<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
[_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
The Taiwan Fund, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
The Taiwan Fund, Inc.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11/1/
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[X] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
/1/ Set forth the amount on which the filing fee is calculated and state how it
was determined.
<PAGE>
THE TAIWAN FUND, INC.
225 FRANKLIN STREET, BOSTON, MASSACHUSETTS 02110
TELEPHONE 1-800-636-9242
January 26, 1996
Dear Stockholders:
The Annual Meeting of Stockholders of The Taiwan Fund, Inc. will be held at
11:00 A.M., New York time, on Tuesday, February 27, 1996 at the offices of
Rogers & Wells, 200 Park Avenue, 52nd Floor, New York, New York 10166. A
Notice and Proxy Statement regarding the meeting, proxy card for your vote at
the meeting and postage prepaid envelope in which to return your proxy are
enclosed.
At the Annual Meeting, the stockholders will (1) elect the Fund's directors,
(2) consider the ratification of the selection of Coopers & Lybrand L.L.P. as
independent public accountants, (3) consider approval of an Agreement of
Merger reincorporating the Fund, currently a Delaware corporation, as a
Maryland corporation by means of a merger of the Fund into a wholly-owned,
newly formed Maryland subsidiary, (4) consider approval of an amendment to the
Fund's Restated Certificate of Incorporation, increasing the number of
authorized shares of Common Stock from 20,000,000 to 60,000,000 (which
amendment, if approved, will only be effected if Proposal (3) is not approved
by the stockholders), (5) consider approval of an amendment to the Fund's
investment limitations to permit the Fund to purchase equity securities, which
will be listed on the Taiwan Stock Exchange, issued in initial and subsequent
public offerings and, in connection therewith, corresponding amendments to (i)
the Securities Investment Trust--Investment Management and Custodian Contract,
dated December 16, 1986 (the "Management Contract"), among the Fund, China
Securities Investment Trust Corporation and The International Commercial Bank
of China and (ii) the By-Laws of the Fund (which amendment, if this Proposal
(5) is approved, will only be required if Proposal (3) is not approved by the
stockholders) and (6) consider approval of an amendment to the Fund's
investment limitations to permit the Fund to engage in currency hedging
transactions and, in connection therewith, corresponding amendments to (i) the
Management Contract and (ii) the By-Laws of the Fund (which amendment, if this
Proposal (6) is approved, will only be required if Proposal (3) is not
approved by the stockholders). In addition, the stockholders present at the
Annual Meeting will hear a report on the Fund and have an opportunity to
discuss matters of interest to them.
<PAGE>
The Board recommends that the stockholders vote in favor of each of the
foregoing matters.
Respectfully,
Benny T. Hu
President
STOCKHOLDERS ARE URGED TO SIGN AND MAIL THE ENCLOSED PROXY IN
THE ENCLOSED ENVELOPE IN ORDER TO INSURE A QUORUM AT THE
MEETING.
<PAGE>
THE TAIWAN FUND, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
FEBRUARY 27, 1996
To the Stockholders of THE TAIWAN FUND, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of The Taiwan
Fund, Inc. (the "Fund") will be held at the offices of Rogers & Wells 200 Park
Avenue, 52nd Floor, New York, New York 10166, on Tuesday, February 27, 1996 at
11:00 A.M., New York time, for the following purposes:
(1) To elect seven directors to serve for the ensuing year.
(2) To ratify or reject the selection of Coopers & Lybrand L.L.P., as
independent public accountants of the Fund for its fiscal year ending
August 31, 1996.
(3) To consider approval of an Agreement of Merger reincorporating the
Fund, currently a Delaware corporation, as a Maryland corporation by means
of a merger of the Fund into a wholly-owned, newly formed Maryland
subsidiary.
(4) To consider approval of an amendment to the Fund's Restated
Certificate of Incorporation, increasing the number of authorized shares
of Common Stock from 20,000,000 to 60,000,000 (which amendment, if
approved, will only be effected if Proposal (3) is not adopted by the
stockholders).
(5) To consider approval of an amendment to the Fund's investment
limitations to permit the Fund to purchase equity securities, which will
be listed on the Taiwan Stock Exchange, issued in initial and subsequent
public offerings and, in connection therewith, corresponding amendments to
(i) the Securities Investment Trust--Investment Management and Custodian
Contract, dated December 16, 1986 (the "Management Contract"), among the
Fund, China Securities Investment Trust Corporation and The International
Commercial Bank of China and (ii) the By-Laws of the Fund (which
amendment, if this Proposal (5) is approved, will only be required if
Proposal (3) is not approved by the stockholders).
(6) To consider approval of an amendment to the Fund's investment
limitations to permit the Fund to engage in currency hedging transactions
and, in connection therewith, corresponding amendments to (i) the
Management Contract and (ii) the By-Laws of the Fund (which amendment, if
this Proposal (6) is approved, will only be required if Proposal (3) is
not approved by the stockholders).
(7) To transact such other business as may properly come before the
meeting or any adjournments thereof.
<PAGE>
The Board of Directors has fixed the close of business on December 29, 1995
as the record date for the determination of stockholders entitled to notice of
and to vote at the meeting or any adjournments thereof.
You are cordially invited to attend the meeting. Stockholders who do not
expect to attend the meeting in person are requested to complete, date and
sign the enclosed form of proxy and return it promptly in the envelope
provided for that purpose. The enclosed proxy is being solicited by the Board
of Directors of the Fund.
By order of the Board of Directors
Gloria Wang
Secretary
January 26, 1996
2
<PAGE>
PROXY STATEMENT
THE TAIWAN FUND, INC.
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of THE TAIWAN FUND, INC. (the "Fund") for
use at the Annual Meeting of Stockholders, to be held at the offices of Rogers
& Wells, 200 Park Avenue, 52nd Floor, New York, New York 10166, on Tuesday,
February 27, 1996 at 11:00 A.M., New York time, and at any adjournments
thereof.
The approximate date on which this Proxy Statement and the form of proxy
will be mailed to stockholders is January 26, 1996. Any stockholder giving a
proxy has the power to revoke it by mail (addressed to the Secretary of the
Fund c/o the Fund's administrator, State Street Bank and Trust Company, at the
Fund's address at 225 Franklin Street, Boston, Massachusetts 02110) or in
person at the meeting, by executing a superseding proxy or by submitting a
notice of revocation to the Fund. All properly executed proxies received in
time for the meeting will be voted as specified in the proxy or, if no
specification is made, for each proposal referred to in this Proxy Statement.
Abstentions and broker non-votes are each included in the determination of the
number of shares present at the meeting for purposes of determining the
presence of a quorum.
The Board of Directors has fixed the close of business on December 29, 1995
as the record date for the determination of stockholders entitled to notice of
and to vote at the meeting and at any adjournment thereof. Stockholders on the
record date will be entitled to one vote for each share held, with no shares
having cumulative voting rights. As of the record date, the Fund had
outstanding 14,826,357 shares of common stock. To the knowledge of management
of the Fund, no person owned beneficially more than 5% of the Fund's
outstanding shares as of December 29, 1995.
Management of the Fund knows of no business other than that mentioned in
Proposals (1) through (6) of the Notice of Meeting which will be presented for
consideration at the meeting. If any other matter is properly presented, it is
the intention of the persons named in the enclosed proxy to vote in accordance
with their best judgment.
THE FUND WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS ANNUAL REPORT FOR ITS
FISCAL YEAR ENDED AUGUST 31, 1995 TO ANY STOCKHOLDER REQUESTING SUCH REPORT.
REQUESTS FOR THE ANNUAL REPORT SHOULD BE MADE BY WRITING TO THE TAIWAN FUND,
INC., 225 FRANKLIN STREET, BOSTON, MASSACHUSETTS 02110, ATTENTION: JAMES ROSS,
OR BY CALLING 1-800-636-9242.
1
<PAGE>
(1) ELECTION OF DIRECTORS
Persons named in the accompanying form of proxy intend in the absence of
contrary instruction to vote all proxies for the election of the seven
nominees listed below as directors of the Fund to serve until the next Annual
Meeting of Stockholders (expected to be held in February 1997), or until their
successors are elected and qualified. If any such nominee should be unable to
serve, an event not now anticipated, the proxies will be voted for such
person, if any, as shall be designated by the Board of Directors to replace
any such nominee.
INFORMATION CONCERNING DIRECTORS AND NOMINEES
The following table sets forth certain information concerning each of the
nominees as a director of the Fund. Each of the nominees is now a director of
the Fund.
<TABLE>
<CAPTION>
PRESENT OFFICE WITH THE
FUND, PRINCIPAL SHARES
OCCUPATION OR EMPLOYMENT BENEFICIALLY
DURING PAST FIVE YEARS OWNED PERCENT
NAME AND ADDRESS AND DIRECTORSHIPS IN DIRECTOR NOVEMBER 30, OF
OF NOMINEE (AGE) PUBLICLY-HELD COMPANIES SINCE 1995(1) CLASS
---------------- ------------------------ -------- ------------ -------
<S> <C> <C> <C> <C>
*Benny T. Hu (47) President of the Fund; 1993 None --
125 Nanking East Road President, China Devel-
Section 5 opment Corporation
Taipei, Taiwan, ROC (1993-present); Chair-
man, China Securities
Investment Trust Corpo-
ration (1992-1993);
President, China Securi-
ties Investment Trust
Corporation (1985-1992);
Chairman, Far Eastern
Air Transport Corp.
(1995-present); Execu-
tive Director, Merrill
Lynch International,
Inc. (1986-1990); Execu-
tive Vice President, In-
ternational Investment
Trust Co., Ltd. (1983-
1986); Director, China
Steel Corporation (1993-
present); Director,
MITAC International
Corp. (1993-present).
*Harvey H.W. Chang (44) Chairman, China Securi- 1993 None --
99 Tun Hwa South Road ties Investment Trust
Section 2 Corporation (1993-pres-
Taipei, Taiwan, ROC ent); President, China
Development Corporation
(1992-1993); President,
Grand Cathay Securities
Corporation (1989-1992).
Joe O. Rogers (47) Partner, PHH Fantus Con- 1986 100 +
2018 Gunnel Farms Drive sulting (May 1993-pres-
Vienna, Virginia 22181 ent); Partner, Alcalde,
Rousselot & Fay (1992-
May 1993); Director, The
China Fund, Inc. (1992-
present); President,
Rogers International,
Inc. (1986-present);
President, Middendorf
Rogers Martin Group Inc.
(1987-1989); U.S. Execu-
tive Director, Asian De-
velopment Bank (1984-
1986); Executive Direc-
tor, Republican Confer-
ence, U.S. House of Rep-
resentatives (1981-
1984).
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
PRESENT OFFICE WITH THE
FUND, PRINCIPAL SHARES
OCCUPATION OR EMPLOYMENT BENEFICIALLY
DURING PAST FIVE YEARS OWNED PERCENT
NAME AND ADDRESS AND DIRECTORSHIPS IN DIRECTOR NOVEMBER 30, OF
OF NOMINEE (AGE) PUBLICLY-HELD COMPANIES SINCE 1995(1) CLASS
---------------- ------------------------ -------- ------------ -------
<S> <C> <C> <C> <C>
Jack C. Tang (68) Director, Pacific Rim In- 1989 None --
Suite 1601 vestments Ltd. (1991-
Tower 1 present); Chairman and
China Hong Kong City Chief Executive Officer,
Tsim Sha Tsu Tristate Holdings Lim-
Kowloon, Hong Kong ited (1987-present); Di-
City rector, Mid Pacific Air
Corporation (1986-pres-
ent); Chairman, South
Sea Development Co. Ltd.
(March-September 1992);
Chairman and Managing
Director, South Sea Tex-
tile Manufacturing Co.,
Ltd. (1971-1992); Direc-
tor, The Hong Kong and
Shanghai Banking Corpo-
ration (1984-1991);
Chairman, Pacific Rim
Investments Ltd. (1989-
1991).
Shao-Yu Wang (72) Chairman, Taiwan Styrene 1986 None --
8th Floor Monomer Corporation
6 Roosevelt Road (1979-present); Chair-
Section 1 man, American California
Taipei, Taiwan, ROC Bank (1980-1995); Direc-
tor, American California
Bank (1980-present);
Chairman of the Board,
Soochow University
(1987-present); Direc-
tor, Asia Polymer Corpo-
ration (until 1995); Di-
rector, CTCI Corpora-
tion; Director, Taiwan
Synthetic Rubber Corpo-
ration; Director, Orien-
tal Union Chemical Corp.
David Dean (70) Adviser of the Chiang- 1991 None --
8361 B. Greensboro Ching-Kuo Foundation
Drive (1990-present); Direc-
McLean, Virginia 22102 tor, The American Insti-
tute in Taiwan (1979-
1989).
Lawrence F. Weber (62) Consultant, USB Asset 1995 None --
950 Park Avenue Management (N.Y.) (1993-
New York, New York present); Consultant,
10028 Union Bank of Switzer-
land (N.Y.) (1993-pres-
ent); Director, East
Asia/Australia, UBS As-
set Management (N.Y.)
(1991-1993); Managing
Director, Asia-Pacific,
Chase Investors Manage-
ment (1983-1991).
</TABLE>
- ---------
(1) The information as to beneficial ownership is based on statements
furnished to the Fund by the nominees.
+ Less than 1% of the outstanding shares.
* Directors or nominees considered to be "interested persons" (as defined in
the Investment Company Act of 1940, as amended (the "1940 Act")) of the
Fund or of the Fund's investment adviser. Mr. Hu is deemed to be an
interested person because of his affiliation with China Development
Corporation, the principal shareholder of the Fund's investment adviser,
China Securities Investment Trust Corporation (99 Tunhwa S. Road, Section
2, 24th Floor, Taipei, Taiwan R.O.C.). Mr. Chang is deemed to be an
interested person because of his affiliation with China Securities
Investment Trust Corporation, the Fund's investment adviser.
The Fund's Board of Directors has an Executive Committee which may exercise
the powers of the Board to conduct the current and ordinary business of the
Fund while the Board is not in session. The current members of the Executive
Committee are Messrs. Rogers, Chang and Wang.
3
<PAGE>
The Fund's Board of Directors has an Audit Committee which is responsible
for reviewing financial and accounting matters. The current members of the
Audit Committee are Messrs. Dean, Rogers, Tang, Wang and Weber.
The Board of Directors of the Fund held two regular and two special meetings
during the fiscal year ended August 31, 1995. In addition, the Audit Committee
held three regular meetings during the fiscal year ended August 31, 1995.
Messrs. Jack C. Tang and Benny T. Hu attended fewer than 75% of the aggregate
number of Board meetings and meetings of committees on which they served.
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Fund's officers and directors, and persons who
own more than ten percent of a registered class of the Fund's equity
securities, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission and the New York Stock Exchange, Inc. The
Fund believes that its officers and directors have complied with all
applicable filing requirements, except that management of the Fund failed to
timely file a Form 4--Statement of Changes in Beneficial Ownership for Mr.
Rogers, a director of the Fund, after having undertaken to do the same. The
failure to timely file the Form 4 resulted in a violation of the reporting
requirements under Section 16(a) of the Exchange Act.
OFFICERS OF THE FUND
Mr. Benny T. Hu (age 47), President of the Fund since 1986, also serves as
President of China Development Corporation. Mr. Hu also served as Chairman of
the Fund's investment adviser, China Securities Investment Trust Corporation
from 1992 to 1993, and as President of China Securities Investment Trust
Corporation from 1985 to 1992. He was Executive Director of Merrill Lynch
International, Inc. from 1986 to 1990.
Gloria Wang (age 41), Secretary and Treasurer of the Fund since 1993, also
serves as the Executive Vice President of the Fund's investment adviser, China
Securities Investment Trust Corporation. Ms. Wang served as an Assistant Vice
President in the research department of China Securities Investment Trust
Corporation from 1988 to 1993, and as Senior Vice President of the Fund's
investment adviser from 1993 to 1995.
Both Mr. Hu and Ms. Wang are considered to be "interested persons" (as
defined in the 1940 Act) of the Fund and its investment adviser.
TRANSACTIONS WITH AND REMUNERATION OF OFFICERS AND DIRECTORS
The aggregate remuneration, including expenses relating to attendance at
board meetings reimbursed by the Fund, of directors not
4
<PAGE>
affiliated with China Securities Investment Trust Corporation, the Fund's
investment adviser, was US$89,782 during the fiscal year ended August 31,
1995. The Fund currently pays each director that is not affiliated with China
Securities Investment Trust Corporation an annual fee of US$7,500 plus US$750
for each directors' meeting and committee meeting attended.
China Securities Investment Trust Corporation pays the compensation and
certain expenses of Mr. Harvey Chang, the Chairman of China Securities
Investment Trust Corporation who serves as a director of the Fund, and of Ms.
Gloria Wang, an employee of China Securities Investment Trust Corporation who
serves as Secretary and Treasurer of the Fund. Mr. Chang and Ms. Wang may
participate in the advisory fees paid by the Fund to China Securities
Investment Trust Corporation, although the Fund makes no direct payments to
either of them.
The following table sets forth the aggregate compensation from the Fund paid
to each director during the fiscal year ended August 31, 1995. China
Securities Investment Trust Corporation and its affiliates do not advise any
other U.S. registered investment companies and therefore the Fund is not
considered part of a Fund Complex.
<TABLE>
<CAPTION>
AGGREGATE
NAME OF COMPENSATION
DIRECTOR FROM FUND(1)
-------- ------------
<S> <C>
Benny T. Hu* ................................................. --
Harvey H.W. Chang* ........................................... --
Joe O. Rogers ................................................ $12,000
Jack C. Tang ................................................. $ 9,000
Shao-Yu Wang ................................................. $10,500
David Dean ................................................... $12,750
Lawrence Weber ............................................... $ 6,750
Glen Moreno** ................................................ $ 5,250
</TABLE>
- ---------
(1) Includes all compensation paid to directors by the Fund. The Fund's
directors do not receive any pension or retirement benefits as
compensation for their service as directors of the Fund.
* Mr. Hu and Mr. Chang, who are affiliated with China Securities Investment
Trust Corporation and are therefore "interested persons" of the Fund, do
not receive any compensation from the Fund for their service as directors.
** Mr. Moreno did not stand for re-election as director of the Fund at the
1995 annual stockholder meeting in February, 1995.
REQUIRED VOTE
The election of each director will require the affirmative vote of a
plurality of the votes of the shares present in person or represented by proxy
at the meeting and entitled to vote for the election of the directors. For
5
<PAGE>
this purpose, votes that are withheld and broker non-votes will have no effect
on the outcome of the elections.
THE BOARD OF DIRECTORS OF THE FUND RECOMMENDS THAT YOU VOTE "FOR" THE
ELECTION OF THE SEVEN NOMINEES FOR DIRECTORS.
(2) RATIFICATION OR REJECTION OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
At a meeting held December 1, 1995, the Board of Directors of the Fund,
including a majority of the directors who are not interested persons of the
Fund, selected Coopers & Lybrand L.L.P. to act as independent certified public
accountants for the Fund for the fiscal year ending August 31, 1996. The Fund
knows of no direct financial or material indirect financial interest of such
firm in the Fund. One or more representatives of Coopers & Lybrand L.L.P. are
expected to be present at the meeting and will have an opportunity to make a
statement if they so desire. Such representatives are expected to be available
to respond to appropriate questions from stockholders.
The Fund's financial statements for the fiscal years ended August 31, 1994
and 1995 were examined by Coopers & Lybrand L.L.P. in connection with its
audit services. Coopers & Lybrand L.L.P. audited the financial statements
included in the Fund's annual report for the fiscal year ended August 31, 1995
and reviewed the Fund's filings with the Securities and Exchange Commission.
REQUIRED VOTE
The selection of independent certified public accountants is subject to the
ratification or rejection of the stockholders of the Fund at the meeting.
Ratification of the selection of the independent accountants will require the
affirmative vote of a majority of shares present in person or represented by
proxy at the meeting and entitled to vote for the selection of independent
accountants. For this purpose, abstentions will have the effect of a vote
against the selection of independent accountants. Broker non-votes will have
no effect on the vote.
(3) APPROVAL OF AN AGREEMENT OF MERGER REINCORPORATING THE FUND UNDER THE
LAWS OF THE STATE OF MARYLAND
GENERAL
The Board of Directors has approved and recommends that the stockholders of
the Fund approve the Agreement of Merger (the "Agreement of Merger"), a copy
of which is attached as Exhibit A to this Proxy Statement, which provides for
the Fund's change of domicile from Delaware to Maryland (the
"Reincorporation"). The primary purpose of the Reincorporation is to eliminate
the Fund's annual franchise tax payment. In fiscal 1995, the Fund paid the
State of Delaware franchise taxes of $73,797. The State of Maryland has no
franchise tax.
6
<PAGE>
The Reincorporation will not result in a change in the Fund's name,
business, management, directors, location of principal executive office,
capitalization or assets, liabilities or net asset value (other than due to
the costs of the transaction). The Fund will have new Articles of
Incorporation and By-Laws which, as described below, differ from its current
charter and by-laws, including new supermajority voting provisions which will
have the effect of making it more difficult to effect a change of control of
the Fund and an increased authorized capital.
To effect the Reincorporation, the Fund (sometimes referred to as "Taiwan-
Delaware") will be merged into a new Maryland corporation, also named The
Taiwan Fund, Inc. ("Taiwan-Maryland") (the "Merger"). Taiwan-Maryland, a
wholly-owned, newly formed subsidiary of the Fund, was incorporated in the
State of Maryland on January 11, 1996. Taiwan-Maryland has 60,000,000
authorized shares of Common Stock, of which 100 shares are issued and
outstanding. When the Merger becomes effective, (i) Taiwan-Delaware will cease
to exist, (ii) Taiwan-Maryland will succeed, to the fullest extent permitted
by law, to all of the business, assets and liabilities of Taiwan-Delaware,
(iii) each share of Common Stock of Taiwan-Delaware ("Taiwan-Delaware Common
Stock") will be automatically converted into a corresponding share of the
Common Stock of Taiwan-Maryland ("Taiwan-Maryland Common Stock") and the
outstanding shares of Taiwan-Maryland held by Taiwan-Delaware will be
surrendered and extinguished, and (iv) Taiwan-Maryland will replace Taiwan-
Delaware as a party to its principal agreements, including: (a) the Securities
Investment Trust-Investment Management and Custodian Contract, dated December
16, 1986 among the Fund, China Securities Investment Trust Corporation, the
Fund's investment adviser, (the "Adviser"), and The International Commercial
Bank of China, the custodian for the Fund's assets held in Taiwan, relating to
the Fund's investment activities in Taiwan, and (b) the Investment Advisory
and Management Agreement, dated December 16, 1986, between the Fund and the
Adviser, relating to the management of any Fund assets held in the United
States. Under the Agreement of Merger, the Board of Directors retains
discretion to abandon or terminate the Reincorporation after receipt of
stockholder approval, but prior to filing the necessary documentation with the
States of Delaware and Maryland, if the Board of Directors determines the
Reincorporation is no longer in the best interest of the Fund and its
stockholders.
7
<PAGE>
IT IS ANTICIPATED THAT IT WILL NOT BE NECESSARY FOR STOCKHOLDERS OF THE FUND
TO SURRENDER OR EXCHANGE THEIR EXISTING STOCK CERTIFICATES FOR NEW STOCK
CERTIFICATES OF TAIWAN-MARYLAND COMMON STOCK.
Following the Reincorporation, and as a condition of the Merger, the Taiwan-
Maryland Common Stock will be listed on the New York Stock Exchange (the
"NYSE") and it is expected that delivery of certificates representing shares
of Taiwan-Delaware Common Stock will constitute "good delivery" for subsequent
transactions. If the rules, regulations or directives of the NYSE require
surrender of the certificates representing shares of Taiwan-Delaware Common
Stock, each stockholder will, upon the surrender of such certificates, be
entitled to receive a certificate or certificates representing a corresponding
number of shares of Taiwan-Maryland Common Stock.
Following the Merger, the Fund will be a Maryland corporation and the rights
of its stockholders, directors and officers will be governed by Maryland law
and by Taiwan-Maryland's Articles of Incorporation (the "Maryland Charter")
and By-Laws (the "Maryland By-Laws"), rather than by Delaware law and the
Fund's existing Restated Certificate of Incorporation, as amended, and Amended
and Restated By-Laws (the "Delaware Charter" and the "Delaware By-Laws,"
respectively). A copy of the Maryland Charter is attached hereto as Exhibit B.
Copies of the Delaware Charter, the Maryland By-Laws and the Delaware By-Laws
are available for inspection at the principal offices of the Fund and will be
sent to stockholders upon request directed to the Fund's Secretary or the
Fund's Administrator, State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02110.
A discussion of the material similarities and differences between Taiwan-
Delaware and Taiwan-Maryland appears below. This discussion is not intended to
be complete and is qualified in its entirety by reference to Exhibit B
attached hereto and to the Delaware Charter, the Delaware By-Laws, the
Maryland By-Laws, the General Corporation Law of the State of Delaware and the
Maryland General Corporation Law.
CAPITAL STOCK
Authorized Capital. Taiwan-Maryland has 60,000,000 authorized shares of
Common Stock rather than the 20,000,000 shares currently authorized under the
Fund's Restated Certificate of Incorporation. Please refer to Proposal (4) for
a discussion of the Board of Directors' reasons why it believes an increase in
authorized capital stock of the Fund is appropriate and the considerations
relating thereto.
8
<PAGE>
Redemption and Retirement. Delaware law permits the purchase or redemption
of a corporation's stock out of surplus. Delaware law prohibits the purchase
or redemption of a corporation's common stock out of capital and the purchase
or redemption of preferred stock out of capital if any reduction in capital
connected with the retirement would cause the assets of the corporation
remaining after the reduction to be insufficient to pay any debts of the
corporation for which payment has not been otherwise provided. Under Maryland
law, a corporation may purchase or acquire its own shares, unless (i) the
corporation would not be able to pay indebtedness of the corporation as the
indebtedness becomes due in the usual course of business or (ii) the
corporation's total assets would be less than the sum of the corporation's
total liabilities plus, unless the charter provides otherwise, the amount that
would be needed, if the corporation were to be dissolved at the time of the
purchase or acquisition, to satisfy the preferential rights upon dissolution
of stockholders whose preferential rights on dissolution are superior to those
whose shares are purchased or acquired.
Notwithstanding Delaware and Maryland law, the 1940 Act prohibits a
registered closed-end investment company, such as the Fund, from purchasing
its own securities except (i) on a securities exchange or such other open
market as the Securities and Exchange Commission (the "Commission") may
designate, provided the stockholders have been notified by letter or report
within the preceding six months, (ii) pursuant to tenders, after reasonable
opportunity to submit tenders given to all holders of securities of the class
to be purchased or (iii) under such other circumstances as the Commission may
permit by rules and regulations or orders.
Dividends. Under Delaware law, a corporation can pay dividends out of
surplus or, if there is no surplus, out of net profits for the current year
and/or the immediately preceding fiscal year (provided that the amount of
capital of the corporation is not less than the aggregate amount of the
capital represented by the issued and outstanding stock of all classes having
a preference upon the distribution of assets). Maryland law permits the
payment of dividends unless (i) the corporation would not be able to pay
indebtedness of the corporation as the indebtedness becomes due in the usual
course of business or (ii) the corporation's total assets would be less than
the sum of the corporation's total liabilities plus, unless the charter
provides otherwise, the amount that would be needed, if the corporation were
to be dissolved at the time of payment of such dividends, to satisfy the
preferential rights upon dissolution of stockholders whose preferential rights
on dissolution are superior to those receiving the dividends.
However, regardless of Delaware and Maryland law, the 1940 Act prohibits the
payment of dividends, from any source other than (i) the
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company's accumulated undistributed net income and not including profits or
losses realized upon the sale of securities or other properties or (ii) the
company's net income so determined for the current or preceding fiscal year;
unless such payment is accompanied by a written statement adequately
disclosing the source of such payment.
Under the United States Internal Revenue Code, the Fund currently qualifies
as a regulated investment company. Qualification as such an entity allows the
Fund to avoid Federal income and excise taxes on distributed net investment
income and net capital gains each year. In order to maintain its status as a
regulated investment company under the Internal Revenue Code, the Fund intends
to distribute at least annually substantially all of its investment company
taxable income including dividends and interest and expects to distribute its
net realized capital gains, if any, at least annually. The Fund expects to
continue to qualify as a regulated investment company following the
Reincorporation.
Preferred Stock. The Maryland Charter provides that the Board of Directors
may classify or reclassify any unissued shares of capital stock into one or
more additional or other classes or series, with rights (including dividend
rates, liquidation preferences and redemption rights) as determined by the
Board of Directors, by action by the Board of Directors without the approval
of the holders of Common Stock. Accordingly, if the Reincorporation is
approved, the Fund will, upon completion of the merger, have the ability under
Maryland law to issue preferred stock. However, any such preferred stock would
constitute a senior security for purposes of the 1940 Act and, under the
Fund's investment limitations, the Fund may not issue senior securities. It is
not proposed that this investment limitation be modified. Therefore, unless
and until such investment limitation is changed (which would require the
approval of a majority of the Fund's outstanding voting securities), the Fund
will not issue any preferred stock.
STOCKHOLDERS
Stockholders' Inspection Rights. Delaware law allows any stockholder to
inspect the corporation's stock ledger, stockholders' list and other books and
records for a purpose reasonably related to such person's interest as a
stockholder, provided that the stockholder complies with the statutory
requirement of a written demand. During the ten days preceding a stockholders
meeting, a stockholder may inspect the stockholders' list for any purpose
germane to that meeting. Under Maryland law, one or more stockholders who
together are and for at least six months have been
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stockholders of record or holders of voting trust certificates of at least 5%
of the outstanding stock of any class may inspect the corporation's books of
account and stock ledger, request a statement of the corporation's affairs and
request a stockholders' list. Any stockholder may inspect the By-Laws, minutes
of proceedings of the stockholders, annual statements of affairs and voting
trust agreements on file of a Maryland corporation and may request a statement
showing all stock and securities issued by the corporation during a specified
period of not more than 12 months before the date of the request.
Consequently, under Maryland law, stockholders may not have access to the
corporation's books of account and stock ledger or request a statement of the
corporation's affairs or a stockholder list, which are available to any
stockholder under Delaware law, unless the stockholder owns a significant
amount of stock or joins with other stockholders in making such a request.
Special Meetings of Stockholders. Pursuant to the Delaware By-Laws, a
special meeting of the stockholders of Taiwan-Delaware may be called only by
the President, by a majority of the members of the Board of Directors, or on
the written request of holders of at least twenty-five percent (25%) of the
outstanding shares of Common Stock entitled to vote at such meetings. A
special meeting of Taiwan-Maryland may be called by the Chairman of the Board,
the President, by a majority of the Board of Directors, or upon the written
request of stockholders holding at least twenty-five percent (25%) of the
outstanding shares of capital stock entitled to vote at the meeting, except
that unless requested by stockholders entitled to cast a majority of all the
votes entitled to be cast at the meeting, a special meeting need not be called
to consider any matter which is substantially the same as a matter voted upon
at any special meeting of stockholders held during the preceding twelve
months.
Stockholder Action Without a Meeting. Delaware law allows stockholders to
take action without a meeting, without prior notice and without a vote, if
written consents signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted is delivered to the corporation. Maryland law provides that
stockholders may take such action only upon unanimous written consent, a
requirement unattainable by a public company in most circumstances.
Notwithstanding Delaware law and Maryland law, as a general rule, the NYSE
does not permit the stockholders of a company whose shares are listed on the
NYSE to act by written consent.
Preemptive Rights. Neither the Delaware Charter nor the Maryland Charter
provides any stockholder with any preemptive right to subscribe for any newly-
issued stock or other securities of Taiwan-Delaware or Taiwan-
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Maryland, respectively. Accordingly, neither corporation offers stockholders a
prior right to purchase any new issue of that corporation's common stock in
order to maintain their proportionate ownership.
Stockholder Vote for Reorganizations and Conversions. The Delaware Charter
contains no provisions regarding mergers, consolidations or sale of
substantially all of the assets of the Fund. However, Delaware law generally
requires approval of a majority of the outstanding stock entitled to vote
thereon for a merger, consolidation or sale of substantially all of the assets
of the corporation. Under the Maryland Charter, the affirmative vote of at
least three-fourths of the shares of capital stock outstanding and entitled to
vote is required to approve a merger, consolidation, share exchange, transfer
of all or substantially all assets or transfer of securities, unless such
action is approved by 70% of the Board of Directors, in which case the
affirmative vote of a majority of the shares of capital stock outstanding and
entitled to vote is required. Consequently, approval of a consolidation,
merger, share exchange or transfer of assets may be more difficult to obtain
under the provisions of the Maryland Charter. Additionally, Delaware law
generally requires approval of a majority of the outstanding stock entitled to
vote thereon to amend the certificate of incorporation to, among other things,
change, substitute, enlarge, or diminish its corporate power and purposes.
Under the Maryland Charter, an affirmative vote of the holders of at least
three-fourths of the shares of capital stock outstanding and entitled to vote
is required to approve (i) a change in the nature of the Fund's business so
that it would cease to be an investment company registered under the 1940 Act,
(ii) a conversion into an "open-ended" company, or (iii) any amendment to the
Maryland Charter to make Taiwan-Maryland's Common Stock a "redeemable
security" (as such term is defined in the 1940 Act). Accordingly, such change
in the nature of the Fund's business or conversion into an "open-ended"
company would be more difficult to effect under the Maryland Charter. The
Delaware Charter does not contain any similar provisions.
BOARD OF DIRECTORS
Number. The Delaware Charter and By-Laws provide that the number of
directors shall be not less than three nor more than fifteen as may be fixed
from time to time by the affirmative vote at a meeting of the holders of a
majority of shares outstanding or by resolution of the Board of Directors. The
Maryland Charter and By-Laws provide that the number of directors shall be not
more than fifteen nor less than such number of directors as may be permitted
under Maryland law, as may be determined from time to time by vote of a
majority of the Board of Directors then in office. The Maryland Charter also
provides that the Maryland By-Laws may divide the Board of Directors into
classes and prescribe the tenure of each class. Under the Maryland By-Laws,
the Board of Directors will be divided into three classes, with each class
having a term of three years. The term of one
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class will expire each year. This could have the effect of making it more
difficult to make changes in the Board of Directors. See "Anti-Takeover
Provisions" below.
Removal and Vacancies. The Delaware By-Laws provide that any director may be
removed at any time, with or without cause, by the affirmative vote of the
holders of a majority of the stock outstanding. Also, newly created
directorships resulting from an increase in the number of directors shall be
filled by vote of the stockholders or by a vote of a majority of the directors
then in office. Vacancies occurring in the Board for any reason may be filled
by election at a meeting of stockholders or by vote of a majority of the
directors then in office if immediately after filling any such vacancy at
least two-thirds of the directors then holding office shall have been elected
to such office by the holders of the outstanding voting securities of the Fund
at an annual or special meeting. In the event that at any time less than a
majority of the directors of the Fund holding office at that time were elected
by the stockholders, a meeting of the stockholders shall forthwith be held as
promptly as possible and in any event within 60 days from such time for the
purpose of electing directors to fill any existing vacancies in the Board
unless the Securities and Exchange Commission shall by order extend such
period. A director chosen to fill a vacancy shall hold office until his death,
resignation or removal or until his successor shall have been elected and
shall have qualified. Under Delaware law, if the number of directors in office
is less than a majority at the time of the filling of any vacancy, the
Delaware Court of Chancery may, at the application of any stockholder or
stockholders holding at least ten percent (10%) of the total number of shares
then outstanding and having the right to vote, order an election to fill the
vacancy or replace the director chosen by the directors then in office.
Under the Maryland Charter, a director may be removed only with cause by the
stockholders of the Fund by the affirmative vote of a majority of the votes
entitled to be cast for the election of directors. Under the Maryland By-Laws,
vacancies due to an increase in the size of the Board may be filled by a
majority of the entire Board of Directors. Pursuant to the Maryland By-Laws
and the 1940 Act, vacancies occurring in the Board for any reason may be
filled by election at a meeting of stockholders or by vote of a majority of
the directors then in office if immediately after filling any such vacancy at
least two-thirds of the directors then holding office shall have been elected
to such office by the holders of the outstanding voting securities of the Fund
at an annual or special meeting. In the event that at any time less than a
majority of the directors of the Fund holding office at that time were elected
by the stockholders, a meeting of the stockholders shall forthwith be held as
promptly as possible and in any event within 60 days from such time for the
purpose of electing directors to fill any existing vacancies in the Board
unless the Securities and Exchange Commission
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shall by order extend such period. Directors selected by the Board of
Directors to fill vacancies serve until the next annual meeting of
stockholders or until their successors are elected and qualified. Directors
selected by stockholders to fill vacancies serve for the balance of the term
of the director they are replacing.
Limitations on Liability. The Delaware and Maryland Charters each protect
directors from liability to the extent permissible under Delaware and Maryland
law, respectively. Both Taiwan-Delaware and Taiwan-Maryland afford protection
to their directors against claims for monetary damages from the Fund and its
stockholders for certain breaches of their fiduciary duties as directors.
Several other similarities regarding the limitation of directors' liability
exist in the Delaware Charter and the Maryland Charter. First, neither charter
affords protection to directors against claims for equitable relief, such as
an injunction or rescission based on a breach of the duty of care or loyalty.
Second, the limitation of liability afforded by the Delaware and Maryland
Charters applies only to actions brought by the Fund or its stockholders and
does not preclude or limit recovery of damages by third parties, such as
creditors of the Fund. Third, neither charter protects directors from suits
brought under the federal securities laws. Finally, both charters provide that
the directors shall be protected to the maximum extent provided under Delaware
or Maryland law, as the case may be, as currently in effect or as may be
amended in the future.
In a few significant respects, the Maryland Charter and Maryland law may
afford greater protection against liability than do the Delaware Charter and
Delaware law. First, the Maryland Charter provides that neither amendment nor
repeal of the liability limitation shall limit or eliminate the benefits
provided to directors and officers under the liability limitation provision in
connection with any act or omission that occurred prior to such amendment or
repeal. In addition, the Maryland Charter and Maryland law provide directors
additional protection against claims for money damages. Under the Maryland
Charter and Maryland law, the Fund or a stockholder will be able to recover
money damages against a director of Taiwan-Maryland only if it or he is able
to prove that (i) the director actually received an improper benefit in money,
property or services (in which case recovery is limited to the actual amount
of such improper benefit) or (ii) the director's action or failure to act was
the result of active and deliberate dishonesty and was material to the cause
of action adjudicated in the proceeding. The protection afforded by the
Delaware Charter and Delaware law is narrower. Delaware law prohibits limiting
the liability of a director (i) for any breach of a director's duty of loyalty
to the Fund or its stockholders; (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law; (iii)
with respect to violations under Section 174 of the Delaware Law (concerning
directors liability in connection with unlawful payment of dividends, stock
purchases or redemptions) or (iv) any
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transaction from which a director derives improper personal benefit. Also,
while Delaware law extends the right to limit liability for monetary damages
only to directors, Maryland law and the Maryland Charter permit the limitation
of such liability for both directors and officers. Due to differences in
Delaware and Maryland law, stockholders of Taiwan-Maryland may find it more
difficult to recover money damages from directors and officers in the event of
a lawsuit. However, regardless of the jurisdiction in which the Fund is
incorporated, Section 17(h) of the 1940 Act prohibits a registered investment
company, such as the Fund, from limiting any liability of a director to such
company or its security holders for reason of "willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct
of his office."
Indemnification. Both the Delaware By-Laws and the Maryland Charter provide
indemnification of directors and officers to the full extent authorized by
applicable law. Despite this similarity regarding indemnification, some
aspects of the Maryland Charter and Maryland law may be considered more
favorable to directors, officers, employees and agents of a corporation than
the Delaware By-Laws and Delaware law.
Under Delaware law, directors and officers, as well as other employees and
agents of a corporation, may be indemnified against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement in
connection with threatened, pending or completed actions, suits or
proceedings, whether civil, criminal, administrative or investigative (other
than a "derivative action," which is an action by or in the right of the
corporation), if they acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the corporation,
and, with respect to any criminal action or proceedings, had no reasonable
cause to believe their conduct was unlawful. A similar standard applies with
regard to derivative actions, except that indemnification is permitted only
for expenses (including attorneys' fees) incurred in connection with defense
or settlement of such action.
In contrast, Maryland law provides that a director, officer, employee or
agent may be indemnified for such service unless it is established that (i)
the act or omission of the person was material to the matter giving rise to
the proceeding and either was committed in bad faith or was the result of
active and deliberate dishonesty; (ii) the person actually received an
improper personal benefit in money, property, or services; or (iii) in the
case of any criminal proceeding, the person had reasonable cause to believe
that the act or omission was unlawful. The standard under Maryland law, which
permits indemnification unless the person commits a "bad act," may give the
Board of Directors greater discretion to indemnify directors, officers,
employees and agents than the "good faith" standard of conduct under Delaware
law.
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Moreover, unlike the Delaware Charter, the Maryland Charter provides that no
subsequent amendment or repeal of the indemnification provision of that
charter shall limit or eliminate the benefits provided under such provision
immediately prior to such amendment or repeal.
Under both Maryland and Delaware law, the corporation may pay, prior to
final disposition of the action, the expenses (including attorneys' fees)
incurred by a director or officer in defending a proceeding. Under Delaware
law, expenses may be advanced upon receipt from the officer or director of an
undertaking to repay such advances if it is ultimately determined that he is
not entitled to be indemnified. Maryland law provides that expenses may be
advanced upon receipt from the officer or director of a written affirmation of
the person's good faith belief that the standard of conduct necessary for
indemnification by the corporation has been met and a written undertaking to
repay the advance if it is ultimately determined that the standard of conduct
has not been met. Under both Maryland law and Delaware law, the undertaking
need not be secured and may be accepted without reference to financial ability
to make the repayment.
Some aspects of the Delaware law regarding indemnification, however, may be
considered more favorable to a director, officer, employee or agent than
Maryland law. First, under Delaware law, the termination of any proceeding by
a conviction or plea of nolo contendere or its equivalent shall not, of
itself, create a presumption that the person may not be indemnified. Under
Maryland law, such a termination creates a rebuttable presumption that the
standard of conduct for indemnification has not been met. Thus, under Maryland
law, the person seeking indemnification must meet a higher burden of proof
than under Delaware law in order to obtain indemnification in these
circumstances. Second, in a derivative suit, Delaware law requires court
approval before indemnification for expenses is made to a person found liable
to the corporation. Maryland law, like Delaware law, does not permit
indemnification in a derivative suit for anything other than expenses.
Maryland law also prohibits indemnification for anything other than expenses
of an officer or director adjudged liable on the basis that a personal benefit
was improperly received, regardless of whether the suit concerned actions in
the officer's or director's official capacity.
AMENDMENT OF CHARTER AND BY-LAWS
Amendment of Charter. Both Delaware and Maryland law require the Board of
Directors to approve any amendment to a corporation's Certificate of
Incorporation or Articles of Incorporation, respectively (in either case a
"Charter"). However, Delaware law provides that a majority of the outstanding
stock entitled to vote thereon must vote to approve any amendment to a
Delaware Certificate of Incorporation, while Maryland law provides that the
affirmative vote of two-thirds of all votes entitled to be cast on the matter
is required to approve any amendment to Maryland Articles of Incorporation.
Furthermore, under the Maryland Charter and By-Laws,
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the affirmative vote of 75% of the Fund's outstanding shares is required to
amend the provisions of the Maryland Charter relating to the removal of
directors, limitations on liabilities and indemnification, amendment of the
Maryland By-Laws and limits on the ability of others to acquire control. See
"Board of Directors," "Amendment of Charter and By-Laws--Amendment of By-Laws"
and "Anti-Takeover Provisions". Consequently, stockholders may find it
relatively more difficult to amend the Maryland Charter than to amend the
Delaware Charter. Similarly, the Board of Directors may find it relatively
more difficult to obtain approval of an amendment to the Maryland Charter that
is proposed by the Board of Directors than of an amendment that the Board of
Directors proposes to make to the Delaware Charter.
Amendment of By-Laws. Under both Delaware and Maryland law, the power to
adopt, amend or repeal a corporation's by-laws is vested in the stockholders,
unless the charter or, in Maryland, the by-laws confers such power to the
Board of Directors. Delaware law provides, however, that conferring such power
to the Board of Directors does not divest the stockholders of their power to
alter, amend or repeal the corporation's by-laws. Under the Maryland Charter
and By-Laws, the Board of Directors of Taiwan-Maryland will retain sole power
to amend, alter or repeal the Maryland By-Laws. Accordingly, the stockholders
of Taiwan-Maryland would be required to amend the Maryland Charter (which
requires the affirmative vote of 75% of the Fund's outstanding shares) before
the stockholders could amend the Maryland By-Laws.
ANTI-TAKEOVER PROVISIONS
The Maryland Charter and By-Laws include provisions that could limit the
ability of others to acquire control of the Fund, to modify the structure of
the Fund or to cause it to engage in certain transactions. These provisions,
described below, also could have the effect of depriving stockholders of an
opportunity to sell their shares at a premium over prevailing market prices by
discouraging third parties from seeking to obtain control of the Fund in a
tender offer or similar transaction. In the opinion of the Board of Directors,
however, these provisions offer several possible advantages. They potentially
require persons seeking control of the Fund to negotiate with its management
regarding the price to be paid for the shares required to obtain such control,
they promote continuity and stability, and they enhance the Fund's ability to
pursue long-term strategies that are consistent with its investment
objectives.
Classes of Directors; Removal of Directors. If the Reincorporation is
approved, following completion of the Merger, the Board of Directors will, in
accordance with the Maryland By-Laws be divided into three classes, each
having a term of three years, with the term of one class expiring each year.
This provision of the Maryland By-Laws will make it more difficult to replace
a majority of the Board. Under the Maryland Charter and By-Laws, the Maryland
By-Laws may only be amended or repealed by the Board of
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Directors. The affirmative vote of 75% or more of the Fund's outstanding
shares is required to amend, alter or repeal the provisions in the Maryland
Charter relating to amendments to the Maryland By-Laws. See "Amendment of
Charter and By-Laws--Amendment of By-Laws." In addition, under the Maryland
Charter a director may be removed from office only for cause and only by a
majority vote of stockholders. This provision likewise may only be amended or
repealed by the affirmative vote of 75% or more of the outstanding shares of
the Fund and could delay the replacement of the directors and have the effect
of making changes in the Board of Directors more difficult than under the
Delaware Charter. See "Board of Directors--Removal And Vacancies."
Conversion to Open-End Fund and other Extraordinary Transactions. Under the
Maryland Charter, the affirmative vote of the holders of 75% or more of the
outstanding shares is required to (1) convert the Fund from a closed-end to an
open-end investment company, (2) merge or consolidate with any other entity or
enter into a share exchange transaction in which the Fund is not the successor
corporation, (3) dissolve or liquidate the Fund, (4) sell all or substantially
all of its assets, (5) cease to be an investment company registered under the
1940 Act or (6) issue to any person securities in exchange for property worth
$1,000,000 or more, exclusive of sales of securities in connection with a
public offering, issuance of securities pursuant to a dividend reinvestment
plan or other stock dividend or issuance of securities upon the exercise of
any stock subscription rights. However, if such action has been approved or
authorized by the affirmative vote of at least 70% of the entire Board of
Directors, the affirmative vote of only a majority of the outstanding shares
would be required for approval, except in the case of the issuance of
securities, in which no stockholder vote would be required unless otherwise
required by applicable law. The affirmative vote of the holders of 75% or more
of the outstanding shares entitled to vote thereon is required to amend, alter
or repeal the above provisions in the Maryland Charter. The principal purpose
of the above provisions is to increase the Fund's ability to resist takeover
attempts and attempts to change the fundamental nature of the business of the
Fund that are not supported by either the Board of Directors or a large
majority of the stockholders. These provisions make it more difficult to
liquidate, take over or open-end the Fund and thereby are intended to
discourage investors from purchasing its shares with the hope of making a
quick profit by forcing the Fund to change its structure. These provisions,
however, would apply to all actions proposed by anyone, including management,
and would make changes in the Fund's structure accomplished through a
transaction covered by the provisions more difficult to achieve. The foregoing
provisions also could impede or prevent transactions in which holders of
shares of Common Stock might obtain prices for their shares in excess of the
current market prices at which the Fund's shares were then trading. Although
these provisions could have the effect of depriving stockholders of an
opportunity to sell their shares at a premium over prevailing market prices by
discouraging a third party from seeking to obtain control of the
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Fund, the Fund believes the conversion of the Fund from a closed-end to an
open-end investment company to eliminate the discount may not be desired by
stockholders, who purchased their Common Stock in preference to stock of the
many mutual funds available.
APPRAISAL RIGHTS
Under both Delaware law and Maryland law, a stockholder of a corporation
engaging in certain transactions may, under certain circumstances, receive
cash in the amount of the fair value of his shares (as appraised pursuant to
judicial proceedings) in lieu of the consideration such stockholder would
otherwise receive in such transaction. Under Delaware law, stockholders of a
corporation are entitled to such appraisal rights only with respect to certain
statutory mergers or consolidations. Unless otherwise provided in the charter,
Delaware law does not grant appraisal rights to (i) stockholders with respect
to a merger or consolidation of a corporation, the shares of which are either
listed on a national securities exchange or are held of record by more than
2,000 holders, if such stockholders receive only shares of the surviving
corporation or shares of any other corporation which are either listed on a
national securities exchange or held of record by more than 2,000 holders, or
(ii) in general, stockholders of a corporation surviving a merger if no vote
of the stockholders of such corporation is required to approve the merger.
Under the Maryland law, stockholders of a corporation are entitled to
appraisal rights in certain mergers, consolidations or share exchanges by such
corporation, or upon the disposition of all or substantially all of its
assets, as well as when such corporation amends its charter in a way which
alters the contractual rights of any outstanding stock as expressly set forth
in the charter and substantially adversely affects such stockholders' rights
if the right to do so is not reserved in the charter. The Maryland Charter
contains such a reservation and accordingly, appraisal rights will not be
available for an amendment to the Maryland Charter. However, except with
respect to certain transactions involving an interested stockholder,
stockholders generally have no appraisal rights with respect to their stock if
(i) the stock is listed on a national securities exchange, or (ii) the stock
is that of the successor in the merger, unless (a) the merger alters the
contractual rights of the stock as expressly set forth in the charter, and the
charter does not reserve the right to do so, or (b) the stock is to be changed
or converted in whole or in part in the merger into something other than
either stock in the successor or cash, scrip of other rights or interests
arising out of provisions for the treatment of fractional shares of stock in
the successor.
FEDERAL INCOME TAX CONSEQUENCES OF THE REINCORPORATION
The following is a general discussion of certain federal income tax
consequences of the merger to the Fund's stockholders. Stockholders are urged
to consult their own tax advisors to determine the effect, if any, that state,
local or foreign tax laws may have on them.
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Rogers & Wells, counsel to the Fund, has advised the Fund that, for federal
income tax purposes, the Merger will constitute a reorganization under Section
368 of the Internal Revenue Code of 1986, as amended, no gain or loss will be
recognized by the holders of Taiwan-Delaware Common Stock as a result of the
Merger, no gain or loss will be recognized by Taiwan-Delaware or Taiwan-
Maryland as a result of the Merger, and Taiwan-Maryland will succeed, without
adjustment, to the tax attributes of Taiwan-Delaware. Each stockholder will
have the same basis in the shares of Taiwan-Maryland Common Stock received in
the Merger as in the shares of Taiwan-Delaware Common Stock held immediately
prior to the time the Merger becomes effective and the holding period of the
shares of the Taiwan-Maryland Common Stock will include the period during
which the corresponding shares of Taiwan-Delaware Common Stock were held;
provided, however, that such corresponding shares were held as a capital asset
at the time of effectiveness of the Merger.
Stockholders should consult their own tax advisors as to the effect of the
Merger under applicable state or local tax laws.
RIGHTS OF DISSENTING STOCKHOLDERS
Section 262 of the Delaware General Corporation Law provides that, with
certain exceptions not relevant here, common stockholders of a Delaware
corporation do not have appraisal rights when the Delaware corporation merges
with another corporation if its common stock, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or consolidation,
was listed on a national securities exchange. Taiwan-Delaware is listed on the
New York Stock Exchange. Consequently, dissenters rights are not available to
stockholders of Taiwan-Delaware with respect to the Reincorporation.
CONSEQUENCES IF PROPOSAL (3) IS NOT APPROVED
If Proposal (3) is not approved by the stockholders, the Fund will continue
to operate, pay Delaware franchise taxes and Taiwan-Maryland will be
dissolved. In the future, the Fund's Board of Directors may seek certain
amendments to the Delaware Charter or re-submit a proposal to the stockholders
asking them to approve the reincorporation of the Fund in the State of
Maryland.
REQUIRED VOTE
Approval of the proposed Reincorporation will require the affirmative vote
of a majority of the outstanding stock entitled to vote thereon. For this
purpose, abstentions and broker non-votes will have the effect of a vote to
disapprove the proposed Reincorporation.
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE "FOR" APPROVAL OF THE AGREEMENT
OF MERGER REINCORPORATING THE FUND UNDER THE LAWS OF THE STATE OF MARYLAND.
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(4) APPROVAL OF AN AMENDMENT TO THE
FUND'S RESTATED CERTIFICATE OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED SHARES
At a meeting held December 1, 1995, the Board of Directors of the Fund
unanimously approved and directed that there be submitted to stockholders for
their approval an amendment to Article Fourth of the Fund's Restated
Certificate of Incorporation, as amended (the "Certificate") which would
increase the number of shares that the Fund is authorized to issue from
20,000,000 to 60,000,000 (the "Share Increase Amendment").
The text of the proposed amendment is set forth below:
RESOLVED, that Article Fourth of the Fund's Restated Certificate of
Incorporation be amended to read as follows:
"FOURTH: Capital Stock. The total number of shares of stock which the
Corporation shall have authority to issue is 60,000,000 shares of Common
Stock, par value $.01 per share ("Common Stock")."
The Share Increase Amendment will not change any other aspect of Article
Fourth. The Share Increase Amendment, if approved, only will be effected if
Proposal (3) is not approved by the stockholders. If Proposal (3) is adopted,
the Maryland Articles of Incorporation already provide for an authorized share
capital of 60,000,000 shares.
At December 29, 1995, the Fund had 14,826,357 shares of Common Stock
outstanding. The Board has determined that the 5,173,643 shares of presently
authorized but unissued Common Stock may be insufficient to permit the Fund to
make additional offerings of its Common Stock in order to raise cash to take
advantage of certain investment opportunities, if and as they become
available. The Fund anticipates that it may in the future engage in equity
offerings of its securities for cash through either rights offerings to
existing stockholders or secondary public or private offerings, although the
Fund currently does not have any current plans to make any such additional
offerings. In addition, the Fund has a dividend reinvestment and cash purchase
plan (the "Plan") pursuant to which the Fund may issue additional shares to
participants in the Plan. In order to permit the Fund greater flexibility to
issue additional shares of Common Stock from time to time in order to raise
capital in public offerings, private offerings or rights offerings, effect
stock dividends, or authorize issuances pursuant to the Plan, as well as for
other similar purposes, the Board of Directors considers it advisable that the
Fund be in a position to issue up to approximately 45,000,000 additional
shares without the requirement of stockholder approval.
Holders of the capital stock of the Fund do not have any preemptive rights
to subscribe for or purchase any shares of capital stock of the Fund, which
means that current stockholders do not have a prior right to purchase
21
<PAGE>
any new issue of Common Stock of the Fund in order to maintain their
proportionate ownership. Consequently, the issuance of additional shares of
capital stock may dilute the interest of a current stockholder if additional
shares are issued at less than the then current net asset value and the
stockholder does not purchase, or is not offered the opportunity to purchase,
additional shares. Under the 1940 Act the Fund is not permitted to issue
additional shares below their then current net asset value except by means of a
rights offering made to the Fund's stockholders. Pursuant to any such rights
offering, each stockholder would be given the opportunity to purchase an
additional number of shares such that the stockholder's proportionate interest
in the Fund would not be diluted.
If Proposal (3) is not adopted and this Proposal (4) is adopted, the Share
Increase Amendment will become effective on the date a Certificate of Amendment
with respect thereto is filed with the Secretary of State of Delaware. In that
case, it is anticipated that the appropriate filing to effect the Share
Increase Amendment will be made as soon after the annual meeting as
practicable.
REQUIRED VOTE
Approval of the Share Increase Amendment will require the affirmative vote of
a majority of the outstanding stock entitled to vote thereon. For this purpose,
abstentions and broker non-votes will have the effect of a vote to disapprove
the Share Increase Amendment.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE SHARE INCREASE
AMENDMENT.
(5) APPROVAL OF AN AMENDMENT TO THE
FUND'S INVESTMENT LIMITATIONS TO PERMIT THE FUND TO PURCHASE EQUITY SECURITIES,
WHICH WILL BE LISTED ON THE TAIWAN STOCK EXCHANGE IN INITIAL AND SECONDARY
PUBLIC OFFERINGS
The Board of Directors of the Fund has unanimously approved and directed that
there be submitted to the stockholders for their approval an amendment to the
Fund's investment limitations to permit the Fund to purchase equity securities
issued in initial public offerings and secondary public offerings which will be
listed on the Taiwan Stock Exchange (the "TSE") immediately following such
offerings. The Fund's current investment limitations prevent the Fund from
purchasing any securities which, at the time the purchase is made, are not
listed and traded on the TSE. Since equity securities issued in initial and
secondary public offerings are not technically listed and traded on the TSE at
the time they are sold to the public, the Fund has been prevented from
purchasing such equity securities in these offerings, and thus has been limited
to acquiring the securities in secondary market purchases on the TSE. This
change is being
22
<PAGE>
recommended to permit the Fund to acquire equity securities in those public
offerings and thus provide the Fund more flexibility to take advantage of
investment opportunities in the Republic of China (the "ROC").
The Fund's investment limitations are fundamental policies of the Fund and
may not be changed without stockholder approval. A change in the Fund's
investment limitations also requires approval by the ROC Securities and
Exchange Commission after stockholder approval. If the proposed change is not
approved by the ROC Securities and Exchange Commission after stockholder
approval, it will not become effective. In addition, the Fund's investment
limitations are set forth in the Management Contract and the Delaware By-Laws.
Accordingly, an amendment to the Fund's investment limitations necessitates an
amendment to those documents as well and, if adopted, this Proposal (5) will
authorize identical amendments to the investment limitations set forth in the
Management Contract and the Delaware By-Laws (although if Proposal (3) is
adopted, an amendment to the Delaware By-Laws will be unnecessary because the
Fund will be governed by the Maryland By-Laws which do not contain a list of
the Fund's investment limitations).
The text (as stated in the Fund's Statement of Additional Information, the
Management Contract and the Delaware By-Laws) of the Fund's investment
limitation limiting its ability to purchase equity securities in initial
public offerings and secondary public offerings as well as the text of such
limitation as it is proposed to be amended, are set forth as Exhibit C to this
Proxy Statement. The Fund's investment objective will not change as a result
of the amendment and will continue to be to seek long-term capital
appreciation through investments primarily in equity securities listed on the
TSE in the ROC.
As discussed above, the primary reason for the proposed change in the Fund's
investment limitation is to expand the range of equity investment
opportunities available to the Fund. Under the Fund's existing investment
limitations, the Adviser has been limited to seeking suitable equity
securities which are already listed and traded on the TSE, and thus the Fund
has not been permitted to purchase equity securities offered in initial or
secondary public offerings, even though those securities become listed and
traded on the TSE immediately after the offerings. The Fund's management
believes that the existing investment limitation has placed the Fund at a
disadvantage compared to other investors, particularly with respect to
securities offered in initial public offerings, because of the fact that
securities offered in initial public offerings sometimes trade at premiums to
their initial public offering prices immediately upon listing and trading on
the TSE. This means that if the Fund desires to acquire these securities, it
must do so (in cases where the securities trade at premiums) at prices
substantially higher than the initial public offering prices. In addition,
equity
23
<PAGE>
securities offered in initial and secondary public offerings are acquired free
of commissions that are typically charged on transactions effected on the TSE.
The Board of Directors believes that the proposed change is in the best
interests of the Fund. In addition, due to the limited number of investment
opportunities available to the Fund, the directors believe it would be more
appropriate for the Fund to have investment limitations which conform to the
opportunities for investment currently available to the Fund. Accordingly, the
directors recommend that the stockholders vote to approve this change.
RISKS OF INVESTING IN INITIAL PUBLIC OFFERINGS
Investments in companies issuing securities in initial public offerings
involve greater risks than are customarily associated with investing in
companies that are listed on an exchange. The initial public offering price of
such securities may not be indicative of the market price for the stock after
the offering. The market price for the stock following an initial public
offering may be highly volatile depending on a number of factors. Since prior
to an initial public offering there has been no public trading market, there
can be no assurance that an active market in the offered securities will
develop or, if such market develops, that it will be sustained. Also, many
companies making initial public offerings have limited operating and financial
histories. Many companies whose securities are offered through initial public
offerings may be smaller, newer and less seasoned than companies whose
securities have been trading for some time on the TSE. The risks and
complications frequently encountered in connection with a development stage
business are often greater than those encountered with more seasoned
companies. Such risks include the fact that securities in small or emerging
growth companies may be subject to more abrupt or erratic market movements
than larger, more established companies or the market average in general.
Also, these companies may have limited product lines, markets or financial
resources, or they may be dependent on a limited management group.
REQUIRED VOTE
Approval of the proposed amendment will require the affirmative vote of a
majority of the Fund's outstanding shares of Common Stock. As defined in the
1940 Act, a "majority of outstanding shares" means the lesser of 67% of the
voting securities present at the Annual Meeting of Stockholders, if a quorum
is present, or 50% of the outstanding securities. For this purpose, both
abstentions and broker non-votes will have the effect of a vote to disapprove
the proposed amendment. The Fund will continue under its current investment
limitations if this proposal is not approved by the stockholders.
24
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE "FOR" THE PROPOSAL TO AMEND THE
INVESTMENT LIMITATIONS OF THE FUND.
(6) APPROVAL OF AN AMENDMENT TO THE FUND'S
INVESTMENT LIMITATIONS TO PERMIT THE FUND TO ENGAGE IN
CURRENCY HEDGING TRANSACTIONS
The Board of Directors of the Fund has unanimously approved and directed
that there be submitted to the stockholders for their approval an amendment to
the Fund's investment limitations to permit the Fund to engage in currency
hedging transactions. This change is being recommended to allow the Fund to
protect its portfolio against foreign currency exchange rate risk.
The Fund's investment limitations are fundamental policies of the Fund and
may not be changed without stockholder approval. A change in the Fund's
investment limitations also requires approval by the ROC Securities and
Exchange Commission after stockholder approval. If the proposed change is not
approved by the ROC Securities and Exchange Commission after stockholder
approval, it will not become effective. In addition, the Fund's investment
limitations are set forth in the Management Contract and the Delaware By-Laws.
Accordingly, an amendment to the Fund's investment limitations necessitates an
amendment to those documents as well and, if adopted, this Proposal (6) will
authorize identical amendments to the investment limitations set forth in the
Management Contract and the Delaware By-Laws (although if Proposal (3) is
adopted, an amendment to the Delaware By-Laws will be unnecessary because the
Fund will be governed by the Maryland By-Laws which do not contain a list of
the Fund's investment limitations).
The text (as stated in the Fund's Statement of Additional Information, the
Management Contract and the Delaware By-Laws) of the Fund's investment
limitation limiting its ability to enter into currency exchange contracts for
bona fide hedging purposes, as well as the text of such limitation as proposed
to be amended, are set forth as Exhibit C to this proxy statement. The Fund's
investment objective will not change as a result of the amendment and will
continue to be to seek long-term capital appreciation through investments
primarily in equity securities listed on the TSE in the ROC.
As noted above, the primary reason for the proposed changes in the Fund's
investment limitations is to protect the value of the Fund's investment
portfolio against currency risks. If the Fund's investment limitations are
amended to permit the Fund to engage in currency hedging transactions, the
Fund would be able to protect the value of some portion
25
<PAGE>
or all of its portfolio holdings against currency risks. The Fund would be
permitted to enter into forward currency exchange contracts and currency
futures contracts and options on such futures contracts, as well as purchase
put or call options on currencies, in U.S. or foreign markets. If this
amendment to the investment limitations is approved, the Adviser will only
hedge between NT dollars and US dollars. For a description of each of these
instruments and an explanation of the possible trading strategies the Fund may
utilize in connection therewith, see Exhibit D to this Proxy Statement.
The Board of Directors believes that the proposed change is in the best
interests of the Fund. Accordingly, the directors recommend that the
stockholders vote to approve this change.
RISKS OF CURRENCY HEDGING
There can be no guarantee that instruments suitable for hedging currency or
market shifts will be available at the time when the Fund wishes to use them.
Moreover, in the ROC the market for certain hedging instruments is not highly
developed.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise.
Moreover, it may not be possible for the Fund to hedge against a devaluation
that is so generally anticipated that the Fund is not able to contract to sell
the currency at a price above the devaluation level it anticipates. In
addition, if the Adviser hedges the Fund's exposure to a foreign currency and
that currency's value rises, the Fund will lose the opportunity to participate
in the currency's appreciation.
The ability of the Fund to utilize hedging successfully will depend on the
Adviser's ability to predict pertinent market movements, which cannot be
assured. These skills are different from those needed to select portfolio
securities. Although the Adviser may attempt to manage currency exchange rate
risks, there is no assurance that it will do so at an appropriate time or that
it will be able to predict exchange rates accurately. In addition, there is no
assurance that suitable foreign exchange markets or currency management
instruments will be available to the Fund.
Under the regulations of the U.S. Commodity Futures Trading Commission
("CFTC"), the Fund will not be considered a "commodity pool", as defined under
such regulations, as a result of entering into transactions in currency
futures contracts and related options provided,
26
<PAGE>
among other things, that such transactions are entered into solely for bona
fide hedging purposes, as defined under CFTC regulations. Accordingly,
currency futures and options on currency futures will be purchased, sold or
entered into only for bona fide hedging purposes and not for speculative
purposes.
The use of hedging in certain circumstances will require that the Fund
segregate cash, liquid high grade debt obligations or other assets to the
extent the Fund's obligations are not otherwise "covered" through ownership of
the underlying currency. Certain provisions of the Internal Revenue Code of
1986, as amended, may limit the extent to which the Fund may enter into
forward or futures contracts or engage in options transactions. These
transactions may also affect the character and timing of income and the amount
of gain or loss recognized by the Fund and its shareholders for U.S. federal
income tax purposes.
REQUIRED VOTE
Approval of the proposed amendment to the Fund's investment limitations will
require the affirmative vote of a majority of the Fund's outstanding shares of
Common Stock. As defined in the 1940 Act, a "majority of outstanding shares"
means the lesser of 67% of the voting securities present at the Annual Meeting
of Stockholders, if a quorum is present, or 50% of the outstanding voting
securities. For this purpose, both abstentions and broker non-votes will have
the effect of a vote to disapprove the proposed amendment. The Fund will
continue under its current investment limitations if this proposal is not
approved by the stockholders.
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE "FOR" THE PROPOSAL TO AMEND THE
INVESTMENT LIMITATIONS OF THE FUND.
MISCELLANEOUS
Proxies will be solicited by mail and may be solicited in person or by
telephone or telegraph by officers of the Fund or personnel of the Adviser.
The Fund has retained Corporate Investor Communications, Inc. to assist in the
proxy solicitation. The cost of their services is estimated at US$6,000. The
expenses connected with the solicitation of these proxies and with any further
proxies which may be solicited by the Fund's officers or Corporate Investor
Communications, Inc. in person, by telephone, by facsimile, or by telegraph
will be borne by the Fund. The Fund will reimburse banks, brokers, and other
persons holding the Fund's shares registered in their names or in the names of
their nominees for their expenses incurred in sending proxy material to and
obtaining proxies from the beneficial owners of such shares.
27
<PAGE>
In the event that sufficient votes regarding any proposal set forth in the
Notice of this meeting are not received by February 27, 1996, the persons
named as attorneys in the enclosed proxy may propose one or more adjournments
of the meeting to permit further solicitation of proxies. Any such adjournment
will require the affirmative vote of the holders of a majority of the shares
present in person or by proxy at the session of the meeting to be adjourned.
The persons named as attorneys in the enclosed proxy will vote in favor of
such adjournment those proxies which they are entitled to vote in favor of the
proposal for which further solicitation of proxies is to be made. They will
vote against any such adjournment those proxies required to be voted against
such proposal. The costs of any such additional solicitation and of any
adjourned session will be borne by the Fund.
STOCKHOLDER PROPOSALS
Any proposal by a stockholder of the Fund intended to be presented at the
Annual Meeting of Stockholders of the Fund to be held in February 1997 must be
received by the Fund at 225 Franklin Street, Boston, Massachusetts 02110 not
later than September 28, 1996.
By order of the Board of Directors,
Gloria Wang Secretary
225 Franklin Street
Boston, Massachusetts 02110
January 26, 1996
28
<PAGE>
EXHIBIT A
AGREEMENT OF MERGER
OF
THE TAIWAN FUND, INC. (PARENT)
(A DELAWARE CORPORATION)
AND
THE TAIWAN FUND, INC. (SUBSIDIARY)
(A MARYLAND CORPORATION)
AGREEMENT OF MERGER entered into on January 24, 1996 by THE TAIWAN FUND,
INC. ("Taiwan-Delaware"), a Delaware corporation, and THE TAIWAN FUND, INC.
("Taiwan-Maryland"), a Maryland corporation.
WHEREAS Taiwan-Delaware is a business corporation of the State of Delaware
with its registered office therein located at 1209 Orange Street, City of
Wilmington, County of New Castle; and
WHEREAS the total number of shares of stock which Taiwan-Delaware has
authority to issue is 20,000,000, all of which are of one class and of a par
value of $.01 each; and
WHEREAS the Board of Directors of Taiwan-Delaware by resolution adopted on
January 17, 1996 approved this Agreement of Merger; and
WHEREAS Taiwan-Maryland is a business corporation of the State of Maryland
with its principal office therein located at c/o P&M Corp., 36 South Charles
Street, City of Baltimore; and
WHEREAS the total number of shares of stock which Taiwan-Maryland has
authority to issue is 60,000,000, all of which are of one class and of a par
value of $0.01 each; and
WHEREAS the Board of Directors of Taiwan-Maryland by resolution adopted on
January 17, 1996 approved this Agreement of Merger; and
WHEREAS the General Corporation Law of the State of Delaware permits a
merger of a business corporation of the State of Delaware with and into a
business corporation of another jurisdiction; and
WHEREAS the General Corporation Law of Maryland permits the merger of a
business corporation of another jurisdiction with and into a business
corporation of the State of Maryland; and
WHEREAS Taiwan-Delaware and Taiwan-Maryland and the respective Boards of
Directors thereof deem it advisable and to the advantage,
A-1
<PAGE>
welfare, and best interests of said corporations and their respective
stockholders to merge Taiwan-Delaware with and into Taiwan-Maryland pursuant
to the provisions of the General Corporation Law of the State of Delaware and
pursuant to the provisions of the General Corporation Law of Maryland upon the
terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and of the mutual agreement
of the parties hereto, being thereunto duly entered into by Taiwan-Delaware
and approved by a resolution adopted by its Board of Directors and being
thereunto duly entered into by Taiwan-Maryland and approved by a resolution
adopted by its Board of Directors, the Agreement of Merger and the terms and
conditions thereof and the mode of carrying the same into effect, together
with any provisions required or permitted to be set forth therein, are hereby
determined and agreed upon as hereinafter in this Agreement set forth.
1. Taiwan-Delaware and Taiwan-Maryland shall, pursuant to the provisions of
the General Corporation Law of the State of Delaware and to the provisions of
the General Corporation Law of Maryland, be merged with and into a single
corporation, to wit, Taiwan-Maryland which shall be the surviving corporation
from and after the effective time of the merger, and which is sometimes
hereinafter referred to as the "surviving corporation", and which shall
continue to exist as said surviving corporation under its present name
pursuant to the provisions of the General Corporation Law of Maryland. The
separate existence of Taiwan-Delaware, which is sometimes hereinafter referred
to as the "terminating corporation", shall cease at said effective time in
accordance with the provisions of the General Corporation Law of the State of
Delaware.
2. Annexed hereto and made a part hereof is a copy of the Articles of
Incorporation of the surviving corporation as the same shall be in force and
effect at the effective time in the State of Maryland of the merger herein
provided for; and said Articles of Incorporation shall continue to be the
Articles of Incorporation of said surviving corporation until amended and
changed pursuant to the provisions of the General Corporation Law of Maryland.
3. The present By-Laws of the surviving corporation will be the By-Laws of
said surviving corporation and will continue in full force and effect until
changed, altered, or amended as therein provided and in the manner prescribed
by the Articles of Incorporation of the surviving corporation and the
provisions of the General Corporation Law of Maryland.
4. The directors and officers in office of the terminating corporation at
the effective time of the merger shall be the members of the first Board of
Directors and the first officers of the surviving corporation, all of whom
shall
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<PAGE>
hold their directorships and offices until the election and qualification of
their respective successors or until their tenure is otherwise terminated in
accordance with the Articles of Incorporation and By-Laws of the surviving
corporation.
5. Each issued share of the terminating corporation shall, from and after
the effective time of the merger, be converted into one (1) share of the
surviving corporation. The issued shares of the surviving corporation, all of
which are held by the terminating corporation, shall be surrendered and
extinguished and returned to the status of authorized but unissued shares of
the surviving corporation.
6. The surviving corporation does hereby agree that it may be served with
process in the State of Delaware in any proceeding for enforcement of any
obligation of the terminating corporation, as well as for enforcement of any
obligation of the surviving corporation arising from the merger herein
provided for, including any suit or other proceeding to enforce the right of
any stockholder of the terminating corporation as and when determined in
appraisal proceedings pursuant to the provisions of Section 262 of the General
Corporation Law of the State of Delaware; does hereby irrevocably appoint the
Secretary of State of the State of Delaware as its agent to accept service of
process in any such suit or other proceedings; and does hereby specify the
following address without the State of Delaware to which a copy of such
process shall be mailed by the Secretary of State of the State of Delaware:
Laurence E. Cranch, c/o Rogers & Wells, 200 Park Avenue, New York, New York
10166.
7. In the event that this Agreement of Merger shall have been fully approved
and adopted upon behalf of the terminating corporation in accordance with the
provisions of the General Corporation Law of the State of Delaware and upon
behalf of the surviving corporation in accordance with the provisions of the
General Corporation Law of Maryland, the said corporations agree that they
will cause to be executed and filed and recorded any document or documents
prescribed by the laws of the State of Delaware and by the laws of the State
of Maryland, and that they will cause to be performed all necessary acts
within the State of Delaware and the State of Maryland and elsewhere to
effectuate the merger herein provided for.
8. The Board of Directors and the proper officers of the terminating
corporation and of the surviving corporation are hereby authorized, empowered,
and directed to do any and all acts and things, and to make, execute, deliver,
file, and record any and all instruments, papers, and documents which shall be
or become necessary, proper, or convenient to carry out or put into effect any
of the provisions of this Agreement of Merger or of the merger herein provided
for.
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<PAGE>
9. Notwithstanding the full approval and adoption of this Agreement of
Merger, the said Agreement of Merger may be terminated at any time prior to
the filing thereof of a certificate of merger with the Secretary of State of
the State of Delaware or at any time prior to the filing of any requisite
merger documents with the Secretary of State of Maryland in the event that the
Board of Directors determines that the proposed merger is no longer in the
best interests of Taiwan-Delaware.
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<PAGE>
IN WITNESS WHEREOF, this Agreement of Merger is hereby executed upon behalf
of each of the constituent corporations parties thereto.
Date: January 24, 1996.
The Taiwan Fund, Inc. (Delaware)
/s/ Benny T. Hu
By: __________________________________________
President
The Taiwan Fund, Inc. (Maryland)
/s/ Benny T. Hu
By: __________________________________________
President
A-5
<PAGE>
CERTIFICATE OF SECRETARY
OF THE TAIWAN FUND, INC.
(DELAWARE)
The undersigned, being the Secretary of the Taiwan Fund, Inc., a Delaware
corporation, does hereby certify that the foregoing Agreement of Merger was
submitted to the stockholders entitled to vote of said corporation at the
annual meeting thereof for the purpose of acting on the Agreement of Merger.
Due notice of the time, place, and purpose of said meeting was mailed to each
stockholder of said corporation at least 20 days prior to the date of the
meeting. At said meeting, the Agreement of Merger was considered by the
stockholders entitled to vote of the corporation, and, a vote having been
taken for the adoption or rejection by them of the Agreement of Merger, at
least a majority of the outstanding stock entitled to vote of the corporation
was voted for the adoption of the Agreement of Merger.
Date: February , 1996.
______________________________________________
Secretary of The Taiwan Fund, Inc. (Delaware)
A-6
<PAGE>
CERTIFICATE OF SECRETARY
OF THE TAIWAN FUND, INC.
(MARYLAND)
The undersigned, being the Secretary of The Taiwan Fund, Inc., a Maryland
corporation, does hereby certify that the Board of Directors of the Fund has
approved by a majority vote the adoption of the foregoing Agreement of Merger
pursuant to Section 3-105 of the Maryland General Corporation Law and that the
sole stockholder of the Fund has approved the adoption of the foregoing
Agreement of Merger pursuant to Section 3-105 of the Maryland General
Corporation Law.
Date: February , 1996.
______________________________________________
Secretary of The Taiwan Fund, Inc. (Maryland)
A-7
<PAGE>
EXHIBIT B
ARTICLES OF INCORPORATION
OF
THE TAIWAN FUND, INC.
THE UNDERSIGNED, Joseph C. Benedetti, whose post office address is c/o
Rogers & Wells, 200 Park Avenue, New York, New York 10166, being at least
eighteen years of age, does hereby act as an incorporator, under and by virtue
of the general laws of the State of Maryland authorizing the formation of
corporations and with the intention of forming a corporation.
FIRST: The name of the corporation (hereinafter called the "Corporation") is
The Taiwan Fund, Inc.
SECOND: The Corporation was formed for the following purposes:
(1) To act as a closed-end investment company of the management type
registered as such with the Securities and Exchange Commission pursuant to
the Investment Company Act of 1940, as amended.
(2) To hold, invest and reinvest its assets in securities and other
investments or to hold all or part of its assets in cash.
(3) To issue and sell shares of its capital stock in such amounts and on
such terms and conditions and for such purposes and for such amount or
kind of consideration as may now or hereafter be permitted by law.
(4) To enter into management, supervisory, advisory, administrative,
underwriting and other contracts and otherwise do business with other
corporations, and subsidiaries or affiliates thereof, or any other firm or
organization, notwithstanding that the Board of Directors of the
Corporation may be composed in part of officers, directors or employees of
such corporation, firm or organization and, in the absence of fraud, the
Corporation and such corporation, firm or organization may deal freely
with each other and neither such management, supervisory, advisory,
administrative or underwriting contract nor any other contract or
transaction between the Corporation and such corporation, firm or
organization shall be invalidated or in any way affected thereby.
(5) To do any and all additional acts and exercise any and all additional
powers or rights as may be necessary, incidental, appropriate or desirable
for the accomplishment of all or any of the foregoing purposes.
The Corporation shall be authorized to exercise and generally to enjoy all
of the powers, rights and privileges granted to, or conferred upon,
corporations by the General Laws of the State of Maryland now or hereafter in
force.
B-1
<PAGE>
THIRD: The post office address of the place at which the principal office of
the Corporation in the State of Maryland is located is c/o P&M Agent Corp., 36
South Charles Street, Baltimore, Maryland 21201.
The name of the Corporation's resident agent is P&M Agent Corp. and its post
office address is 36 South Charles Street, Baltimore, Maryland 21201. Said
resident agent is a corporation of the State of Maryland.
FOURTH: Section 1. (1) The total number of shares of capital stock that the
Corporation has authority to issue is 60,000,000 shares of capital stock of
the par value of $0.01 each, having an aggregate par value of $600,000, all of
which 60,000,000 shares are initially classified as "Common Stock."
(2) The following is a description of the preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption of the Common Stock of
the Corporation:
(a) Each share of Common Stock shall have one vote, and, except as otherwise
provided in respect of any class of stock hereafter classified or
reclassified, the exclusive voting power for all purposes shall be vested
in the holders of the Common Stock.
(b) Subject to the provisions of law and any preferences of any class of
stock hereafter classified or reclassified, dividends, including dividends
payable in shares of another class of the Corporation's stock, may be paid
on the Common Stock of the Corporation at such time and in such amounts as
the Board of Directors may deem advisable.
(c) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of the Common
Stock shall be entitled, after payment or provision for payment of the
debts and other liabilities of the Corporation and the amount to which the
holders of any class of stock hereafter classified or reclassified having
a preference on distributions in the liquidation, dissolution or winding
up of the Corporation shall be entitled, together with the holders of any
other class of stock hereafter classified or reclassified not having a
preference on distributions in the liquidation, dissolution or winding up
of the Corporation, to share ratably in the remaining net assets of the
Corporation.
Section 2. (1) Without the assent or vote of the stockholders, the Board of
Directors shall have the authority by resolution to classify and reclassify
any authorized but unissued shares of capital stock from time to time by
setting or changing in any one or more respects the preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends,
qualifications or terms or conditions of redemption of the capital stock.
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(2) The foregoing powers of the Board of Directors to classify and
reclassify any of the shares of capital stock shall include, without
limitation, subject to the provisions of the Charter, authority to classify or
reclassify any unissued shares of such stock into a class or classes of
preferred stock, preference stock, special stock or other stock, and to divide
and classify shares of any class into one or more series of such class, by
determining, fixing, or altering one or more of the following:
(a) The distinctive designation of such class or series and the number of
shares to constitute such class or series; provided that, unless otherwise
prohibited by the terms of such or any other class or series, the number
of shares of any class or series may be decreased by the Board of
Directors in connection with any classification or reclassification of
unissued shares and the number of shares of such class or series may be
increased by the Board of Directors in connection with any such
classification or reclassification, and any shares of any class or series
which have been redeemed, purchased, otherwise acquired or converted into
shares of Common Stock or any other class or series shall become part of
the authorized capital stock and be subject to classification and
reclassification as provided in this subparagraph;
(b) Whether or not and, if so, the rates, amounts and times at which, and
the conditions under which, dividends shall be payable on shares of such
class or series, whether any such dividends shall rank senior or junior to
or on a parity with the dividends payable on any other class or series of
stock, and the status of any such dividends as cumulative, cumulative to a
limited extent or non-cumulative and as participating or non-
participating;
(c) Whether or not shares of such class or series shall have voting rights,
in addition to any voting rights provided by law and, if so, the terms of
such voting rights;
(d) Whether or not shares of such class or series shall have conversion or
exchange privileges and, if so, the terms and conditions thereof,
including provisions for adjustment of the conversion or exchange rate in
such events or at such times as the Board of Directors shall determine;
(e) Whether or not shares of such class or series shall be subject to
redemption and, if so, the terms and conditions of such redemption,
including the date or dates upon or after which they shall be redeemable
and the amount per share payable in case of redemption, which amount may
vary under different conditions and at different redemption dates; and
whether or not there shall be any sinking fund or purchase account in
respect thereof, and if so, the terms thereof;
(f) The rights of the holders of shares of such class or series upon the
liquidation, dissolution or winding up of the affairs of, or upon any
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distribution of the assets of, the Corporation, which rights may vary
depending upon whether such liquidation, dissolution or winding up is
voluntary or involuntary and, if voluntary, may vary at different dates,
and whether such rights shall rank senior or junior to or on a parity with
such rights of any other class or series of stock;
(g) Whether or not there shall be any limitations applicable, while shares
of such class or series are outstanding, upon the payment of dividends or
making of distributions on, or the acquisition of, or the use of moneys for
purchase or redemption of, any stock of the Corporation, or upon any other
action of the Corporation, including action under this subparagraph, and,
if so, the terms and conditions thereof; and
(h) Any other preferences, rights, restrictions, including restrictions on
transferability, and qualifications of shares of such class or series, not
inconsistent with law and the Charter of the Corporation.
(3) For the purposes hereof and of any articles supplementary to the Charter
providing for the classification or reclassification of any shares of capital
stock or of any other charter document of the Corporation--(unless otherwise
provided in any such articles or document), any class or series of stock of
the Corporation shall be deemed to rank:
(a) prior to another class or series either as to dividends or upon
liquidation, if the holders of such class or series shall be entitled to
the receipt of dividends or of amounts distributable on liquidation,
dissolution or winding up, as the case may be, in preference or priority to
holders of such other class or series;
(b) on a parity with another class or series either as to dividends or upon
liquidation, whether or not the dividend rates, dividend payment dates or
redemption or liquidation price per share thereof be different from those
of such others, if the holders of such class or series of stock shall be
entitled to receipt of dividends or amounts distributable upon liquidation,
dissolution or winding up, as the case may be, in proportion to their
respective dividend rates or redemption or liquidation prices, without
preference or priority over the holders of such other class or series; and
(c) junior to another class or series either as to dividends or upon
liquidation, if the rights of the holders of such class or series shall be
subject or subordinate to the rights of the holders of such other class or
series in respect of the receipt of dividends or the amounts distributable
upon liquidation, dissolution or winding up, as the case may be.
(4) The provisions of Section 2 of this Article Fourth may not be amended,
altered or repealed except by vote of three-fourths of the shares of capital
stock of the Corporation outstanding and entitled to vote thereupon.
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Section 3. The presence in person or by proxy of the holders of record of a
majority of the aggregate number of shares of capital stock issued and
outstanding and entitled to vote thereat shall constitute a quorum for the
transaction of any business at all meetings of the stockholders except as
otherwise provided by law or in these Articles of Incorporation.
Section 4. Notwithstanding any provision of the General Laws of the State of
Maryland requiring action to be taken or authorized by the affirmative vote of
the holders of a designated proportion greater than a majority of the shares
of capital stock of the Corporation outstanding and entitled to vote
thereupon, such action shall, except as otherwise provided in these Articles
of Incorporation, be valid and effective if taken or authorized by the
affirmative vote of the holders of a majority of the total number of shares of
capital stock of the Corporation outstanding and entitled to vote thereupon
voting together as a single class.
Section 5. No holder of shares of capital stock of the Corporation shall, as
such holder, have any preemptive right to purchase or subscribe for any part
of any new or additional issue of stock of any class, or of rights or options
to purchase any stock, or of securities convertible into, or carrying rights
or options to purchase, stock of any class, whether now or hereafter
authorized or whether issued for money, for a consideration other than money
or by way of a dividend or otherwise, and all such rights are hereby waived by
each holder of capital stock and of any other class of stock or securities
which may hereafter be created.
Section 6. All persons who shall acquire capital stock in the Corporation
shall acquire the same subject to the provisions of these Articles of
Incorporation.
Section 7. (1) Except as otherwise provided in subsection 2 of this Section
7 of this Article Fourth, the affirmative vote of at least three-fourths of
the shares of capital stock of the Corporation outstanding and entitled to
vote thereupon voting together as a single class shall be necessary to
authorize any of the following actions:
(a) the conversion of the Corporation to an "open-end company" or any
amendment to these Articles of Incorporation to make the Corporation's
common stock a "redeemable security" (as such terms are defined in the
Investment Company Act of 1940);
(b) the merger or consolidation of the Corporation with or into any other
company (including, without limitation, a partnership, corporation, joint
venture, business trust, common law trust or any other business
organization) or share exchange in which the Corporation is not the
successor corporation;
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(c) the dissolution or liquidation of the Corporation notwithstanding any
other provision in these Articles of Incorporation;
(d) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) of all or
substantially all of the assets of the Corporation other than in the
ordinary course of the Corporation's business;
(e) a change in the nature of the business of the Corporation so that it
would cease to be an investment company registered under the Investment
Company Act of 1940; or
(f) the issuance or transfer by the Corporation (in one transaction or a
series of transactions) of any securities of the Corporation to any other
person in exchange for cash, securities or other property having an
aggregate fair market value of $1,000,000 or more excluding (i) sales of
any securities of the Corporation in connection with a public offering
thereof, (ii) issuances of any securities of the Corporation pursuant to a
dividend reinvestment plan adopted by the Corporation or pursuant to a
stock dividend and (iii) issuances of any securities of the Corporation
upon the exercise of any stock subscription rights distributed by the
Corporation.
(2) If the Board of Directors approves, by a vote of at least seventy
percent of the entire Board of Directors, any action listed in subsection (1)
of this Section 7 of this Article Fourth other than the action described in
clause (1) (f), the affirmative vote of only a majority of the shares of
capital stock of the Corporation outstanding and entitled to vote thereupon
voting together as a single class shall be necessary to authorize such action.
If the Board of Directors approves, by a vote of at least seventy percent of
the entire Board of Directors, an action described in clause (1) (f) of this
Section 7 of this Article Fourth, no shareholder vote shall be required to
authorize such action.
(3) The provisions of this Section 7 of this Article Fourth may not be
amended, altered or repealed except by the approval of at least three-fourths
of the shares of capital stock of the Corporation outstanding and entitled to
vote thereupon voting together as a single class.
FIFTH: The initial number of directors of the Corporation is seven (7), and
the name of the directors who shall act as such until the first annual meeting
or until their successor or successors are duly elected and qualify are Benny
T. Hu, Harvey H.W. Chang, Joe O. Rogers, Jack C. Tang, Shao-Yu Wang, David
Dean and Lawrence F. Weber. The By-Laws of the Corporation may fix the number
of directors at a number other than seven and may authorize the Board of
Directors, by the vote of a majority of the entire Board of Directors, to
increase or decrease the number of directors within a limit specified in the
By-Laws, provided that in no case shall the
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number of directors be less than the number prescribed by law, and to fill the
vacancies created by any such increase in the number of directors. Unless
otherwise provided by the By-Laws of the Corporation, the directors of the
Corporation need not be stockholders.
The By-Laws of the Corporation may divide the Directors of the Corporation
into classes and proscribe the tenure of office of the several classes; but no
class shall be elected for a period shorter than that from the time of the
election of such class until the next annual meeting and thereafter for a
period shorter than the interval between annual meetings or for a longer
period than five years, and the term of office of at least one class shall
expire each year.
A director may be removed only with cause, and any such removal may be made
only by the stockholders of the Corporation.
The provisions of this Article Fifth may not be amended, altered or repealed
except by a vote of three-fourths of the shares of common stock of the
Corporation outstanding and entitled to vote thereupon.
SIXTH: Section 1. All corporate powers and authority of the Corporation
(except as at the time otherwise provided by statute, by these Articles of
Incorporation or by the By-Laws) shall be vested in and exercised by the Board
of Directors.
Section 2. The Board of Directors shall have the sole power to adopt, alter
or repeal the By-Laws of the Corporation except to the extent that the By-Laws
otherwise provide. The provisions of this Section 2 of this Article Sixth may
not be amended, altered or repealed except by vote of three-fourths of the
shares of capital stock of the Corporation outstanding and entitled to vote
thereupon voting together as a single class.
Section 3. The Board of Directors shall have the power from time to time to
determine whether and to what extent, and at what times and places and under
what conditions and regulations, the accounts and books of the Corporation
(other than the stock ledger) or any of them shall be open to the inspection
of stockholders; and no stockholder shall have any right to inspect any
account, book or document of the Corporation except to the extent permitted by
statute or the By-Laws.
Section 4. The Board of Directors shall have the power to determine, as
provided herein, or if a provision is not made herein, in accordance with
generally accepted accounting principles, what constitutes net income, total
assets and the net asset value of the shares of capital stock of the
Corporation.
Section 5. The Board of Directors shall have the power to distribute
dividends from the funds legally available therefor in such amounts, if any,
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and in such manner to the stockholders of record as of a date, as the Board of
Directors may determine.
Section 6. Without the assent or vote of the stockholders, the Board of
Directors shall have the power to authorize the issuance from time to time of
shares of the capital stock of any class of the Corporation, whether now or
hereafter authorized, and securities convertible into shares of capital stock
of the Corporation of any class or classes, whether now or hereafter
authorized, for such consideration as the Board of Directors may deem
advisable.
Section 7. Without the assent or vote of the stockholders, the Board of
Directors shall have the power to authorize and issue obligations of the
Corporation, secured or unsecured, as the Board of Directors may determine,
and to authorize and cause to be executed mortgages and liens upon the real or
personal property of the Corporation.
Section 8. The provisions of Sections 6 and 7 of this Article Sixth may not
be amended, altered or repealed except by vote of three-fourths of the shares
of capital stock of the Corporation outstanding and entitled to vote thereupon
voting together as a single class.
SEVENTH: Section 1. To the fullest extent permitted by Maryland statutory or
decisional law, subject to the requirements of the Investment Company Act of
1940, as amended, no director or officer of the Corporation shall be
personally liable to the Corporation or its security holders for money
damages. This limitation on liability applies to events occurring at the time
a person serves as a director or officer of the Corporation whether or not
such person is a director or officer at the time of any proceeding in which
such liability is asserted. No amendment of these Articles of Incorporation or
repeal of any provision hereof shall limit or eliminate the benefits provided
to directors and officers under this provision in connection with any act or
omission that occurred prior to such amendment or repeal.
Section 2. The Corporation shall indemnify, to the fullest extent permitted
by law (including the Investment Company Act of 1940) as currently in effect
or as the same may hereafter be amended, any person made or threatened to be
made a party to any action, suit or proceeding, whether criminal, civil,
administrative or investigative, by reason of the fact that such person or
such person's testator or intestate is or was a director or officer of the
Corporation or serves or served at the request of the Corporation any other
enterprises as a director or officer. To the fullest extent permitted by law
(including the Investment Company Act of 1940) as currently in effect or as
the same may hereafter be amended, expenses incurred by any such person in
defending any such action, suit or proceeding shall be paid or reimbursed by
the Corporation promptly upon receipt by it of an undertaking of such person
to repay such expenses if it
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shall ultimately be determined that such person is not entitled to be
indemnified by the Corporation. The rights provided to any person by this
Section 2 of this Article Seventh shall be enforceable against the Corporation
by such person who shall be presumed to have relied upon it in serving or
continuing to serve as a director or officer as provided above. No amendment
of this Section 2 of this Article Seventh shall impair the rights of any
person arising at any time with respect to events occurring prior to such
amendment. For purposes of this Section 2 of this Article Seventh, the term
"Corporation" shall include any predecessor of the Corporation and any
constituent corporation (including any constituent of a constituent) absorbed
by the Corporation in a consolidation or merger; the term "other enterprise"
shall include any corporation, partnership, joint venture, trust or employee
benefit plan; service "at the request of the Corporation" shall include
service as a director or officer of the Corporation which imposes duties on,
or involves services by, such director or officer with respect to an employee
benefit plan, its participants or beneficiaries; any excise taxes assessed on
a person with respect to an employee benefit plan shall be deemed to be
indemnifiable expenses; and action by a person with respect to any employee
benefit plan which such person reasonably believes to be in the interest of
the participants and beneficiaries of such plan shall be deemed to be action
not opposed to the best interests of the Corporation. The provisions of this
Section 2 of this Article Seventh shall be in addition to the other provisions
of this Article Seventh.
Section 3. Nothing in this Article Seventh protects or purports to protect
any director or officer against any liability to the Corporation or its
security holders to which he or she would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office.
Section 4. Each section or portion thereof of this Article Seventh shall be
deemed severable from the remainder, and the invalidity of any such section or
portion shall not affect the validity of the remainder of this Article.
EIGHTH: The duration of the Corporation shall be perpetual.
NINTH: From time to time, any of the provisions of these Articles of
Incorporation may be amended, altered or repealed (including any amendment
that changes the terms of any of the outstanding stock by classification,
reclassification or otherwise), and other provisions that may, under the
statutes of the State of Maryland at the time in force, be lawfully contained
in articles of incorporation may be added or inserted, upon the vote of the
holders of a majority of the shares of common stock of the Corporation
outstanding and entitled to vote thereupon. If these Articles of Incorporation
specifically so provide, however, any such amendment, alteration, repeal,
addition or insertion may be affected only upon the vote of three-fourths of
the shares of common stock of the Corporation
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outstanding and entitled to vote thereupon. The provisions of the prior
sentence may not be amended, altered or repealed except by vote of three-
fourths of the shares of common stock of the corporation outstanding and
entitled to vote thereupon. All rights at any time conferred upon the
stockholders of the Corporation by these Articles of Incorporation are subject
to the provisions of this Article Ninth.
IN WITNESS WHEREOF, I have executed these Articles of Incorporation
acknowledging the same to be my act, on January 5, 1996.
/s/ Joseph C. Benedetti
___________________________________________
Incorporator
Witness:
/s/ Kiwon Choi
_______________________________
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EXHIBIT C
STATEMENT OF ADDITIONAL INFORMATION
Currently, the Fund's investment limitations as set forth in the Fund's
Statement of Additional Information state:
"2. The Fund will not purchase any equity securities which, at the date
purchase is made, are not listed and traded on the TSE . . .
7. The Fund will not buy or sell commodities or commodity contracts or
real estate or interests in real estate."
The text of the proposed amendment is set forth below:
"2. The Fund will not purchase any equity securities which, at the date
purchase is made, are not listed and traded on the TSE, except that the
Fund may purchase equity securities in initial public offerings and
secondary public offerings if such securities will be listed on the TSE
immediately following such offering . . .
7. The Fund will not buy or sell commodities or commodity contracts or
real estate or interests in real estate, except the Fund may enter into
forward foreign currency exchange contracts, foreign currency futures
contracts, and options on foreign currencies and foreign currency futures
contracts for bona fide hedging purposes."
MANAGEMENT CONTRACT
Currently, the Fund's investment limitations as set forth in the Fund's
Management Contract state:
"10.3. The Manager agrees that it will not, using the assets held in the
Trust Fund . . .
(b) purchase any equity securities which, at the time purchase is
made, are not listed and traded on the Taiwan Stock Exchange . . .
(g) buy or sell commodities or commodity contracts or real estate or
interests in real estate."
The text of the proposed amendment is set forth below:
"10.3. The Manager agrees that it will not, using the assets held in the
Trust Fund . . .
(b) purchase any equity securities which, at the time purchase is
made, are not listed and traded on the Taiwan Stock Exchange, except
that it may purchase equity securities in initial public offerings and
secondary public offerings if such securities will be listed on the
Taiwan Stock Exchange immediately following such offering . . .
(g) buy or sell commodities or commodity contracts or real estate or
interests in real estate, except it may enter into forward foreign
currency exchange contracts, foreign currency futures contracts, and
options on foreign currencies and foreign currency futures contracts
for bona fide hedging purposes."
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DELAWARE BY-LAWS
Currently, the Fund's investment limitations as set forth in the Delaware
By-Laws state:
"13.2. The Corporation will not purchase any equity securities which, at
the date purchase is made, are not listed and traded on the Taiwan Stock
Exchange . . .
13.7. The Corporation will not buy or sell commodities or commodity
contracts or real estate or interests in real estate."
The text of the proposed amendment is set forth below:
"13.2. The Corporation will not purchase any equity securities which, at
the date purchase is made, are not listed and traded on the Taiwan Stock
Exchange, except that the Fund may purchase equity securities in initial
public offerings and secondary public offerings if such securities will be
listed on the Taiwan Stock Exchange immediately following such
offering . . .
13.7. The Corporation will not buy or sell commodities or commodity
contracts or real estate or interests in real estate, except the
Corporation may enter into forward foreign currency exchange contracts,
foreign currency futures contracts, and options on foreign currencies and
foreign currency futures contracts for bona fide hedging purposes."
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EXHIBIT D
DESCRIPTION OF VARIOUS FOREIGN CURRENCY HEDGES
FOREIGN CURRENCY HEDGING TRANSACTIONS
Forward Foreign Currency Exchange Contract A forward foreign currency
exchange contract involves an obligation to purchase or sell a specified
amount of a foreign currency at a future date, which may be any fixed number
of days from the date of the contract agreed upon by the parties, at a price
set at the time of the contract. These contracts are traded in the interbank
market conducted directly between currency traders (usually large commercial
banks).
Foreign Currency Futures Contracts and Options on Foreign Currency Futures
Contracts. A foreign currency futures contract is a standardized contract for
the future delivery of a specified amount of a foreign currency at a future
date at a price set at the time of the contract. Foreign currency futures
contracts traded in the United States are traded on regulated exchanges.
Parties to a futures contract must make initial "margin" deposits to secure
performance of the contract, which generally range from 2% to 5% of the
contract price. There also are requirements to make "variation" margin
deposits as the value of the futures contract fluctuates.
The Fund may purchase and write call and put options on foreign currency
contracts. An option on a foreign currency futures contract, as contrasted
with the direct investment in such a contract, gives the purchaser the right,
in return for the premium paid, to assume a position in a foreign currency
futures contract at a specified exercise price at any time on or before the
expiration date of the option. The potential loss related to the purchase of
an option on a futures contract is limited to the premium paid for the option
(plus transaction costs). Because the value of the option is fixed at the
point of sale, there are no daily cash payments by the purchaser to reflect
changes in the value of the underlying contract; however, the value of the
option does change daily. To the extent the Fund purchases an option on a
foreign currency contract any change in the value of such option would be
reflected in the net asset value of the Fund.
The Fund may enter into foreign currency futures contracts or related
options only if such transactions are entered into solely for bona fide
hedging purposes.
Options on Currencies. A put option purchased by the Fund on a currency
gives the fund the right to sell the currency at the exercise price until the
expiration of the option. A call option purchased by the Fund gives the Fund
the right to purchase a currency at the exercise price until the expiration of
the option.
Currency Hedging Strategies. The Fund may enter into forward foreign
currency exchange contracts and foreign currency futures contracts and related
options in several circumstances. For example, when the Fund
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<PAGE>
enters into a contract for the purchase or sale of a security denominated in a
foreign currency, or when the Fund anticipates the receipt in a foreign
currency of dividends or interest payments on such a security which it holds,
the Fund may desire to "lock in" the dollar price of the security or the
dollar equivalent of such dividend or interest payment, as the case may be. In
addition, when the Adviser believes that the currency of a particular foreign
country may suffer a substantial decline against the dollar, it may enter into
a forward or futures contract to sell, for a fixed amount of dollars, the
amount of foreign currency approximating the value of some or all of the
Fund's portfolio securities denominated in such foreign currency.
At the maturity of a forward or futures contract, the Fund may either accept
or make delivery of the currency specified in the contract or, prior to
maturity, enter into an offsetting contract. Such offsetting transactions with
respect to forward contracts must be effected with the currency trader who is
a party to the original forward contract. Offsetting transactions with respect
to futures contracts are effected on the same exchange on which the initial
transaction occurred. The Fund will enter into such futures contracts and
related options if it is expected that there will be a liquid market in which
to close out such contract. There can, however, be no assurance such a liquid
market will exist in which to close a futures contract or related option or
that the opposite party to the forward contract will agree to the offset, in
which case the Fund may suffer a loss.
The Fund does not intend to enter into such forward or futures contracts to
protect the value of its portfolio securities on a regular basis, and will not
do so if, as a result, the Fund will have more than 20% of the value of its
total assets committed to the consummation of such contracts. The Fund also
will not enter into such forward or futures contracts or maintain a net
exposure to such contracts where the consummation of the contracts would
obligate the Fund to deliver an amount of foreign currency in excess of the
value of the Fund's portfolio securities or other assets denominated in that
currency. Further, the Fund generally will not enter into a forward or futures
contract with a term of greater than one year.
The Fund may attempt to accomplish objectives similar to those described
above with respect to forward and futures contracts for currency by means of
purchasing put or call options on foreign currencies on exchanges. A put
option gives the Fund the right to sell a currency at the exercise price until
the expiration of the option. A call option gives the Fund the right to
purchase a currency at the exercise price until the expiration of the option.
While the Fund may enter into forward, futures and options contracts to
reduce currency exchange rate risks, changes in currency prices may result in
a poorer overall performance for the Fund than if it had not engaged in any
such transaction. Moreover, there may be an imperfect correlation between the
Fund's portfolio holdings of securities denominated in a particular currency
and forward, futures or options contracts entered into by the Fund. Such
imperfect correlation may prevent the Fund from achieving the intended hedge
or expose the Fund to risk of foreign exchange loss.
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<PAGE>
PROXY CARD
PROXY PROXY
THE TAIWAN FUND, INC. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS ANNUAL MEETING OF STOCKHOLDERS--FEBRUARY 27, 1996
The undersigned hereby appoints Harvey H.W. Chang, Gloria Wang and Laurence
E. Cranch, and each of them, the proxies of the undersigned, with full power of
substitution to each of them, to vote all shares of The Taiwan Fund, Inc. which
the undersigned is entitled to vote at the Annual Meeting of Stockholders of
The Taiwan Fund, Inc. to be held at the offices of Rogers & Wells, 200 Park
Avenue, 52nd Floor, New York, New York 10166, on Tuesday, February 27, 1996 at
11:00 A.M., New York time and at any adjournments thereof. The undersigned
hereby revokes all proxies with respect to such shares heretofore given. The
undersigned acknowledges receipt of the Proxy Statement dated January 26, 1996.
Unless otherwise specified in the squares provided, the undersigned's vote
will be cast FOR items (1), (2), (3), (4), (5) and (6).
1. The election of directors:
[_] FOR all nominees listed below [_] WITHHOLD AUTHORITY to vote
(except as marked to the contrary for all nominees listed below
below)
Nominees: Benny T. Hu, Harvey H.W. Chang, Joe O. Rogers, Jack C. Tang, Shao-
Yu Wang, David Dean, and Lawrence Weber
(INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee's name on the space provided.)
---------------------------------------------------------------------
2. Ratification of the selection of Coopers & Lybrand L.L.P. as independent
certified public accountants:
FOR [_] AGAINST [_] ABSTAIN [_]
3. Approval of an Agreement of Merger reincorporating the Fund, currently a
Delaware corporation, as a Maryland corporation by means of a merger of the
Fund into a wholly-owned, newly formed Maryland subsidiary:
FOR [_] AGAINST [_] ABSTAIN [_]
4. Approval of an amendment to the Fund's Restated Certificate of
Incorporation, increasing the number of authorized shares of Common Stock
from 20,000,000 to 60,000,000 (which will only be effected if Proposal 3 is
not approved by stockholders):
FOR [_] AGAINST [_] ABSTAIN [_]
(continued on other side)
<PAGE>
5. Approval of an amendment to the Fund's investment limitations to permit the
Fund to purchase equity securities, which will be listed on the Taiwan Stock
Exchange, issued in initial and subsequent public offerings and, in
connection therewith, corresponding amendments to (i) the Securities
Investment Trust-Investment Management and Custodian Contract, dated
December 16, 1986 (the "Management Contract"), among the Fund, China
Securities Investment Trust Corporation and The International Commercial
Bank of China and (ii) if Proposal 3 is not approved, the By-Laws of the
Fund.
FOR [_] AGAINST [_] ABSTAIN [_]
6. Approval of an amendment to the Fund's investment limitations to permit the
Fund to engage in currency hedging transactions and, in connection
therewith, corresponding amendments to (i) the Management Contract and (ii)
if Proposal 3 is not approved, the By-Laws of the Fund.
FOR [_] AGAINST [_] ABSTAIN [_]
7. In their discretion on any other business which may properly come before the
meeting or any adjournments thereof.
Please sign exactly as
your name or names appear
above. When signing as
attorney, executor,
administrator, trustee or
guardian, please give
your full title as such.
--------------------------
(Signature of
Stockholder)
--------------------------
(Signature of joint
owner, if any)
Date ______________ , 1996
PLEASE SIGN AND RETURN PROMPTLY IN ENCLOSED ENVELOPE NO POSTAGE IS REQUIRED
