EX-99 2 v315986_ex99.htm

THE TAIWAN FUND, INC. (THE ‘FUND’)

MONTHLY INSIGHT

May 31, 2012

IN BRIEF

Net asset value per share	US$16.43
Market price	US$15.53
Premium/(discount)	(5.48%)
Fund size	US$305.3m

Source: State Street Bank and Trust Company.

At May 31, 2012		US$ return
	Fund*	TAIEX Index^†
	%	%
One month	(4.8)	(4.7)
Three months	(11.2)	(11.4)
One year	(20.5)	(18.8)
Three years % pa	8.8	8.6

Past performance is not a guide to future returns.

Returns are annualized, except for periods of less than one year.

*Source: State Street Bank and Trust Company.

NAV performance.

†Source: TWSE. The Index shown is the TAIEX Total Return Index.

FUND MANAGERS



Wong Kok Hoi		James Liu

MANAGER’S COMMENTARY

The Taiwan stockmarket continued to slide in May. Bearish sentiment abounded, with the proposed capital gains tax (CGT) on share transactions being the key concern. Adding to the domestic pressure, mounting stress in the European sovereign-debt market and the banking system sent investors switching out of risky assets and putting money into the perceived ‘safe havens’ like United States Treasuries. Despite reported market-supporting activities by Taiwan government funds, the Taiwan Stock Exchange Total Return Index (the ‘Index’) lost 4.7% during the month on low trading volume. There were simply few buyers.

Full of twists and turns, the CGT saga has been a major overhang on the local stockmarket. In the first few days of the month, the Index went up strongly as local investors thought that President Ma Ying-jeou’s administration had softened its stance on the CGT proposal. But market sentiment very quickly turned negative again as the president seemed determined to send the tax bill to the legislature for the first reading in the second week of May. After much debate, the Kuomingtang (KMT) legislators released their proposal for the CGT on May 28, 2012, which turned out to be a complete overhaul of the version submitted by the cabinet. It was seen as hugely favorable to major stockmarket participants, especially wealthy local individual investors. As a result, the market rallied. Disgruntled by the KMT draft of the bill, the finance minister tendered her resignation immediately. Just as everybody thought the struggle with the CGT debate was coming to an end, Premier Sean Chen met with KMT legislators on the last night of May to set further terms for the CGT, primarily aimed at ‘big local individual investors’. So it seems that there won’t be an easy solution soon, and the issue will continue to affect market sentiment.

President Ma was sworn in for his second term in office on May 20, 2012. However, the general sentiment contrasted sharply with the jubilation when he was re-elected in January. The flip-flopping CGT saga has greatly annoyed local and foreign investors alike. There have been angry grumbles since energy prices were raised sharply for residential and industrial users. The ongoing European financial crisis and the slowdown in China are putting tremendous pressure on Taiwan’s export-oriented economy. The president is faced with considerable challenges; his approval rating plummeted to an all-time low of 23% in May.

Taiwan’s May Purchasing Managers’ Index fell to 50.5, down from 51.2 a month ago. Manufacturing and new orders both increased for the fourth straight month, but at a weaker pace.

MONTHLY INSIGHT

INVESTMENT STRATEGY AND PERFORMANCE

Key positive contributors included Taiflex Scientific, Ruentex Development and King’s Town Construction. Taiflex Scientific is expected to have a good second quarter on the back of strong order and shipment momentum; May revenue increased by 89% year on year. Ruentex Development’s main business segments, namely life insurance and property development in Taiwan and a retail chain in China, are expected to generate strong earnings. And King’s Town Construction’s share price performed well as the firm’s housing projects registered accelerated sales momentum into the second quarter. It’s estimated that quarterly sales revenue may double from the first quarter of 2012.

On the other side, the main detractors were Chinatrust Financial Holding, WT Microelectronics, and Mercuries & Associates. Financial stocks like Chinatrust Financial Holding came under selling pressure with concerns about the impact from the escalating European sovereign-debt crisis. It didn’t help that turnover in the Taiwan stock market shrank significantly as a result of the overhang from the proposed capital gains tax. This negatively affected the income of Chinatrust Financial Holding’s brokerage. WT Microelectronics fell as investors worried that the company’s business might be adversely affected by lower electronics demand caused by the slow global economy. Finally, shares in Mercuries & Associates were hurt by sluggish domestic macroeconomic conditions in Taiwan, which created headwinds for the company’s supermarket and department-store businesses.

We added no new stocks to the Fund during the month. We did, however, begin to sell positions in order to accumulate cash to be paid out at the conclusion of the Fund’s tender offer in late June. Some of the accumulated cash was invested in Taiwan Index exchange traded funds to maintain market exposure in vehicles that provide ready liquidity.

Source: Martin Currie Inc. and APS Asset Management Pte Ltd.

For further information please go to www.thetaiwanfund.com.

Martin Currie Inc. took over management of the Fund on May 9, 2010.

FUND DETAILS

May 31, 2012
Market cap	US$288.5m
Shares outstanding	18,575,990
Exchange listed	NYSE
Listing date	1986
Listed and direct investment manager	Martin Currie Inc

Source: State Street Bank and Trust Company.

PERFORMANCE		(US$ RETURNS)

(US$ returns)	NAV %	Market price %
One month	(4.8)	(3.5)
Three months	(11.2)	(9.6)
Three years % pa	8.8	8.1

Past performance is not a guide to future returns. Returns are annualized, except for periods of less than one year.

Source: State Street Bank and Trust Company.

SECTOR ALLOCATION

	Fund %*	Benchmark %^†
Electronics	36.8	51.9
Wholesale and retail	10.3	5.6
Construction	10.2	1.7
Plastics	7.8	7.7
Transportation	5.3	2.1
Finance	4.7	11.9
Healthcare	4.6	—
Textiles	3.1	1.8
Electric and machinery	2.3	1.4
Cement	1.0	1.3
Steel and iron	—	3.0
Others	—	2.7
Chemicals	—	2.1
Foods	—	1.9
Rubber	—	1.6
Automobile	—	1.6
Tourism	—	0.6
Glass and ceramics	—	0.4
Electrical appliance and cable	—	0.4
Paper and pulp	—	0.3
Exchange traded funds	8.9	—
Other assets and liabilities, net	5.0	—

*Source: State Street Bank and Trust Company.

†Source: TWSE.

15 LARGEST HOLDINGS*

		% of net
54.9% of holdings	Sector	assets

Taiwan Semiconductor Manufacturing	Electronics	9.8
WT Microelectronics	Electronics	4.6
Polaris Taiwan Top 50 Tracker Fund	Exchange traded	4.5
IShares MSCI Taiwan Index Fund	Exchange traded	4.4
Hon Hai Precision Industry	Electronics	4.2
Ruentex Development	Construction	4.0
YungShin Global Holding	Healthcare	3.2
Chunghwa Telecom	Electronics	3.1
First Steamship	Transportation	3.0
Formosa Petrochemical	Wholesale and retail	2.7
Advantech	Electronics	2.6
Mercuries & Associates	Wholesale and retail	2.5
Aurora	Electronics	2.2
Formosa Plastics	Plastics	2.1
Formosa Chemicals & Fibre	Plastics	2.0

*Source: State Street Bank and Trust Company.

PERFORMANCE							(US$ returns at May 31, 2012)

	One month	Three months	Calendar year	One year		Three years	Five years	Ten years	Since launch
	%	%	to date	%		% pa	% pa	% pa	% pa
			%
The Taiwan Fund, Inc.*	(4.8)	(11.2)	3.1	(20.5	)	8.8	(0.1)	4.8	8.5
TAIEX Index†	(4.8)	(11.5)	4.7	(22.0	)	4.9	(0.2)	3.9	8.4
TAIEX Total Return Index†	(4.7)	(11.4)	4.8	(18.8	)	8.6	3.7	na	na
MSCI Taiwan Index†	(5.0)	(11.0)	4.2	(18.2	)	7.9	1.6	5.0	na

Past performance is not a guide to future returns. Returns are annualized, except for periods of less than one year.

*Source: State Street Bank and Trust Company. Launch date December 23, 1986. Returns for the Fund are historical total returns that reflect changes in net asset value per share during each period and assume that dividends and capital gains, if any, were reinvested.

†Source: MSCI for the MSCI Taiwan Index and TWSE for the TAIEX Total Return Index and the TAIEX Index. For a full description of each index please see the index descriptions section.

Returns for the TAIEX Index are not total returns and reflect only changes in the share price but do not assume that cash dividends, if any, were reinvested, and thus are not strictly comparable to the Fund returns.

The TAIEX Total Return Index commenced January 1, 2003.

MONTHLY INSIGHT

PORTFOLIO IN FULL

	Company					% of
Sector	(BGB ticker)		Price	Holding	Value US$	net assets

ELECTRONICS						36.8
Taiwan Semiconductor Manufacturing	2330	TT	NT$85.1	10,516,000	$29,982,297	9.8
WT Microelectronics	3036	TT	NT$39.0	10,776,556	$14,080,866	4.6
Hon Hai Precision Industry	2317	TT	NT$87.5	4,375,000	$12,825,399	4.2
Chunghwa Telecom	2412	TT	NT$90.2	3,154,000	$9,531,319	3.1
Advantech	2395	TT	NT$102.0	2,294,100	$7,839,661	2.6
Aurora	2373	TT	NT$49.5	4,060,000	$6,733,114	2.2
Wistron NeWeb	6285	TT	NT$53.9	3,117,000	$5,628,729	1.8
Taiflex Scientific	8039	TT	NT$46.3	3,452,821	$5,350,207	1.8
Taiwan Mobile	3045	TT	NT$94.5	1,381,000	$4,372,303	1.4
MediaTek	2454	TT	NT$264.0	462,000	$4,086,304	1.3
Quanta Computer	2382	TT	NT$78.0	1,544,000	$4,034,843	1.3
GeoVision	3356	TT	NT$108.5	989,000	$3,595,098	1.2
MPI	6223	TT	NT$59.2	1,448,000	$2,871,938	1.0
Tatung	2371	TT	NT$6.6	4,770,897	$1,046,950	0.3
HTC	2498	TT	NT$430.0	35,000	$504,221	0.2

WHOLESALE AND RETAIL						10.3
Formosa Petrochemical	6505	TT	NT$81.5	3,035,000	$8,287,071	2.7
Mercuries & Associates	2905	TT	NT$22.2	10,228,169	$7,607,389	2.5
PC Home Online	8044	TT	NT$162.0	1,071,588	$5,816,043	1.9
Test-Rite International	2908	TT	NT$19.9	8,300,000	$5,519,801	1.8
Taiwan Tea	2913	TT	NT$14.8	8,231,000	$4,081,305	1.4

CONSTRUCTION						10.2
Ruentex Development	9945	TT	NT$43.8	8,327,082	$12,205,503	4.0
Hung Poo Real Estate Development	2536	TT	NT$24.1	4,929,873	$3,980,499	1.3
Acter	5536	TT	NT$126.0	941,179	$3,973,082	1.3
Goldsun Development & Construction	2504	TT	NT$10.3	11,314,980	$3,904,593	1.3
King’s Town Construction	2524	TT	NT$27.1	4,261,680	$3,869,322	1.2
Taiwan Land Development	2841	TT	NT$12.0	8,177,799	$3,287,778	1.1

PLASTICS						7.8
Formosa Plastics	1301	TT	NT$78.1	2,462,000	$6,442,046	2.1
Formosa Chemicals & Fibre	1326	TT	NT$79.0	2,301,000	$6,090,157	2.0
Nan Ya Plastics	1303	TT	NT$52.4	3,220,000	$5,652,908	1.9
Yem Chio	4306	TT	NT$27.7	5,979,833	$5,549,497	1.8

TRANSPORTATION						5.3
First Steamship	2601	TT	NT$40.4	6,775,000	$9,158,780	3.0
Farglory F T Z Investment Holding	5607	TT	NT$16.1	8,771,000	$4,716,381	1.6
Taiwan High Speed Rail	2633	TT	NT$5.3	12,597,600	$2,215,807	0.7

FINANCE						4.7
Yuanta Financial Holding	2885	TT	NT$13.2	12,631,900	$5,565,180	1.8
Chinatrust Financial Holding	2891	TT	NT$16.7	7,083,000	$3,951,084	1.3
Union Bank of Taiwan	2838	TT	NT$9.5	7,507,000	$2,384,292	0.8
Fubon Financial Holding	2881	TT	NT$29.7	2,400,000	$2,384,079	0.8

	Company					% of
Sector	(BGB ticker)		Price	Holding	Value US$	net assets

HEALTHCARE						4.6
YungShin Global Holding	3705	TT	NT$40.8	7,239,000	$9,883,049	3.2
Pacific Hospital Supply	4126	TT	NT$88.8	1,223,142	$3,638,937	1.2
Excelsior Medical	4104	TT	NT$58.6	259,000	$508,490	0.2

TEXTILES						3.1
Makalot Industrial	1477	TT	NT$85.6	1,828,000	$5,242,455	1.7
Far Eastern New Century	1402	TT	NT$30.2	4,216,836	$4,266,566	1.4

ELECTRIC AND MACHINERY						2.3
Yungtay Engineering	1507	TT	NT$47.8	3,274,000	$5,243,139	1.7
Good Friend International Holdings	912398	TT	NT$13.7	4,145,000	$1,895,579	0.6

CEMENT						1.0
Wei Mon Industry	8925	TT	NT$14.7	6,433,854	$3,157,865	1.0

EXCHANGE TRADED FUNDS						8.9
Polaris Taiwan Top 50 Tracker Fund	0050	TT	NT$50.2	8,111,000	$13,627,936	4.5
IShares MSCI Taiwan Index Fund	EWT:	US	US$12.1	1,118,524	$13,500,585	4.4

OTHER ASSETS AND LIABILITIES, NET					$15,168,660	5.0

MONTHLY INSIGHT

THE TAIWAN FUND, INC. PREMIUM/DISCOUNT

Source: State Street Bank and Trust Company as of May 31, 2012.

INDEX DESCRIPTIONS

TAIEX Index

The TWSE, or TAIEX Index is a capitalization-weighted index of all listed common shares traded on the Taiwan Stock Exchange. The Index was based in 1966 and does not include re-invested dividends.

TAIEX Total Return Index

The TAIEX Total Return Index is a capitalization-weighted index of all listed common shares traded on the Taiwan Stock Exchange, based in 1966, which includes re-invested dividends.

MSCI Taiwan Index

The MSCI Total Return Taiwan Index is a free-float adjusted market capitalization index. The Index represents Taiwanese companies that are available to investors worldwide. The Index has a base date of December 31, 1987. As of May 31, 2012, it contained 112 constituents.

OBJECTIVE

The Fund was launched on December 23, 1986 to allow US and other investors to access and participate in the growth of the economy and the stock market in Taiwan, the Republic of China. The Fund's investment objective is to seek long-term capital appreciation primarily through investments in equity securities listed in Taiwan. The Fund is a diversified, closed-end management investment company listed on the New York Stock Exchange (NYSE) under the symbol 'TWN'.

Taiwan, with its global market leadership in high technology goods and its significant investments throughout mainland China and Southeast Asian economies, is now an integral economic player in the Asia Pacific Region as well as around the world. Investing in Taiwan not only allows investors to capitalize on Taiwan's dynamic economy, but also allows investors to reap the growth and investment potential of the mainland China and other emerging economies of the region.

CONTACTS

The Taiwan Fund, Inc.

c/o State Street Bank and Trust Company

2 Avenue de Lafayette

PO Box 5049

Boston, MA 02111

Tel: (1) 877-864-5056

www.thetaiwanfund.com

IMPORTANT INFORMATION

This document is issued and approved by Martin Currie Inc (‘MC Inc’), as investment adviser of The Taiwan Fund, Inc. (the ‘Fund’). MC Inc is authorised and regulated by the Financial Services Authority (‘FSA’) and incorporated under limited liability in New York, USA. Registered in Scotland (No BR2575), registered address Saltire Court, 20 Castle Terrace, Edinburgh, EH1 2ES. Information herein is believed to be reliable but has not been verified by MC Inc. MC Inc makes no representation or warranty and does not accept any responsibility in relation to such information or for opinion or conclusion which the reader may draw from this newsletter.

The Fund is classified as a diversified investment company under the US Investment Company Act of 1940 as amended. It meets the criteria of a closed ended US fund and its shares are listed on the New York Stock Exchange. MC Inc has been appointed investment adviser to the Fund.

Investors are advised that they will not generally benefit from the rules and regulations of the United Kingdom Financial Services and Markets Act 2000 and the FSA for the protection of investors, nor benefit from the United Kingdom Financial Services Compensation Scheme, nor have access to the Financial Services Ombudsman in the event of a dispute. Investors will also have no rights of cancellation under the FSA’s Conduct of Business Sourcebook of the United Kingdom.

This newsletter does not constitute an offer of shares. MC Inc, its ultimate and intermediate holding companies, subsidiaries, affiliates, clients, directors or staff may, at any time, have a position in the market referred to herein, and may buy or sell securities, currencies, or any other financial instruments in such markets. The information or opinion expressed in this newsletter should not be construed to be a recommendation to buy or sell the securities, commodities, currencies or financial instruments referred to herein.

The information provided in this report should not be considered a recommendation to purchase or sell any particular security. There is no assurance that any securities discussed herein will remain in an account’s portfolio at the time you receive this report or that securities sold have not been repurchased.

It should not be assumed that any of the securities transactions or holdings discussed here were or will prove to be profitable, or that the investment recommendations or decisions we make in the future will be profitable or will equal the investment performance of the securities discussed herein.

Investing in the Fund involves certain considerations in addition to the risks normally associated with making investments in securities. The value of the shares issued by the Fund, and the income from them, may go down as well as up and there can be no assurance that upon sale, or otherwise, investors will receive back the amount originally invested. There can be no assurance that you will receive comparable performance returns, or that investments will reflect the performance of the stock examples contained in this document. Movements in foreign exchange rates may have a separate effect, unfavorable as well as favorable, on the gain or loss otherwise experienced on an investment. Past performance is not a guide to future returns. Accordingly, the Fund is only suitable for investment by investors who are able and willing to withstand the total loss of their investment. In particular, prospective investors should consider the following risks:

	It should be noted that investment in the Fund is only suitable for sophisticated investors who are aware of the risk of investing in Taiwan and should be regarded as long term. Funds which invest in one country carry a higher degree of risk than those with portfolios diversified across a number of markets.

	Investment in the securities of smaller and unquoted companies can involve greater risk than is customarily associated with investment in larger, more established, companies. In particular, smaller companies often have limited product lines, markets or financial resources and their management may be dependent on a smaller number of key individuals. In addition, the market for stock in smaller companies is often less liquid than that for stock in larger companies, bringing with it potential difficulties in acquiring, valuing and disposing of such stock. Proper information for determining their value, or the risks to which they are exposed, may not be available.

	Investments within emerging markets such as Taiwan can be of higher risk. Many emerging markets, and the companies quoted on their stock exchanges, are exposed to the risks of political, social and religious instability, expropriation of assets or nationalization, rapid rates of inflation, high interest rates, currency depreciation and fluctuations and changes in taxation which may affect the Fund's income and the value of its investments.

	The marketability of quoted shares may be limited due to foreign investment restrictions, wide dealing spreads, exchange controls, foreign ownership restrictions, the restricted opening of stock exchanges and a narrow range of investors. Trading volume may be lower than on more developed stockmarkets, and equities are less liquid. Volatility of prices can also be greater than in more developed stockmarkets. The infrastructure for clearing, settlement and registration on the primary and secondary markets may be undeveloped. Under certain circumstances, there may be delays in settling transactions in some of the markets.

Martin Currie Inc registered in Scotland (no BR2575)

Registered office: Saltire Court, 20 Castle Terrace, Edinburgh EH1 2ES

Tel: 44 (0) 131 229 5252 Fax: 44 (0) 131 228 5959 www.martincurrie.com

North American office: 1350 Avenue of the Americas, Suite 3010, New York, NY

10019, USA Tel: (1) 212 258 1900 Fax: (1) 212 258 1919

Authorised and regulated by the Financial Services Authority and incorporated with

limited liability in New York, USA. Registered with the SEC as an investment adviser.

Please note: calls to the above numbers may be recorded.