Edgar Filing: TAIWAN FUND INC

THE TAIWAN
FUND, INC.(R)

--------------------------------
Semi-Annual Report
February 28, 2003
(Unaudited)

THE TAIWAN
FUND, INC.

WHAT'S INSIDE

Page
Chairman's Statement 2

Report of the Investment
Manager 5

Portfolio Snapshot 9

Investments 10

Financial Statements 14

Notes to Financial
Statements 17

Other Information 20

Summary of Dividend
Reinvestment and
Cash Purchase Plan 21

-----------------------------

CHAIRMAN'S STATEMENT
--------------------------------------------------------------------------------

Dear Shareholders:

We are pleased to present the Semi-Annual Report of The Taiwan Fund, Inc. (the
"Fund") for the six months ended February 28, 2003. During this period, the
Fund's net asset value ("NAV") decreased by 12.71% in U.S. dollar terms and by
11.03% in New Taiwan ("NT") dollar terms. During the same period, the Taiwan
Stock Exchange Index (the "TAIEX") decreased by 6.98% in NT dollar terms. The NT
dollar depreciated against the U.S. dollar by 1.44% during this period. Despite
having underperformed the TAIEX, the Fund continued to be one of the best
performing funds in its peer group during the past six months.

On February 28, 2003, the Fund's shares were trading at US$8.38 per share,
reflecting a discount of 15.10% to the Fund's NAV per share of US$9.87. The
Fund's shares were trading at a discount of 18.04% on August 31, 2002.

The global economy slowed down considerably in the past six months mainly due to
increasing war anxiety that deterred spending and investments. For example, the
U.S. GDP growth in the fourth quarter of 2002 declined sharply to 1.4% from 4.0%
in the third quarter. The growth in the first and second quarters of 2003 is
also expected to be sluggish. Decreased consumer spending is a key reason behind
such lackluster economic performances. The U.S. University of Michigan Consumer
Sentiment Index plunged to below 80 in February, a level not seen since 1993.
Uncertainties related to the economic impact brought by geopolitical tensions
certainly weighed heavily on the minds of consumers, businesses, and investors.
With a U.S. war with Iraq looming, investors' confidence deteriorated, as
reflected by falling stock markets in early 2003. The post-war economic status
should determine whether or not a recovery is likely in the near term. At this
time, however, the outlook is still mixed.

It is notable that in addition to widespread concerns about war and its
consequences, there are also significant structural problems in the global
economy that will persist in the post-war environment, such as the lack of
demand growth from the industrial world, e.g. Japan, Germany, and in particular,
the United States. Spiking oil prices in the first quarter of 2003 further
dampened global demand growth. Although there is a possibility that oil prices
will come down soon as a result of the war, this is unlikely to substantially
boost growth. Many economists have reduced their forecast on global economic
growth. For example, Morgan Stanley cut its global 2003 GDP growth forecast from
2.9% to 2.5%, citing oil shock and geopolitical instability in the aftermath of
the war. Lack-

--------------------------------------------------------------------------------

ing meaningful growth engines, a complete global recovery is less likely to
emerge in the foreseeable future.

Nevertheless, a partial economic recovery is expected in the coming months, as
business inventories reach historically low levels and demand rebounds following
post-war construction. A rebound in IT spending may be induced by the relief
about the war, in conjunction with a brightened profit outlook in the upcoming
business inventory cycle. For the global economy, it is probably still going to
take time before prosperity resumes, however, an upturn based on cyclical forces
is expected to take hold in the next several months. This should be a stimulus
for certain industries and economies. Taiwan, for instance, should see a boost
in economic growth following this cyclical upswing.

Driven primarily by exports of manufactured goods, Taiwan has long been the
major beneficiary of the inventory build-up cycle. This is manifested by the
link between Taiwan's export growth and the U.S. ISM Inventories Index in recent
years. Since mid-2002, U.S. business inventories have been at historically low
levels of approximately 1.36 months of sales. As growth expectations emerge
after the war, a strong restocking demand should benefit Taiwan significantly.
The pending IT replacement demand, which is expected to increase, should fuel
Taiwan's exports, of which 40% are information technology products. In addition,
the rising Chinese domestic demand also plays an important, and perhaps integral
part of Taiwan's export growth. The contributions of the Chinese economy to the
world economy may still be relatively small, but they represent an important
growth driver to the relatively small Taiwanese economy. In 2002, China outpaced
North America to become Taiwan's largest trade partner and Taiwan was among
China's top three foreign direct investors. The cross-strait economic
developments have been mutually beneficial, and this economic tie will continue
to support the base-line growth for Taiwan even in the face of a continued
global economic downturn. However, the SARS epidemic poses a serious risk to the
pace of economic growth in the near term.

The cross-strait political climate should be favorable in the coming months, as
both sides focus on economic developments. The risk of a confrontation between
Taiwan and China is currently low because of stable political and economic
conditions. Political factors may provide a lift to the market when the campaign
for the 2004 presidential election starts in the second half of 2003. More
government stimulus may be proposed, including the possible elimination of the
restrictions on direct links with China. Therefore, the market is not expected
to encounter any roadblocks on the political front throughout 2003.

CHAIRMAN'S STATEMENT (continued)
--------------------------------------------------------------------------------

The market may continue to consolidate in the near-term before the catalyst of
inventory cycle comes to trigger growth. In light of a potential rally in the
later part of 2003, any market weakness in the coming months should provide good
entry points for investors. Through sound investment management by our portfolio
manager, we believe our shareholders should enjoy handsome investment rewards in
the foreseeable future.

During the past six months, the Fund's shares were trading at an average
discount of around 16.2%. The discount fluctuated in the range of 12% to 20%,
depending largely on market sentiments. As the market is likely to turn better
going forward, we believe the discount should narrow in the coming months.

The Board maintains its confidence in the economic prospects of Taiwan, and the
Fund's long-term performance should reflect Taiwan's investment fundamentals.
Thank you for your continued support of The Taiwan Fund, Inc.

Sincerely,

/s/ S.Y. Wang

S.Y. Wang
Chairman

REPORT OF THE INVESTMENT MANAGER
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

INVESTMENT PERFORMANCE

The Fund's net asset value ("NAV") decreased by 12.71% in U.S. dollar terms and
by 11.03% in New Taiwan ("NT") dollar terms during the six months ended February
28, 2003. The Taiwan Stock Exchange Index (the "TAIEX") decreased by 6.98% in NT
dollar terms during the same period. The Fund's performance during this period
reflected a major structural change in Taiwan's investment focus: from
technology-centric investing to sector-balanced investing. Despite its less than
satisfactory investment results, the Fund has been one of the best performing
funds in its peer group for the past six months, as we have adjusted our
investment focus ahead of our peers.

In the past six months, non-technology sectors outperformed the technology
sector in a way that clearly demonstrated their fundamental differences. The
technology sector fell by 17.68% in NT dollar terms during the past six months,
while non-technology sectors on average rose 8.04% in NT dollar terms during the
same period. The big winners in non-technology sectors, including paper and
pulp, steel, automobile, and transportation, all returned over 30% during the
past six months. Second-tier sectors, including cement, foods, textiles,
tourism, and others, still made impressive gains of 10% to 15% during the same
period. The only two sectors with negative returns during this period were
finance, -0.5%, and wholesale and retail, -5.0%. Such a shift in investment
focus was in fact within our expectation, as we have maintained an overweight
position in non-technology sectors since last October (see below table). Within
this non-technology arena, however, there were sizable differences in
performance. As our investment positions in non-technology sectors did not cover
the entire spectrum, the Fund's performance was worse than we would have liked
for the past six months. Weak performance was nevertheless a common phenomenon
among domestic funds, as evidenced by the fact that only three out of one
hundred and ninety domestic funds outperformed the TAIEX on a year-to-date
basis.

REPORT OF THE INVESTMENT MANAGER (continued)
--------------------------------------------------------------------------------

TECHNOLOGY SECTOR WEIGHTING (%), THE FUND VS. TAIEX

TAIWAN FUND TAIEX
----------- -----

September 58.71 58.14
October 53.03 57.01
November 54.75 56.44
December 49.25 52.99
January 43.12 49.52
February 46.53 51.23

Source: HSBC AMTW

On a relative basis, however, the Fund continued with its good performance
record amongst its peers. In the fourth quarter of 2002, the Fund's performance
ranked in the first quartile of its peer group, up from the second quartile
ranking in the third quarter of 2002. In addition, the Fund has stayed in the
first quartile on a year-to-date basis in 2003. Our early focus in the
non-technology sector has differentiated the Fund from other funds and clearly
given us an advantage in performance. We will continue to leverage our
capability of identifying major market trends so as to secure our favorable
position. In the meantime, we will further improve our investment efficiency to
catch up with the rapid pace of market developments. This should help us close
the performance gap between the Fund and the benchmark in the coming months.

INVESTMENT OUTLOOK

The market is likely to be range-bound in the next few months before a
significant rally comes in sight during the second half of 2003. The global
economy remained weak in early 2003, with most investors expecting a period of
little growth under the threat of war. Nevertheless, expectations for the second
half of the year are relatively optimistic, especially as the economy enters the
post-war construction stage that usually encourages economic developments. By
some estimates, the U.S. GDP growth should be only 0.6% in the second quarter of
2003, but in the third and fourth quarters, the growth rate is expected to
accelerate to 4.5%. We believe this promising outlook for the second half of the
year should protect against the market's downsides. While upsides are
potentially rewarding, current market sentiments suggest investors are still
very cautious about what may lie ahead, given the fact that economic indicators
are trending down amid weak confidence for businesses and consumers.

We anticipate a late-year recovery in the global economy based on our
observations that a mid-term cyclical upturn may play a significant role

--------------------------------------------------------------------------------

at the time. Due to a difficult economic environment and negative news flows,
businesses are keeping their inventories at such a low level that they may turn
out to be insufficient once demand rises. This upturn in demand growth may stem
from various sources, such as policy stimulus in the industrial world, China's
continued investment needs, reconstruction activities in the Middle East, or a
resurgence in pent-up demand from businesses and consumers. From a cyclical
point of view, an inventory build-up cycle is also anticipated in late 2003. An
18-month long down-cycle, as suggested by looking at the U.S. inventory-
to-sales ratio, started in mid-2002. The down-cycle should turn into an up-cycle
in late 2003, according to the repetitive pattern. We believe there is a good
chance of accelerated economic growth for the final part of this year, driven by
increasing investment demand in inventories and capital spending. We expect the
market to experience a strong rally well ahead of the fundamentals as we enter
into the second half of 2003.

INVESTMENT STRATEGY

We have been advocating four major themes for investing in Taiwan: (1) China
Harvest Plays (2) Outsourcing Winners (3) Consumer Banking and (4) New Products.
We will adhere to these themes because they are still applicable to today's
market trends. On the other hand, we intend to add more color to these themes,
as there are various angles to ride on these trends.

For China Harvest Plays, we continue to favor auto-related companies for their
foreseeable growth. We are particularly keen on companies making auto parts,
i.e. tires or lamps, because of their dominant positions in their respective
markets. The thriving investment activities in China are another area of focus,
for they are the major reason behind the strong price momentum in commodity
markets, including cement, plastics, chemicals, paper & pulp, steel, etc. This
rising demand for industrial materials also benefits the transportation
industry, which is gaining from China's growing imports, on top of the already
thriving exports. So there are many stories behind the theme of China Harvest
Plays. We will increase our exposure to the above investment ideas accordingly.

For Outsourcing Winners, we will expand our reach to encompass smaller companies
with niche focus. Although the larger ones are generally the winners, the
smaller ones can find their fair shares in a carefully selected market segment,
especially in industries that are less capital intensive. As a result, we will
hedge our bets in some of these targets in addition to the well-known names in
foundries and in the OEM/ODM business.

REPORT OF THE INVESTMENT MANAGER (continued)
--------------------------------------------------------------------------------

For Consumer Banking, we are seeing strong growth potential in the cash card
(credit cards with an ATM cash withdrawal feature) business in Taiwan. It is
expected that Taiwan's cash card business may reach NT$350 billion to NT$600
billion in the future, a substantial increase from the current market size of
NT$65 billion. Drawing from Japan's experience, the delinquency ratio in the
cash card business is actually small, and the interest spread has not come down
even under intense competition. With this tempting fundamental, the cash card
business will be an important investment focus in the banking sector down the
road. Our investment in this area will likely be part of a long-term investment
strategy, however, since in our view the market has yet to see its growth
potential.

For New Products, we will direct our focus to one particular product, the
digital camera. As pointed out by Sony, the digital camera is the only consumer
electronics product that is growing "in full swing" this year. The digital
camera has offered the required functionality at the "sweet spot" price level
that triggers a worldwide acceptance among consumers. Color or 3G (third
generation) handsets, in comparison, may be less compelling to consumers with
their limited functional benefits and higher prices. Our investment strategy
will be to place bets on OEM/ ODM manufacturers, as well as key component
providers. As the digital camera industry is moving towards its up-cycle, these
participants are likely to enjoy the benefits without worrying too much about
price competition, a nightmare for others in the technology sector.

It is our belief that a genuine, inventory-led up cycle may be seen in late
2003. As such, we will gradually build up our position in cyclical sectors,
mainly, the technology sector. The expected consolidations in the next few
months will only offer good entry points for well-managed leading companies. We
will be on the buy side should those corrections come into play. Nevertheless, a
sector-balanced portfolio is still our top priority in the coming months.
Residing near the world's strongest growth engine, Taiwan has a lot to gain from
China's economic growth. This is something we, as investors, should keep in mind
in setting our investment strategy.

Thank you for your support and we look forward to presenting our strategy again
in coming reports.

Sincerely,

/s/ Vincent Lai /s/ Jovi Chen
Vincent Lai Jovi Chen
Portfolio Manager Deputy Portfolio Manager

PORTFOLIO SNAPSHOT*
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TOP TEN EQUITY HOLDINGS

HOLDINGS AS OF FEBRUARY 28, 2003 %
--------------------------------------------------
Taiwan Semiconductor Manufacturing Co. 6.8
--------------------------------------------------
Cathay Financial Holding Co. Ltd. 3.6
--------------------------------------------------
Chunghwa Telecom Co. Ltd. 3.5
--------------------------------------------------
United Microelectronics Corp. Ltd. 3.2
--------------------------------------------------
Au Optronics Corp. 3.1
--------------------------------------------------
Yang Ming Marine Transport 3.0
--------------------------------------------------
Formosa Chemicals & Fibre Corp. 2.5
--------------------------------------------------
Formosa Plastic Corp. 2.5
--------------------------------------------------
Hon Hai Precision Industry Co. Ltd. 2.3
--------------------------------------------------
China Steel Corp. 2.1
--------------------------------------------------

TOP TEN EQUITY INDUSTRY WEIGHTINGS

WEIGHTINGS AS OF FEBRUARY 28, 2003 %
--------------------------------------------------
Semi-Conductor 16.4
--------------------------------------------------
PC & Peripherals 12.1
--------------------------------------------------
Electronics 10.0
--------------------------------------------------
Financial Services 9.3
--------------------------------------------------
Telecommunications 7.6
--------------------------------------------------
Banks 6.5
--------------------------------------------------
Plastics 5.7
--------------------------------------------------
Textiles & Apparel 4.6
--------------------------------------------------
Shipping 4.4
--------------------------------------------------
Iron & Steel 3.0
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TOP TEN EQUITY HOLDINGS

HOLDINGS AS OF AUGUST 31, 2002 %
--------------------------------------------------
Taiwan Semiconductor Manufacturing Co. 9.1
--------------------------------------------------
United Microelectronics Corp. Ltd. 4.2
--------------------------------------------------
Hon Hai Precision Industry Co. Ltd. 3.9
--------------------------------------------------
Chunghwa Telecom Co. Ltd. 3.0
--------------------------------------------------
Formosa Plastic Corp. 2.7
--------------------------------------------------
Mediatek Incorporation 2.6
--------------------------------------------------
Cheng Shin Rubber Industrial Co. 2.6
--------------------------------------------------
Quanta Computer, Inc. 2.5
--------------------------------------------------
Chinatrust Financial Holdings 2.1
--------------------------------------------------
Nan Ya Plastic 2.0
--------------------------------------------------

TOP TEN EQUITY INDUSTRY WEIGHTINGS

WEIGHTINGS AS OF AUGUST 31, 2002 %
--------------------------------------------------
Electronics 17.7
--------------------------------------------------
PC & Peripherals 16.5
--------------------------------------------------
Semi-Conductor 16.3
--------------------------------------------------
Banks 8.7
--------------------------------------------------
Telecommunications 6.8
--------------------------------------------------
Financial Services 6.3
--------------------------------------------------
Plastics 5.4
--------------------------------------------------
Rubber 3.1
--------------------------------------------------
Textiles & Apparel 3.0
--------------------------------------------------
Automobiles, Tires & Accessories 1.6
--------------------------------------------------

* Percentages based on total investments at February 28, 2003 and August 31,
2002.

THE TAIWAN FUND, INC.
INVESTMENTS/FEBRUARY 28, 2003 (SHOWING PERCENTAGE OF TOTAL VALUE OF
INVESTMENT IN SECURITIES) (UNAUDITED)
--------------------------------------------------------------------------------

US$
VALUE
SHARES (NOTE 1)
------ --------

COMMON STOCKS - 95.1%
BASIC INDUSTRIES -- 15.3%
CEMENT -- 0.4%
Asia Cement Corp. (a)...................... 874,000 $ 306,843
Taiwan Cement Corp. ....................... 980,000 345,468
------------
652,311
------------
CHEMICALS -- 2.4%
China Synthetic Rubber Corp. (a)........... 749,000 236,016
Eternal Chemical Co. Ltd. ................. 585,000 336,691
Grand Pacific Petrochemical Co. Ltd. (a)... 632,000 227,338
Ho Tung Chemical Corp. .................... 871,000 363,439
Oriental Union Chemical Corp. ............. 1,947,000 1,888,170
Pihsiang Machinery Manufacturing Co.
Ltd. ..................................... 735 1,999
Union Petrochemical Technology Corp. (a)... 524,000 202,814
Yung Shin Pharmaceutical Industries Co. ... 926,000 652,863
------------
3,909,330
------------
GLASS -- 0.2%
Taiwan Glass Industrial Corp. ............. 539,000 348,993
------------
IRON & STEEL -- 3.0%
China Steel Corp. ......................... 5,471,000 3,400,679
Tung Ho Steel Enterprise Corp. (a)......... 663,000 222,272
Yieh Phui Enterprise (a)................... 1,638,000 1,282,118
------------
4,905,069
------------
PAPER -- 0.4%
Long Chen Paper Co. Ltd. (a)............... 3,169,000 624,680
------------
PAPER & FOREST PRODUCTS -- 1.5%
Cheng Loong Co. Ltd. (a)................... 793,000 238,470
Chung Hwa Pulp Corp. (a)................... 4,421,000 1,908,345
Yuen Foong Yu Paper Manufacturing Co.
Ltd. ..................................... 832,000 308,858
------------
2,455,673
------------
PLASTICS -- 5.7%
Formosa Plastic Corp. ..................... 3,184,000 4,004,052
Nan Ya Plastics Corp. ..................... 2,737,000 2,709,433
Taiwan Polypropylene Co. Ltd. ............. 2,080,000 1,867,511
Taiwan Styrene Monomer Corp. .............. 429,000 369,125
USI Far East Corp. (a)..................... 923,000 256,315
------------
9,206,436
------------

US$
VALUE
SHARES (NOTE 1)
------ --------

RUBBER -- 0.9%
Cheng Shin Rubber Industrial Co. .......... 628,000 $ 789,744
Kenda Rubber Industrial Co. (a)............ 317,000 305,597
Taiwan Synthetic Rubber Corp. (a).......... 1,136,000 261,525
------------
1,356,866
------------
WIRE & CABLE -- 0.8%
Sampo Corp. ............................... 1,089,000 376,058
Ta Ya Electric Wire & Cable Co. Ltd. ...... 747,000 254,732
Walsin Lihwa Corp. (a)..................... 2,314,000 682,547
------------
1,313,337
------------
TOTAL BASIC INDUSTRIES..................... 24,772,695
------------
CONSUMER BASICS -- 0.8%
HOUSEHOLD PRODUCTS -- 0.8%
Globe Union Industrial Corp. .............. 541,000 879,611
Nien Made Enterprise Co. Ltd. (a).......... 195,000 440,504
------------
1,320,115
------------
TOTAL CONSUMER BASICS...................... 1,320,115
------------
CONSTRUCTION & REAL ESTATE -- 0.8%
CONSTRUCTION & REAL ESTATE -- 0.8%
Chien Kuo Construction Co. Ltd............. 1,016,000 719,240
CTCI Corp.................................. 712,000 471,252
------------
1,190,492
------------
TOTAL CONSTRUCTION & REAL ESTATE........... 1,190,492
------------
DURABLES -- 7.3%
AUTOMOBILES, TIRES & ACCESSORIES -- 2.4%
China Motor Co. ........................... 550,000 933,813
TYC Brother Industrial Co. Ltd. ........... 486,000 811,165
Yulon Motor Co. Ltd. ...................... 1,810,000 2,140,748
------------
3,885,726
------------
CONSUMER ELECTRONICS -- 0.3%
Shihlin Electric & Engineering Corp. ...... 967,000 473,065
------------

10 The accompanying notes are an integral part of the financial statements.

INVESTMENTS/FEBRUARY 28, 2003 (continued) (unaudited)
--------------------------------------------------------------------------------

US$
VALUE
SHARES (NOTE 1)
------ --------

COMMON STOCKS - continued
TEXTILES & APPAREL -- 4.6%
Far Eastern Textile Co. Ltd. .............. 2,018,000 $ 740,417
Formosa Chemicals & Fibre Corp. ........... 4,080,000 4,062,389
Formosa Taffeta Co. Ltd. .................. 1,292,000 539,108
Nien Hsing Textile Co. Ltd. ............... 588,000 531,315
Shinkong Synthetic Fibers Corp. (a)........ 3,837,000 783,963
Tainan Enterprises Co. .................... 497,000 586,388
Yi Jinn Industrial Co. Ltd. (a)............ 1,232,000 214,492
------------
7,458,072
------------
TOTAL DURABLES............................. 11,816,863
------------
FINANCE -- 16.1%
BANKS -- 6.5%
Chang Hwa Commercial Bank.................. 1,781,000 799,528
Chinatrust Financial Holding Co. Ltd.
(a)....................................... 3,935,000 3,159,324
Cosmos Bank Taiwan (a)..................... 6,976,000 2,870,699
CTB Financial Holding Co. ................. 2,590,377 1,259,781
Far Eastern International Bank............. 847,000 275,427
Hsinchu International Bank (a)............. 836,000 338,009
International Bank of Taipei............... 1,329,000 573,669
Shin Kong Financial Holdings Co. Ltd.
(a)....................................... 2,068,000 583,206
Taishin Financial Holdings Co. Ltd. ....... 1,233,000 606,742
------------
10,466,385
------------
FINANCIAL SERVICES -- 9.3%
Cathay Financial Holding Co. Ltd. ......... 5,463,202 5,848,378
China Development Financial Holding Corp.
(a)....................................... 4,707,530 1,774,637
E. Sun Financial Holding Co. Ltd. (a)...... 1,325,000 594,820
First Financial Holdings Co. Ltd. (a)...... 385,000 240,417
Fubon Financial Holding Co. Ltd. .......... 3,351,261 2,632,789
Fuh-Hwa Financial Holdings Co. Ltd. (a).... 1,636,000 487,269
Hua Nan Financial Holdings Co. Ltd. ....... 4,469,000 2,726,412
SinoPac Holdings Co. (a)................... 1,658,000 634,573
------------
14,939,295
------------
REAL ESTATE -- 0.3%
Cathay Real Estate Development Co. Ltd.
(a)...................................... 2,204,000 504,224
------------
TOTAL FINANCE.............................. 25,909,904
------------

US$
VALUE
SHARES (NOTE 1)
------ --------

INDUSTRIAL MACHINERY & EQUIPMENT -- 0.5%
INDUSTRIAL MACHINERY -- 0.5%
Teco Electric & Machinery Co. (a).......... 1,913,000 $ 580,781
Yungtay Engineering Co. Ltd. .............. 399,000 279,013
------------
859,794
------------
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT..... 859,794
------------
NON-DURABLES -- 0.3%
FOODS -- 0.3%
Uni-President Enterprises Corp. (a)........ 1,651,000 515,492
------------
TOTAL NON-DURABLES......................... 515,492
------------
OTHERS & MISCELLANEOUS -- 2.0%
OTHERS & MISCELLANEOUS -- 2.0%
Fu Sheng Industrial Co. Ltd. .............. 262,000 292,535
Giant Manufacturing Co. Ltd. .............. 526,000 626,659
National Petroleum Co. Ltd. (a) ........... 968,000 768,829
Pou Chen Corp. (a)......................... 848,000 780,892
Ton Yi Industrial Corp. (a)................ 1,870,000 521,986
Zig Sheng Industrial Co. Ltd. ............. 647,000 211,322
------------
3,202,223
------------
TOTAL OTHERS & MISCELLANEOUS............... 3,202,223
------------
RETAIL & WHOLESALE -- 0.4%
GENERAL MERCHANDISE STORES -- 0.4%
President Chain Store Corp. ............... 432,000 652,662
------------
TOTAL RETAIL & WHOLESALE................... 652,662
------------
TECHNOLOGY -- 46.6%
COMPUTER SERVICE & SOFTWARE -- 0.5%
Data Systems Consulting Co. Ltd. .......... 351,000 276,760
Soft-World International Corp. ............ 472 1,236
Stark Technology, Inc. .................... 159,000 193,545
Systex Corp. (a)........................... 454,000 235,166
------------
706,707
------------
ELECTRONICS -- 10.0%
Asia Optical Co., Inc...................... 404,000 1,953,151
Au Optronics Corp. (a)..................... 7,668,000 4,942,826
Cheng Uei Precision Industry Co. Ltd.
(a)....................................... 123,000 208,835
Chi Mei Optoelectronics Corp. (a).......... 734,000 627,332
Chungwha Picture Tubes Ltd. (a)............ 1,954,000 660,705
CMC Magnetics Corp. ....................... 4,041,000 2,104,809
Compeq Manufacturing Co. Inc. (a).......... 697,000 336,967

The accompanying notes are an integral part of the financial statements. 11

INVESTMENTS/FEBRUARY 28, 2003 (continued) (unaudited)
--------------------------------------------------------------------------------

US$
VALUE
SHARES (NOTE 1)
------ --------

COMMON STOCKS - continued
ELECTRONICS - continued
Delta Electronics, Inc. ................... 698,000 $ 731,142
Infodisc Technology Co. Ltd. (a)........... 2,889,000 1,504,774
Largan Precision Co. Ltd. ................. 74,000 432,288
Phihong Enterprise Co. Ltd. ............... 230,000 168,777
Phoenix Precision Technology Corp. (a)..... 649,000 222,247
Phoenixtec Power Co. Ltd. ................. 593,000 380,544
Quanta Display Inc. (a).................... 1,047,000 379,632
Wintek Corp. .............................. 408,000 340,489
World Wiser Electronics, Inc. (a).......... 494,000 226,032
Wus Printed Circuit Co. Ltd. (a)........... 518,000 223,597
Ya Hsing Industrial Co. Ltd. (a)........... 332,000 304,771
Yageo Corp. (a)............................ 1,122,000 306,734
------------
16,055,652
------------
PC & PERIPHERALS -- 12.1%
Acer, Inc. ................................ 925,000 819,856
Advantech Co. Ltd. ........................ 256,000 493,583
Amtran Technology Co. Ltd. ................ 1,215,000 1,132,835
Asustek Computer, Inc. .................... 839,000 1,424,489
Benq Corp. ................................ 1,411,000 1,534,843
Compal Electronics, Inc. .................. 2,443,000 2,355,122
Gigabyte Technology Co. Ltd. .............. 313,000 423,338
Hon Hai Precision Industry Co. Ltd. ....... 1,143,000 3,683,914
Inventec Co. Ltd. ......................... 3,526,000 2,029,352
Lite-On Technology Corp. .................. 648,000 758,952
Micro-Star International Co. Ltd. ......... 769,000 1,206,058
Mitac International Corp. ................. 658,000 232,904
Premier Image Technology Corp. ............ 284,000 385,750
Quanta Computer, Inc. ..................... 1,088,000 1,878,561
Quanta Storage, Inc. (a)................... 128,000 699,856
Synnex Technology International Corp. ..... 351,000 490,895
------------
19,550,308
------------
SEMI-CONDUCTOR -- 16.4%
Advanced Semiconductor Engineering, Inc.
(a)...................................... 1,588,000 854,550
Elan Microelectronics Corp. ............... 266,000 169,168
Elite Semiconductor Memory Technology
Inc. ..................................... 122,000 293,151
Greatek Electronics, Inc. ................. 2,270,000 1,855,194
Macronix International Co. Ltd. (a)........ 2,379,000 681,181
MediaTek, Inc. ............................ 194,000 1,429,180
Nanya Technology Corp. (a)................. 1,551,000 865,882
Novatek Microelectronics Corp. Ltd. ....... 207,000 378,259
Realtek Semiconductor Corp. ............... 295,000 653,669

US$
VALUE
SHARES (NOTE 1)
------ --------

Silicon Integrated Systems Corp. (a)....... 502,000 $ 400,156
Siliconware Precision Industries Co. (a)... 1,470,000 710,676
Sunplus Technology Co. Ltd. ............... 239,000 339,758
Taiwan Semiconductor Manufacturing Co. .... 9,062,000 10,952,633
United Microelectronics Corp. Ltd. ........ 9,043,000 5,126,535
Via Technologies, Inc. .................... 495,000 491,439
Winbond Electronics Corp. (a).............. 1,892,000 762,245
World Peace Industrial Co. Ltd. (a)........ 333,000 268,317
Yosun Industrial Corp. .................... 289,000 300,227
------------
26,532,220
------------
TELECOMMUNICATIONS -- 7.6%
Accton Technology Corp. (a)................ 270,000 233,093
Ambit Microsystems Corp. .................. 145,000 446,475
Askey Computer Co. (a)..................... 1,206,000 1,058,504
Chunghwa Telecom Co. Ltd. (a).............. 3,697,000 5,585,396
D-Link Corp. .............................. 363,000 261,151
Gemtek Technology Corp. ................... 411,000 993,496
Meiloon Industrial Co. Ltd. ............... 195,000 345,108
Microelectronics Technology Inc. .......... 473,000 189,200
Taiwan Cellular Corp. ..................... 1,714,000 1,218,296
Zyxel Communications Corp. (a)............. 1,017,000 2,004,734
------------
12,335,453
------------
TOTAL TECHNOLOGY........................... 75,180,340
------------
TRANSPORTATION -- 5.0%
AIR TRAVEL -- 0.6%
China Airlines............................. 1,136,000 444,593
EVA Airways Corp. (a)...................... 1,373,568 513,853
------------
958,446
------------
SHIPPING -- 4.4%
Evergreen Marine Corp. .................... 2,027,000 1,376,610
Sincere Navigation Corp. .................. 624,000 228,052
U-Ming Marine Transport Corp. ............. 658,000 234,797
Wan Hai Lines Ltd. ........................ 590,000 480,489
Yang Ming Marine Transport (a)............. 9,221,000 4,855,951
------------
7,175,899
------------
TOTAL TRANSPORTATION....................... 8,134,345
------------
TOTAL COMMON STOCKS (Identified Cost --
$145,661,251)............................. 153,554,925
------------

12 The accompanying notes are an integral part of the financial statements.

INVESTMENTS/FEBRUARY 28, 2003 (continued) (unaudited)
--------------------------------------------------------------------------------

PRINCIPAL US$
AMOUNT VALUE
NT$ (NOTE 1)
--------- --------

COMMERCIAL PAPER -- 4.9%
Allied Material Technology Corp.
1.45%, 5/28/03 (b)........................ 32,791,992 $ 943,655
Bai Ding Investment
1.25%, 3/03/03 (b)........................ 49,987,122 1,438,478
Cheng Lung:
1.20%, 3/10/03 (b)........................ 49,901,908 1,436,026
1.45%, 4/25/03 (b)........................ 49,742,285 1,431,433
China Synthetic Rubber Corp:
1.10%, 4/03/03 (b)........................ 49,829,722 1,433,949
1.70%, 4/03/03 (b)........................ 9,929,525 285,742
Chung Tsu 1.25%, 3/06/03 (b)............... 9,997,201 287,689
How Jay Corp 1.25%, 3/14/03 (b)............ 14,965,896 430,673
President Investment Corp 1.20%, 6/18/03
(b)....................................... 9,957,091 286,535
------------
TOTAL COMMERCIAL PAPER (Identified Cost --
$8,001,995)............................... 7,974,180
------------
TOTAL INVESTMENTS -- 100% (COST --
$153,663,246)............................. $161,529,105
============

LEGEND:

US$ - United States dollar

NT$ - New Taiwan dollar

(a) Non-income producing

(b) Certificates of Deposit and Commercial Paper that are traded through Bills
Finance Corporations must be guaranteed by either a bank, a trust company or
a Bills Finance Corporation. Since there is no recognized credit rating
system in the Republic of China, the guarantee may not be comparable to a
guarantee issued by a U.S. institution.

INCOME TAX INFORMATION:

At February 28, 2003, the aggregate cost basis of the Fund's investment
securities for income tax purposes was $153,663,246.

Net unrealized appreciation of the Fund's investment securities was $7,865,859
of which $21,976,647 related to appreciated investment securities and
$14,110,788 related to depreciated investment securities. In addition, as of
August 31, 2002, the Fund had a capital loss carryforward of $58,717,404 for
Federal income tax purposes which may be utilized to offset future capital gains
through August 31, 2009 ($18,722,303) and August 31, 2010 ($39,995,101.)

The accompanying notes are an integral part of the financial statements. 13

FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

STATEMENT OF ASSETS AND LIABILITIES
February 28, 2003 (Unaudited)

ASSETS
Investments in securities, at value (cost
$153,663,246) (Notes 1 and 2) - See
accompanying schedule..................... $161,529,105
Cash........................................ 78,429
Cash in New Taiwan dollars (cost
$203,963).................................. 203,670
Interest receivable......................... 11,230
------------
Total Assets............................... 161,822,434
------------
Accrued management fee (Note 3)............. 109,248
Taiwan withholding tax payable (Note 1)..... 2,252
Other payables and accrued expenses......... 172,088
--------
Total Liabilities.......................... 283,588
------------
NET ASSETS.................................. $161,538,846
============
Net Assets consist of (Note 1):
Paid in capital............................. 245,064,787
Undistributed net investment loss........... (1,489,352)
Accumulated undistributed net realized loss
on Investments in securities and foreign
currency................................... (89,902,125)
Net unrealized appreciation on:
Investment securities and foreign
currency................................. 7,865,536
------------
NET ASSETS.................................. $161,538,846
============
NET ASSET VALUE, per share ($161,538,846 /
16,365,572 shares outstanding)............. $9.87
============

STATEMENT OF OPERATIONS
Six Months Ended February 28, 2003 (Unaudited)

INVESTMENT INCOME
Dividends................................. $ 167,252
Interest.................................. 46,896
------------
214,148
Less: Taiwan withholding tax (Note 1)..... (37,191)
------------
Total Income............................. 176,957
EXPENSES:
Management fee (Note 3)
Basic fee................................ $ 1,121,976
Performance adjustment................... (167,649)
Custodian fees and expenses............... 143,873
Professional fees......................... 130,682
Administration and accounting fees (Note
3)....................................... 91,350
Directors compensation (Note 3)........... 113,384
Shareholder communications................ 82,532
Delaware franchise tax.................... 25,675
Insurance fees............................ 27,336
Miscellaneous............................. 22,484
Transfer agent fees....................... 8,713
Taiwan stock dividend tax (Note 1)........ 65,953
-----------
Total expenses........................... 1,666,309
------------
NET INVESTMENT LOSS...................... (1,489,352)
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 1)
Net realized loss on:
Investment securities.................... (12,619,385)
Foreign currency transactions............ (58,508)
-----------
(12,677,893)
Change in net unrealized appreciation
(depreciation) on:
Investment securities.................... (9,350,197)
Assets and liabilities denominated in
foreign currencies..................... 2,786
-----------
(9,347,411)
------------
Net realized and unrealized loss.......... (22,025,304)
------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS............................... $(23,514,656)
============

14 The accompanying notes are an integral part of the financial statements.

FINANCIAL STATEMENTS (continued)

--------------------------------------------------------------------------------

STATEMENTS OF CHANGES IN NET ASSETS

Six Months Ended Year Ended
February 28, August 31,
2003 2002
---------------- -------------
(Unaudited)

INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment loss........................................ $ (1,489,352) $ (1,963,201)
Net realized loss on investments and foreign currency
transactions............................................. (12,677,893) (14,110,866)
Change in net unrealized appreciation (depreciation) on
investments and foreign currency transactions............ (9,347,411) 25,165,104
------------ -------------
Net increase (decrease) in net assets resulting from
operations............................................... (23,514,656) 9,091,037
------------ -------------
NET ASSETS
Beginning of period........................................ 185,053,502 175,962,465
------------ -------------
End of period.............................................. 161,538,846 185,053,502
============ =============
Undistributed Net Investment Loss
End of period.............................................. $ (1,489,352) $ --
============ =============

The accompanying notes are an integral part of the financial statements. 15

FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS

Six Months Ended Year Ended August 31,
February 28, ------------------------------------------------------------
2003 2002 2001 2000 1999 1998
---------------- -------- -------- -------- -------- --------
(Unaudited)

SELECTED PER SHARE DATA
Net asset value, beginning of period.... $ 11.31 $ 10.75 $ 21.42 $ 21.61 $ 15.36 $ 35.98
-------- -------- -------- -------- -------- --------
Income from Investment Operations
Net investment loss(a)................. (0.09) (0.12) (0.21) (0.36) (0.20)(c) (0.33)(b)
Net realized and unrealized gain (loss)
on investments....................... (1.35) 0.68 (10.26) 0.17 7.46 (15.68)
-------- -------- -------- -------- -------- --------
Total from investment operations....... (1.44) 0.56 (10.47) (0.19) 7.26 (16.01)
-------- -------- -------- -------- -------- --------
Less Distributions
From net realized gains................ -- -- (0.20) -- (1.01) (4.61)
-------- -------- -------- -------- -------- --------
Total distributions.................... -- -- (0.20) -- (1.01) (4.61)
-------- -------- -------- -------- -------- --------
Net asset value, end of period.......... $ 9.87 $ 11.31 $ 10.75 $ 21.42 $ 21.61 $ 15.36
======== ======== ======== ======== ======== ========
Market value, end of period............. $ 8.38 $ 9.27 $ 9.88 $ 17.63 $ 18.31 $ 11.00
======== ======== ======== ======== ======== ========
TOTAL RETURN
Per share market value.................. (9.60)% (6.17)% (43.16)% (3.75)% 79.41% (48.87)%
RATIO AND SUPPLEMENTAL DATA
Net assets, end of period (000
omitted)............................... $161,539 $185,054 $175,962 $350,595 $353,614 $251,356
Ratio of expenses to average net
assets(d).............................. 1.93%(f) 2.20% 2.63% 2.30% 2.21% 2.29%(e)
Ratio of expenses to average net assets,
excluding stock dividend tax expense... 1.85%(f) 1.98% 2.15% 1.94% 1.88% 1.87%(e)
Ratio of net investment loss to average
net assets............................. (1.73)%(f) (0.97)% (1.50)% (1.54)% (1.15)% (1.51)%
Portfolio turnover rate................. 109% 167% 125% 139% 125% 97%

(a) Based on average shares outstanding during the period.
(b) Investment Income per share reflects a regular dividend from China Steel
Corp. of $0.02 per share (Based on shares outstanding at 8/31/98).
(c) Investment Income per share reflects a regular dividend from China Steel
Corp of $0.04 per share (Based on shares outstanding at 8/31/99).
(d) Expense ratio includes 20% tax paid on stock dividends received by the
Fund.
(e) Ratio of expenses after waiver.
(f) Annualized.

16 The accompanying notes are an integral part of the financial statements.

NOTES TO FINANCIAL STATEMENTS (unaudited)

--------------------------------------------------------------------------------

1. SIGNIFICANT ACCOUNTING POLICIES
The Taiwan Fund, Inc. (the "Fund"), a Delaware corporation, is registered under
the Investment Company Act of 1940, as amended (the "Act"), as a diversified
closed-end management investment company.

The Fund is not permitted to invest directly in the securities of Republic of
China ("ROC") companies. Therefore, it invests through a contractual securities
investment trust fund arrangement. This arrangement was established by means of
the Securities Investment Trust, Investment Management and Custodian Contract
("Management Contract") among HSBC Asset Management (Taiwan) Limited
("Adviser"), the International Commercial Bank of China (Custodian) and the
Fund. Under the Management Contract the Adviser manages and invests the assets
of the Fund and the Custodian holds the assets. The Fund is the sole beneficiary
of the assets held under the Management Contract and, as required by ROC
regulations, its interest in the assets is evidenced by units of beneficial
interest.

The Fund concentrates its investments in the securities listed on the Taiwan
Stock Exchange. Because of this concentration, the Fund may be subject to
additional risks resulting from future political or economic conditions in
Taiwan and the possible imposition of adverse governmental laws of currency
exchange restrictions affecting Taiwan.

The Fund is treated as a Qualified Foreign Institutional Investor ("QFII"),
which allows the Fund to own 100% of a company's shares. However, all Funds
managed by the Adviser are limited in aggregate to 10% ownership of a company's
shares.

The policies described below are consistently followed by the Fund in the
preparation of its financial statements in conformity with accounting principles
generally accepted in the United States of America.

Security Valuation. All securities, including those traded over-the-counter,
for which market quotations are readily available are valued at the last sales
price prior to the time of determination of the Fund's net asset value per share
or, if there were no sales on such date, at the closing price quoted for such
securities (but if bid and asked quotations are available, at the mean between
the last current bid and asked prices, rather than such quoted closing price).
In certain instances where the price determined above may not represent fair
market value, the value is determined in such manner as the Board of Directors
may prescribe. Short-term investments, having maturity of 60 days or less are
valued at amortized cost, which approximates market value, with accrued interest
or discount earned included in interest receivable.

Foreign Currency Translation. The financial accounting records of the Fund are
maintained in U.S. dollars. Investment securities, other assets and liabilities
denominated in a foreign currency are translated into U.S. dollars at the
current exchange rate. Purchases and sales of securities, income receipts and
expense payments are translated into U.S. dollars at the exchange rate on the
dates of the transactions.

Reported net realized gains and losses on foreign currency transactions
represent net gains and losses from disposition of foreign currencies, currency
gains and losses realized between the trade dates and settlement dates of
security transactions, and the difference between the amount of net investment
income accrued and the U.S. dollar amount actually received. The effects of
changes in foreign currency exchange rates on investments in securities are not
segregated in the Statement of Operations from the effects of changes in market
prices of those securities, but are included in realized and unrealized gain or
loss on investments in securities.

Forward Foreign Currency Transactions. A forward foreign currency contract
("Forward") is an agreement between two parties to buy or sell currency at a set
price on a future date. The Fund may enter into Forwards in order to hedge
foreign currency risk or for other risk management purposes. Realized gains or
losses on Forwards include net

NOTES TO FINANCIAL STATEMENTS (continued) (unaudited)

--------------------------------------------------------------------------------

1. SIGNIFICANT ACCOUNTING POLICIES - continued

gains or losses on contracts that have matured or which the Fund has terminated
by entering into an offsetting closing transaction. Unrealized appreciation or
depreciation of Forwards is included in the Statement of Assets and Liabilities
and is carried on a net basis. The portfolio could be exposed to risk of loss if
the counterparty is unable to meet the terms of the contract or if the value of
the currency changes unfavorably. As of February 28, 2003 the Fund had no open
Forwards.

Taxes. As a qualified regulated investment company under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the extent
that it distributes all of its investment company taxable income and net
realized capital gains for its fiscal year. In addition to federal income tax
for which the Fund is liable on undistributed amounts, the Fund is subject to
federal excise tax on undistributed investment company taxable income and net
realized capital gains. The Schedule of Investments includes information
regarding income taxes under the caption "Income Tax Information." The Fund is
organized in Delaware and as such is required to pay Delaware an annual
franchise tax. Also, the Fund is currently subject to a Taiwan security
transaction tax of 0.3% on equities and 0.1% on corporate bonds and mutual fund
shares of the transaction amount.

The Fund's functional currency for tax reporting purposes is the New Taiwan
dollar.

Investment Income. Dividend income is recorded on the ex-dividend date, except
where the ex-dividend date may have passed; certain dividends from foreign
securities are recorded as soon as the Fund is informed of the ex-dividend date.

Taiwanese companies typically declare dividends in the Fund's third fiscal
quarter of each year. As a result, the Fund receives substantially less dividend
income in the first half of its year. Interest income, which includes accretion
of original discount, is accrued as earned.

Dividend and interest income generated in Taiwan is subject to a 20% withholding
tax. Stock dividends received (except those which have resulted from
capitalization of capital surplus) are taxable at 20% of the par value of the
stock dividends received.

Distributions to Shareholders. The distributable income from the assets held
under the Management Contract, which is limited to cash dividends and interest
income received, may be distributed to the Fund only once in each year at the
Fund's discretion and is recorded on the ex-dividend date. Realized capital
gains and stock dividends may also be distributed to the Fund. Within the above
limitations the Fund will, under current ROC regulations, be able to remit out
of the ROC the proceeds of income and capital gains distributions, unit
redemptions and other distributions of assets held under the Management
Contract.

The Fund distributes to shareholders at least annually, substantially all of its
taxable ordinary income and expects to distribute its taxable net realized
gains. Certain foreign currency gains (losses) are taxable as ordinary income
and, therefore, increase (decrease) taxable ordinary income available for
distribution. Pursuant to the Dividend Reinvestment and Cash Purchase Plan (the
"Plan"), shareholders may elect to have all distributions automatically
reinvested in Fund shares. (See the summary of the Plan.) Shareholders who do
not participate in the Plan will receive all distributions in cash paid by check
in U.S. dollars. Income and capital gain distributions are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments for foreign currency transactions, losses deferred due to wash sales
and excise tax regulations. Permanent book and tax basis differences relating to
shareholder distributions will result in reclassifications to paid in capital.

Security Transactions. Security transactions are accounted for as of the trade
date. Gains and losses on securities sold are determined on the basis of
identified cost.

NOTES TO FINANCIAL STATEMENTS (continued) (unaudited)

--------------------------------------------------------------------------------

1. SIGNIFICANT ACCOUNTING POLICIES - continued

Use of Estimates. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.

2. PURCHASES AND SALES OF SECURITIES

Purchases and sales of securities, other than short-term securities, aggregated
$179,746,069 and $182,264,958, respectively.

3. FEES AND OTHER TRANSACTIONS WITH AFFILIATES

Management Fee. As the Fund's investment adviser, HSBC receives a fee that is
computed daily at an annual rate of 1.30% of the Fund's average net assets. The
basic fee is subject to a performance adjustment (up to a maximum of +/-0.30%)
based on the Fund's investment performance as compared to the Taiwan Stock
Exchange Index over a rolling 36-month period.

For the six month period ending February 28, 2003, the management fee, including
the performance adjustments, was equivalent to an annual rate of 1.11% of
average net assets.

Directors Fees. No director, officer or employee of the Adviser or its'
affiliates will receive any compensation from the Fund for serving as an officer
or director of the Fund. The Fund pays each of its directors who is not a
director, officer or employee of the Adviser an annual fee of $10,000 plus
$1,000 for each Board of Directors' meeting or Audit Committee meeting attended.
In addition, the Fund will reimburse each of the directors for travel and
out-of-pocket expenses incurred in connection with Board of Directors' meetings.

Administration Fees. State Street Corporation ("State Street") provides, or
arranges for the provision of certain administrative and accounting services for
the Fund, including maintaining the books and records of the Fund, and preparing
certain reports and other documents required by federal and/or state laws and
regulations. The Fund pays State Street a fee at the annual rate of 0.11% of the
Fund's average daily net assets up to $150 million, 0.08% of the next $150
million, and 0.05% of those assets in excess of $300 million, subject to certain
minimum requirements.

4. FUND SHARES

At February 28, 2003, there were 20,000,000 shares of $0.01 par value capital
stock authorized, of which 16,365,572 were issued and outstanding.

5. SUBSEQUENT EVENT

New Secretary and Treasurer of the Fund. On April 2, 2003, the Board of
Directors of the Fund appointed Carol Wang as the new Secretary and Treasurer of
the Fund. Vicki Hau resigned as the Fund's Secretary and Treasurer effective
April 2, 2003.

OTHER INFORMATION
--------------------------------------------------------------------------------

RESULTS OF ANNUAL STOCKHOLDER MEETING VOTING HELD JANUARY 27, 2003

ELECTION OF DIRECTORS -- The stockholders of the Fund elected David Dean, Benny
T. Hu, Lawrence J. Lau, Joe O. Rogers, Jack C. Tang, Gloria Wang, Lawrence Weber
and Shao-Yu Wang to the Board of Directors to hold office until their successors
are elected and qualified.

FOR WITHHELD
--- --------

David Dean 9,448,374 73,928
Benny T. Hu 9,441,283 81,018
Lawrence J. Lau 9,442,736 79,566
Joe O. Rogers 9,451,243 71,059
Jack C. Tang 9,440,411 81,891
Gloria Wang 9,429,741 92,561
Lawrence F. Weber 9,439,514 82,788
Shao-Yu Wang 9,440,699 81,603

SHARE REPURCHASE PROGRAM

The Board of Directors of the Fund, at a meeting held on April 23, 2001,
authorized the Fund to repurchase up to 15% of the Fund's outstanding shares of
common stock. The Fund will purchase such shares in the open market at times and
prices determined by management of the Fund to be in the best interest of
stockholders of the Fund. As of February 28, 2003 no shares have been
repurchased by the Fund.

PRIVACY NOTICE

The Taiwan Fund, Inc. collects nonpublic personal information about its
shareholders from the following sources:

[ ] Information it receives from shareholders on applications or other forms;
[ ] Information about shareholder transactions with the Fund, its affiliates, or
others; and
[ ] Information it receives from a consumer reporting agency.

THE FUND'S POLICY IS TO NOT DISCLOSE NONPUBLIC PERSONAL INFORMATION ABOUT ITS
SHAREHOLDERS TO NONAFFILIATED THIRD PARTIES (OTHER THAN DISCLOSURES PERMITTED BY
LAW).

The Fund restricts access to nonpublic personal information about its
shareholders to those agents of the Fund who need to know that information to
provide products or services to shareholders. The Fund maintains physical,
electronic, and procedural safeguards that comply with federal standards to
guard it shareholders' nonpublic personal information.

SUMMARY OF DIVIDEND REINVESTMENT AND

CASH PURCHASE PLAN
--------------------------------------------------------------------------------

WHAT IS THE DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN?

The Dividend Reinvestment and Cash Purchase Plan (the "Plan") offers
shareholders of The Taiwan Fund, Inc. (the "Fund") a prompt and simple way to
reinvest their dividends and capital gains distributions in shares of the Fund.
The Fund will distribute to shareholders, at least annually, substantially all
of its net income and expects to distribute annually its net realized capital
gains. State Street Bank and Trust Company acts as Plan Agent for shareholders
in administering the Plan. The Plan also allows you to make optional cash
investments in Fund shares through the Plan Agent.

WHO CAN PARTICIPATE IN THE PLAN?

If you own shares in your own name, you can elect to participate directly in the
Plan. If you own shares that are held in the name of a brokerage firm, bank, or
other nominee, you should contact your nominee to arrange for them to
participate on your behalf.

WHAT DOES THE PLAN OFFER?

The Plan has two components; reinvestment of dividends and capital gains
distributions, and a voluntary cash purchase feature.

REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

If you choose to participate in the Plan, your dividends and capital gains
distributions will be promptly invested for you, automatically increasing your
holdings in the Fund. If the Fund declares a dividend or capital gains
distribution payable in cash, you will automatically receive shares purchased by
the Plan Agent on the New York Stock Exchange or otherwise on the open market.

If a distribution is declared which is payable in shares or cash at the option
of the shareholder and if on the valuation date (generally the payable date) the
market price of shares is equal to or exceeds their net asset value, the Fund
will issue new shares to you at the greater of the following: (a) net asset
value per share or (b) 95% of the market price per share. If the market price
per share on the valuation date is less than the net asset value per share, the
Fund will issue new shares to you at the market price per share on the valuation
date.

All reinvestments are in full and fractional shares, carried to three decimal
places. In the case of foreign (non-U.S.) shareholders, reinvestment will be
made net of applicable withholding tax.

VOLUNTARY CASH PURCHASE OPTION

Plan participants have the option of making investments in Fund shares through
the Plan Agent. You may invest any amount from $100 to $3,000 semi-annually. The
Plan Agent will purchase shares for you on the New York Stock Exchange or
otherwise on the open market on or about February 15 and August 15. If you hold
shares in your own name, you should deal directly with the Plan Agent. We
suggest you send your check to the following address to be received on or about
February 5 or August 5 to allow time for processing: State Street Bank and Trust
Company, P.O. Box 8200, Boston, MA 02266. The Plan Agent will return any cash
payments received more than thirty days prior to February 15 or August 15, and
you will not receive interest on uninvested cash payments. If you own shares
that are held in the name of a brokerage firm, bank, or other nominee, you
should contact your nominee to arrange for them to participate in the cash
purchase option on your behalf.

SUMMARY OF DIVIDEND REINVESTMENT AND

CASH PURCHASE PLAN (continued)
--------------------------------------------------------------------------------

IS THERE A COST TO PARTICIPATE?

Each participant will pay a pro rata portion of brokerage commissions payable
with respect to purchases of shares by the Plan Agent on the New York Stock
Exchange or otherwise on the open market. Otherwise, there is no charge to
participants for reinvesting dividends and capital gains distributions, since
the Plan Agent's fees are paid by the Fund. Brokerage charges for purchasing
shares through the Plan are expected to be less than the usual brokerage charges
for individual transactions, because the Plan Agent will purchase stock for all
participants in blocks, resulting in lower commissions for each individual
participant.

For purchases from voluntary cash payments, participants are charged a service
fee of $.75 for each investment and a pro rata share of the brokerage
commissions.

Brokerage commissions and service fees, if any, will be deducted from amounts to
be invested.

WHAT ARE THE TAX IMPLICATIONS FOR PARTICIPANTS?

You will receive tax information annually for your personal records and to help
you prepare your federal income tax return. The automatic reinvestment of
dividends and capital gains distributions does not relieve you of any income tax
which may be payable on dividends or distributions.

If the Fund issues shares upon reinvestment of a dividend or capital gains
distribution, for U.S. federal income tax purposes, the amount reportable in
respect of the reinvested amount of the dividend or distribution will be the
fair market value of the shares received as of the payment date, which will be
reportable as ordinary dividend income and/or long term capital gains. The
shares will have a tax basis equal to such fair market value, and the holding
period for the shares will begin on the day after the payment date. State, local
and foreign taxes may also be applicable.

ONCE ENROLLED IN THE PLAN, MAY I WITHDRAW FROM IT?

You may withdraw from the Plan without penalty at any time by written notice to
the Plan Agent.

If you withdraw, you will receive, without charge, stock certificates issued in
your name for all full shares, or, if you wish, the Plan Agent will sell your
shares and send you the proceeds, less a service fee of $2.50 and less brokerage
commissions. The Plan Agent will convert any fractional shares you hold at the
time of your withdrawal to cash at the current market price and send you a check
for the proceeds.

WHOM SHOULD I CONTACT FOR ADDITIONAL INFORMATION?

If you hold shares in your own name, please address all notices, correspondence,
questions, or other communications regarding the Plan to: State Street Bank and
Trust Company, P.O. Box 8200, Boston, MA 02266, 1-800-426-5523. If your shares
are not held in your name, you should contact your brokerage firm, bank, or
other nominee for more information and to arrange for them to participate in the
Plan on your behalf.

Either the Fund or the Plan Agent may amend or terminate the Plan. Except in the
case of amendments necessary or appropriate to comply with applicable law, rules
or policies or a regulatory authority, participants will be mailed written
notice at least 90 days before the effective date of any amendment. In the case
of termination, participants will be mailed written notice at least 90 days
before the record date of any dividend or capital gains distribution by the
Fund.

DIRECTORS AND OFFICERS (unaudited)

--------------------------------------------------------------------------------

The following table sets forth certain information concerning each of the
directors and officers of the Fund.

PRINCIPAL
OCCUPATION OR EMPLOYMENT
PRESENT OFFICE DIRECTOR DURING PAST DIRECTORSHIPS IN
NAME, ADDRESS AND (AGE) WITH THE FUND SINCE FIVE YEARS PUBLICLY-HELD COMPANIES
----------------------- -------------- -------- ------------------------ -----------------------

Shao-Yu Wang (78) Chairman of the 1986 Chairman of the Board of Executive Director,
Apt. 5H Board and Trustees, Soochow China American
No. 56 Tun Hwa South Director University Petrochemical Co., Ltd.
Road, (1987-present); Chairman (1976-present)
Section 2 of the Board of
Taipei, Taiwan, ROC Trustees, Min Chuan
University,
(1986-present); Chairman
of the Board of
Trustees, Fu-Dan High
School (1986-present)
*Benny T. Hu (53) President and 1993 Supervisor, USI Corp. Director, Winbond
29 F, 97 Tun Hwa Director (2002-present); Electronics Corp.
South Road, Section 2 Chairman, China (2002- present);
Taipei, Taiwan, ROC Development Asset Director, Yangming
Management Corp. (June Marine Transport Corp.
2001-present); (2001- present);
Ambassador-at-Large, Director, China
Republic of China (May Development Industrial
2001-present) Bank (2001-present);
Director, China Steel
Corporation (1993-2001)
David Dean (76) Director 1991 Senior Advisor of the --
8361 B. Greensboro Chiang-Ching-Kuo
Drive Foundation
McLean, Virginia 22102 (1990-present)
Lawrence J. Lau (58) Director 1998 Kwoh-Ting Li Professor Director, Media
Stanford University of Economic Development, Partners International
Landau Economics Stanford University Holdings Inc.
Building, Room 340 (1992- present); (2001-present)
579 Serra Mall Director, Stanford
Stanford, CA Institute for Economic
94305-6072 Policy Research at
Stanford University
(1997-1999)

DIRECTORS AND OFFICERS (continued) (unaudited)

--------------------------------------------------------------------------------

Joe O. Rogers (52) Director 1986 The Rogers Team LLC, Director, The China
2477 Foxwood Drive Organizing Member (July Fund, Inc.
Chapel Hill, NC 27514 2001-present); Executive (1992-present)
Vice President, Business
Development, Planet
Portal Inc. (September
1999-May 2001);
President, Rogers
International, Inc.
(September 1986-
September 1999); Vice
President, Business
Development, Thomson
Consulting (1998-1999);
Partner, PHH Fantus
Consulting (1993-1996)
Jack C. Tang (74) Director 1989 Honorary Chairman (April --
Tristate Holdings Ltd. 2001-present), Co-
66-72 Lei Muk Road Chairman (April 1999-
Kwai Chung April 2001), Chairman &
New Territories CEO (June 1998-April
Hong Kong 1999), Chairman Emeritus
(January 1997-June
1998), Chairman & CEO
(1987-December 1996),
Tristate Holdings Ltd.;
Director, Mid Pacific
Air Corporation (1986-
present); Director
(1991-1999), Pacific Rim
Investments, Ltd.

DIRECTORS AND OFFICERS (continued) (unaudited)

--------------------------------------------------------------------------------

PRINCIPAL
DIRECTOR OCCUPATION OR EMPLOYMENT DIRECTORSHIPS IN
PRESENT OFFICE OR OFFICER DURING PAST PUBLICLY-HELD
NAME, ADDRESS AND (AGE) WITH THE FUND SINCE FIVE YEARS COMPANIES
----------------------- -------------- ---------- ------------------------ ----------------

*Gloria Wang (47) Director 1998 Secretary and Treasurer of --
99 Tun Hwa South the Fund (1994-October
Road, Section 2 1998);Executive Vice
Taipei, Taiwan, ROC President, HSBC Asset
Management (Taiwan) Ltd.
(1996-present)
Lawrence F. Weber (68) Director 1995 Independent Consultant --
156 Ide Rd. (1993- present)
Williamstown, MA 01267
***Carol Wang (37) Secretary and 2003 Manager of Legal Department --
99 Tun Hwa South Treasurer (April 1994-June 2002);
Road, Section 2 Manager of General
Taipei, Taiwan, ROC Administration Office (June
2002-present)
Laurence E. Cranch (56) Assistant 1986 Partner of Clifford Chance --
Clifford Chance US LLP Secretary US LLP since 1980.
200 Park Avenue
New York, NY 10166

---------------

* Director is considered to be an "interested person" (as defined in the
Investment Company Act of 1940, as amended (the "1940 Act")) of the Fund or
of the Fund's investment adviser. Ms. Wang is deemed to be an interested
person because of her affiliation with the Fund's investment adviser.

* Mr. Hu is deemed to be an "interested person" because he is the President of
the Fund.

** Ms. Haichi Vicki Hau resigned as the Fund's Secretary and Treasurer effective
April 2, 2003 and Ms. Carol Wang was elected by the Board of Directors as the
new Secretary and Treasurer of the Fund on the same day.

[THIS PAGE INTENTIONALLY LEFT BLANK]

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UNITED STATES ADDRESS
The Taiwan Fund, Inc.
225 Franklin Street
Boston, MA
1-800-636-9242

INVESTMENT ADVISER
HSBC Asset Management (Taiwan) Limited
Taipei, Taiwan

DIRECTORS AND OFFICERS
S.Y. Wang, Chairman of the Board and Director
Benny T. Hu, President and Director
David Dean, Director
Joe O. Rogers, Director
Jack C. Tang, Director
Lawrence J. Lau, Director
Gloria Wang, Director
Lawrence F. Weber, Director
Carol Wang, Secretary and Treasurer
Laurence E. Cranch, Assistant Secretary

ADMINISTRATOR, ACCOUNTING AGENT,
TRANSFER AGENT, DIVIDEND PAYING
AGENT, AND REGISTRAR
State Street Bank and Trust Company
Boston, MA

CUSTODIANS
The International Commercial Bank of China
Taipei, Taiwan
State Street Bank and Trust Company
Boston, MA

LEGAL COUNSEL
Clifford Chance US LLP
New York, NY
Lee and Li
Taipei, Taiwan

INDEPENDENT ACCOUNTANTS
KPMG LLP
Boston, MA