<PAGE> 1
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:
<TABLE>
<S> <C>
[x] Preliminary Proxy Statement [ ] Confidential, For Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-2.
</TABLE>
THE TAIWAN FUND, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] 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:
------------------------------------------------------------------------
<PAGE> 2
THE TAIWAN FUND, INC.
225 FRANKLIN STREET, BOSTON, MASSACHUSETTS 02110
TELEPHONE 1-800-636-9242
January [ ], 1997
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 26, 1997 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 Fund's Annual Meeting of Stockholders held on February 27, 1996, the
Fund's stockholders voted on proposals substantially identical to those
presented in the enclosed Notice and Proxy Statement. However, the proposals
corresponding to enclosed, current proposals 3, 4, 5 and 6 were not approved by
the requisite number of votes and are resubmitted herewith for a vote of the
stockholders of the Fund. 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> 3
THE TAIWAN FUND, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
FEBRUARY 26, 1997
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 26,
1997 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, 1997.
(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).
<PAGE> 4
(7) To transact such other business as may properly come before the
meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on December 30, 1996
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 [ ], 1997
2
<PAGE> 5
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 26, 1997 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 [ ], 1997. 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 30, 1996
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
16,365,519 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 30, 1996.
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, 1996 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> 6
(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 1998), 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, SHARES
PRINCIPAL OCCUPATION OR EMPLOYMENT BENEFICIALLY
DURING PAST FIVE YEARS AND OWNED PERCENT
NAME AND ADDRESS DIRECTORSHIPS IN PUBLICLY-HELD DIRECTOR DECEMBER , OF
OF NOMINEE (AGE) COMPANIES SINCE 1996(1) CLASS
- -------------------------------- ---------------------------------- -------- ------------ -------
<S> <C> <C> <C> <C>
*Benny T. Hu (48) President of the Fund; President, 1993 None --
125 Nanking East Road China Development Corporation
Section 5 (1993-present); Chairman, China
Taipei, Taiwan, ROC Securities Investment Trust Cor-
poration (1992-1993); President,
China Securities Investment Trust
Corporation (1985-1992); Chair-
man, Far East Air Transport Corp.
(1995-present); Executive Direc-
tor, Merrill Lynch International,
Inc. (1986-1990); Executive Vice
President, International Invest-
ment Trust Co., Ltd. (1983-1986);
Director, China Steel Corporation
(1993-present); Director, MITAC
International Corp. (1993-pre-
sent).
*Harvey H.W. Chang (45) Chairman, China Securities Invest- 1993 None --
99 Tun Hwa South Road ment Trust Corporation (1993-
Section 2 present); President, China Devel-
Taipei, Taiwan, ROC opment Corporation (1992-1993);
President, Grand Cathay Securi-
ties Corporation (1989-1992).
Joe O. Rogers (48) Partner, PHH Fantus Consulting 1986 [100] +
P.O. Box 372 (May 1993-present); Partner, Al-
Hunt Valley, Maryland calde, Rousselot & Fay (1992- May
21031 1993); Director, The China Fund,
Inc. (1992-present); President,
Rogers International, Inc.
(1986-present); President, Mid-
dendorf Rogers Martin Group Inc.
(1987-1989); U.S. Executive Di-
rector, Asian Development Bank
(1984-1986); Executive Director,
Republican Conference, U.S. House
of Representatives (1981-1984).
</TABLE>
2
<PAGE> 7
<TABLE>
<CAPTION>
PRESENT OFFICE WITH THE FUND, SHARES
PRINCIPAL OCCUPATION OR EMPLOYMENT BENEFICIALLY
DURING PAST FIVE YEARS AND OWNED PERCENT
NAME AND ADDRESS DIRECTORSHIPS IN PUBLICLY-HELD DIRECTOR DECEMBER , OF
OF NOMINEE (AGE) COMPANIES SINCE 1996(1) CLASS
- -------------------------------- ---------------------------------- -------- ------------ -------
<S> <C> <C> <C> <C>
Jack C. Tang (69) Director, Pacific Rim Investments 1989 None --
Suite 1601 Ltd. (1991-present); Chairman and
Tower 1 Chief Executive Officer, Tris-
China Hong Kong City tate Holdings Limited (1987-pre-
33 Canton Road sent); Director, Mid Pacific Air
Tsim Sha Tsu Corporation (1986-present);
Kowloon, Hong Kong City Chairman, South Sea Development
Co. Ltd. (March-September 1992);
Chairman and Managing Director,
South Sea Textile Manufacturing
Co., Ltd. (1971-1992); Director,
The Hong Kong and Shanghai
Banking Corporation (1984-1991);
Chairman, Pacific Rim Investments
Ltd. (1989- 1991).
Shao-Yu Wang (73) Chairman, Taiwan Styrene Monomer 1986 None --
8th Floor Corporation (1979-present); Di-
6 Roosevelt Road rector, American California Bank
Section 1 (1980-present); Chairman of the
Taipei, Taiwan, ROC Board, Soochow University
(1987-present); Director and
Chairman, Asia Polymer Corpora-
tion; Director, CTCI Corporation;
Director, Taiwan Synthetic Rubber
Corporation; Director, Oriental
Union Chemical Corp.
David Dean (71) Senior Advisor of the 1991 None --
8361 B. Greensboro Drive Chiang-Ching- Kuo Foundation
McLean, Virginia 22102 (1990-present); Director, The
American Institute in Taiwan
(1979-1989).
Lawrence F. Weber (63) Independent Consultant (1993-pre- 1995 None --
156 Ide Road sent); Director, East
Williamstown, Asia/Australia, UBS Asset
Massachusetts 01267 Management (N.Y.) (1991-1993);
Managing Director, Asia-Pacific,
Chase Investors Management (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.
3
<PAGE> 8
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.
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, 1996. In addition, the Audit
Committee held three regular meetings during the fiscal year ended August 31,
1996. 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
under Section 16(a) of the Exchange Act.
OFFICERS OF THE FUND
Mr. Benny T. Hu (age 48), 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 42), 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 affiliated with
4
<PAGE> 9
China Securities Investment Trust Corporation, the Fund's investment adviser,
was US$97,493 during the fiscal year ended August 31, 1996. 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, 1996. 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
COMPENSATION
NAME OF DIRECTOR FROM FUND(1)
------------------------------------------------ -------------
<S> <C>
Benny T. Hu*.................................... --
Harvey H.W. Chang*.............................. --
Joe O. Rogers................................... $11,250
Jack C. Tang.................................... $10,500
Shao-Yu Wang.................................... $10,500
David Dean...................................... $11,250
Lawrence Weber.................................. $11,250
</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.
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> 10
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 October 11, 1996, 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, 1997. 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, 1995
and 1996 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, 1996 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.
6
<PAGE> 11
(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 1996, the Fund paid the State of Delaware
franchise taxes of $65,000. The State of Maryland has no franchise tax.
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
7
<PAGE> 12
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.
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.
8
<PAGE> 13
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.
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 except in limited
circumstances 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
9
<PAGE> 14
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 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 of
record 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
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<PAGE> 15
any purpose germane to that meeting. Under Maryland law, one or more
stockholders who together are and for at least six months have been 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, the NYSE does not in all cases
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
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<PAGE> 16
any newly-issued stock or other securities of Taiwan-Delaware or Taiwan-
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
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<PAGE> 17
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 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
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<PAGE> 18
purpose of electing directors to fill any existing vacancies in the Board unless
the Securities and Exchange Commission 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
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<PAGE> 19
payment of dividends, stock purchases or redemptions) or (iv) any 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 (and only
with court approval if the party seeking indemnification is found liable to the
corporation).
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,
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<PAGE> 20
employees and agents than the "good faith" standard of conduct under Delaware
law.
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 amend-
16
<PAGE> 21
ment 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, 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.
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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 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
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<PAGE> 23
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 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
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<PAGE> 24
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.
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.
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CONSEQUENCES IF PROPOSAL (3) IS NOT APPROVED
If Proposal (3) is not approved by the stockholders, the Fund will continue
to operate and pay Delaware franchise taxes. 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.
(4) APPROVAL OF AN AMENDMENT TO THE
FUND'S RESTATED CERTIFICATE OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED SHARES
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 30, 1996, the Fund had 16,365,519 shares of Common Stock
outstanding. The Board has determined that the 3,634,481 shares of presently
authorized but unissued Common Stock may be insufficient to
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<PAGE> 26
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 43,000,000 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 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.
22
<PAGE> 27
(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 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
23
<PAGE> 28
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 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.
24
<PAGE> 29
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.
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
25
<PAGE> 30
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 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,
26
<PAGE> 31
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, 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.
27
<PAGE> 32
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 Shareholder Communications Corporation to assist in the proxy
solicitation. The cost of their services is estimated at US$20,000, plus
out-of-pocket expenses. 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.
No business other than as set forth herein is expected to come before the
meeting, but should any other matter requiring a vote of stockholders arise, the
persons named in the enclosed proxy will vote thereon according to their best
judgment in the interests of 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 10, 1997.
By order of the Board of Directors,
Gloria Wang
Secretary
225 Franklin Street
Boston, Massachusetts 02110
January 26, 1996
28
<PAGE> 33
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, welfare,
A-1
<PAGE> 34
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
hold their directorships and offices until the election and qualification of
their
A-2
<PAGE> 35
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.
A-3
<PAGE> 36
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.
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)
By: /s/ BENNY T. HU
----------------------------------
President
THE TAIWAN FUND, INC. (Maryland)
By: /s/ BENNY T. HU
----------------------------------
President
A-4
<PAGE> 37
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 , 1997.
Secretary of The Taiwan Fund, Inc.
(Delaware)
A-5
<PAGE> 38
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 , 1997.
Secretary of The Taiwan Fund, Inc.
(Maryland)
A-6
<PAGE> 39
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.
B-1
<PAGE> 40
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.
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.
B-2
<PAGE> 41
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.
(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;
B-3
<PAGE> 42
(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
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 redemp-
B-4
<PAGE> 43
tion 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.
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
B-5
<PAGE> 44
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;
(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.
B-6
<PAGE> 45
(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 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
B-7
<PAGE> 46
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, 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.
B-8
<PAGE> 47
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 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.
B-9
<PAGE> 48
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 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
B-10
<PAGE> 49
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 . . .
C-1
<PAGE> 50
(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."
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."
C-2
<PAGE> 51
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.
D-1
<PAGE> 52
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 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.
D-2
<PAGE> 53
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.
D-3
<PAGE> 54
PROXY CARD
THE TAIWAN FUND, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS - FEBRUARY 26, 1997
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 Wednesday,
February 26, 1997 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 [_], 1997.
UNLESS OTHERWISE SPECIFIED IN THE SQUARES PROVIDED, THE UNDERSIGNED'S
VOTE WILL BE CAST FOR ITEMS (1), (2), (3), (4), (5) AND (6).
- --------------------------------------------------------------------------------
PLEASE VOTE AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------
Please sign exactly as your name or names appear. When signing as attorney,
executor, administrator, trustee or guardian, please give your full title as
such.
- --------------------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
- ------------------------------ --------------------------------
- ------------------------------ --------------------------------
- ------------------------------ --------------------------------
FRONT OF PROXY CARD
<PAGE> 55
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE
1. The election of directors:
For [ ] Withhold [ ] For All Except [ ]
Nominees:
Benny T. Hu, Harvey H.W. Chang, Joe O. Rogers,
Jack C. Tang, Shao-Yu Wang, David Dean
and Lawrence F. Weber
INSTRUCTION: To withhold authority to vote for any individual nominee, mark the
"For All Except" box and strike a line through the nominee's name in the list
above.
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 [ ]
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:
For [ ] Against [ ] Abstain [ ]
Please be sure to sign and date this Proxy.
Date _____________________________________
__________________________________________
(Signature of Stockholder)
__________________________________________
(Signature of joint owner, if any)
RECORD DATE SHARES:
BACK OF PROXY CARD
