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T H E
R.O.C. TAIWAN FUND
Quarterly Report
March 31, 1996
<PAGE>
Dear Stockholders
The net asset value per share of The R.O.C. Taiwan Fund declined 4.0% in the
first quarter compared with a 2.7% drop in the Taiwan Stock Exchange Index
(TAIEX). During the period, the New Taiwan Dollar was virtually unchanged,
appreciating only 0.1% against the U.S. dollar.
The Fund underperformed the market because of the first quarter strength of the
four largest commercial banks, which account for about 16% of the TAIEX.
Relative to this index, the Fund was underweighted in these shares despite a
significant increase in such holdings toward the end of last year.
Market confidence was once again shaken by heightened political tensions in the
run-up to Taiwan's first direct presidential election on March 23. China
carried out a series of military exercises, including missile tests in waters
near Taiwan's two major ports and live-fire war games in the Taiwan Strait.
These actions were aimed at intimidating Taiwan's voters into opposing the
candidacy of incumbent President Lee Teng-hui but were countered on two fronts.
While the U.S. deployed two aircraft carrier battle groups to OmonitorO China's
military maneuvers, Taiwan marshaled its financial muscle to shore up
confidence. A $7 billion fund organized to stabilize the stock market was active
in buying shares, accounting for about a quarter of trading volume during the
peak of the crisis. In the meantime, the central bank cut bank reserve
requirements to increase liquidity in the financial system. It also used some of
the country's huge foreign exchange reserves to support Taiwan's currency. Under
such calming measures, President Lee won the election in a landslide, with 54%
of the vote in the four-man contest.
The cross-strait crisis has also affected Taiwan's economy since the second half
of last year. To be sure, 1995 economic growth of 6.1% was quite respectable,
but the 4.9% rate in the fourth quarter was the lowest in five years and largely
resulted from slower than expected consumer spending and investment. Economic
performance during the first three months of 1996 was hardly better. Despite the
government forecast of 5.8% growth, we are projecting the rate will not exceed
5.0%.
The outlook for the rest of the year is much brighter. For one thing, there
should be a big boost in exports in the next few months since many of Taiwan's
manufacturers delayed overseas shipments in March until China's military
maneuvers were completed. The expected improvement in relations with China
should help put the domestic side of the economy back on track as well.
Given the first quarter weakness, the current government forecast calling for
1996 economic growth of 6.4% may be a little too optimistic unless the real
estate market revives and the current low level of interest rates continues.
Under these conditions -- and in the absence of a renewal in political tensions
- -- there will be a positive environment for the stock market.
Our investment strategy will focus on the financial sector and those companies
standing to benefit from a pick-up in the property market. In light of the
strong possibility that the Taiwan stock market will soon be included in Morgan
Stanley's global indices, which are used as performance benchmarks by many
international institutional investors, we will also target blue-chip
industrials.
We thank you for your support and look forward to discussing our market
outlook and portfolio strategy with you in future reports.
Respectfully submitted,
/s/ Daniel Chiang
Daniel Chiang
President
May 1, 1996
Portfolio Highlights
Three Months Ended March 31, 1996
Key Statistics
Change in NAV ($9.30 to $8.93) -$0.37
- -------------------------------------
Total Net Assets $301.9 Million
=====================================
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<TABLE>
<CAPTION>
Security Classification
Value
Percent of Net Assets (000)
- -------------------------- ------------
<S> <C> <C>
Common & Preferred Stocks 90.13% $272,073
Short-Term Investments 9.05 27,325
------ ----------
Total Investments 99.18 299,398
Other Assets Less
Liabilities 0.82 2,471
Net Assets 100.00% $301,869
======= ========
Ten Largest Holdings
Percent of
Company Net Assets
- -------------------------- ------------
First Commercial Bank 4.86%
Chang Hwa Commercial Bank 4.51
Cathay Life Insurance Co. 3.29
Taiwan Cement Corp. 3.27
Evergreen Marine Corp. 2.90
Taiwan Glass Industrial Corp. 2.67
China Synthetic Rubber Corp. 2.50
International Bills Finance Corp. 2.37
Union Petrochemical Corp. 2.31
China Development Corp. 2.07
Industry Diversification
Percent of
Ten Largest Sectors Net Assets
- -------------------------- ------------
Banking 14.72%
Electronics 10.65
Plastics 8.77
Other Financials 7.99
Textiles 7.02
Transportation 6.71
Electrical & Machinery 5.82
Cement 5.27
Rubber 4.49
Semiconductors 2.85
</TABLE>
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THE R.O.C TAIWAN FUND
Manager:
International Investment Trust Company Limited
17th Floor
167 Fuhsing North Road
Taipei, Taiwan, Republic of China
Telephone: (02) 713-7702
Fax: 886-2-717-3077
Officers and Trustees:
Theodore S. S. Cheng, Chairman and Trustee
Daniel Chiang, President and Chief Executive
Officer, Trustee, and Fund Manager
Raymund A. Kathe, Trustee and Audit Committee
Member
Pedro-Pablo Kuczynski, Trustee
David N. Laux, Trustee and Audit Committee
Member
Alfred F. Miossi, Trustee and Audit Committee
Member
Li-Yin Kung, Trustee and Audit Committee
Member
Gregory Kuo-Hua Wang, Trustee
James M. Wang, Chief Financial Officer,
Treasurer, and Secretary
Custodian:
Central Trust of China
49 Wuchang Street, Sec. 1
Taipei, Taiwan
Republic of China
Transfer Agent and U.S. Custodian,
Paying and Plan Agent:
State Street Bank and Trust Co.
P.O. Box 8200
Boston, Massachusetts 02266-8200
U.S.A.
U.S. Administrator:
Dewe Rogerson Inc.
850 Third Avenue
New York, NY 10022
U.S.A.
Telephone: (212) 688-6840
U.S. Legal Counsel
Paul, Weiss, Rifkin, Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019-6064
Telephone (212) 373-3000
For information on the Fund, including the NAV,
please call toll free 1-800-343-9567.
