Assets
|
|
|
|
Investments
in securities at market value (Notes 2B, 2D, 3 and 7)
|
|
|
|
Common
Stock (cost — $70,699,606)
|
|
$ |
64,573,008 |
|
Short-term
securities (cost — $23,599)
|
|
|
23,599 |
|
Total
investment in securities at fair value
(cost — $70,723,205)
|
|
|
64,596,607 |
|
Cash
|
|
|
3,313,944 |
|
Foreign
cash (cost — $304,433)
|
|
|
305,522 |
|
Dividend
receivable
|
|
|
83,184 |
|
Prepaid
expenses and other assets
|
|
|
196,476 |
|
Total
assets
|
|
|
68,495,733 |
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Payable
for fund shares repurchased
|
|
|
3,317,890 |
|
Professional
fees payable
|
|
|
115,909 |
|
Shareholder
communication fees payable
|
|
|
53,454 |
|
Custodian
fee payable (Note 6)
|
|
|
15,101 |
|
Administration
fee payable (Note 5)
|
|
|
14,130 |
|
Management
fee payable (Note 4)
|
|
|
1,939 |
|
Other
accrued expenses
|
|
|
27,366 |
|
Total
liabilities
|
|
|
3,545,789 |
|
|
|
|
|
|
Net
assets
|
|
$ |
64,949,944 |
|
|
|
|
|
|
Components
of net assets
|
|
|
|
|
Par
value of shares of beneficial interest (Note 8)
|
|
$ |
64,124,095 |
|
Additional
paid-in capital (Note 8)
|
|
|
157,795,312 |
|
Accumulated
net investment income
|
|
|
57,437,398 |
|
Accumulated
net realized loss on investments and foreign currency
transactions
|
|
|
(103,383,306 |
) |
Unrealized
net depreciation on investments (Note 7)
|
|
|
(6,126,598 |
) |
Cumulative
translation adjustment (Note 2F)
|
|
|
(40,896,957 |
) |
|
|
|
|
|
Net
assets
|
|
$ |
64,949,944 |
|
|
|
|
|
|
Net
asset value per share (12,409,440 shares issued and outstanding, par value
$0.01)
|
|
|
$5.23 |
|
See accompanying notes to unaudited
financial statements and independent accountants’ review
report.
|
TAIWAN
GREATER CHINA FUND
|
|
For
the Six Months Ended June 30, 2009 (Unaudited) (Expressed in U.S.
Dollars)
|
Investment
income (Notes 2B, 2D)
|
|
|
|
Dividends
|
|
$ |
,116,127 |
|
Interest
and other income
|
|
|
28 |
|
|
|
|
116,155 |
|
|
|
|
|
|
Republic
of China taxes (Note 2H)
|
|
|
(42,388 |
) |
|
|
|
|
|
|
|
|
73,767 |
|
Expenses
|
|
|
|
|
Management
fee (Note 4)
|
|
|
357,870 |
|
Trustee
fees and expenses
|
|
|
117,733 |
|
Shareholder
communication expenses
|
|
|
99,188 |
|
Audit
and tax fee
|
|
|
61,359 |
|
Legal
fees and expenses
|
|
|
48,594 |
|
Insurance
expenses
|
|
|
46,336 |
|
Administrative
fee (Note 5)
|
|
|
45,085 |
|
Custodian
fee (Note 6)
|
|
|
41,695 |
|
Other
expenses
|
|
|
64,012 |
|
|
|
|
|
|
|
|
|
881,872 |
|
|
|
|
|
|
Net
investment loss
|
|
|
(808,105 |
) |
|
|
|
|
|
Net
realized and unrealized gain (loss) on investments and foreign currencies
(Notes 2F and 7)
|
|
|
|
|
Net
realized gain on:
|
|
|
|
|
investments
(excluding short-term securities)
|
|
|
423,617 |
|
foreign
currency transactions
|
|
|
18,515 |
|
Net
realized gain on investments and foreign currency
transactions
|
|
|
442,132 |
|
Net
changes in unrealized appreciation (depreciation) on:
|
|
|
|
|
investments
|
|
|
18,957,055 |
|
translation
of assets and liabilities in foreign currencies
|
|
|
(42,939 |
) |
|
|
|
|
|
Net
realized and unrealized gain from investments and foreign
currencies
|
|
|
19,356,248 |
|
|
|
|
|
|
Net
increase in net assets resulting from operations
|
|
$ |
18,548,143 |
|
|
|
|
|
|
See accompanying notes to unaudited
financial statements and independent accountants’ review
report.
|
TAIWAN
GREATER CHINA FUND
|
Statements
of Changes in Net Assets
|
For
the Six Months Ended June 30, 2009 and the Year Ended December 31,
2008 (Expressed in U.S.
Dollars)
|
|
|
|
|
|
|
|
|
|
Six
Months
|
|
|
Year
Ended
|
|
|
|
Ended
June 30,
|
|
|
December
31,
|
|
|
|
2009 (Unaudited)
|
|
|
2008
|
|
Net
increase (decrease) in net assets resulting from
operations
|
|
|
|
|
|
|
Net
investment income (loss)
|
|
$ |
(808,105 |
) |
|
$ |
2,046,036 |
|
Net
realized gain (loss) on investments and foreign
|
|
|
|
|
|
|
|
|
currency
transactions
|
|
|
442,132 |
|
|
|
(6,872,628 |
) |
Unrealized
appreciation (depreciation) on investments
|
|
|
18,957,055 |
|
|
|
(52,029,736 |
) |
Unrealized
depreciation on translation of
|
|
|
|
|
|
|
|
|
assets
and liabilities in foreign currencies
|
|
|
(42,939 |
) |
|
|
( 1,988,385 |
) |
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in net assets resulting from
operations
|
|
|
18,548,143 |
|
|
|
(58,844,713 |
) |
|
|
|
|
|
|
|
|
|
Capital
share transactions:
|
|
|
|
|
|
|
|
|
Cost
of semi-annual repurchase offer (Note 8B)
|
|
|
(3,317,890 |
) |
|
|
(
7,466,652 |
) |
|
|
|
|
|
|
|
|
|
Net
assets, beginning of period
|
|
|
49,719,691 |
|
|
|
116,031,056 |
|
|
|
|
|
|
|
|
|
|
Net
assets, end of period
|
|
$ |
64,949,944 |
|
|
$ |
49,719,691 |
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited
financial statements and independent accountants’ review
report.
|
TAIWAN
GREATER CHINA FUND
|
|
(Expressed
in U.S. Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2009
|
|
|
Years
Ended December 31,
|
|
|
|
(Unaudited)
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
Per
share operating performance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
asset value, beginning of period
|
|
|
3.81 |
|
|
|
8.02 |
|
|
|
7.07 |
|
|
|
5.87 |
|
|
|
5.37 |
|
|
|
5.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
investment income (loss) (a)
|
|
|
(0.06 |
) |
|
|
0.15 |
|
|
|
0.02 |
|
|
|
0.01 |
|
|
|
0.05 |
|
|
|
(0.01 |
) |
Net
realized and unrealized gain (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on
investments (b)
|
|
|
1.47 |
|
|
|
(4.21 |
) |
|
|
0.92 |
|
|
|
1.21 |
|
|
|
0.65 |
|
|
|
(0.24 |
) |
Net
realized and unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
appreciation
(depreciation) on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
translation
of foreign currencies (b)
|
|
0.00
|
(c) |
|
|
(0.16 |
) |
|
|
(0.01 |
) |
|
|
(0.03 |
) |
|
|
(0.25 |
) |
|
|
0.26 |
|
Total
from investment operations
|
|
|
1.41 |
|
|
|
(4.22 |
) |
|
|
0.93 |
|
|
|
1.19 |
|
|
|
0.45 |
|
|
|
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions
to Shareholders from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
investment income*
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
Stock Transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
Tender Offer/Repurchase
|
|
0.01
|
(d)
|
|
0.01
|
(d) |
|
0.02
|
(d) |
|
|
0.01 |
|
|
|
0.05 |
|
|
|
0.24 |
|
Net
asset value, end of period
|
|
|
5.23 |
|
|
|
3.81 |
|
|
|
8.02 |
|
|
|
7.07 |
|
|
|
5.87 |
|
|
|
5.37 |
|
Per
share market price, end of period
|
|
|
4.85 |
|
|
|
3.53 |
|
|
|
7.23 |
|
|
|
6.61 |
|
|
|
5.30 |
|
|
|
4.90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
investment return (%):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based
on Trust's market price
|
|
|
37.40 |
|
|
|
(51.18 |
) |
|
|
9.38 |
|
|
|
24.72 |
|
|
|
8.16 |
|
|
|
3.42 |
|
Based
on Trust's net asset value
|
|
|
37.27 |
|
|
|
(52.49 |
) |
|
|
13.44 |
|
|
|
20.44 |
|
|
|
9.31 |
|
|
|
4.94 |
|
U.S.
$ return of Taiwan Stock Exchange
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Index**
|
|
|
40.14 |
|
|
|
(46.66 |
) |
|
|
9.23 |
|
|
|
20.35 |
|
|
|
3.03 |
|
|
|
11.69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios
and supplemental data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
assets, end of period (in thousands)
|
|
|
64,950 |
|
|
|
49,720 |
|
|
|
116,031 |
|
|
|
113,391 |
|
|
|
104,364 |
|
|
|
116,467 |
|
Ratio
of expenses to average net assets (%)
|
1.54 |
† |
|
|
2.37 |
|
|
|
2.30 |
|
|
|
2.55 |
|
|
|
2.12 |
|
|
|
2.79 |
|
Ratio
of net investment income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
average net assets (%)
|
|
|
(1.41 |
)† |
|
|
2.29 |
|
|
|
0.28 |
|
|
|
0.22 |
|
|
|
0.99 |
|
|
|
(0.27 |
) |
Portfolio
turnover ratio (%)
|
|
|
8 |
|
|
|
22 |
|
|
|
26 |
|
|
|
24 |
|
|
|
16 |
|
|
|
137 |
|
(a)
|
Based
on average shares outstanding.
|
(b)
|
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.
|
(c)
|
Amounts
represent less than $0.01 per
share.
|
(d)
|
Based
on average monthly shares
outstanding.
|
*
|
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, and do not assume that cash dividends were
reinvested. The Taiwan Stock Exchange Index is calculated by the Taiwan
Stock Exchange Corp.
|
† |
Not
annualized. |
See accompanying notes to unaudited
financial statements and independent accountants’ review
report.
|
TAIWAN
GREATER CHINA FUND
|
Notes
to Financial Statements / June 30, 2009 (Expressed in U.S. Dollars)
(Unaudited)
|
Note
1 — Organization and Acquisition of The Taiwan (R.O.C.)
Fund
|
The
Taiwan Greater China Fund (the “Fund” or the “Trust”) is a Massachusetts
business trust formed in July 1988 and registered with the U.S. Securities and
Exchange Commission (the “SEC”) 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 approved 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 October
10, 2008, the Trust’s shareholders will be asked to consider the conversion of
the Trust to an open-end investment company at the 2009 annual meeting to be
held on September 10, 2009. 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 (the “ROC FSC”) to 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
(“GAAP”).
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 NAV
or at amortized cost, which approximates fair value. 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 total assets to qualified broker-dealers or
financial institutions. 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 Trust
receives compensation for securities lending activities from interest earned on
the invested cash collateral net of fee rebates paid to the
borrower. The Trust’s lending agency agreement with UBS Securities
LLC (“UBS”), was terminated at the end of October 2008, as UBS decided to exit
the securities lending business. For the fiscal year ended December
31, 2008, the Trust earned $112,290 from securities lending activities, and UBS
earned $39,751 in compensation as the Trust’s lending agent. The Trust did not
have securities on loan during the period.
|
TAIWAN
GREATER CHINA FUND
|
Notes
to Financial Statements / June 30, 2009 (Expressed in U.S. Dollars)
(Unaudited)
(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 — 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, 2008, the Trust
utilized $5,335,840 of capital loss carryover with a total loss carryover of
$91,449,362 remaining.
This
capital loss carryover may be used to offset any future capital gains generated
by the Trust, and, if unused, $59,446,991 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 $224,372, currency losses of
$1,215,369 and capital losses of $12,127,908 realized on investment transactions
from November 1, 2008 through December 31, 2008 and treat them as arising during
the fiscal year ended December 31, 2009 for U.S. federal income tax
purposes.
F — Foreign currency
translation — Substantially all of the Trust’s income is earned, and
its expenses are partially paid, in New Taiwan Dollars (“NT$”). 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 (“U.S. $”) based on the
closing market rate for United States Dollars in Taiwan at the end of the
period. At June 30, 2009, that rate was NT$32.8100 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 realized capital gains calculated in accordance with U.S. federal
income tax regulations. Such calculations may differ from those based
on GAAP. 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.
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.
Management
has analyzed the Trust’s tax positions taken on federal income tax returns for
all open tax years and has concluded that, as of December 31, 2008, no provision
for income tax would be required in the Trust’s financial statements. The
Trust’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 six months ended June 30, 2009, total par value of stock
dividend received was $116,278.
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 $23,508 paid for the six months ended June 30,
2009.
|
TAIWAN
GREATER CHINA FUND
|
Notes
to Financial Statements / June 30, 2009 (Expressed in U.S. Dollars)
(Unaudited)
(continued)
|
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. As required, the Trust implemented FIN 48 on January 1,
2007. Based on management’s evaluation, FIN 48 does not have a
material impact on the Trust’s financial statements.
K — Fair Value
Measurements — Effective January 1, 2008, the Trust adopted FAS 157 –
Fair Value Measurements (“FAS 157” or the “Statement”). FAS 157
defines fair value, establishes a framework for measuring fair value in GAAP,
and expands disclosures about fair value measurement. The changes to
current practices resulting from the application of the Statement relate to the
definition of fair value, the methods used to measure fair value, and expanded
disclosures about fair value measurement. The Statement emphasizes that fair
value is a market based measurement, not an entity specific measurement; as
such, a fair value measurement should be determined based on the assumptions
that market participants would use in pricing the asset or
liability. As a basis for considering market participant assumptions
in fair value measurements, the Statement establishes a fair value hierarchy
that distinguishes between (1) market participant assumptions developed based on
market data obtained from sources independent of the Trust (observable inputs)
and (2) the Trust’s own assumptions about market participant assumptions
developed based on the best information available in the circumstances
(unobservable inputs). The three levels defined by the FAS 157
hierarchy are as follows:
Level I –
Quoted prices (unadjusted) in active markets for identical assets or liabilities that the
reporting entity has the ability to access at the measurement date.
Level II
– Inputs other than quoted prices included within Level 1 that are observable
for the asset or liability, either directly or indirectly. Level II
assets include the following: quoted prices for similar assets or liabilities in active
markets, quoted prices for identical or similar assets or liabilities in markets
that are not active, inputs other than quoted prices that are observable for the
asset or liability, and inputs that are derived principally from or corroborated
by observable market data by correlation or other means (market-corroborated
inputs).
Level III
– Unobservable pricing input at the measurement date for the asset or
liability. Unobservable inputs shall be used to measure fair value to
the extent that observable inputs are not available.
In some
instances, the inputs used to measure fair value might fall in different levels
of the fair value hierarchy. The level in the fair value hierarchy
within which the fair value measurement in its entirety falls shall be
determined based on the lowest input level that is significant to the fair value
measurement in its entirety.
The
following table summarizes the valuation of the Trust’s securities using the
fair value hierarchy:
At June 30, 2009
|
|
Total
|
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
Investments
|
|
|
$64,596,607
|
|
|
|
$64,596,607
|
|
|
|
-
|
|
|
|
-
|
|
Note
3 — Investment
Considerations
|
Because
the Trust concentrates its investments in publicly traded equities issued by
R.O.C. corporations, its portfolio involves considerations not typically
associated with investing in U.S. securities. In addition, the Trust is more
susceptible to factors adversely affecting the R.O.C. economy than a fund not
concentrated in these issuers to the same extent. Since the Trust’s investment
securities are primarily denominated in NT$, changes in the relationship of the
NT$ to the U.S. Dollar may also significantly affect the value of the
investments and the earnings of the Trust.
|
TAIWAN
GREATER CHINA FUND
|
Notes
to Financial Statements / June 30, 2009 (Expressed in U.S. Dollars)
(Unaudited)
(continued)
|
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.
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 service is
purchased.
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 Trust’s
market value of Taiwan holdings up to $200 million, 0.13% of such Taiwan
holdings equal to or in excess of $200 million up to $400 million and 0.11% of
such Taiwan holdings 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
six months ended June 30, 2009, included $4,783,172 for stock purchases and
$8,752,894 for stock sales, respectively.
At June
30, 2009, the cost of investments, excluding short-term investments, for U.S.
federal income tax purposes was approximately equal to the cost of such
investments for financial reporting purposes. At June 30, 2009, the unrealized
depreciation of $6,126,598 for U.S. federal income tax purposes consisted of
$7,133,299 of gross unrealized appreciation and $13,259,897 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 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 six months ended June 30, 2009, 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 is established by the Trust’s Board of
Trustees shortly before the commencement of each offer, and is 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
2008, the Trust accepted 723,688 shares for payment at a price of $6.66 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 NAV at the close of regular trading on the Taiwan Stock Exchange on June
27, 2008, to which a 2% repurchase fee was applied. The purchased
shares constituted approximately 5% of the Trust’s previously outstanding
shares.
|
TAIWAN
GREATER CHINA FUND
|
Notes
to Financial Statements / June 30, 2009 (Expressed in U.S. Dollars)
(Unaudited)
(continued)
|
In
December 2008, the Trust accepted 687,504 shares for payment at a price of $3.85
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 NAV at the close of regular trading on
the Taiwan Stock Exchange on December 17, 2008, to which a 2% repurchase fee was
applied. The purchased shares constituted approximately 5% of the
Trust’s previously outstanding shares.
In June
2009, the Trust accepted 653,128 shares for payment at a price of $5.08 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 NAV at the close of regular trading on the Taiwan Stock Exchange on June
24, 2009, to which a 2% repurchase fee was applied. The purchased
shares constituted approximately 5% of the Trust’s previously outstanding
shares.
On July
15, 2008, the Trust filed a Registration Statement on Form N-2 with the SEC to
register its common shares for one or more potential offerings in the
future. On December 18, 2008, the Trust filed an amended Registration
Statement on Form N-2 with the SEC to register its common shares for one or more
potential offerings in the future and on January 22, 2009, the Registration
Statement was declared effective by the SEC. While the Fund has no
present intention to conduct such an offering, the filing will permit the Fund
to move rapidly to conduct an offering of its shares in the future if the Board
of Trustees of the Fund believes market conditions are appropriate.
At June
30, 2009, 12,409,440 shares were outstanding.
Note
9 — New Accounting
Pronouncements
|
In March
2008, Statement of Financial Accounting Standards No. 161, “Disclosures about
Derivative Instruments and Hedging Activities” (“SFAS 161”), was issued and is
effective for fiscal years beginning after November 15, 2008. SFAS 161 requires
enhanced disclosures to provide information about the reasons the Fund invests
in derivative instruments, the accounting treatment and the effect derivatives
have on performance. In September 2008, “FASB Staff Position No. 133-1 and FASB
Interpretation No. 45-4” (the “FSP”), “Disclosure about Credit Derivatives and
Certain Guarantees: An Amendment to FASB Statement No. 133 and FASB
Interpretation No. 45; and Clarification of the Effective Date of FASB Statement
No. 161,” were issued and are effective for fiscal years and interim periods
ending after November 15, 2008. The FSP amends FASB Statement No. 133,
“Accounting for Derivative Instruments and Hedging Activities,” to require
disclosures by sellers of credit derivatives, including credit derivatives
embedded in hybrid instruments. The FSP also clarifies the effective date of
SFAS 161, whereby disclosures required by SFAS 161 are effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008. Management of the Fund has adopted FAS 161 and determined there is no
material impact to the Fund’s financial statements for the period ended
June 30,
2009.
Note
10 — Subsequent Events
|
May 2009,
the FASB issued FASB Statement No. 165, “Subsequent Events” (“Statement No.
165”). Statement No. 165 establishes general standards of accounting
for and disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be
issued. Statement No. 165 includes a new required disclosure of the
date through which an entity has evaluated subsequent events and is effective
for interim reports or fiscal years ending after June 15, 2009. The
Fund’s adoption of Statement No. 165 did not have a material effect on its
financial position or results of operations.
Management
of the Fund has performed an evaluation of subsequent events through August 21,
2009, which is the date the financial statements were issued. This is
a new subsequent events disclosure requirement under Statement No.
165.
|
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 2000 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 2008,
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 stating that he was unaware of any
violations of such 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 Risk Metrics Group, formerly
Institutional Shareholder Services, Inc., 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 Trust’s Board of Trustees. A summary of the voting policies may
be found on the Trust’s website, www.taiwangreaterchinafund.com, and a more
detailed description of those policies is available on the website of the SEC,
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,
2009 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 www.sec.gov. Form N-Q may also be reviewed and
copied at the SEC’s Public Reference Room, 100 F Street N.E., Room
1580, Washington, DC 20549. To find out more about this public service, call the
SEC at 1-800-SEC-0330.
The Trust
issues a new monthly update each month, which can be viewed on the Trust’s
website at www.taiwangreaterchinafund.com. Please call toll free 1-800-343-9567
for any further information.
Board
Approval of Investment Advisory Agreement
(unaudited)
|
At a
meeting held in person on July 9, 2009, 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 the renewal, for a one year period, of an investment advisory and
management agreement (the “Advisory Agreement”) between the Trust and Nanking
Road Capital Management, LLC (“Nanking” or the “Adviser”).
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. In their
consideration of the Advisory Agreement, the Board considered the factors
described below. The Board evaluated information concerning the Advisory
Agreement provided to the Board during the meeting and during prior
meetings.
1. Nature,
Extent and Quality of Services Rendered.
The Board
considered the nature, quality and extent of advisory, administrative and
shareholder services performed by the Adviser, including portfolio management,
the supervision of operations of the Fund, the supervision of compliance and
regulatory filings for the Fund and disclosures to Fund shareholders, the
Adviser’s general oversight of the Fund’s other service providers, the CCO’s
services for the Trust and other services. The Board noted that the
Adviser had managed the Fund within the parameters of its unique investment
strategy for six years and had created a strong track record during that
time. The Board reviewed the Adviser’s research and investment
processes, noting that the Adviser’s research and investment methodology
continued to result in consistently high performance of the Fund. The
Board noted the Fund’s record of compliance with its investment policies and
restrictions, and the quality of managerial and administrative services provided
by the Adviser in an increasingly regulated industry. The Board
concluded that the services are extensive in nature and that the Adviser
consistently delivered a high level of service for the Fund.
2. Cost
and Benefits in Providing the Services.
The Board
reviewed management’s efforts to improve performance and lower
expenses. The Board considered the Fund’s management fee rate and
expense ratio relative to industry averages for the Fund’s peer group
category. The Board viewed favorably the historic and current
willingness of the Adviser to limit the expense ratio of the Fund, and noted
that the Adviser had not requested a fee increase. After discussion,
the Board concluded that the advisory fee for the Fund was acceptable based upon
the qualifications, experience, reputation and performance of the Adviser and
the moderate overall expense ratio of the Fund.
3. Fall-Out
Benefits
The Board
considered the possibility that the Adviser may receive “fall-out” benefits from
its managerial role, such as commissions on transactions in the Fund’s portfolio
securities or additional business for other funds managed by it or its
subsidiaries. The Board considered any collateral benefits or any
other benefits that may accrue or be received by the Adviser as a result of its
relationship with the Fund. In light of the costs of providing
investment management and other services to the Fund, and the Adviser’s ongoing
commitment to the Fund, ancillary benefits, if any, that the Adviser may receive
were considered by the Board to be reasonable.
Board
Approval of Investment Advisory Agreement (unaudited)
(continued)
|
4. Net
Profitability
The Board
considered the Adviser’s presentation concerning its profitability and costs
attributable to the Fund. The Board concluded that the Adviser’s
profitability was at an acceptable level, particularly in light of the quality
of the services being provided to the Fund.
5. Extent
to which Economies of Scale and Common Management Are Shared with the
Fund.
The Board
considered whether there had been economies of scale with respect to the
management of the Fund and whether the Fund had appropriately benefited from any
economies of scale realized by the Adviser in providing services to the
Fund. The Trustees noted the Fund had breakpoints on its advisory
fees that would allow investors to benefit directly in the form of lower fees as
the Fund’s assets grew. However, given the relatively small size of
the Fund, which had declined in aggregate assets over the past year, the Board
did not believe that significant (if any) economies of scale had yet been
achieved.
6. Entrepreneurial
Risk of the Adviser and its Affiliates.
The Board
also considered the entrepreneurial risk of the Adviser and noted that
significant risks exist in managing the Fund which are not easily quantifiable,
but are nonetheless a factor to be weighed in any consideration of the
reasonableness of the Adviser’s fees. The Board noted that the
Adviser had devoted all its resources to Fund matters and bore the costs of
enhanced regulatory requirements and new or enhanced Fund policies and
procedures, despite the decrease in revenues due to the decline in Fund
assets. The Board concluded that the Adviser differentiated itself
from other managers by clearly understanding the unique investment strategy of
the Fund and engaging in investment decisions from internally and externally
generated research using proprietary quantitative tools and disciplined risk
management. The Board noted that the Adviser’s risk level was at an
acceptable level, particularly in light of the quality of the services being
provided to the Funds.
7. Comparison
of Management Fees in the Industry.
The Board
reviewed and considered the advisory fee proposed to be paid by the Fund to the
Adviser in light of the nature, extent and quality of the advisory services
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 determined that, based on the
limited data available, the Adviser’s proposed fees were reasonable in light of
comparable performance, 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 Fund.
8. Disclosure
of Pertinent Information.
The Board
reviewed the information that the Adviser provided on a quarterly basis, noting
that the Adviser consistently furnished the Board with sufficient information to
provide an accurate picture of the Fund’s performance and
activities. The Board reviewed the information provided with respect
to the renewal of the Advisory Agreement and noted that the Adviser had provided
sufficient information necessary to evaluate the fees of the Adviser under the
Advisory Agreement.
Board
Approval of Investment Advisory Agreement (unaudited)
(continued)
|
9. Additional
Considerations
The Board
considered the size, education and experience of the staff of the Adviser, its
fundamental research capabilities and its approach to training and retaining
portfolio management and other research and management personnel, and concluded
that these attributes enabled it to provide a high level of service to the
Fund. The Board also considered the favorable history, reputation,
qualifications and background of the Adviser, as well as the qualifications of
its management team.
Conclusions
In
considering the Advisory Agreement, the Board did not identify any factor as
all-important or all-controlling and instead considered the factors described
above and other factors collectively in light of the Fund’s surrounding
circumstances. Based on this review, it was the judgment of the Board
that shareholders of the Fund had received satisfactory service at reasonable
fees and that re-approval of the Advisory Agreement was in the best interests of
the Fund and its shareholders. As part of its decision-making
process, the Board noted that the Adviser had a long-standing relationship with
the Fund, and that the Board believed that a long-term relationship with a
capable, conscientious adviser was in the best interests of the
Fund. As such, the Board considered, in particular, whether the
Adviser managed the Fund in accordance with its investment objective and
policies as disclosed to the Fund’s shareholders.
Report of Independent
Registered Public Accounting Firm
The
Board of Trustees and Shareholders of
Taiwan
Greater China Fund:
We have
reviewed the accompanying statement of assets and liabilities of Taiwan Greater
China Fund (the “Fund”), including the schedule of investments, as of June 30,
2009, and the related statements of operations, changes in net assets, and
financial highlights for the sixth-month period ended June 30,
2009. These interim financial statements and financial highlights are
the responsibility of the Fund’s management.
We
conducted our review in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim
financial information consists principally of applying analytical procedures and
making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with the standards of the Public Company Accounting Oversight Board
(United States), the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we
do not express such an opinion.
Based on
our review, we are not aware of any material modifications that should be made
to the accompanying interim financial statements and financial highlights
referred to above for them to be in conformity with U.S. generally accepted
accounting principles.
We have
previously audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the statement of changes in net
assets for the year ended December 31, 2008 and financial highlights for each of
the years in the five-year period ended December 31, 2008, and in our report
dated February 25, 2009, we expressed an unqualified opinion on such statement
of changes in net assets and financial highlights.
Boston,
MA
August
21, 2009
[THIS
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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, Chief Executive Officer and Portfolio Manager
Regina
Foley, Chief Financial Officer, Treasurer
and Secretary
Nanking
Road Capital Management, LLC
111
Gillett Street
Hartford,
CT 06105
U.S.A.
Tel:
(860) 278-7888
Administrator
& Custodian:
Brown
Brothers Harriman & Co.
40 Water
Street
Boston,
MA 02109
U.S.A.
Tel:
(617) 742-1818
American
Stock Transfer & Trust Company
59 Maiden
Lane – Plaza Level
New York,
NY 10038
U.S.A.
Telephone:
(866) 624-4110
Investor
Relations & Communications:
The
Altman Group, Inc.
60 East
42nd Street, Suite 916
New York,
NY 10165
U.S.A.
Telephone:
(212) 681-9600
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