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T H E
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R. O. C.
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TAIWAN FUND
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QUARTERLY REPORT
March 31, 2002
Dear Stockholders
The Fund's net asset value per share (NAV) gained 6.7% in the first quarter
compared to the 11.1% rise in the Taiwan Stock Exchange Index (TAIEX). During
the period, the New Taiwan dollar appreciated 0.2% against the U.S. dollar.
Investors took heart in the new year from the improving outlook for many
technology companies that accompanied the signs of economic revival in Taiwan
and the U.S. The appointment in late January of a new premier with a reputation
for pragmatic leadership also raised hopes that the political climate would be
less acrimonious and more conducive to boosting the economy. Plus, foreign
institutions lent support to the market with heavy buying.
Developments in Taiwan's semiconductor industry highlighted the brighter
prospects for technology. A continuing price rise of memory chips for most of
the period enabled producers to return to profitability for the first time in
about a year. And Taiwan's two foundries, Taiwan Semiconductor Manufacturing Co.
and United Microelectronics Corp., announced major alliances with European and
American semiconductor companies in the areas of advanced technology and
manufacturing. Such deals should help the two companies maintain their worldwide
leadership in the contract manufacturing of semiconductors and secure new
orders. Many makers of personal computer components also raised their revenue
forecasts for the year on expectations of increased global PC shipments
resulting from inventory rebuilding and a pick-up in end-user demand.
The only extended weakness during the first quarter came in February. Following
the more than 60% rise in the TAIEX from last September through January, many
investors took profits ahead of the week-long Chinese New Year holidays. In
addition, the double digit February decline of the Nasdaq raised
concern about Taiwan's own technology-heavy market.
Investor confidence, however, was soon restored with local reports that the
government was about to partially lift the ban on investing in China by Taiwan's
semiconductor industry. This helped spark a heavy wave of buying. Foreign
institutions were net buyers of nearly $2 billion worth of Taiwan equities in
March, when the market gained 8.3%. Positive economic news helped fuel the
rally: U.S. manufacturing rose for the first time in 19 months and consumer
confidence reached a 15-month high. As many U.S. economists lifted their
first-quarter economic growth forecasts to 5% or more, optimism increased that
an American recovery would boost demand for Taiwan's technology products. And in
Taiwan, the unemployment rate fell for the first time in a year and a half while
other signs also indicated the economy had bottomed out.
Indeed, Taiwan's economy appeared to climb back onto a positive track after its
1.9% contraction in 2001, the first full-year decline since the government
started measuring such performance in the 1950s. Although merchandise
exports--which represent about 40% of gross national product--declined 7.9% in
the first three months, it was the smallest quarterly drop in a year and beat
most forecasts. This improving trend should continue as indicated by the
positive growth in foreign orders received by Taiwan's manufacturers. Boosted by
the buoyant stock market, private consumption managed a small rise, although
indicators point to the fourth consecutive quarterly double-digit decline in
investment. We estimate that the economy grew about 1% in the recent quarter and
forecast 3.5% growth for the second half of the year.
Few funds outperformed the TAIEX in the first quarter, when the major rally that
had focused on technology stocks in the last few months of 2001 rotated, in
large part, into more speculative issues of companies with
little or no earnings and trading below book value. We, like other professional
fund managers, saw no fundamental reason to invest in most of these stocks.
Looking forward, the mild recovery of the economy should proceed in the near
term. Taiwan's leading indicators also point toward an even more vigorous
economy beginning in the third quarter. In response, the Fund will maintain its
current strategy of remaining fully invested in a broadly diversified portfolio
while avoiding speculative market frenzy. Our optimistic outlook continues for
shares of technology companies, many of which are enjoying a strong surge in
earnings. At the same time, the Fund's holdings in the financial sector are
roughly equal to their market weighting, but we have been highly selective in
choosing the most fundamentally sound companies in this industry.
We are grateful for your support and look forward to discussing our market
outlook and portfolio strategy with you in future reports.
Respectfully submitted,
/s/ Michael Ding
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Michael Ding
President
April 26, 2002
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PORTFOLIO HIGHLIGHTS
Three Months Ended March 31, 2002
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KEY STATISTICS
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Change in N.A.V. ($5.40 to $5.76) $0.36
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Total Net Assets $188.2 Million
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SECURITY CLASSIFICATION
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Value
Percent of Net Assets (000)
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Common Stocks 97.93% $184,309
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Short-term Investments 1.51 2,856
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Total Investments 99.44 187,165
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Other Assets Less Liabilities 0.56 1,049
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NET ASSETS 100.00% $188,214
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TEN LARGEST HOLDINGS
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Percent of
Company Net Assets
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Sonix Technology Co., Ltd. 4.86%
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Pihsiang Machinery Manufacturing Co., Ltd. 4.49
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Quanta Computer Inc. 4.41
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Taiwan Semiconductor Manufacturing Co., Ltd. 4.39
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Amtran Technology Co., Ltd. 4.22
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Hon Hai Precision Industry Co., Ltd. 4.13
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AU Optronics Corp. 3.83
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Macronix International Co., Ltd. 3.70
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Chunghwa Telecom Co., Ltd. 3.07
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Premier Image Technology Corp. 2.97
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INDUSTRY DIVERSIFICATION
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Percent of
Net Assets
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Computers & Office Equipment 20.98%
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Semiconductors 20.64
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Electronics 15.93
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Banking 6.40
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Telephone Services 5.29
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Other Financials 4.62
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Chemical 4.49
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Communications Equipment 4.34
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Plastics 4.03
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Retailing 2.82
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THE R.O.C. TAIWAN FUND
www.roctaiwanfund.com
MANAGER:
International Investment Trust Company Limited
17th Floor
167 Fuhsing North Road
Taipei, Taiwan, Republic of China
Telephone: 886-2-2713-7702
Fax: 886-2-2717-3077
OFFICERS AND TRUSTEES:
Theodore S. S. Cheng, Chairman and Trustee
Michael Ding, President and Trustee
Edward B. Collins, Trustee and Audit Committee
Member
David N. Laux, Trustee and Audit Committee
Member
Alfred F. Miossi, Trustee and Audit Committee
Member
Robert P. Parker, Trustee and Audit Committee
Member
Cheng Cheng Tung, Trustee
Peggy Chen, Chief Financial Officer,
Treasurer, and Secretary
CUSTODIAN:
Central Trust of China
49 Wuchang Street, Sec. 1
Taipei, Taiwan
Republic of China
TRANSFER AGENT,
PAYING AND PLAN AGENT:
State Street Bank and Trust Co.
P.O. Box 8200
Boston, Massachusetts 02266-8200
U.S.A.
Telephone: 1-800-426-5523
U.S. ADMINISTRATOR:
Citigate Dewe Rogerson Inc.
1440 Broadway, 16th Floor
New York, NY 10018 U.S.A.
Telephone: (212) 688-6840
U.S. LEGAL COUNSEL:
Paul, Weiss, Rifkind, 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.