.
Expansion
of Investment Strategy and Policy
During
the fourth quarter, the Fund purchased shares in Taiwan-related companies
listed
on the Hong Kong Stock Exchange. Due to restrictions on the level of investment
in mainland China imposed on Taiwan incorporated companies, some Taiwan
businesses have spun-off their China operations to separate entities and
listed
them in Hong Kong. Polaris Securities and Standard & Poors have created the
Hong Kong Listed Taiwan Company index (POLHK) to track this segment of the
market. During the quarter, we added Hong Kong-listed Yue Yuen Industrial
Holdings, Foxconn International, and Tingyi Holdings to the portfolio, and
we
believe these additions improve the risk-return characteristics of the
Fund.
Also
during the fourth quarter, the Fund’s share- holders approved a fundamental
investment policy to allow the Fund to engage in securities lending
transactions. We expect to commence such transactions in the first quarter
of
2007 and expect them to enhance shareholder value.
We
continue to believe that the Fund offers a smart way to invest in China’s
booming economy. The superior risk control mechanisms governing the operations
and trading of Taiwan-listed companies along with the ability of Taiwan
businessmen to adapt to the Chinese market offer investors an attractive
alternative for exposure to this dynamic market.
Yours
truly,
/s/
Steven R. Champion
Steven
R.
Champion
President,
CEO and Portfolio Manager
January
23, 2007
* Source:
MSCI. This information is for internal use only and may not be redistributed
or
used in connection with creating or offering any securities, financial products
or indices. Neither MSCI nor any other third party involved in or related
to
compiling, computing or creating the MSCI data (the “MSCI Parties”) makes any
express or implied warranties or representations with respect to such data
(or
the results to be obtained by the use thereof), and the MSCI Parties hereby
expressly disclaim all warranties of originality, accuracy, completeness,
merchantability or fitness for a particular purpose with respect to such
data.
Without limiting any of the foregoing, in no event shall any of the MSCI
Parties
have any liability for any direct, indirect, special, punitive, consequential
or
any other damages (including lost profits) even if notified of the possibility
of such damages.
The
Taiwan China Strategy Index is a custom index calculated by MSCI for, and
as
requested by, Taiwan Greater China Fund. To calculate this Index MSCI starts
with the MSCI Taiwan Index and then excludes those securities selected by
Taiwan
Greater China Fund on a quarterly basis based on Taiwan Greater China Fund’s
screening criteria. MSCI has no role in developing, reviewing or approving
Taiwan Greater China Fund’s investing criteria or the list of companies excluded
from the MSCI Taiwan Index by Taiwan Greater China Fund to create the Taiwan
China Strategy Index.
** R2
is a
measure of the correlation between the dependent and independent variables
in a
regression analysis. In this report, it measures the extent to which the
Fund’s
movements can be explained by movements in a benchmark index. The measurement
ranges from 0 to 1, where 1 indicates that all movements of the Fund can
be
explained by movements in the index.
*** Barra,
Inc. analytics and data (www.barra.com)
were
used in the preparation of this report. Copyright 2005 BARRA, INC. All rights
reserved. This information may only be used for your internal use and may
not be
reproduced or redisseminated in any form. This information is provided on
an “as
is” basis and the use of this information assumes the entire risk of any use
it
may make or permit to be made of this information. Neither Barra, any of
its
affiliates or any other person involved in or related to compiling, computing
or
creating this information makes any express or implied warranties or
representations with respect to such information or the results to be obtained
by the use thereof, and Barra, its affiliates and each such other person
hereby
expressly disclaim all warranties (including, without limitation, all warranties
of originality, accuracy, completeness, timeliness, non-infringement,
merchantability and fitness for a particular purpose) with respect to this
information. Without limiting any of the foregoing, in no event shall Barra,
any
of its affiliates or any other person involved in or related to compiling,
computing or creating this information have any liability for any direct,
indirect, special, incidental, punitive, consequential or any other damages
(including, without limitation, lost profits) even if notified of, or if
it
might otherwise have anticipated, the possibility of such damages.
TAIWAN
GREATER CHINA FUND
|
PORTFOLIO
HIGHLIGHTS
|
SCHEDULE
OF INVESTMENTS BY INDUSTRY AS OF DECEMBER 31, 2006
|
|
Industry
Diversification
|
|
Industry
|
|
U.S.
$ Value
|
|
Percent
of
Net
Assets
|
|
Computer
Systems & Hardware
|
|
|
22,984,197
|
|
20.27
|
%
|
Electronic
Components
|
|
|
20,456,738
|
|
18.04
|
|
Semiconductors
|
|
|
18,916,849
|
|
16.68
|
|
Plastics
|
|
|
10,644,237
|
|
9.39
|
|
Steel
|
|
|
8,362,940
|
|
7.38
|
|
Computer
Peripherals/ODM
|
|
|
8,212,734
|
|
7.24
|
|
Flat-Panel
Displays
|
|
|
6,975,487
|
|
6.15
|
|
Other
|
|
|
6,553,756
|
|
5.78
|
|
Food
|
|
|
4,145,592
|
|
3.66
|
|
Cement
|
|
|
3,366,929
|
|
2.97
|
|
Electrical
& Machinery
|
|
|
2,476,357
|
|
2.18
|
|
Rubber
|
|
|
1,427,072
|
|
1.26
|
|
Chemicals
|
|
|
1,192,642
|
|
1.05
|
|
Textiles
|
|
|
1,189,044
|
|
1.05
|
|
Glass,
Paper & Pulp
|
|
|
1,175,672
|
|
1.04
|
|
Transportation
|
|
|
841,021
|
|
0.74
|
|
Retailing
|
|
|
467,360
|
|
0.41
|
|
Communications
Equipment
|
|
|
322,057
|
|
0.28
|
|
Short
Term Securities
|
|
|
49,169
|
|
0.04
|
|
Liabilities,
Net of Other Assets
|
|
|
(6,368,588)
|
|
(5.61)
|
|
Net
Assets
|
|
$
|
113,391,265
|
|
100.00
|
|
|
Schedule
of Investments / December 31, 2006
|
COMMON
STOCK —
105.57%
|
|
%
of
|
U.S.
Dollar
|
Cement
— 2.97%
|
Net
Assets
|
Value
|
1,544,960
|
shs.
|
Asia
Cement Corp.
|
1.30
|
|
$1,469,765
|
2,099,185
|
|
Taiwan
Cement Corp.
|
1.67
|
|
1,897,164
|
|
3,366,929
|
Chemicals
— 1.05%
|
771,100
|
|
Eternal
Chemical Co., Ltd.
|
1.05
|
|
1,192,642
|
|
Communications
Equipment — 0.28%
|
245,774
|
|
D-Link
Corp.
|
0.28
|
|
322,057
|
|
Computer
Peripherals/ODM — 7.24%
|
1,946,337
|
*
|
BenQ
Corp.
|
0.92
|
|
1,042,275
|
384,000
|
*
|
Foxconn
International Holdings, Ltd.
|
1.11
|
|
1,264,173
|
97,680
|
|
High
Tech Computer Corp.
|
1.71
|
|
1,933,456
|
1,976,119
|
|
Lite-on
Technology Corp.
|
2.35
|
|
2,671,333
|
1,076,411
|
|
Mitac
International Corp.
|
1.15
|
|
1,301,497
|
|
8,212,734
|
Computer
Systems & Hardware —
20.27%
|
671,325
|
|
Acer
Inc.
|
1.24
|
|
1,400,911
|
99,528
|
|
Advantech
Co., Ltd.
|
0.32
|
|
357,355
|
2,122,060
|
|
Asustek
Computer Inc.
|
5.12
|
|
5,808,867
|
756,496
|
|
Compal
Electronics Inc.
|
0.59
|
|
674,407
|
1,807,291
|
|
Hon
Hai Precision Industry Co., Ltd.
|
11.37
|
|
12,894,960
|
727,013
|
|
Quanta
Computer Inc.
|
1.16
|
|
1,318,556
|
1,181,000
|
*
|
Tatung
Co., Ltd.
|
0.47
|
|
529,141
|
|
22,984,197
|
Electrical
& Machinery — 2.18%
|
610,000
|
|
Fu
Sheng Industrial Co., Ltd.
|
0.52
|
|
597,158
|
621,000
|
|
Teco
Electric & Machinery Co., Ltd.
|
0.28
|
|
316,351
|
2,926,837
|
*
|
Walsin
Lihwa Corp.
|
1.38
|
|
1,562,848
|
|
2,476,357
|
Electronic
Components — 18.04%
|
159,000
|
|
A-DATA
Technology Co., Ltd.
|
0.64
|
|
724,590
|
330,641
|
|
Catcher
Technology Co., Ltd.
|
2.85
|
|
3,231,730
|
221,513
|
|
Cheng
Uei Precision Industry Co., Ltd.
|
0.70
|
|
791,943
|
1,508,186
|
|
Delta
Electronics Inc.
|
4.28
|
|
4,859,741
|
535,690
|
|
Foxconn
Technology Co., Ltd.
|
5.66
|
|
6,419,534
|
31,993
|
|
Largan
Precision Co., Ltd.
|
0.54
|
|
618,535
|
94,079
|
|
Merry
Electronics Co., Ltd.
|
0.23
|
|
256,952
|
20,178
|
|
Motech
Industry Co., Ltd.
|
0.22
|
|
248,928
|
101,000
|
|
Nan
Ya Printed Circuit Board Corp.
|
0.61
|
|
697,385
|
119,000
|
|
Shin
Zu Shing Co., Ltd.
|
0.72
|
|
812,542
|
963,000
|
|
Wintek
Corp.
|
0.81
|
|
914,652
|
1,887,000
|
*
|
Yageo
Corp.
|
0.78
|
|
880,206
|
|
20,456,738
|
Flat-Panel
Displays — 6.15%
|
3,330,148
|
|
AU
Optronics Corp.
|
4.08
|
|
4,629,464
|
1,245,177
|
|
Chi
Mei Optoelectronics Corp.
|
1.11
|
|
1,260,997
|
5,050,951
|
*
|
Chunghwa
Picture Tubes, Ltd.
|
0.96
|
|
1,085,026
|
|
6,975,487
|
Food
— 3.66%
|
|
|
1,408,000
|
shs.
|
Tingyi
(Cayman Islands) Holdings Corp.
|
1.22
|
|
$1,377,916
|
2,775,000
|
|
Uni-President
Enterprise Corp.
|
2.44
|
|
2,767,676
|
|
4,145,592
|
Glass,
Paper & Pulp — 1.04%
|
697,154
|
|
Taiwan
Glass Ind. Corp.
|
0.53
|
|
594,761
|
1,333,067
|
|
Yuen
Foong Yu Paper Manufacturing Co., Ltd.
|
0.51
|
|
580,911
|
|
1,175,672
|
Plastics
— 9.39%
|
1,574,299
|
|
Formosa
Chemicals & Fiber Corp.
|
2.32
|
|
2,633,011
|
1,270,983
|
|
Formosa
Plastics Corp.
|
1.86
|
|
2,110,114
|
3,541,319
|
|
Nan
Ya Plastics Corp.
|
5.21
|
|
5,901,112
|
|
10,644,237
|
Retailing
— 0.41%
|
193,512
|
|
President
Chain Store Corp.
|
0.41
|
|
467,360
|
|
Rubber
— 1.26%
|
1,441,940
|
|
Cheng
Shin Rubber Ind. Co., Ltd.
|
1.26
|
|
1,427,072
|
|
Semiconductors
—
16.68%
|
1,815,304
|
*
|
Advanced
Semiconductor Engineering Inc.
|
1.82
|
|
2,061,200
|
235,400
|
|
MediaTek
Inc.
|
2.15
|
|
2,434,475
|
138,743
|
|
Novatek
Microelectronics Corp.
|
0.55
|
|
628,018
|
754,318
|
|
Powerchip
Semiconductor Corp.
|
0.45
|
|
509,268
|
360,000
|
|
Realtek
Semiconductor Corp.
|
0.55
|
|
619,775
|
665,332
|
|
Siliconware
Precision Industries Co., Ltd.
|
0.92
|
|
1,045,388
|
4,156,746
|
|
Taiwan
Semiconductor Manufacturing Co., Ltd.
|
7.59
|
|
8,610,457
|
4,840,861
|
|
United
Microelectronics Corp.
|
2.65
|
|
3,008,268
|
|
18,916,849
|
Steel
— 7.38%
|
7,876,149
|
|
China
Steel Corp.
|
7.38
|
|
8,362,940
|
|
Textiles
— 1.05%
|
1,359,515
|
|
Far
Eastern Textile Ltd.
|
1.05
|
|
1,189,044
|
|
Transportation
— 0.74%
|
250,052
|
*
|
China
Airlines Ltd.
|
0.10
|
|
116,639
|
279,471
|
|
Eva
Airways Corp.
|
0.10
|
|
116,211
|
195,706
|
|
Evergreen
Marine Corp. (Taiwan), Ltd.
|
0.10
|
|
113,210
|
182,000
|
|
U-Ming
Marine Transport Corp.
|
0.22
|
|
248,263
|
200,572
|
|
Wan
Hai Lines Ltd.
|
0.11
|
|
123,103
|
214,227
|
|
Yang
Ming Marine Transport Corp.
|
0.11
|
|
123,595
|
|
841,021
|
Other
— 5.78%
|
370,000
|
|
Giant
Manufacturing Co., Ltd.
|
0.53
|
|
607,470
|
317,275
|
|
Johnson
Health Tech Co., Ltd.
|
2.05
|
|
2,327,034
|
316,000
|
|
Merida
Industry Co., Ltd.
|
0.31
|
|
351,046
|
312,519
|
|
Nien
Made Enterprise Co., Ltd.
|
0.28
|
|
316,490
|
1,785,345
|
|
Pou
Chen Corp.
|
1.79
|
|
2,027,182
|
193,000
|
|
Yue
Yuen Industrial Holdings, Ltd.
|
0.54
|
|
610,559
|
168,000
|
|
Yung
Chi Paint & Varnish Manufacturing Co., Ltd.
|
0.28
|
|
313,975
|
|
6,553,756
|
|
TOTAL
COMMON STOCK (COST $92,756,953)
|
119,710,684
|
|
SHORT-TERM
SECURITIES —
0.04%
|
Time
Deposit —
0.04%
|
Brown
Brothers Harriman—Cayman,
4.65%, Due 01/02/07
|
0.04
|
|
$49,169
|
|
TOTAL
INVESTMENTS IN SECURITIES AT FAIR VALUE
|
105.61
|
|
119,759,853
|
(COST
$92,806,122)
|
|
LIABILITIES
(NET OF OTHER ASSETS )
|
(5.61)
|
|
(6,368,588)
|
|
NET
ASSETS
|
100.00
|
|
$113,391,265
|
|
|
|
|
*
Non-income producing: These stocks did not pay a cash dividend
during the
past year.
|
|
|
TAIWAN
GREATER CHINA FUND
|
Statement
of Assets and Liabilities
|
December
31, 2006 (Expressed in U.S. Dollars)
|
Assets
|
|
|
|
Investments
in securities at fair value (Notes 2B, 2C, 3 and 6):
|
|
|
|
Common
Stock (cost — $92,756,953)
|
|
$
|
119,710,684
|
Short-term
securities (cost — $49,169)
|
|
|
49,169
|
Total
investment in securities at fair value (cost —
$92,806,122)
|
|
|
119,759,853
|
|
|
|
|
Cash
|
|
|
195
|
Foreign
cash (cost — $86,148)
|
|
|
86,148
|
Office
equipment (Note 2D)
|
|
|
18,257
|
Prepaid
expenses and other assets
|
|
|
99,147
|
Total
assets
|
|
|
119,963,600
|
Liabilities
|
|
|
|
Payable
for fund shares repurchased
|
|
|
5,840,985
|
Accrued
employee salaries and bonus
|
|
|
417,297
|
Professional
fees payable
|
|
|
115,440
|
Shareholder
communication fees payable
|
|
|
76,670
|
Administration
fee payable (Note 4)
|
|
|
59,330
|
Custodian
fee payable (Note 5)
|
|
|
28,326
|
Trustee
fees and expense payable
|
|
|
21,500
|
Other
accrued expenses
|
|
|
12,787
|
Total
liabilities
|
|
|
6,572,335
|
Net
assets
|
|
$
|
113,391,265
|
Components
of net assets
|
|
|
|
Par
value of shares of beneficial interest (Note 7)
|
|
$
|
160,374
|
Additional
paid-in capital (Note 7)
|
|
|
186,650,748
|
Accumulated
net investment income
|
|
|
48,063,062
|
Accumulated
net realized loss on investments and foreign currency
transactions
|
|
|
(109,667,977)
|
Unrealized
net appreciation on investments (Note 6)
|
|
|
26,953,731
|
Cumulative
translation adjustment (Note 2F)
|
|
|
(38,768,673)
|
Net
assets
|
|
$
|
113,391,265
|
Net
asset value per share (16,037,406 shares issued and outstanding,
par value
$0.01)
|
|
$
|
7.07
|
TAIWAN
GREATER CHINA FUND
|
Statement
of Operations
|
For
the Year Ended December 31, 2006 (Expressed in U.S.
Dollars)
|
|
Investment
income (Note 2C)
|
|
|
Dividends
|
|
$
|
3,872,073
|
Interest
|
|
|
12,225
|
|
|
|
3,884,298
|
Republic
of China taxes (Note 2H)
|
|
|
(918,168)
|
|
|
|
2,966,130
|
Expenses
|
|
|
|
Portfolio
management expenses:
|
|
|
|
Personnel
expenses
|
|
|
1,221,736
|
Research
expenses
|
|
|
171,593
|
Rental
expenses
|
|
|
59,017
|
Travel
expenses
|
|
|
18,996
|
Other
expenses
|
|
|
24,575
|
Shareholder
communication expenses
|
|
|
383,594
|
Custodian
fee (Note 5)
|
|
|
159,586
|
Trustee
fees and expenses
|
|
|
155,137
|
Administrative
fee (Note 4)
|
|
|
126,203
|
Audit
and tax fee
|
|
|
126,122
|
Legal
fees and expenses
|
|
|
119,781
|
Insurance
expenses
|
|
|
79,955
|
Other
expenses
|
|
|
87,236
|
|
|
|
2,733,531
|
Net
investment income
|
|
|
232,599
|
Net
realized and unrealized gain (loss) on investments and foreign
currencies
(Notes 2E and 6)
|
|
|
|
Net
realized gain on:
|
|
|
|
investments
(excluding short-term securities)
|
|
|
5,350,815
|
foreign
currency transactions
|
|
|
104,094
|
Net
realized gain on investments and foreign currency
transactions
|
|
|
5,454,909
|
Net
changes in unrealized appreciation /depreciation on:
|
|
|
|
investments
|
|
|
14,977,468
|
translation
of assets and liabilities in foreign currencies
|
|
|
(607,703)
|
Net
realized and unrealized gain from investments and foreign
currencies
|
|
|
19,824,674
|
Net
increase in net assets resulting from operations
|
|
$
|
20,057,273
|
TAIWAN
GREATER CHINA FUND
|
Statements
of Changes in Net Assets
|
For
the Years Ended December 31, 2006 and 2005 (Expressed in U.S.
Dollars)
|
|
|
|
2006
|
|
2005
|
Net
increase/decrease in net assets resulting from
operations
|
|
|
|
|
|
|
Net
investment income
|
|
$
|
232,599
|
|
$
|
1,064,783
|
Net
realized gain / loss on investments and foreign currency
transactions
|
|
|
5,454,909
|
|
|
(4,290,165)
|
Unrealized
appreciation on investments
|
|
|
14,977,468
|
|
|
17,370,417
|
Unrealized
depreciation on translation of assets and liabilities in
foreign
currencies
|
|
|
(607,703)
|
|
|
(5,120,285)
|
|
|
|
|
|
|
|
Net
increase in net assets resulting from operations
|
|
|
20,057,273
|
|
|
9,024,750
|
|
|
|
|
|
|
|
Capital
share transactions:
|
|
|
|
|
|
|
Cost
of semi-annual repurchase offer (Note 7B)
|
|
|
(11,029,814)
|
|
|
(11,333,291)
|
Cost
of shares repurchased (Note 7A)
|
|
|
—
|
|
|
(9,794,290)
|
Net
capital share transactions
|
|
|
(11,029,814)
|
|
|
(21,127,581)
|
|
|
|
|
|
|
|
Net
assets, beginning of year
|
|
|
104,363,806
|
|
|
116,466,637
|
|
|
|
|
|
|
|
Net
assets, end of year
|
|
$
|
113,391,265
|
|
$
|
104,363,806
|
|
Financial
Highlights
|
(Expressed
in U.S. Dollars)
|
|
|
Years
Ended December 31,
|
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
2002
|
Per
share operating performance:
|
|
|
|
|
|
|
|
|
|
|
Net
asset value, beginning of year
|
|
5.87
|
|
5.37
|
|
5.13
|
|
4.37
|
|
5.40
|
Net
investment income (loss)
|
|
0.01
|
|
0.05
|
|
(0.01)
|
|
(0.02)
|
|
(0.06)
|
Net
realized and unrealized gain / loss on investments (a)
|
|
1.21
|
|
0.65
|
|
(0.24)
|
|
0.73
|
|
(1.02)
|
Net
realized and unrealized appreciation / depreciation on translation
of
foreign currencies (a)
|
|
(0.03)
|
|
(0.25)
|
|
0.26
|
|
0.11
|
|
0.05
|
Total
from investment operations
|
|
1.19
|
|
0.45
|
|
0.01
|
|
0.82
|
|
(1.03)
|
Distributions
to Shareholders from:
|
|
|
|
|
|
|
|
|
|
|
Net
investment income*
|
|
—
|
|
—
|
|
(0.01)
|
|
(0.06)
|
|
—
|
Capital
Stock Transactions:
|
|
|
|
|
|
|
|
|
|
|
Share
Tender Offer/Repurchase
|
|
0.01
|
|
0.05
|
|
0.24
|
|
—
|
|
—
|
Net
asset value, end of year
|
|
7.07
|
|
5.87
|
|
5.37
|
|
5.13
|
|
4.37
|
Per
share market price, end of year
|
|
6.61
|
|
5.30
|
|
4.90
|
|
4.75
|
|
4.05
|
Total
investment return (%):
|
|
|
|
|
|
|
|
|
|
|
Based
on Trust’s market price
|
|
24.72
|
|
8.16
|
|
3.42
|
|
18.79
|
|
(14.74)
|
Based
on Trust’s net asset value
|
|
20.44
|
|
9.31
|
|
4.94
|
|
18.75
|
|
(19.07)
|
U.S.
$ return of Taiwan Stock Exchange Index**
|
|
20.35
|
|
3.03
|
|
11.69
|
|
35.32
|
|
(19.03)
|
Ratios
and supplemental data:
|
|
|
|
|
|
|
|
|
|
|
Net
assets, end of year (in thousands)
|
|
113,391
|
|
104,364
|
|
116,467
|
|
167,801
|
|
142,936
|
Ratio
of expenses to average net assets (%)
|
|
2.55
|
|
2.12
|
|
2.79
|
|
2.57
|
|
2.19
|
Ratio
of net investment income (loss) to average net
assets
(%)
|
|
0.22
|
|
0.99
|
|
(0.27)
|
|
(0.44)
|
|
(1.23)
|
Portfolio
turnover ratio (%)
|
|
24
|
|
16
|
|
137
|
|
78
|
|
107
|
(a) Cumulative
effect of change in accounting principle resulted in a $0.06 reduction in
realized gain/loss on investments and foreign currency transactions and a
$0.06
increase in unrealized appreciation/depreciation on investments and foreign
currency translation during 2004.
* See
Note
2G for information concerning the Trust’s distribution policy.
** Returns
for the Taiwan Stock Exchange Index are not total returns and reflect only
changes in share price, but do not assume that cash dividends were reinvested.
The Taiwan Stock Exchange Index is calculated by The Taiwan Stock Exchange
Corp.
TAIWAN
GREATER CHINA FUND
Notes
to Financial Statements / December 31, 2006 (Expressed in U.S. Dollars)
Note
1 — Organization and Acquisition of The Taiwan (R.O.C.)
Fund
The
Taiwan Greater China Fund (the “Fund” or the “Trust”, formerly known as The
R.O.C. Taiwan Fund) 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 changed its name from The R.O.C. Taiwan Fund to the Taiwan
Greater China Fund on December 29, 2003. The change took effect on the New
York
Stock Exchange on January 2, 2004.
The
Trust
was formed in connection with the reorganization (the “Reorganization”) of The
Taiwan (R.O.C.) Fund. The Taiwan (R.O.C.) Fund, which commenced operations
in
October 1983, was established under the laws of the Republic of China as
an
open-end contractual investment fund pursuant to an investment contract between
International Investment Trust Company Limited and the 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
Taiwan (R.O.C.) Fund. On February 23, 2004, the investment contract was
terminated and substantially all of the assets held in The Taiwan (R.O.C.)
Fund
were transferred to the direct account of the Trust. The Trust thereupon
converted to internal management and now directly invests in Taiwan as a
Foreign
Institutional Investor (“FINI”). The Taiwan (R.O.C.) Fund was subsequently
liquidated.
As
required by the Trust’s Declaration of Trust, if the Trust’s shares trade on the
market at an average discount to net asset value per share (“NAV”) of more than
10% in any consecutive 12-week period, 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. During the year ended December 31, 2006, the Trust’s shares did
not trade at an average discount to NAV in any consecutive 12-week period
or
more than 10%.
At
the
Annual Meeting of Shareholders held June 21, 2005, the shareholders approved
the
adoption by the Trust of an interval fund structure. The Trust now makes
semi-annual repurchase offers with respect to its shares (see Note
7B).
On
October 31, 2006, the Board of Trustees voted to abrogate the Fund’s policy
requiring the Republic of China Securities and Exchange Commission’s (the “ROC
FSC”) consent to change certain policies of the Fund.
Note
2 — Summary of Significant Accounting Policies
A
—
Basis
of presentation — The accompanying financial statements of the Trust have been
prepared in accordance with U.S. generally accepted accounting
principles.
B
—
Valuation of investments — Common stocks represent securities that are traded on
the Taiwan Stock Exchange or the Taiwan over-the-counter market or Hong Kong
Stock Exchange. Securities traded on a principal securities exchange are
valued
at the closing price on such exchange. Short-term investments are valued
at
amortized cost, which approximates fair 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. Securities for
which
market quotations are not readily available or if a development/event occurs
that may significantly impact the value of a security, may be fair-valued
in
good faith pursuant to procedures established by the Board of
Trustees.
The
Fund
may lend portfolio securities up to 33 1/3% of the market value of the Fund’s
assets to qualified broker-dealers or institutional investors. All loans
of
portfolio securities are required to be secured by cash, U.S. government
or
government agency securities, bank letters of credit, in each case in an
amount
equal, at the inception of the loan and continuing throughout the life of
loan,
to 105% of the market value of securities lent, which are marked to market
daily. The Fund receives compensation for securities lending activities from
interest earned on the invested cash collateral or by loaning the securities
for
a fee. On January 23, 2007, the Fund entered into a securities lending agency
agreement with UBS Securities LLC, a wholly owned indirect subsidiary of
UBS AG.
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 an
accrual basis as it is earned.
D
—
Office
equipment — Office equipment is stated at cost less accumulated depreciation.
Depreciation is applied from the month such assets were placed into service,
using the straight-line method over the respective useful lives of such
assets.
E
—
Realized gains and losses — For U.S. federal income tax purposes and financial
reporting purposes, realized gains and losses on securities transactions
are
determined using the first-in, first-out method and the specific identification
method, respectively. For the fiscal year ended December 31, 2006, the Trust
utilized $3,573,582 of capital loss carryover with a total loss carryover
of
$109,667,977 remaining. This capital loss carryover may be used to offset
any
future capital gains generated by the Trust, and, if unused, $77,665,606
of such
loss will expire on December 31, 2009, $16,589,494 of such loss will expire
on
December 31, 2010, $11,721,463 of such loss will expire on December 31, 2011
and
$3,691,414 of such loss will expire on December 31, 2013.
In
accordance with federal income tax regulations, the Trust expects to elect
to
defer passive foreign investment company losses of $379,346 realized on
investment transactions from November 1, 2006 through December 31, 2006 and
treat them as arising during the fiscal year ending December 31, 2007 for
U.S.
federal income tax purposes.
F
—
Foreign
currency translation — Substantially all of the Trust’s income is earned, and
its expenses are partially paid, in New Taiwan Dollars (“NT$”). The cost and
market value of securities, currency holdings, and other assets and liabilities
that are denominated in NT$ are reported in the accompanying financial
statements after translation into United States Dollars based on the closing
market rate for United States Dollars in Taiwan at the end of the year. At
December 31, 2006, that rate was NT$32.586 to $1.00. Investment income and
expenses are translated at the 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.
G
—
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
U.S.
generally accepted accounting principles. In order to reconcile such
differences, accumulated net investment income was increased by $7,169,841,
accumulated net realized loss on investments was increased by $391,407, and
additional paid in capital was decreased by $6,778,434 to reflect the impact
of
such differences in accordance with U.S. generally accepted accounting
principles. Permanent book to 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. Temporary book to tax differences are primarily due
to
differing treatments for certain foreign currency losses.
As
of
December 31, 2006, the components of distributable earnings / (accumulated
losses) on a tax basis were as follows:
Undistributed
net investment income
|
|
$
|
—
|
|
Accumulated
capital and other losses
|
|
|
(109,667,977)
|
|
Unrealized
appreciation (depreciation)
|
|
|
25,126,887
|
|
|
|
$
|
(84,541,090
)
|
|
H
—
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 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, 2006, total par value
of
stock dividends received was $769,583.
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 fair value of stocks
sold
or transferred, is levied. Proceeds from sales of investments are net of
securities transaction tax of $124,440 paid for the twelve months ended December
31, 2006.
I—
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 amounts reported in the financial statements,
financial highlights and accompanying notes. Actual results could differ
from
those estimates.
J—
Accounting for Uncertainty in Income Taxes — On July 13, 2006, the
Financial Accounting Standards Board (FASB) released FASB Interpretation
No. 48
“Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48 provides guidance
for how uncertain tax positions should be recognized, measured, presented
and
disclosed in the financial statements. FIN 48 requires the evaluation of
tax
positions taken or expected to be taken in the course of preparing the Trust’s
tax returns to determine whether the tax positions are “more-likely-than-not” of
being sustained by the applicable tax authority. Tax positions not deemed
to
meet the more-likely-than-not threshold would be recorded as a tax benefit
or
expense in the current year. Adoption of FIN 48 is required for fiscal years
beginning after December 15, 2006 and is to be applied to all open tax years
as
of the effective date. The Trust is required to implement FIN 48 no later
than
June 29, 2007. At this time, management is evaluating the implications of
FIN 48
and its impact in the financial statements has not yet been
determined.
K—
Fair
Value Measurements — On September 20, 2006, the FASB released Statement of
Financial Accounting Standards No. 157 “Fair Value Measurements” (“FAS 157”).
FAS 157 establishes an authoritative definition of fair value, sets out a
framework for measuring fair value, and requires additional disclosures about
fair-value measurements. The application of FAS 157 is required for fiscal
years
beginning after November 15, 2007 and interim periods within those fiscal
years.
Management does not believe that the application of this standard will have
a
material impact on the financial statements of the fund.
Note
3 — Investment Considerations
Because
the Trust concentrates its investments in publicly traded equity issued by
R.O.C. corporations, its portfolio involves considerations not typically
associated with investing in U.S. securities. In addition, the Trust is more
susceptible to factors adversely affecting the R.O.C. economy than a fund
not
concentrated in these issuers to the same extent. Since the Trust’s investment
securities are primarily denominated in New Taiwan Dollars, changes in the
relationship of the New Taiwan Dollar to the U.S. Dollar may also significantly
affect the value of the investments and the earnings of the Trust.
Note
4 — Administrative Management
Brown
Brothers Harriman & Co. (“BBH”) provides administrative and accounting
services for the Trust, including maintaining certain books and records of
the
Trust, and preparing certain reports and other documents required by U.S.
federal and/or state laws and regulations. The Trust pays BBH a monthly fee
for
these services at an annual rate of 0.06% of the NAV of the Trust’s assets up to
$200 million, 0.05% of such NAV equal to or in excess of $200 million up
to $400
million and 0.04% of such NAV equal to or in excess of $400 million. The
total
payment to BBH for administrative and custodial services is subject to a
minimum
annual fee of $200,000. Out-of-pocket expenses will be billed at the actual
amount incurred at the time the goods or service is purchased.
Note
5 — Custodian
BBH
serves as custodian of the assets of the Trust. The Trust pays BBH a monthly
fee
for securities in the Taiwan market at an annual rate of 0.15% of the NAV
of the
Trust’s assets up to $200 million, 0.13% of such NAV equal to or in excess of
$200 million up to $400 million and 0.11% of such NAV equal to or in excess
of
$400 million. The Trust pays BBH a monthly fee for securities in the Hong
Kong
market at an annual rate of 0.10% of the Trust’s market value of Hong Kong
holdings. The total payment to BBH for administrative and custodial services
is
subject to a minimum annual fee of $200,000.
Note
6 — Investments in Securities
Purchases
and proceeds from sales of securities, excluding short-term investments,
for the
year ended December 31, 2006, included $25,580,100 for stock purchases and
$41,312,227 for stock sales, respectively.
At
December 31, 2006, the cost of investments, excluding short-term investments,
for U.S. federal income tax purposes was $94,583,797. At December 31, 2006,
the
unrealized appreciation of $25,126,887 for U.S.
federal income tax purposes consisted of $29,601,730 of gross unrealized
appreciation and $4,474,843 of gross unrealized depreciation.
Note
7 — Shares of Beneficial Interest
A
—
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. The Trust has a repurchase program which allows for
the
repurchase of up to 10% of the outstanding shares. The share repurchase program
commenced on November 1, 2004.
In
connection with the share repurchase program referred to above, the Board
of
Trustees authorized management to repurchase Trust shares in one or more
block
transactions provided that no block exceeds 500,000 shares on any day, no
more
than 1,000,000 shares in total are repurchased in block transactions, and
that
such share repurchases are made on the New York Stock Exchange and in compliance
with the safe harbor provided by Rule 10b-18 under the Securities Exchange
Act
of 1934. This does not increase the overall repurchase authorization and
the
Trust will continue to make non-block share repurchases under its share
repurchase program.
During
the year ended December 31, 2005, the Trust repurchased 1,942,600 shares,
including block transactions totaling 1,000,000 shares, at an average price
per
share of $4.99. The weighted average discount per share between the repurchase
cost and the net asset value applicable to such shares at the date of repurchase
was 6.94%.
During
the year ended December 31, 2006, the Trust did not repurchase any shares
under
this program.
B
—
The
Trust
has adopted an interval fund structure pursuant to which it will make
semi-annual repurchase offers of its shares of beneficial interest. The
percentage of outstanding shares of beneficial interest that the Trust can
offer
to repurchase in each repurchase offer will be established by the Trust’s Board
of Trustees shortly before the commencement of each offer, and will be between
5% and 25% of the Trust’s outstanding shares of beneficial interest. If the
repurchase offer is oversubscribed, the Trust may, but is not required to,
repurchase up to an additional 2% of shares outstanding.
In
December 2005, the Trust accepted 1,974,441 shares for payment at a price
of
$5.74 per share in accordance with its semi-annual repurchase offer. Pursuant
to
the semi-annual repurchase offer, the purchase price was equal to 100% of
the
net asset value per share as determined at the close of regular trading on
the
Taiwan Stock Exchange on December 30, 2005, to which a 2% repurchase fee
was
applied. The purchased shares constituted approximately 10% of the Trust’s
previously outstanding shares.
In
June
2006, the Trust accepted 888,498 shares for payment at a price of $5.84 per
share in accordance with its semi-annual repurchase offer. Pursuant to the
semi-annual repurchase offer, the purchase price was equal to 100% of the
net
asset value per share as determined at the close of regular trading on the
Taiwan Stock Exchange on June 30, 2006, to which a 2% repurchase fee was
applied. The purchased shares constituted approximately 5% of the Trust’s
previously outstanding shares.
In
December 2006, the Trust accepted 844,073 shares for payment at a price of
$6.92
per share in accordance with its semi-annual repurchase offer. Pursuant to
the
semi-annual repurchase offer, the purchase price was equal to 100% of the
net
asset value per share as determined at the close of regular trading on the
Taiwan Stock Exchange on December 29, 2006, to which a 2% repurchase fee
was
applied. The purchased shares constituted approximately 5% of the Trust’s
previously outstanding shares.
At
December 31, 2006, 16,037,406 shares were outstanding.
TAIWAN
GREATER CHINA FUND
The
Fund has obtained an agreement letter from the Offshore Funds Centre of United
Kingdom dated January 23, 2007 that its investors do not hold "material
interests" in an offshore fund. Therefore the Fund does not need to seek
distributing fund status.
Steven
R. Champion has been the President, Chief Executive Officer and portfolio
manager of the Trust since February 2004. He was Executive Vice President
of the
Bank of Hawaii from 2001 to 2003 and Chief Investment Officer of Aetna
International from 1997 to 2001. Mr. Champion also previously served as the
portfolio manager of The Taiwan (R.O.C) Fund, predecessor to the Trust, from
1987 to 1989, and President and portfolio manager of the Trust from 1989
to
1992. Other positions he has held include Vice Chairman of the Bank of San
Francisco, Chief International Investment Officer at the Bank of America,
and
Vice President and Country Manager in Taiwan for Continental Illinois National
Bank.
Notice
is hereby given in accordance with Section 23(c) of the Investment Company
Act
of 1940 that from time to time the Fund may purchase shares of its common
stock
in the open market at prevailing market prices.
New
York Stock Exchange Certification
In
2006,
the Trust’s Chief Executive Officer provided to the New York Stock Exchange the
annual CEO certification regarding the Trust’s compliance with the NYSE’s
Corporate Governance listing standards.
Proxy
Voting Policy
The
Trust’s policy with regard to voting stocks held in its portfolio is to vote in
accordance with the recommendations of Institutional Shareholder Services,
Inc.
(“ISS”) unless the Trust’s portfolio manager recommends to the contrary, in
which event the decision as to how to vote will be made by the Executive
Committee of the Trust’s Board of Trustees. A summary of the voting policies
followed by ISS may be found on the Trust’s website,
http://www.taiwangreaterchinafund.com, and a more detailed description of
those
policies is available on the website of the Securities and Exchange Commission
(the “SEC”), http://www.sec.gov. In addition, information regarding how the
Trust voted proxies relating to its portfolio securities during the 12-month
period ended June 30, 2006 is available on or through the Trust’s website and on
the SEC’s website.
Portfolio
Holdings
The
Trust
provides a complete list of its portfolio holdings in its report to shareholders
four times each year, at each quarter end. For the second and fourth quarters,
the list of portfolio holdings appears in the Trust’s semi-annual and annual
reports to shareholders. For the first and third quarters, the list of portfolio
holdings appears in its quarterly reports to shareholders. These reports
are
available on the Trust’s website. The Trust also files the list of portfolio
holdings for the first and third quarters with the SEC on Form N-Q, which
can be
looked up on the SEC’s website at http://www.sec.gov. Form N-Q may also be
reviewed and copied at the SEC’s Public Reference Room in Washington, DC. To
find out more about this public service, call the SEC at 1-800-SEC-0330.
For
additional information regarding the Trust, including additional portfolio
manager commentary and portfolio holdings information as of the end of each
fiscal quarter please visit our website at
http://www.taiwangreaterchinafund.com.
Report
of Independent Registered Public Accounting Firm
The
Board
of Trustees and Shareholders of
Taiwan
Greater China Fund:
We
have
audited the accompanying statement of assets and liabilities of the Taiwan
Greater China Fund (the “Fund”), including the schedule of investments, as of
December 31, 2006, and the related statements of operations for the year
then
ended, the changes in net assets for each of the years in the two-year period
then ended and financial highlights for each of the years in the five-year
period 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
audits.
We
conducted our audits 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. 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 December 31, 2006, by correspondence with the
custodian. 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 audits provide 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 Fund
as
of December 31, 2006, the results of its operations for the year then ended,
the
changes in its net assets for each of the years in the two-year period then
ended, and its financial highlights for each of the years in the five-year
period then ended, in conformity with U.S. generally accepted accounting
principles.
/s/
KPMG
New
York,
New York
February
16, 2007
Information
Concerning Trustees and Officers
Name
(Age) and
Address
|
|
Position(s)
Held
with the
Trust
|
|
Term
of Office and
Length
of Time
Served
|
|
Non-Interested
Trustees
|
|
|
|
|
|
Tsung-Ming
Chung (57)
4F,
No.1, Lane 21, Hsing-Hua Road
Kwei-Shan
Industrial Zone,
Taoyuan,
Taiwan, R.O.C.
|
|
Trustee
and Audit
Committee
Member
|
|
Trustee
since 2006 and until the 2009 Annual Meeting of Shareholder or
the special
meeting in lieu thereof
|
|
|
|
|
|
|
|
Edward
B. Collins (64)
China
Vest Inc.
160
Sansome Street, 18th
Floor,
San Francisco,
California
94104 U.S.A.
|
|
Trustee
and Audit
Committee
Member
|
|
Trustee
since 2000 and until the 2009 Annual Meeting of Shareholders or
the
special meeting in lieu thereof
|
|
Frederick
C. Copeland, Jr. (65)
11
Deer Ridge Road
Avon,
Connecticut 06001
U.S.A
.
|
|
Trustee
and Vice Chairman
|
|
Trustee
since May 2004 and until the 2008 Annual Meeting of Shareholders
or the
special meeting in lieu thereof
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pedro-Pablo
Kuczynski (68)
Chequehuanla
967, San Isidro,
Lima,
Peru.
|
|
Trustee
|
|
Trustee
since 2006 and until the 2007 Annual Meeting of Shareholders or
the
special meeting in lieu thereof;
|
|
David
N. Laux (79)
The
Hampshire, Apt. 701
1101
N. Elm St.
Greensboro,
NC 27401 U.S.A.
|
|
Trustee
and Chairman
|
|
Trustee
since 1992 and until the 2007 Annual Meeting of Shareholders or
the
special meeting in lieu thereof; and Chairman since July
2004
|
|
Robert
P. Parker (65)
101
California Street
Suite
2830 San Francisco,
California
94111
U.S.A.
|
|
Trustee
and Audit
Committee
Member
|
|
Trustee
since 1998 and until the 2008 Annual Meeting of Shareholders or
the
special meeting in lieu thereof; and Chairman from February-July
2004
|
|
Non-Trustee
Officers
|
|
|
|
|
|
Steven
R. Champion (61)
Bank
Tower Room 1001
205
Dun Hua North Road
Taipei,
Taiwan, R.O.C.
|
|
President,
Chief Executive Officer and Portfolio Manager
|
|
Since
February 2004
|
|
Cheryl
Chang (42)
Bank
Tower Room 1001
205
Dun Hua North Road
Taipei,
Taiwan, R.O.C.
|
|
Secretary,
Treasurer and
Chief
Financial Officer
|
|
Since
June 2004
|
|
|
Principal
Occupation(s)
During
the Past
Five
Years
|
|
|
Other
Directorships
Held
by
Director
|
|
|
|
|
|
Chairman
and Chief Executive Officer,
Dynapak
International Technology Corp;
Chairman,
Systems and Chips, Inc.;
Director,
Arima Group (technology)
|
|
Director,
Far Eastern International Bank; Director and Chairman of Audit
Committee,
Taiwan Mobile Co.; Director and Audit Committee Chairman, Semiconductor
Manufacturing International Corporation
|
|
Managing
Director, ChinaVest Group
(venture
capital investment), since prior to 2000
|
|
Chairman
and Director, Medio Stream, Inc.;
Chairman
and Director, Chic Logistics, Ltd.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vice
Chairman of Far East
National
Bank, since 2005;
Principal,
Deer Ridge Associates, LLC
(financial
consulting), since 2001; President, Chief Executive Officer and
Chief
Operating Officer, Aetna International, from prior to 2000 to 2001;
Executive Vice President, Aetna, Inc. from prior to 2000 to
2001
|
|
Far
East National Bank, since September 2004
|
|
Prime
Minister of Peru, from 2005 to 2006; Minister of Economy of Peru
from 2001
to 2002, then again from 2004 to 2005.
|
|
None
|
|
|
|
|
|
President,
US-Taiwan Business Forum, since 2000
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chairman,
Parker Price Venture Capital, Inc.
(formerly
known as Allegro Capital, Inc.), since prior to 2000
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
Vice President, Bank of Hawaii,
2001-2003;
Chief Investment Officer, Aetna International,
from
prior to 2000 to 2001
|
|
None
|
|
|
|
|
|
Senior
Manager, KPMG (Taipei Office),
from
prior to 2000 to 2004; Assurances and
Advisory
Unit of International Practice Group, KPMG (Taipei Office),
2000-2004
|
|
None
|
ITEM
2.
CODE OF ETHICS.
As
of the
end of the period covered by this report, the registrant has adopted a code
of
ethics applicable to its principal executive officer, principal financial
officer, principal accounting officer or controller, or persons performing
similar functions. A copy of this code of ethics is filed as an exhibit to
this
report. No substantive amendments were adopted and no waivers were granted
with
respect to this code of ethics during the period covered by this report.
ITEM
3.
AUDIT COMMITTEE FINANCIAL EXPERT.
The
registrant's Board of Trustees has determined that Tsung-Ming Chung qualifies
as
an audit committee financial expert serving on its audit committee. Mr. Chung
is
independent for purposes of this Item 3.
ITEM
4.
PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a)
AUDIT FEES:
|
|
|
|
|
|
REGISTRANT
|
|
INVESTMENT
ADVISOR
|
FY
2005
|
$67,932
|
|
$0
|
FY
2006
|
$51,345
|
|
$0
|
|
|
|
|
(b)
AUDIT-RELATED FEES:
|
|
|
|
|
|
REGISTRANT
|
|
INVESTMENT
ADVISOR
|
FY
2005
|
$0
|
|
$0
|
FY
2006
|
$0
|
|
$0
|
|
|
|
|
(c)
TAX FEES
|
|
|
|
|
|
REGISTRANT
|
|
INVESTMENT
ADVISOR
|
FY
2005
|
$23,625
|
|
$0
|
FY
2006
|
$3,200
|
|
$0
|
|
|
|
|
NATURE
OF
AUDIT-RELATED FEES: N/A
NATURE
OF
TAX FEES: The fees incurred by the registrant related to the preparation
of the
registrant's federal income and excise tax returns and the provision of tax
advice and planning services.
(d)
ALL OTHER FEES
|
|
|
|
|
|
REGISTRANT
|
|
INVESTMENT
ADVISOR
|
FY
2005
|
$0
|
|
$0
|
FY
2006
|
$0
|
|
$0
|
|
|
|
|
NATURE
OF
ALL OTHER FEES: N/A
(e)(1)
AUDIT COMMITTEE'S PRE-APPROVAL POLICIES AND PROCEDURES
In
accordance with paragraph (c)(7)(i)(A) of Rule 2-01 of Regulation S-X, the
audit
committee of the registrant's board of trustees approves the engagement of
the
registrant's accountants before such accountants are engaged to render audit
or
non-audit services.
(e)(2)
PERCENTAGE OF NON-AUDIT SERVICES APPROVED BY THE AUDIT COMMITTEE
All
services described in each of paragraphs (b) through (d) of this Item 4 were
pre-approved before the engagement by the registrant's audit committee pursuant
to paragraph (c)(7)(i)(A) of Rule 2-01 of Regulation S-X. Consequently, none
of
such services were required to be approved by the audit committee pursuant
to
paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f)
Not
applicable.
(g)
AGGREGATE NON-AUDIT FEES BILLED BY THE REGISTRANT'S PRINCIPAL ACCOUNTANT
FOR
SERVICES RENDERED TO THE REGISTRANT AND THE REGISTRANT'S INVESTMENT
ADVISER:
|
|
|
|
|
|
REGISTRANT
|
|
INVESTMENT
ADVISOR
|
FY
2005
|
$23,625
|
|
$0
|
FY
2006
|
$3,200
|
|
$0
|
|
|
|
|
(h)
Not
applicable.
ITEM
5.
AUDIT COMMITTEE OF LISTED REGISTRANTS.
The
registrant has a separately designated standing audit committee, which was
established in accordance with Section 3(a)(58)(A) of the Securities Exchange
Act of 1934, as amended.
The
members of the registrant's audit committee are: Edward B. Collins, Chairman,
Robert P. Parker, Frederick C. Copeland, Jr. and Tsung-Ming Chung.
ITEM
6. A
Schedule of Investments is included as part of the report to shareholders
filed
under item 1.
ITEM
7.
DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT
INVESTMENT COMPANIES.
The
registrant's policy with regard to voting stocks held in its portfolio is
to
vote in accordance with the recommendations of Institutional Shareholder
Services, Inc. ("ISS") unless the registrant's chief executive officer
recommends to the contrary, in which event the decision as to how to vote
will
be made by the Executive Committee of the registrant's Board of Trustees.
ITEM
8.
Portfolio Managers of Closed-End Management Investment Companies.
8(1)
Steven R. Champion has been President, Chief Executive Officer and portfolio
manager of the Trust since February 2004. He was Executive Vice President
of the
Bank of Hawaii from 2001-2003 and Chief Investment Officer of Aetna
International from 1997-2001. Mr. Champion also previously served as the
portfolio manager of The Taiwan (R.O.C.) Fund, and predecessor to the Trust,
from 1987 to 1989, and President and portfolio manager of the Trust from
1989 to
1992. Other positions he has held include Vice Chairman of the Bank of San
Francisco, Chief International Investment Officer at the Bank of America,
and
Vice President and Country Manager in Taiwan for Continental Illinois National
Bank.
8(2)
Not
applicable
8(3)
As
of December 31, 2006, Mr. Champion received a salary pursuant to an employment
agreement he has entered into with the Fund. The salary is fixed each year
and
may be adjusted from year to year based on the performance of the Fund and
various other quantitative and qualitative factors, as determined by the
Compensation Committee of the Board of Trustees. In addition, Mr. Champion
is
eligible to receive a bonus for the year ended as of December 31, 2006. Such
bonus will be calculated based on the performance of the Fund and various
other
quantitative and qualitative factors, as determined by the Compensation
Committee of the Board of Trustees.
8(4)
As
of December 31, 2006, Mr. Champion beneficially owned shares in the registrant
with a market value between $100,001 - $150,000.
ITEM
9.
PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANIES
AND
AFFILIATED PURCHASERS.
REGISTRANT
PURCHASES OF EQUITY SECURITIES
Period
|
(a)
Total
Number of Shares (or Units) Purchased
|
(b)
Average
Price Paid per Share (or Unit)
|
(c)
Total
Number of Shares (or Units) Purchased as Part of Publicly Announced
Plans
or Programs
|
(d)
Maximum
Number (or Approximate Dollar Value) of Shares (or Units) that
May Yet Be
Purchased Under the Plans or Programs
|
January
1
To
January
31
|
|
|
|
|
February
1
To
February
29
|
|
|
|
|
March
1
to
March
31
|
|
|
|
|
April
1
to
April
30
|
|
|
|
|
May
1
to
May
31
|
|
|
|
|
June
1
to
June
30
|
888,498(1)
|
5.84
|
888,498(1)
|
0(2)
|
July
1
to
July
31
|
|
|
|
|
August
1
to
August
31
|
|
|
|
|
September
1
to
September
30
|
|
|
|
|
October
1
to
October
31
|
|
|
|
|
November
1
to
November
30
|
|
|
|
|
December
1
to
December
31
|
844,073(1)
|
6.92
|
844,073(1)
|
0(2)
|
(1)
Semi-Annual repurchase offer
(2)
The
Fund may repurchase up to 2,179,932 shares under its repurchase program
commenced November 1, 2004. The
repurchase
program does not have an expiration date. As of December 31, 2006, 125,032
shares may be purchased
under
the
repurchase program
ITEM
10.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not
applicable.
ITEM
11.
CONTROLS AND PROCEDURES.
(a)
The
registrant's principal executive officer and principal financial officer
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) are
effective as of a date within 90 days of the filing date of this report based
on
their evaluation of such disclosure controls and procedures as required by
Rule
30a-3(b) under the Investment Company Act of 1940, as amended and Rule 13a-15(b)
under the Securities Exchange Act of 1934, as amended.
(b)
There
were no changes in the registrant's internal controls over financial reporting
(as defined in Rule 30a-3(d) under the Investment Company Act of 1940, as
amended) that occurred during the registrant's second fiscal half-year that
have
materially affected, or are reasonably likely to materially affect, such
internal controls.
ITEM
12.
EXHIBITS.
(a)(1)
CODE OF ETHICS REQUIRED BY ITEM 2 OF FORM N-CSR:
See
Exhibit 99.CodeEth attached hereto.
(a)(2)
CERTIFICATIONS REQUIRED BY RULE 30A-2(A) UNDER THE INVESTMENT COMPANY ACT
OF
1940:
See
Exhibit 99.Cert attached hereto.
(b)
CERTIFICATIONS REQUIRED BY RULE 30A-2(B) UNDER THE INVESTMENT COMPANY ACT
OF
1940 AND RULE 13A-14(B) UNDER THE SECURITIES EXCHANGE ACT OF 1934:
See
Exhibit 99.906Cert attached hereto.