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)
P.O.
Box 118-763 Taipei
Taipei
10599, 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: (800)
343-9567
Date
of
fiscal year end: December
31
Date
of
reporting period:
December 31, 2007
ITEM
1.
REPORTS TO STOCKHOLDERS
Annual
Report
December
31, 2007
Dear
Stockholders
After
rising 26.0% from the beginning of the year to near an eight-year high of 9860
on October 30, the Taiwan Stock Exchange Index (TAIEX) dropped 13.7% from its
peak to close the year at 8506. For the year as a whole the TAIEX on a total
return basis was up 13.0% in US$ terms, a respectable performance, but less
robust than other emerging markets such as: China, as measured by the Shanghai
Composite Index (+111.5%), Brazil (+72.8%), India (+67.1%), Korea (+31.8%)
and
the MSCI Emerging Markets index (+39.4%). The volatility of Taiwan’s stock
market rose sharply during the year with daily volatility of 21.0, as measured
by Bloomberg, compared to 16.4 in 2006 and 12.9 in 2005. The New Taiwan
dollar(NT$) was very stable in 2007, revaluing 0.5% for the year.
Fund
Performance
The
US$ total returns for the Fund’s main benchmark indexes were as follows: the
Taiwan China Strategy Index* returned 14.7% for the year; the MSCI Taiwan Index
returned 8.4%; and, the TAIEX produced total returns of 13.0%. The Fund’s stock
price rose 9.4% during the same period and the net asset value total return
was
13.4%. The net asset value total return for 2007 is net of expenses of 2.3%
and
taxes of 0.7%. The Fund’s net asset value total return was more than double the
6.3% total return produced by the Taiwan iShares. The Fund’s net asset value per
share (“NAV”) is computed daily as of the close of the Taiwan Stock Exchange
(prior to the opening of trading on the New York Stock Exchange) and is posted
on the Fund’s website at www.taiwangreaterchinafund.com.
The
Fund’s discount averaged 9.7% for the year, up from 7.3% in 2006 and 7.6% in
2005, as a general repricing of risk took place in international markets. The
lowest closing discount was 4.0% on January 8, and the highest closing discount
was 15.2% on November 26.
The
Fund’s mean and median daily trading volumes on the New York Stock Exchange
continued to rise during 2007, reaching 42,519 shares and 27,800 shares,
respectively, compared to 32,486 shares and 22,200 shares, respectively, in
2006.
The
Fund’s net asset value performance remains highly correlated with the
performance of both the TAIEX and the MSCI Taiwan indexes with R2‘s**
of 0.95 and 0.96, respectively. The Fund’s betas relative to these two indexes
are 1.02 and 1.00, respectively, indicating a risk level approximately equal
to
that of the Taiwan market as a whole. The Fund continues to produce attractive
alphas, defined as excess returns that cannot be explained by the Fund’s risk
level, of 0.07% per week relative to the TAIEX and 0.05% relative to the MSCI
Taiwan Index.
Management
reviewed certain expenses incurred by independent trustees of the Fund in
connection with their attendance at board meetings. The chairman of the fund
created a special board committee to review these matters with the assistance
of
Fund counsel and an independent accounting firm. As a result of this review,
certain independent trustees reimbursed approximately $1,700 to the
Fund.
Performance
Attribution
In
May of 2006, the Fund contracted with MSCI Barra*** to provide attribution
data
from their Aegis Performance Analyst model. The attribution model compares
the
NT$ returns of the MSCI Taiwan Index with the NT$ returns of the Fund’s
portfolio.
For
the 12-months ended December 2007, the NT$ gross return for the MSCI Taiwan
Index in the Aegis model was 11.0%, while the portfolio-only return for the
Fund
in the model was 16.3%. This implies that 5.3 percentage points of the return
can be attributed to the active management of the Fund despite the fact the
performance of the Fund remains highly correlated to the MSCI Taiwan. Sector
selection contributed 77% of the active return of the Fund during the 12-month
period. 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 approximately 53% of active returns.
1
Style
factors were an overall negative contributor to active return for the year,
yielding a -11% of the total. Aegis considers 10 style factors, including
momentum, size, growth, yield and value. Size was a positive contributor, but
was offset by negative contribution of the yield and volatility risk factors.
Size reflects the fact that the Fund has a slightly higher component of smaller
caps than the MSCI Taiwan and those stocks have consistently contributed
positively to active return. However, the Fund was under-weighted against the
index on yield shares, which have performed well, and over-weighted in shares
with higher volatility. Since February 2004, style factors have contributed
positively to active return, contributing about 11%, but with momentum being
the
largest factor followed by the size factor. Over the last 12 months, asset
selection was also a major contributor to active returns, approximately 34%
of
the total. Since February 2004, asset selection has contributed about 36% of
total active returns in excess of the MSCI Taiwan Index.
Portfolio
Valuation Measures
Market
valuations in Taiwan remain relatively modest. The Fund’s technology-dominated
portfolio has a weighted-average historical price-earnings ratio of 15.5, a
weighted-average price-book ratio of 3.7, a weighted-average cash dividend
yield
of 3.2%, and a weighted-average return on equity of 19.7%.
Taiwan
Political and Economic Developments
Despite
the volatility of the stock market and a looming threat of a recession in the
United States, the Taiwan economy had a strong year. GDP, up to the end of
September 2007, rose 6.92% year over year (“YOY”), the strongest expansion in
three years. The Taiwan government is predicting 5.46% growth for the entire
year, which is up from the 4.89% rate of 2006. They also expect solid but lower
growth in 2008 at 4.8%. Goldman Sachs, however, revised its forecast in January
downward to 3.8%, reflecting their view of a slowdown in the United
States.
In
2007, Taiwan’s exports reached US$246.7 billion, up 10.1% YOY. China replaced
the United States as Taiwan’s top export market - with exports to China,
including Hong Kong, increasing 12.6% YOY and accounting for 40.7% of total
exports during the year. Exports remained strong at the end of the year, with
December 2007 exports to China surging by 21.9% over December a year earlier.
Direct US exports rose 10.8% for December YOY and accounted for about 13% of
total exports. But of course it is important to also understand that a
significant amount of exports to China are to Taiwan companies manufacturing
in
China for re-export. Exports continue to play a key part of the Taiwan economy,
representing more than 50% of GDP. Taiwan also focused in 2007 on expanding
exports to other emerging markets with exports to India growing 59%, Saudi
Arabia 38% and Russia 34%. In 2007, imports also increased by 27.5%, reflecting
higher oil and commodity prices, so the trade surplus narrowed. Taiwan reserves
increased by 1.6% to US$270.3 billion compared to a 5% increase in
2006.
In
the political sphere, 2007 was also an active year. With President Chen
Shui-bian unable to run for a third term, the Democratic Progressive Party
(“DPP”), chose Frank Hsieh as its presidential candidate over three other DPP
heavyweights. Hsieh is the former mayor of Kaohsiung and is much more pragmatic
in terms of cross-strait relations than Chen. The Kuomintang (“KMT”) chose
former Taipei mayor Ma Ying-jeou as its candidate, despite the fact that Ma
had
been indicted on the misuse of special discretionary funds in February 2007.
Ma
was acquitted on those charges in August in the Taipei District Court and then
again by Taipei’s High Court in December. However, prosecutors had said they
will appeal to the Supreme Court although it is highly unlikely that there
will
be any change in the verdict. The presidential elections are scheduled for
March
22, 2008. But Ma, who has been running ahead in the polls, got a significant
boost with the results of the January 2008 legislative elections. The KMT won
81
seats out of the newly restructured 113 seats while the DPP had a very poor
showing of 27 seats. The defeat was viewed to be a result of the electorate
determining that Chen’s radical pro-independence stance and rhetoric was
negatively impacting the island’s economy and its ability to further capitalize
on China’s growth through increased investment, direct links and opening Taiwan
to Chinese tourists. While a GDP growth of over 5% is very good for a nearly
developed economy, the domestic economy and the stock market have performed
poorly compared to many of Taiwan’s Asian neighbors. The KMT put economic issues
at the forefront of the legislative election and will continue to emphasize
economic growth and closer relations with China in the presidential
elections.
2
The
recent elections in Taiwan pave the way for closer economic integration between
Taiwan and China. We believe the Fund offers a smart way to invest in China.
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 to obtain exposure
to this dynamic market.
Yours
truly,
Steven
R.
Champion
President,
CEO and Portfolio Manager
January
17, 2008
*
|
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
limited 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.
|
3
TAIWAN
GREATER CHINA FUND
PORTFOLIO
HIGHLIGHTS
SCHEDULE
OF INVESTMENTS BY INDUSTRY AS OF DECEMBER 31, 2007
Industry
Diversification
Industry
|
|
U.S.
$ Value
|
|
Percent
of
Net
Assets
|
|
Computer
Systems & Hardware
|
|
|
22,290,086
|
|
|
19.21
|
%
|
Semiconductors
|
|
|
18,450,181
|
|
|
15.90
|
|
Plastics
|
|
|
15,030,021
|
|
|
12.95
|
|
Electronic
Components
|
|
|
12,912,414
|
|
|
11.13
|
|
Flat-Panel
Displays
|
|
|
12,537,087
|
|
|
10.80
|
|
Computer
Peripherals/ODM
|
|
|
6,583,806
|
|
|
5.67
|
|
Steel
|
|
|
6,199,090
|
|
|
5.34
|
|
Food
|
|
|
5,775,559
|
|
|
4.98
|
|
Cement
|
|
|
4,211,860
|
|
|
3.63
|
|
Other
|
|
|
3,173,611
|
|
|
2.74
|
|
Electronics/Other
|
|
|
1,794,686
|
|
|
1.55
|
|
Transportation
|
|
|
1,525,968
|
|
|
1.32
|
|
Rubber
|
|
|
1,415,798
|
|
|
1.22
|
|
Textiles
|
|
|
1,244,913
|
|
|
1.07
|
|
Glass,
Paper & Pulp
|
|
|
928,963
|
|
|
0.80
|
|
Electrical
& Machinery
|
|
|
763,613
|
|
|
0.66
|
|
Communications
Equipment
|
|
|
761,876
|
|
|
0.66
|
|
Chemicals
|
|
|
405,192
|
|
|
0.35
|
|
Retailing
|
|
|
347,858
|
|
|
0.30
|
|
Short-Term
Securities
|
|
|
15,249,446
|
|
|
13.14
|
|
Liabilities,
Net of Other Assets
|
|
|
(15,570,972
|
)
|
|
(13.42
|
)
|
Net
Assets
|
|
$
|
116,031,056
|
|
|
100.00
|
|
4
TAIWAN
GREATER CHINA FUND
Schedule
of Investments / December 31, 2007
COMMON
STOCK — 100.28%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cement
— 3.63%
|
|
%
of
Net
Assets
|
|
U.S.
Dollar
Value
|
|
1,199,996
|
shs.
|
Asia
Cement Corp.
|
|
1.51
|
|
$
|
1,753,709
|
|
1,771,726
|
|
Taiwan
Cement Corp.
|
|
2.12
|
|
|
2,458,151
|
|
|
|
|
|
|
|
|
4,211,860
|
|
Chemicals
— 0.35%
|
373,352
|
|
Eternal
Chemical Co., Ltd.
|
|
0.35
|
|
|
405,192
|
|
Communications
Equipment — 0.66%
|
130,129
|
|
D-Link
Corporation
|
|
0.20
|
|
|
229,894
|
|
98,913
|
|
Gemtek
Technology
|
|
0.15
|
|
|
169,562
|
|
61,000
|
|
Zinwell
Corporation
|
|
0.17
|
|
|
203,120
|
|
122,580
|
|
Zyxel
Communications Corp.
|
|
0.14
|
|
|
159,300
|
|
|
|
|
|
|
|
|
761,876
|
|
Computer
Peripherals/ODM — 5.67%
|
346,000
|
|
Foxconn
International Holdings, Ltd.
|
|
0.67
|
|
|
777,075
|
|
93,384
|
|
High
Tech Computer Corp.
|
|
1.49
|
|
|
1,724,641
|
|
1,338,600
|
|
Lite-on
Technology Corp.
|
|
2.01
|
|
|
2,335,967
|
|
870,943
|
|
Mitac
International Corp.
|
|
0.74
|
|
|
855,261
|
|
605,202
|
*
|
Qisda
Corp.
|
|
0.57
|
|
|
668,010
|
|
178,469
|
|
Teco
Image Systems Co., Ltd.
|
|
0.19
|
|
|
222,852
|
|
|
|
|
|
|
|
|
6,583,806
|
|
Computer
Systems & Hardware — 19.21%
|
416,839
|
|
Acer
Inc.
|
|
0.70
|
|
|
816,097
|
|
96,411
|
|
Advantech
Co., Ltd.
|
|
0.19
|
|
|
219,670
|
|
1,898,544
|
|
Asustek
Computer Inc.
|
|
4.91
|
|
|
5,701,369
|
|
346,318
|
(a)
|
Compal
Electronics Inc.
|
|
0.33
|
|
|
379,056
|
|
1,980,549
|
|
Hon
Hai Precision Industry Co., Ltd.
|
|
10.63
|
|
|
12,334,923
|
|
453,850
|
|
Inventec
Co., Ltd.
|
|
0.23
|
|
|
263,069
|
|
732,193
|
|
Quanta
Computer Inc.
|
|
0.90
|
|
|
1,039,572
|
|
826,357
|
|
Wistron
Corp.
|
|
1.32
|
|
|
1,536,330
|
|
|
|
|
|
|
|
|
22,290,086
|
|
Electrical
& Machinery — 0.66%
|
519,000
|
|
Teco
Electric & Machinery Co., Ltd.
|
|
0.22
|
|
|
259,228
|
|
1,220,837
|
|
Walsin
Lihwa Corp.
|
|
0.44
|
|
|
504,385
|
|
|
|
|
|
|
|
|
763,613
|
|
Electronic
Components — 11.13%
|
152,191
|
|
A-DATA
Technology Co., Ltd.
|
|
0.26
|
|
|
297,963
|
|
382,433
|
|
Catcher
Technology Co., Ltd.
|
|
1.92
|
|
|
2,228,521
|
|
1,112,245
|
|
Delta
Electronics Inc.
|
|
3.28
|
|
|
3,806,475
|
|
100,304
|
|
Epistar
Corp.
|
|
0.37
|
|
|
429,865
|
|
301,143
|
(a)
|
Foxconn
Technology Co., Ltd.
|
|
2.11
|
|
|
2,451,186
|
|
94,000
|
|
Kinsus
Interconnect Technology Corp.
|
|
0.25
|
|
|
295,616
|
|
22,253
|
|
Motech
Industry Co., Ltd.
|
|
0.18
|
|
|
204,115
|
|
124,250
|
|
Shin
Zu Shing Co., Ltd.
|
|
0.66
|
|
|
762,340
|
|
234,380
|
|
Tripod
Technology Corp.
|
|
0.73
|
|
|
845,485
|
|
589,820
|
|
Unimicron
Technology Corp.
|
|
0.89
|
|
|
1,036,559
|
|
1,577,000
|
|
Yageo
Corp.
|
|
0.48
|
|
|
554,289
|
|
|
|
|
|
|
|
|
12,912,414
|
|
See
accompanying notes to financial statements.
5
TAIWAN
GREATER CHINA FUND
Schedule
of Investments (Continued) / December 31, 2007
Electronics/Other
— 1.55%
|
|
%
of
Net
Assets
|
|
U.S.
Dollar
Value
|
|
126,000
|
shs.
|
Lumax
International Corp., Ltd.
|
|
0.24
|
|
|
274,656
|
|
608,650
|
|
Synnex
Technology International Corp.
|
|
1.31
|
|
|
1,520,030
|
|
|
|
|
|
|
|
|
1,794,686
|
|
Flat-Panel
Displays — 10.80%
|
3,948,132
|
|
AU
Optronics Corp.
|
|
6.66
|
|
|
7,729,740
|
|
872,664
|
(a)
|
Chi
Mei Optoelectronics Corp.
|
|
1.05
|
|
|
1,224,216
|
|
4,221,951
|
(a)
*
|
Chunghwa
Picture Tubes, Ltd.
|
|
1.26
|
|
|
1,464,419
|
|
624,712
|
(a)
|
Innolux
Display Corp.
|
|
1.83
|
|
|
2,118,712
|
|
|
|
|
|
|
|
|
12,537,087
|
|
Food
— 4.98%
|
310,000
|
|
Great
Wall Enterprises Co.
|
|
0.30
|
|
|
344,083
|
|
1,464,000
|
(a)
|
Tingyi
(Cayman Islands) Holdings Corp.
|
|
2.01
|
|
|
2,327,101
|
|
2,293,560
|
(a)
|
Uni-President
Enterprise Corp.
|
|
2.67
|
|
|
3,104,375
|
|
|
|
|
|
|
|
|
5,775,559
|
|
Glass,
Paper & Pulp — 0.80%
|
638,208
|
|
Taiwan
Glass Ind. Corp.
|
|
0.60
|
|
|
694,603
|
|
625,617
|
|
Yuen
Foong Yu Paper Manufacturing Co., Ltd.
|
|
0.20
|
|
|
234,360
|
|
|
|
|
|
|
|
|
928,963
|
|
Plastics
— 12.95%
|
925,299
|
|
Formosa
Chemicals & Fiber Corp.
|
|
2.04
|
|
|
2,367,880
|
|
1,299,983
|
|
Formosa
Plastics Corp.
|
|
3.15
|
|
|
3,651,367
|
|
3,398,319
|
|
Nan
Ya Plastics Corp.
|
|
7.76
|
|
|
9,010,774
|
|
|
|
|
|
|
|
|
15,030,021
|
|
Retailing
— 0.30%
|
104,000
|
|
Far
Eastern Department Store Co., Ltd.
|
|
0.11
|
|
|
125,856
|
|
84,512
|
|
President
Chain Store Corp.
|
|
0.19
|
|
|
222,002
|
|
|
|
|
|
|
|
|
347,858
|
|
Rubber
— 1.22%
|
866,415
|
|
Cheng
Shin Rubber Ind. Co., Ltd.
|
|
1.22
|
|
|
1,415,798
|
|
Semiconductors
— 15.90%
|
2,836,704
|
|
Advanced
Semiconductor Engineering Inc.
|
|
2.45
|
|
|
2,842,476
|
|
485,040
|
|
Inotera
Memories Inc.
|
|
0.33
|
|
|
384,335
|
|
448,320
|
(a)
|
MediaTek
Inc.
|
|
5.01
|
|
|
5,819,286
|
|
118,197
|
(a)
|
Novatek
Microelectronics Corp.
|
|
0.39
|
|
|
451,885
|
|
432,341
|
(a)
|
Powerchip
Semiconductor Corp.
|
|
0.16
|
|
|
183,952
|
|
70,750
|
|
Powertech
Technology Inc.
|
|
0.22
|
|
|
251,946
|
|
1,072,000
|
(a)
|
ProMOS
Technologies Inc.
|
|
0.25
|
|
|
287,550
|
|
70,025
|
|
Realtek
Semiconductor Corp.
|
|
0.21
|
|
|
242,888
|
|
498,518
|
|
Siliconware
Precision Industries Co., Ltd.
|
|
0.77
|
|
|
896,084
|
|
2,982,526
|
|
Taiwan
Semiconductor Manufacturing Co., Ltd.
|
|
4.91
|
|
|
5,701,320
|
|
2,234,902
|
|
United
Microelectronics Corp.
|
|
1.20
|
|
|
1,388,459
|
|
|
|
|
|
|
|
|
18,450,181
|
|
See
accompanying notes to financial statements.
6
Schedule
of Investments (Cont'd.)
Steel
— 5.34%
|
|
%
of
Net
Assets
|
|
|
U.S.
Dollar
Value
|
|
4,477,933
|
|
China
Steel Corp.
|
|
5.17
|
|
|
6,005,737
|
|
117,000
|
|
Tung
Ho Steel Enterprise Corp.
|
|
0.17
|
|
|
193,353
|
|
|
|
|
|
|
|
|
6,199,090
|
|
Textiles
— 1.07%
|
1,061,170
|
|
Far
Eastern Textile, Ltd.
|
|
1.07
|
|
|
1,244,913
|
|
Transportation
— 1.32%
|
324,000
|
|
U-Ming
Marine Transport Corp.
|
|
0.77
|
|
|
885,071
|
|
828,162
|
|
Yang
Ming Marine Transport Corp.
|
|
0.55
|
|
|
640,897
|
|
|
|
|
|
|
|
|
1,525,968
|
|
Other
— 2.74%
|
127,000
|
|
Giant
Manufacturing Co., Ltd.
|
|
0.25
|
|
|
284,276
|
|
82,530
|
|
Johnson
Health Tech Co., Ltd.
|
|
0.17
|
|
|
200,511
|
|
538,000
|
|
Merida
Industry Co., Ltd.
|
|
0.86
|
|
|
991,934
|
|
1,020,350
|
|
Pou
Chen Corp.
|
|
0.82
|
|
|
956,362
|
|
174,000
|
|
Yue
Yuen Industrial Holdings, Ltd.
|
|
0.54
|
|
|
624,539
|
|
90,000
|
|
Yung
Chi Paint & Varnish Manufacturing Co., Ltd.
|
|
0.10
|
|
|
115,989
|
|
|
|
|
|
|
|
|
3,173,611
|
|
|
|
|
|
|
|
|
|
|
TOTAL
COMMON STOCK (COST $89,406,499)
|
|
|
|
|
116,352,582
|
|
|
|
|
|
|
|
|
SHORT-TERM
SECURITIES — 13.14%†
|
|
|
|
|
|
|
Mutual
Fund — 9.37%
|
AIM
Liquid Assets Portfolio, 4.726%,‡
|
|
4.67
|
|
|
5,421,086
|
|
AIM
Prime Portfolio, 4.872%,‡
|
|
4.70
|
|
|
5,449,260
|
|
|
|
|
|
|
|
|
10,870,346
|
|
Time
Deposit — 3.77%
|
Wachovia
- London, 2.63%, Due 01/02/08
|
|
0.18
|
|
|
214,675
|
|
Wells
Fargo - Grand Cayman, 2.63%, Due 01/02/08‡
|
|
3.59
|
|
|
4,164,425
|
|
|
|
|
|
|
|
|
4,379,100
|
|
TOTAL
SHORT-TERM SECURITIES
|
|
|
|
|
|
|
(COST
$15,249,446)
|
|
|
|
|
15,249,446
|
|
|
|
|
|
|
|
|
|
|
TOTAL
INVESTMENTS IN SECURITIES AT FAIR VALUE
|
|
|
|
|
|
|
(COST
$104,655,945)
|
|
113.42
|
|
|
131,602,028
|
|
|
|
|
|
|
|
|
LIABILITIES
(NET OF OTHER ASSETS)
|
|
(13.42
|
)
|
|
(15,570,972
|
)
|
|
|
|
|
|
|
|
NET
ASSETS
|
|
100.00
|
|
$ |
116,031,056
|
|
(a)
|
All
or a portion of the security is out on
loan.
|
*
|
Non-income
producing: These stocks did not pay a cash dividend during the past
year.
|
†
|
Inclusive
of all short-term holdings, including collateral received from securities
lending activities. Not including such collateral, the percentage
of
portfolio holdings would be 0.18%.
|
‡
|
Represents
investment of collateral received from securities lending
transactions.
|
See
accompanying notes to financial statements.
7
TAIWAN
GREATER CHINA FUND
Statement
of Assets and Liabilities
December
31, 2007 (Expressed in U.S. Dollars)
Assets
Investments
in securities at fair value (Market value of securities on
loan—$12,086,417)
|
|
|
|
|
(Notes
2B, 2C, 2D, 3 and 7):
|
|
|
|
|
Common
Stock (cost — $89,406,499)
|
|
$
|
116,352,582
|
|
Short-term
securities (cost — $214,675)
|
|
|
214,675
|
|
Investment
of cash collateral from securities loaned (cost -
$15,034,771)
|
|
|
15,034,771
|
|
Total
investment in securities at fair value (cost —
$104,655,945)
|
|
|
131,602,028
|
|
|
|
|
|
|
Cash
|
|
|
45
|
|
Foreign
cash (cost — $197,186)
|
|
|
197,610
|
|
Receivable
|
|
|
44,044
|
|
Prepaid
expenses and other assets
|
|
|
71,361
|
|
Total
assets
|
|
|
131,915,088
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Payable
for cash collateral for securities loaned
|
|
|
15,034,771
|
|
Accrued
employee bonus
|
|
|
329,000
|
|
Professional
fees payable
|
|
|
208,223
|
|
Accrued
management fee (Note 4)
|
|
|
121,000
|
|
Administration
fee payable (Note 5)
|
|
|
62,794
|
|
Shareholder
communication fees payable
|
|
|
54,300
|
|
Trustee
fees and expense payable
|
|
|
37,039
|
|
Custodian
fee payable (Note 6)
|
|
|
29,936
|
|
Other
accrued expenses
|
|
|
6,969
|
|
Total
liabilities
|
|
|
15,884,032
|
|
|
|
|
|
|
Net
assets
|
|
$
|
116,031,056
|
|
|
|
|
|
|
Components
of net assets
|
|
|
|
|
Par
value of shares of beneficial interest (Note 8)
|
|
$
|
144,738
|
|
Additional
paid-in capital (Note 8)
|
|
|
173,940,051
|
|
Accumulated
net investment income
|
|
|
50,763,399
|
|
Accumulated
net realized loss on investments and foreign currency
transactions
|
|
|
(96,897,582
|
)
|
Unrealized
net appreciation on investments (Note 7)
|
|
|
26,946,083
|
|
Cumulative
translation adjustment (Note 2G)
|
|
|
(38,865,633
|
)
|
|
|
|
|
|
Net
assets
|
|
$
|
116,031,056
|
|
|
|
|
|
|
Net
asset value per share (14,473,760 shares issued and outstanding,
par value
$0.01)
|
|
$
|
8.02
|
|
See
accompanying notes to financial statements.
8
TAIWAN
GREATER CHINA FUND
Statement
of Operations
For
the Year Ended December 31, 2007 (Expressed in U.S. Dollars)
Investment
income (Note 2B, 2C, 2D)
|
|
|
|
|
Dividends
|
|
$
|
3,930,010
|
|
Interest
|
|
|
4,904
|
|
Securities
lending income
|
|
|
48,821
|
|
|
|
|
3,983,735
|
|
|
|
|
|
|
Republic
of China taxes (Note 2I)
|
|
|
(878,650
|
)
|
|
|
|
|
|
|
|
|
3,105,085
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
Management
fee (Note 4)
|
|
|
399,047
|
|
Portfolio
management expenses:
|
|
|
|
|
Personnel
expenses
|
|
|
872,866
|
|
Research
expenses
|
|
|
128,813
|
|
Rental
expenses
|
|
|
48,345
|
|
Travel
expenses
|
|
|
6,575
|
|
Other
expenses
|
|
|
29,138
|
|
|
|
|
1,484,784
|
|
Shareholder
communication expenses
|
|
|
274,519
|
|
Trustee
fees and expenses
|
|
|
195,414
|
|
Custodian
fee (Note 6)
|
|
|
179,972
|
|
Audit
and tax fee
|
|
|
169,051
|
|
Legal
fees and expenses
|
|
|
167,821
|
|
Administrative
fee (Note 5)
|
|
|
128,734
|
|
Insurance
expenses
|
|
|
80,942
|
|
Other
expenses
|
|
|
82,384
|
|
|
|
|
|
|
|
|
|
2,763,621
|
|
|
|
|
|
|
Net
investment gain
|
|
|
341,464
|
|
|
|
|
|
|
Net
realized and unrealized gain (loss) on investments and foreign currencies
(Notes 2F and 7)
|
|
|
|
|
Net
realized gain on:
|
|
|
|
|
investments
(excluding short-term securities)
|
|
|
13,992,967
|
|
foreign
currency transactions
|
|
|
3,000
|
|
Net
realized gain on investments and foreign currency
transactions
|
|
|
13,995,967
|
|
|
|
|
|
|
Net
changes in unrealized appreciation /depreciation on:
|
|
|
|
|
investments
|
|
|
(7,648
|
)
|
translation
of assets and liabilities in foreign currencies
|
|
|
(96,960
|
)
|
|
|
|
|
|
Net
realized and unrealized gain from investments and foreign
currencies
|
|
|
13,891,359
|
|
|
|
|
|
|
Net
increase in net assets resulting from operations
|
|
$
|
14,232,823
|
|
See
accompanying notes to financial statements.
TAIWAN
GREATER CHINA FUND
Statement
of Changes in Net Assets
For
the Years Ended December 31, 2007 and 2006 (Expressed in U.S.
Dollars)
|
|
2007
|
|
2006
|
|
Net
increase/decrease in net assets resulting from
operations
|
|
|
|
|
|
|
|
Net
investment income
|
|
$
|
341,464
|
|
$
|
232,599
|
|
Net
realized gain on investments and foreign currency
transactions
|
|
|
13,995,967
|
|
|
5,454,909
|
|
Unrealized
appreciation/depreciation on investments
|
|
|
(7,648
|
)
|
|
14,977,468
|
|
Unrealized
depreciation on translation of assets and liabilities in foreign
currencies
|
|
|
(96,960
|
)
|
|
(607,703
|
)
|
|
|
|
|
|
|
|
|
Net
increase in net assets resulting from operations
|
|
|
14,232,823
|
|
|
20,057,273
|
|
|
|
|
|
|
|
|
|
Capital
share transactions:
|
|
|
|
|
|
|
|
Cost
of semi-annual repurchase offer (Note 8B)
|
|
|
(11,593,032
|
)
|
|
(11,029,814
|
)
|
|
|
|
|
|
|
|
|
Net
assets, beginning of year
|
|
|
113,391,265
|
|
|
104,363,806
|
|
|
|
|
|
|
|
|
|
Net
assets, end of year
|
|
$
|
116,031,056
|
|
$
|
113,391,265
|
|
See
accompanying notes to financial statements.
10
TAIWAN
GREATER CHINA FUND
Financial
Highlights
(Expressed
in U.S. Dollars)
|
|
Years
Ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
Per
share operating performance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
asset value, beginning of year
|
|
|
7.07
|
|
|
5.87
|
|
|
5.37
|
|
|
5.13
|
|
|
4.37
|
|
Net
investment income (loss)
|
|
|
0.02
|
|
|
0.01
|
|
|
0.05
|
|
|
(0.01
|
)
|
|
(0.02
|
)
|
Net
realized and unrealized gain / loss on investments (a)
|
|
|
0.92
|
|
|
1.21
|
|
|
0.65
|
|
|
(0.24
|
)
|
|
0.73
|
|
Net
realized and unrealized appreciation / depreciation on translation
of
foreign currencies (a)
|
|
|
(0.01
|
)
|
|
(0.03
|
)
|
|
(0.25
|
)
|
|
0.26
|
|
|
0.11
|
|
Total
from investment operations
|
|
|
0.93
|
|
|
1.19
|
|
|
0.45
|
|
|
0.01
|
|
|
0.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions
to Shareholders from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
investment income*
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.01
|
)
|
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
Stock Transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
Tender Offer/Repurchase
|
|
|
0.02
|
(b)
|
|
0.01
|
|
|
0.05
|
|
|
0.24
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
asset value, end of year
|
|
|
8.02
|
|
|
7.07
|
|
|
5.87
|
|
|
5.37
|
|
|
5.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
share market price, end of year
|
|
|
7.23
|
|
|
6.61
|
|
|
5.30
|
|
|
4.90
|
|
|
4.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
investment return (%):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based
on Trust’s market price
|
|
|
9.38
|
|
|
24.72
|
|
|
8.16
|
|
|
3.42
|
|
|
18.79
|
|
Based
on Trust’s net asset value
|
|
|
13.44
|
|
|
20.44
|
|
|
9.31
|
|
|
4.94
|
|
|
18.75
|
|
U.S.
$ return of Taiwan Stock Exchange Index**
|
|
|
9.23
|
|
|
20.35
|
|
|
3.03
|
|
|
11.69
|
|
|
35.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios
and supplemental data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
assets, end of year (in thousands)
|
|
|
116,031
|
|
|
113,391
|
|
|
104,364
|
|
|
116,467
|
|
|
167,801
|
|
Ratio
of expenses to average net assets (%)
|
|
|
2.30
|
|
|
2.55
|
|
|
2.12
|
|
|
2.79
|
|
|
2.57
|
|
Ratio
of net investment income (loss) to average net assets (%)
|
|
|
0.28
|
|
|
0.22
|
|
|
0.99
|
|
|
(0.27
|
)
|
|
(0.44
|
)
|
Portfolio
turnover ratio (%)
|
|
|
26
|
|
|
24
|
|
|
16
|
|
|
137
|
|
|
78
|
|
(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.
|
(b)
|
Based
on average shares outstanding at each month
end.
|
*
|
See
Note 2H 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, and do not assume that cash dividends were
reinvested. The Taiwan Stock Exchange Index is calculated by the
Taiwan
Stock Exchange Corp.
|
See
accompanying notes to financial statements.
TAIWAN
GREATER CHINA FUND
Notes
to Financial Statements / December 31, 2007 (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, as amended. 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. At the Annual Meeting of Shareholders held on August 21, 2007,
shareholders voted to approve an advisory agreement between the Fund and Nanking
Road Capital Management, LLC (the “NRC”), a company organized by employees of
the Fund who had managed the Fund’s investments for the period from February
2004 to September 2007.
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. Because the Trust’s shares traded at an average discount to NAV of
more than 10% for the 12-week period ended November 16, 2007, the Trust’s
shareholders will be asked to consider the conversion of the Trust to an
open-end investment company at the 2008 annual meeting. The affirmative vote
of
a majority of the Trust’s outstanding shares is required to approve such a
conversion.
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
8B).
On
October 31, 2006, the Board of Trustees terminated the Fund’s policy requiring
the Republic of China Securities and Futures Bureau, Financial Supervisory
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
net
asset value per share (“NAV”) or at amortized cost, which approximates fair
value. Under amortized cost 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 are, 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.
C—
Lending
of Portfolio Securities —The Trust may lend portfolio securities up to
331⁄3%
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 or 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 net
of
fee rebates paid to the borrower. The Fund’s lending agent is UBS Securities
LLC, a wholly-owned indirect subsidiary of UBS AG. For the year ended December
31, 2007, the Fund earned $48,821 from lending portfolio securities and UBS
Securities LLC earned $15,748 in compensation as the Fund’s lending agent. In
the event of default or bankruptcy by the counterparty, the Trust could
experience delays and costs in recovering the loaned securities or in gaining
access to the collateral.
12
TAIWAN
GREATER CHINA FUND
Notes
to Financial Statements / December 31, 2007 (Expressed in U.S. Dollars)
(continued)
D—
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.
E—
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.
F—
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, 2007, the Trust
utilized $12,882,776 of capital loss carryover and has a total loss carryover
of
$96,785,201 remaining.
This
capital loss carryover may be used to offset any future capital gains generated
by the Trust, and, if unused, $64,782,830 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 $3,064,459 and currency
losses of $1,600,186 realized on investment transactions from November 1, 2007
through December 31, 2007 and treat them as arising during the fiscal year
ending December 31, 2008 for U.S. federal income tax purposes.
G—
Foreign
currency translation — Substantially all of the Trust’s income is earned, and
its expenses are partially paid, in New Taiwan Dollars (“NT$”). 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, 2007, that rate was NT$32.434 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.
H—
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 $2,358,873,
accumulated net realized loss on investments was increased by $1,225,572, and
additional paid in capital was decreased by $1,133,301 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, 2007, the components of distributable earnings / (accumulated
losses) on a tax basis were as follows:
Undistributed
net investment income
|
|
$
|
1
|
|
Accumulated
capital and other losses
|
|
|
(96,785,201
|
|
Unrealized
appreciation (depreciation)
|
|
|
25,350,967
|
|
|
|
$ |
(71,434,233 |
)
|
I—
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.
13
TAIWAN
GREATER CHINA FUND
Notes
to Financial Statements / December 31, 2007 (Expressed in U.S. Dollars)
(continued)
Management
has analyzed the fund’s tax positions taken on federal income tax returns for
all open tax years and has concluded that as of December 31, 2007, no provision
for income tax would be required in the fund’s financial statements. The Fund’s
federal and state income and federal excise tax returns for tax years for which
the applicable statutes of limitations have not expired are subject to
examination by the Internal Revenue Service and state departments of
revenue.
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, 2007, the total par value
of
stock dividends received was $636,883.
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 $144,965 paid for the twelve months ended December
31, 2007.
J—
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.
K
—
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. As required, the Trust implemented FIN 48 on January
1,
2007. Based on management’s evaluation, FIN 48 did not have a material impact on
the Trust’s financial statements.
L
—
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
material impact on the financial statements of the Fund, however, additional
disclosures may be required about the inputs used to develop the measurements
and changes in net assets for the period.
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 — Investment Management
As
described in Note 1, the Trust entered into an investment advisory and
management agreement with NRC on October 1, 2007. Pursuant to the investment
agreement, NRC is responsible, among other things, for investing and managing
the assets of the Trust and administering the Trust’s affairs. The Trust pays
NRC a fee at an annual rate of 1.25% of the NAV of the Trust’s assets up to $150
million and 1.00% of such NAV in excess of $150 million. Prior to October 1,
2007, the Trust was managed by its employees and as such directly incurred
salaries and benefits, research, travel and other related expenses. For the
nine
months ended September 30, 2007, these expenses amounted to 0.89% of the Trust’s
average net assets.
14
TAIWAN
GREATER CHINA FUND
Notes
to Financial Statements / December 31, 2007 (Expressed in U.S. Dollars)
(continued)
Note
5 — 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 services are purchased.
Note
6 — 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
7 — Investments in Securities
Purchases
and proceeds from sales of securities, excluding short-term investments, for
the
year ended December 31, 2007, included $31,576,264 for stock purchases and
$48,368,990 for stock sales, respectively.
At
December 31, 2007, the cost of investments, excluding short-term investments,
for U.S. federal income tax purposes was $91,001,615. At December 31, 2007, the
net unrealized appreciation of $25,350,967 for U.S. federal income tax purposes
consisted of $29,713,717 of gross unrealized appreciation and $4,362,750 of
gross unrealized depreciation.
Note
8 — 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, 2007, 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
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
Trust’s net asset value per share at the close of regular trading on the Taiwan
Stock Exchange on June 30, 2006, to which a 2% repurchase fee was applied.
The
repurchased 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 repurchased shares constituted approximately 5% of the Trust’s
previously outstanding shares.
15
TAIWAN
GREATER CHINA FUND
Notes
to Financial Statements / December 31, 2007 (Expressed in U.S. Dollars)
(continued)
In
June
2007, the Trust accepted 801,870 shares for payment at a price of $7.76 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
Trust’s net asset value per share at the close of regular trading on the Taiwan
Stock Exchange on June 29, 2007, to which a 2% repurchase fee was applied.
The
repurchased shares constituted approximately 5% of the Trust’s previously
outstanding shares.
In
December 2007, the Trust accepted 761,776 shares for payment at a price of
$7.05
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
Trust’s net asset value per share at the close of regular trading on the Taiwan
Stock Exchange on December 17, 2007, to which a 2% repurchase fee was applied.
The repurchased shares constituted approximately 5% of the Trust’s previously
outstanding shares.
At
December 31, 2007, 14,473,760 shares were outstanding.
16
Report
of Independent Registered Public Accounting Firm
The
Shareholders and Board of Trustees 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, 2007, 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
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. 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, 2007, 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 audit provides a reasonable basis
for our opinion.
In
our
opinion, the financial statements and financial highlights referred to above
present fairly, in all material respects, the financial position of the Fund
as
of December 31, 2007, and 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 the years in the five-year period then
ended, in conformity with U.S. generally accepted accounting
principles.
Boston,
Massachusetts
February
28, 2008
17
TAIWAN
GREATER CHINA FUND
Additional
Information (unaudited)
The
Fund has obtained an agreement letter from Offshore Funds Centre of United
Kingdom dated January 23, 2007 that its investors do not hold “material
interest” 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, as amended, 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
2007,
the Trust 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, 2007 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 is
available 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
month please visit our website at http://www.taiwangreaterchinafund.com.
18
2007
ANNUAL MEETING OF SHAREHOLDERS (unaudited)
On
August
21, 2007, the Trust held an annual meeting to:
(i)
|
Elect
two trustees, each to serve for a term expiring on the date of
the 2010
Annual Meeting of Shareholders or the special meeting in lieu
thereof.
|
(ii)
|
Consider
whether to approve a new investment advisory agreement between the
Trust
and Nanking Road Capital Asset Management,
LLC.
|
(iii)
|
Consider
whether to approve the conversion of the Trust from a closed end
investment company to an open end investment
company.
|
The
results of the shareholder votes are shown below. Proxies representing
10,671,929, or 70.05%, of the 15,235,536 eligible shares outstanding were
represented by proxy. David N. Laux and Pedro-Pablo Kuczynski were each elected
for a term expiring in 2010. The investment advisory agreement between the
Trust
and Nanking Road Capital Asset Management, LLC was approved. The conversion
from
a closed-end fund to and open-end fund was not approved.
|
Nominees
to the Board of Trustees
|
|
For
|
Withheld
|
David
N. Laux
|
10,568,120
|
103,809
|
Pedro-Pablo
Kuczynski
|
10,568,799
|
103,130
|
Frederick
C. Copeland, Jr., Robert P. Parker, Edward B. Collins and Tsung-Ming
Chung, whose terms did not expire in 2007, remain
trustees.
|
|
Approval
of Investment Advisory Agreement
|
For
|
Against
|
Withheld/Abstain
|
7,401,079
|
700,290
|
22,240
|
|
Approval
of Conversion from a Closed-End Investment Company to an Open-End
Investment Company
|
For
|
Against
|
Withheld/Abstain
|
1,685,558
|
6,408,172
|
29,878
|
Board
Approval of Investment Advisory Agreement
(unaudited)
|
At
a
meeting held in person on August 21, 2007 and subsequent to the Annual Meeting
of Shareholders (the “Annual Meeting”), the Board of Trustees of the Trust,
which is comprised entirely of Trustees who are not “interested persons,” as
defined in the Investment Company Act of 1940, as amended (the “1940 Act”),
approved for an initial two year period an investment advisory and management
agreement (the “Advisory Agreement”) between the Trust and Nanking Road Capital
Management, LLC (“Nanking” or the “Adviser”), subject to and effective when the
Adviser obtained its registration with the U.S. Securities and Exchange
Commission.
The
Trustees met in a private session with the Trust’s legal counsel, at which no
representative of the Adviser was present, and were advised by such counsel
throughout the approval process.
No
single
factor reviewed by the Board was identified by the Board as the principal factor
in determining whether to approve the Advisory Agreement. Prior to the meeting,
the Board had approved the Advisory Agreement for inclusion in the Trust’s 2007
Annual Proxy Statement for shareholder vote at the 2007 Annual Meeting. At
the
Annual Meeting, held on August 21, 2007 prior to the Board meeting, shareholders
approved the Advisory Agreement. In their consideration of the Advisory
Agreement, the Board considered factors described below. The Board evaluated
information concerning the Advisory Agreement provided to the Board during
the
meeting and during prior meetings.
Nature,
Extent and Quality of the Services Under the Advisory
Agreement
The
Board
received and considered information regarding the nature, extent and quality
of
services to be provided to the Trust by the Adviser under the Advisory
Agreement. The Board considered the Adviser’s verbal commitment to retain the
Trust’s current staff, which constituted the Trust’s Portfolio Manager and Chief
Executive Officer, Chief Compliance Officer, Chief Executive Officer and
Secretary and Head of Portfolio Analysis, for at least three years. The Board
also considered that the Adviser would provide the Trust with necessary
officers, including the Chief Executive Officer, Chief Financial Officer and
Chief Compliance Officer, each subject to approval of the Board. The Board
considered the information received at regular meetings throughout the year
related to the services rendered by the Portfolio Manager and Trust officers
about the management of the Trust’s portfolio and its other affairs and their
role in coordinating and supervising the activities of the Trust’s other service
providers, such as the transfer agent, custodian and administrator. The Board
reviewed information received from the Adviser regarding the administration
and
review of the Trust’s compliance policies and procedures established pursuant to
Rule 38a-1 under the 1940 Act, as well as information about the Adviser’s
proposed Chief Compliance Officer and compliance program.
The
Board
reviewed the qualifications, backgrounds and responsibilities of the those
officers, senior personnel and Portfolio Manager of the Trust who would become
employees of the Adviser. The Board also considered, based on the information
provided by the Adviser, the financial resources of the Adviser.
The
Board
also considered the Adviser’s proposed brokerage policies and practices,
including the standards applied with regard to soft dollars and the controls
applicable to brokerage and trade allocation procedures. The Adviser also
reported to the Board on, among other things, its business plans.
The
Board
concluded that, overall, the nature, extent and quality of services to be
provided under the Advisory Agreement were likely to be of high
quality.
Fund
Performance
The
Board
received and considered performance information for the Fund. The Board noted
that, in view of the Trust’s distinctive investment objective of seeking long
term capital appreciation through investments in securities of Taiwan issuers,
primarily by investing in Taiwan listed companies that derive or expect to
derive a significant portion of their revenues from operations in, or exports
to, mainland China and, based upon the information provided in the materials
and
upon reports provided by internal management at the Board’s meetings on August
21, 2007 and June 26, 2007 and throughout the year, the investment performance
of the Trust’s portfolio was satisfactory. The Board further concluded that,
although the number of comparable funds was limited, on the basis of this
limited number, the Trust’s expense ratio, once the Advisory Agreement took
effect, could be expected to be in keeping with the expense ratios of direct
competitors. Accordingly, the Board determined that the overall performance
of
the Trust upon retention of the Adviser could be expected to be satisfactory.
20
Board
Approval of Investment Advisory Agreement (unaudited)
(continued)
|
Advisory
Fees and Expenses
The
Board
reviewed and considered the advisory fee proposed to be paid by the Trust to
the
Adviser in light of the nature, extent and quality of the advisory services
expected to be provided by the Adviser. The Board considered the Adviser’s
verbal commitment to reduce advisory fees in the event that the Adviser reached
$200 million in total assets under management. The Board determined that the
fees contained in the Advisory Agreement provided a framework to pass on to
shareholders expense savings. In order to better evaluate the Adviser’s advisory
fees, the Board also reviewed comparative information with respect to fees
paid
by comparable funds. The Board noted that, due to the Fund’s distinctive
investment objective, the number of comparable funds was limited. The Board
of
Trustees determined that, based on the limited data available, the Adviser’s
proposed fees were reasonable in light of comparable performance and expense
and
advisory fee information, costs of services provided and profits expected to
be
realized and benefits derived or to be derived by the Adviser from the
relationship with the Trust.
Adviser
Profitability
The
Board
reviewed the projected profitability of the Adviser in connection with the
provision of services to the Trust. The Trustees reviewed the Adviser’s
projected costs in providing services to the Trust. The Board concluded that
the
profitability projections did not render the Adviser’s advisory fees
excessive.
Economies
of Scale
The
Board
received and discussed information concerning whether the Adviser might realize
economies of scale as the Fund’s assets or other assets under its management
grow beyond current levels. The Board determined that there were not at this
time discernible economies to be realized by the Adviser in managing the Trust’s
assets and, that, to the extent that material economies of scale could be shared
with the Trust, the Board would seek to do so. The Board acknowledged the
Adviser’s commitment to reduce fees once the Adviser’s total assets under
management reached $200 million.
Other
Benefits to the Adviser
The
Board
considered other benefits that might be received by the Adviser as a result
of
its relationship with the Trust, including soft dollar arrangements, receipt
of
brokerage commissions and the opportunity to offer additional products and
services to shareholders of the Fund and determined that any such ancillary
benefits that the Adviser might receive were negligible.
Board
Conclusions
The
Board
based its consideration and evaluation of the Advisory Agreement on the
information it was presented and the specific factors regarding the nature,
extent and quality of services to be provided, including the good relative
performance of the principals of the Adviser in managing the Trust’s investments
as employees of the Trust and the projected profitability and costs associated
with the Adviser. The Board concluded that the compensation to be paid to the
Adviser would be fair and reasonable in light of the services to be provided
and
expenses to be incurred by the Adviser.
21
Information
Concerning Trustees and Officers (unaudited)
|
|
|
|
|
|
|
|
Name
(Age) and
Address
|
Position(s)
Held
with the
Trust
|
|
Term
of Office and
Length
of Time
Served
|
|
Principal
Occupation(s)
During
the Past
Five
Years
|
|
Other
Directorships
Held
by
Director
|
Non-Interested
Trustees
|
|
|
|
|
|
|
|
Tsung-Ming
Chung (5 8)
4F,
No.1, Lane 21, Hsing-Hua Road
Kwei-Shan
Industr ial Zone,
Taoyuan,
Taiwan, R.O.C.
|
Trustee
and Audit Committee Member
|
|
Trustee
since 2006 and until
the 2009 Annual Meeting
of Shareholders or special
meeting in lie u thereof
|
|
Chair
man and Chief Executive Officer, Dynapak
International Technology Corp; Chair
man, Systems and Chips, Inc.; Director,
Arima Group (technology)
|
|
Director,
Far Eastern International Bank;
Director and Chair man of Audit Commit
tee, Taiwan Mobile Co.; Dir ector and
Audit Committee Chairman, SMIC
|
Edward
B. Collins (6 5)
765
Market St.
Suite
31A, San Francisco,
California
94103 U.S.A.
|
Trustee
and Audit Committee Member
|
|
Trustee
since 2000 and until the 2009
Annual Meeting of Shareholders
or special meeting
in lieu thereof
|
|
Managing
Director, ChinaVest Group (venture
capital investment) , since prior to 2000
|
|
Director,
Mediostream, since 2001; Chairman,
California Bank of Commerce, since
2006; Partner McCutchen, Doyle, Brown
& Enersen (law firm), 1987-95
|
Frederick
C. Copeland, Jr . (66)
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
special meeting in
lieu thereof
|
|
Vice
Chairman, Director, Chairman of Executive
Committee, Far East National
Bank since 2004; Principal, Deer Ridge
Associates, LLC (financial consulting), 2001-2006
|
|
Director,
Mercantile Commerce Bank Holding,
since 2007; Director, Mercantile Commerce
Bank, since 2007; President, Chief Executive
Officer and Chief Operating Officer, Aetna
International (insurance), from 1995 to 2001;
Executive Vice President, Aetna, In c. (insurance),
from 1997 to 2001; Chairman, President
and Chief Executive Officer, Fleet Bank,
N.A ., 1993-1995; President and Chief Executive
Officer, Citibank Canada Ltd ., 1987- 1993;
Taiwan Country Head, Citibank, 1983-1987
|
Pedro
-Pablo Kuczynski (69)
2665
Bayshore Dr.
Suite
715, Mia mi
Florida,
33133 U.S.A .
|
Trustee
and Chair
man
|
|
Until
the 2010 Annual Meeting
of Shareholders or special
meeting in lie u thereof;
and Chairman since
August 2007
|
|
Senior
Advisor and Partner, The Rohatyn Group (emerging markets
manager), since 2007; Prime Minister of Peru, from from
2005-2006; Minister of Economy of Peru, 2004-2005 Minister
of Economy of Peru, 2001-2002; Partner and CEO, Latin
America Enterprise Fund (private equity), 1995-2001
|
|
Chairman
and Director, Advanced Metallurgical
Group (“AMG, N.V.”), since
2007; Director, Ternium Inc., since
2007
|
David
N. Laux (80)
The
Hampshire, Apt. 701
1101
N. Elm St.
Greensboro,
NC 27401 U.S.A.
|
Trustee
|
|
Until
the 2010 Annual Meeting
of Shareholders or
special meeting in lieu thereof; and Chairman from July
2004-August 2007
|
|
Chair
man, Great Dads (non- profit), 2004- 2006; President, US-Taiwan
Business Forum, from 2000 to 2005; Director International
Foundation, 2001-2007; Director, US
- Taiwan Business Council, 2000-present
|
|
President,
US-ROC (Taiwan) Business Council,
1990-2000; Chairman and Managing
Director, American Institute in
Taiwan, 1987-90; Director of Asian Affair
s, National Security Council, The White
House, 1982-86
|
Robert
P. Parker (66)
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 special
meeting in lie u thereof; and Chairman
from February - July 2004
|
|
Chair
man, Parker Price Venture Capital, Inc. (formerly
known as Allegro Capital, In c.) , since
prior to 2000
|
|
Director,
NexFlash Technologies, Inc., 2001-
2005 Partner, McCutchen, Doyle , Brown
& Enersen (law firm), 1988-
97
|
Non-Trustee
Officers
|
|
|
|
|
|
|
|
Steven
R. Champion (62)
111
Gilett Street
Hartford,
CT 06105 U.S.A.
|
President,
Chief Executive
Officer and
Portfolio Manager
|
|
Since
February 2004
|
|
Executive
Vice President, Bank of Hawaii , 2001-2003;
Chief In vestment Officer, Aetna International, from
prior to 2000 to 2001
|
|
Director,
Connecticut Choral
Artists, Inc. , since
2007
|
Cheryl
Chang (43)
111
Gilett Street
Hartford,
CT 06105 U.S.A.
|
Secretary, Treasurer
and Chief
Financial Officer
|
|
Since
June 2004
|
|
Senior
Manager, KPMG (Taipei Office), from
prior to 2000 to 2004; Assurances and and
Advisory Unit of International Practice Group, KPMG
(Taipei Office), 2000-2004
|
|
None
|
TAIWAN
GREATER CHINA FUND
www.taiwangreaterchinafund.com
Trustees
and Officers:
Pedro-Pablo
Kuczynski, Chairman and Trustee
Frederick
C. Copeland Jr., Vice Chairman, Trustee and Audit Committee Member
David
N.
Laux, Trustee
Tsung-Ming
Chung, Trustee and Audit Committee Member
Edward
B.
Collins, Trustee and Audit Committee Member
Robert
P.
Parker, Trustee and Audit Committee Member
Steven
R.
Champion, President and Chief Executive Officer and Portfolio
Manager
Cheryl
Chang, Chief Financial Officer, Treasurer and Secretary
Taiwan
Greater China Fund
P.O.
Box
118-763 Taipei
Taipei
10599, Taiwan
Manager:
Nanking
Road Capital Management, LLC
111
Gillett Street
Hartford,
CT 06105
Tel:
(860) 278-7888
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 US 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.
Current
and historical (from 2/27/2004) NAV information can be found on the Fund’s
website at www.taiwangreaterchinafund.com
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
2006
|
$32,655
|
|
$0
|
FY
2007
|
$18,833
|
|
$0
|
|
|
|
|
(b)
AUDIT-RELATED FEES:
|
|
|
|
|
|
REGISTRANT
|
|
INVESTMENT
ADVISOR
|
FY
2006
|
$0
|
|
$0
|
FY
2007
|
$0
|
|
$0
|
|
|
|
|
(c)
TAX FEES
|
|
|
|
|
|
REGISTRANT
|
|
INVESTMENT
ADVISOR
|
FY
2006
|
$29,475
|
|
$0
|
FY
2007
|
$4,037
|
|
$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
2006
|
$0
|
|
$0
|
FY
2007
|
$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
2006
|
$29,475
|
|
$0
|
FY
2007
|
$4,037
|
|
$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.
SCHEDULE OF INVESTMENTS.
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 registrant's Board of Trustees.
ITEM
8.
PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
8(1)
Portfolio
Manager. Steven
R.
Champion has been President, Chief Executive Officer and Portfolio Manager
of
the registrant since February 2004. Mr.
Champion has been President of Nanking Road Capital Management LLC
(“NRC”),
the Trust’s investment adviser (“Adviser”), since July 2007 and has retained his
positions as Chief Executive Officer and portfolio manager of the Fund through
NRC. 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 registrant, from 1987 to 1989, and President and portfolio
manager of the registrant 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)
Other
Accounts Managed by Portfolio Manager.
As of
December 31, 2007, Mr. Champion managed the registrant with approximately
$116,031,056 million in assets under management. As of December 31, 2007, Mr.
Champion does not manage any mutual funds or pooled investment vehicles.
While
the
Portfolio Manager does not currently manage any other fund or account, actual
or
potential conflicts of interest may arise when a portfolio manager has
management responsibilities with respect to more than one fund. The Adviser
has
adopted policies and procedures that it believes are reasonably designed to
address potential conflicts of interest. As a result, the Adviser does not
believe that these potential conflicts of interest will affect the Portfolio
Manager’s professional judgment while managing the registrant.
8(3)
Compensation.
As of
October 31, 2007, the registrant entered into an investment advisory agreement
(the “Agreement”) with NRC, whereby the registrant’s management structure
changed from an internally managed entity to an externally managed entity.
Mr.
Champion is the principal owner of NRC and controls its affairs. In that
connection he determines the compensation to be paid to himself and other NRC
employees out of NRC's investment advisory revenues, net of other expenses.
If
profits are available for distribution to NRC's owners after the payment of
salary, bonus and other operating expenses, Mr. Champion is therefore the
principal beneficiary of those profits. In determining compensation and bonuses
to be paid to him and other NRC officers and employees, Mr. Champion expects
to
structure NRC's compensation program to attract and retain key personnel as
well
as to provide incentives for top quality performance. The factors that he
expects to take into account in making such decisions include competence,
diligence, creativity and dedication and his assessment of the level of
importance of a person's performance as an employee or consultant to NRC's
success as an enterprise. In assessing his own performance as portfolio manager,
Mr. Champion expects to base his assessment on a variety of factors, the most
important of which is the registrant’s (and other clients', if any) investment
performance in relation to various benchmarks. Mr. Champion anticipates that
the
relationship between salary and bonus payments to himself and other officers
and
employees of NRC, on the one hand, and the proportion of NRC's profits to which
he will be entitled as a result of his ownership and profit interest in NRC,
on
the other hand, may vary from year to year, particularly if NRC acquires other
investment management or advisory clients and if the proportion of NRC owned
by
Mr. Champion changes. In addition to a base salary, bonus and his profit
interest, Mr. Champion is eligible for health insurance and deferred
compensation benefits.
Prior
to
October 31, 2007, Mr. Champion received a salary pursuant to an employment
agreement he entered into with the registrant. The salary was fixed each year
and may have been adjusted from year to year based on the performance of the
registrant and various other quantitative and qualitative factors, as determined
by the Compensation Committee of the Board of Trustees. In addition, Mr.
Champion was eligible to receive a bonus for the year ended as of December
31,
2007. Such bonus would be calculated based on the performance of the registrant
and various other quantitative and qualitative factors, as determined by the
Compensation Committee of the Board of Trustees.
8(4)
As
of December 31, 2007, 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 COMPANY
AND
AFFILIATED PURCHASERS.
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
|
(1)
801,870
|
$7.76
|
(1)
801,870
|
(2)
0
|
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
|
(1)
761,776
|
$7.05
|
(1)
761,776
|
(2)
0
|
|
(1)
|
Semi-Annual
repurchase offer.
|
|
(2) |
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, 2007, 125,032 shares may be purchased
under the repurchase program.
|
ITEM
10.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There
have been no material changes to the procedures by which shareholders may
recommend nominees to the registrant’s board of directors.
ITEM
11.
CONTROLS AND PROCEDURES.
(a)
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 (“1940
Act”)) are effective as of a date within 90 days of the filing date of this
report based on their evaluation of these controls and procedures of such
disclosure controls and procedures as required by Rule 30a-3(b) under the 1940
Act and Rule 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934,
as amended.
(b)
The
registrant’s principal executive officer and principal financial officer are
aware of no change in the registrant's internal controls over financial
reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during
the second fiscal quarter of the period covered by this report that has
materially affected, or are reasonably likely to materially affect, the
registrant’s internal control over financial reporting.
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 1940 ACT:
See
Exhibit 99.77Q3Cert attached hereto.
(a)(3)
WRITTEN SOLICITATION TO PURCHASE SECURITIES PURSUANT TO RULE 23C-1 UNDER THE
1940 ACT
The
registrant has made no written solicitations to purchase securities pursuant
to
Rule 23C-1 under the 1940 Act during the period covered by the report to 10
or
more persons.
(b)
CERTIFICATIONS REQUIRED BY RULE 30A-2(B) UNDER THE 1940 ACT:
See
Exhibit 99.906Cert 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.
Taiwan
Greater China Fund
By:
/s/
Steven R. Champion
Name:
Steven R. Champion
Title:
President and Chief Executive Officer
Date:
March 6, 2008
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/
Steven R. Champion
Name:
Steven R. Champion
Title:
President and Chief Executive Officer
By:
/s/
Cheryl Chang
Name:
Cheryl Chang
Title:
Chief Financial Officer
Date:
March 7, 2008