<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>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] 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 13, 1998
Dear Stockholder:
Enclosed you will find a Notice and Proxy Statement for the Annual Meeting
of Stockholders of The Taiwan Fund, Inc. to be held on Friday, February 13,
1998.
The matters on which you, as a stockholder of the Fund, are being asked to
vote are election of the Fund's Directors, ratification of the selection of
Coopers & Lybrand L.L.P. as the Fund's independent public accountants, approval
of an amendment to the Securities Investment Trust -- Investment Management and
Custodian Contract, dated December 16, 1986, as amended (the "Management
Contract"), among the Fund, China Securities Investment Trust Corporation and
The International Commercial Bank of China, to reduce, in the manner described
in the accompanying Proxy Statement, the advisory fees payable thereunder and an
amendment to the Fund's investment limitations to permit the Fund to invest in
stocks traded in the over-the-counter market in Taiwan.
After reviewing each matter carefully, the Board of Directors recommends
that you vote FOR each of the proposals. If you have any questions regarding the
proposals or need assistance in completing your proxy card, please contact our
proxy solicitor, Shareholder Communications Corporation, at 1-800-733-8481, ext.
438. If we have not received your proxy as the meeting date approaches, you may
receive a telephone call from Shareholder Communications Corporation reminding
you to vote your shares.
YOUR VOTE IS IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. PLEASE
TAKE A FEW MINUTES TO REVIEW THIS MATERIAL, CAST YOUR VOTE ON THE ENCLOSED PROXY
CARD AND RETURN IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE. YOUR PROMPT RESPONSE
IS NEEDED TO AVOID FOLLOW-UP MAILINGS WHICH WOULD INCREASE COSTS PAID BY ALL
STOCKHOLDERS.
Thank you very much for your assistance.
Sincerely,
Benny T. Hu
President
<PAGE> 3
THE TAIWAN FUND, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
FEBRUARY 13, 1998
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 Friday, February 13,
1998 at 11:00 A.M., New York time, for the following purposes:
(1) To elect six 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, 1998.
(3) To consider approval of an amendment to the Securities Investment
Trust-Investment Management and Custodian Contract, dated December 16,
1986, as amended (the "Management Contract"), among the Fund, China
Securities Investment Trust Corporation and The International Commercial
Bank of China, to reduce, in the manner described in the accompanying Proxy
Statement, the advisory fees payable thereunder.
(4) To consider approval of an amendment to the Fund's investment
limitations to permit the Fund to invest in stocks traded in the over-
the-counter market in Taiwan, rather than only Taiwan Stock Exchange
("TSE") listed stocks or equity securities which will be listed on the TSE
immediately following the offering of such securities and, in connection
therewith, corresponding amendments to the Management Contract and By-Laws
of the Fund.
(5) 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 23, 1997
as the record date for the determination of stockholders entitled to notice of
and to vote at the meeting or any adjournments thereof.
<PAGE> 4
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 13, 1998
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 Friday,
February 13, 1998 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 13, 1998. 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 23, 1997
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
16,365,572 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 23, 1997.
Management of the Fund knows of no business other than that mentioned in
Proposals (1) through (4) 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, 1997 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 six nominees
listed below as directors of the Fund to serve until the next Annual Meeting of
Stockholders (expected to be held in February 1999), or until their successors
are elected and qualified. If any such nominee should be unable to serve due to
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 23, OF
OF NOMINEE (AGE) COMPANIES SINCE 1997(1) CLASS
- -------------------------------- ---------------------------------- -------- ------------ -------
<S> <C> <C> <C> <C>
*Benny T. Hu (49) 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-
present).
David Dean (72) 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).
Joe O. Rogers (49) Partner, PHH Fantus Consulting 1986 200 +
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 23, OF
OF NOMINEE (AGE) COMPANIES SINCE 1997(1) CLASS
- -------------------------------- ---------------------------------- -------- ------------ -------
<S> <C> <C> <C> <C>
Jack C. Tang (70) Director, Pacific Rim Investments 1989 None --
Suite 1601 Ltd. (1991-present); Chairman
Tower 1 Emeritus (1997-present) and
China Hong Kong City Chairman and Chief Executive Of-
33 Canton Road ficer (1987-1997), Tristate Hold-
Tsim Sha Tsu ings Limited; Director,
Kowloon, Hong Kong City MidPacific Air Corporation
(1986-present); 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 (74) Director and Chairman, China Amer- 1986 None --
4th Fl. No. 260 ican Petrochemical Co., Ltd.
Tun Hwa N. Road (1976-present); Director, Ameri-
Taipei, Taiwan, ROC can California Bank (1980-pre-
sent); Chairman of the Board of
Trustees, Soochow University
(1980-present); Chairman of the
Min Chuan College (1986-pre-
sent); Director, Taiwan Synthetic
Rubber Corporation (1988-pre-
sent).
Lawrence F. Weber (64) 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 ROC).
Mr. Harvey H.W. Chang has determined not to seek an additional term as a
director of the Fund and will resign as a director immediately following the
Annual Meeting of Stockholders on February 13, 1998. Mr. Chang has terminated
his employment as Chairman of the Fund's investment adviser, China Securities
Investment Trust Corporation (the "Adviser") and has accepted other employment.
Mr. Chang has served as a director of the Fund since 1993. Due to the recent
nature of Mr. Chang's decision, the Fund's Board of Directors has determined not
to nominate a candidate to fill this vacancy on the Board of Directors at this
time.
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. Mr. Chang's tenure on the
Executive Committee will end upon the expiration of his term as a director of
the Fund immediately following the meeting.
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 meetings during the
fiscal year ended August 31, 1997. In addition, the Audit Committee held three
regular meetings during the fiscal year ended August 31, 1997. 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 U.S. Securities and
Exchange Commission (the "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 49), President of the Fund since 1986, also serves as
President of China Development Corporation. Mr. Hu also served as Chairman of
the Adviser from 1992 to 1993, and as President of the Adviser from 1985 to
1992. He was Executive Director of Merrill Lynch International, Inc. from 1986
to 1990.
Gloria Wang (age 43), Secretary and Treasurer of the Fund since 1993, also
serves as the Executive Vice President of the Adviser. Ms. Wang served as an
Assistant Vice President in the research department of the Adviser from 1988 to
1993, and as Senior Vice President of the Adviser from 1993 to 1995.
Both Mr. Hu and Ms. Wang are considered to be "interested persons" (as
defined in the Investment Company Act of 1940, as amended (the "1940 Act") of
the Fund and the 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 the
4
<PAGE> 9
Adviser was US$119,500 during the fiscal year ended August 31, 1997. The Fund
currently pays each director that is not affiliated with the Adviser an annual
fee of US$10,000 plus US$1,000 for each directors' meeting and committee meeting
attended.
The Adviser pays the compensation and certain expenses of Mr. Harvey Chang,
the current Chairman of the Adviser whose service as a director of the Fund will
expire following the meeting, and of Ms. Gloria Wang, an employee of the Adviser
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 the Adviser, 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, 1997. The Adviser
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*............................... --
David Dean....................................... $ 13,250
Joe O. Rogers.................................... $ 13,250
Jack C. Tang..................................... $ 10,750
Shao-Yu Wang..................................... $ 13,250
Lawrence Weber................................... $ 13,250
</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 the Adviser 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 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 SIX NOMINEES FOR DIRECTORS.
5
<PAGE> 10
(2) RATIFICATION OR REJECTION OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
At a meeting held October 14, 1997, 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, 1998. 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, 1996
and 1997 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, 1997 and reviewed
the Fund's filings with the 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.
THE BOARD OF DIRECTORS OF THE FUND RECOMMENDS THAT YOU VOTE "FOR" THE
RATIFICATION OF THE SELECTION OF COOPERS & LYBRAND L.L.P. AS THE FUND'S
INDEPENDENT PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDING AUGUST 31, 1998.
(3) APPROVAL OF REDUCTION OF ADVISORY FEE
PROPOSED FEE REDUCTION
China Securities Investment Trust Corporation (the "Adviser") a registered
investment adviser in the United States pursuant to the Investment Advisers Act
of 1940, acts as the Fund's investment adviser and manager for the Fund's assets
held in the Republic of China (the "ROC") pursuant to the Securities Investment
Trust -- Investment Management and Custodian Contract, dated December 16, 1986,
as amended (the "Management Contract"), among the Fund, the Adviser and the
International Commercial Bank of China (the "Custodian"). All compensation paid
to the Adviser by the
6
<PAGE> 11
Fund for the Adviser's service as the Fund's investment adviser is paid under
the terms of the Management Contract.
For its services to the Fund rendered pursuant to the Management Contract,
the Adviser receives a monthly basic fee in new Taiwan Dollars (NT$) at an
annual rate of 1.50% of the Fund's average daily net assets. The basic fee is
subject to performance adjustments which may increase or decrease the basic fee
(by up to 0.5% per annum of the Fund's average net assets) on a monthly basis,
depending on the performance of the Fund's investments compared to the
performance of the Taiwan Stock Exchange (the "TSE") Index during a rolling
performance period of 36 months.
Following discussions between the directors of the Fund, including those
directors of the Fund who are not "interested persons" as defined in the 1940
Act (the "Independent Directors"), the Board of Directors unanimously resolved
at its meeting on October 14, 1997 to approve a reduction in advisory fees
payable to the Adviser which would reduce the basic fee from an annual rate of
1.50% of the Fund's average daily net assets to an annual rate of 1.30% of the
Fund's average daily net assets. In addition, the Board of Directors unanimously
approved a reduction in the performance adjustment from 0.50% to 0.30%. No other
changes are proposed to the Management Contract.
For the year ended August 31, 1997, the advisory fee paid to the Adviser
was equivalent to an annual rate of 1.87% of average net assets. The aggregate
amount of the advisory fee for the fiscal year ended August 31, 1997 was
US$8,738,673. Had the proposed reduced advisory fee been in effect throughout
the fiscal year ended August 31, 1997, the Adviser would have received
US$7,108,965, a reduction of US$1,629,708, or 18.6%.
In considering whether to seek a reduction of the advisory fee, the Board
of Directors reviewed and evaluated information provided by the Adviser and also
obtained additional information from other sources. The information reviewed by
the Board of Directors concerned, among other things, (i) the nature, quality
and extent of the advisory, administrative, compliance and shareholder services
provided by the Adviser to the Fund and the stockholders, (ii) the amount of
advisory fees paid under the current fee calculation relative to other advisors'
fees for comparable services and the Fund's expense ratio in relationship to
industry norms, (iii) the feasibility of obtaining similar services from another
investment manager qualified to provide such services in Taiwan, (iv) the extent
to which, relative to industry practice, the Adviser had passed on any economies
of scale to the Fund and the stockholders in the administration of the Fund, (v)
the responsibility and liability assumed by the Adviser in managing the funds
entrusted to it and (vi) the income received by the Adviser after deducting the
cost of services provided to the Fund. The Board of Directors had also been
provided previously with a memorandum prepared by counsel
7
<PAGE> 12
to the Fund describing the directors' legal duties in connection with their
consideration of the continuation or modification of the Management Contract. In
addition, the Independent Directors who serve on the Fund's Audit Committee met
privately to discuss what they believed would be an appropriate level or levels
of the advisory fee to be paid by the Fund to the Adviser, and the Independent
Directors discussed such issues with the other directors.
The 1940 Act requires that investment advisory contracts between an
investment company and an investment adviser be in writing, that such contracts
specify, among other things, the compensation payable to the adviser pursuant
thereto and that such contracts be approved by the holders of a majority of the
Fund's outstanding shares of common stock as defined in the 1940 Act and
discussed below.
The stockholders' approval of the proposed reduced advisory fee would, for
technical purposes of the 1940 Act, entail their approval of a new investment
advisory contract; and following such stockholder approval and approval by the
ROC Securities and Exchange Commission (the "ROC SEC"), the Management Contract,
revised to include the reduced advisory fee, would remain in effect for an
initial period of two years from the date of its execution by the Fund (which,
due to the anticipated procedures for obtaining ROC SEC approval, would likely
precede the submission of the Management Contract, so revised, to the ROC SEC
for its approval). Thereafter, the Management Contract would continue in effect
from year to year if its continuance is specifically approved at least annually
by (i) a vote of a majority of the Independent Directors, cast in person at a
meeting called for the purpose of voting on such approval, and (ii) either a
vote of a majority of the Board of Directors as a whole or a majority of the
Fund's outstanding shares of common stock as defined in the 1940 Act.
If the stockholders fail to approve the reduced advisory fee or if any
other condition to the implementation of the reduced advisory fee is not
satisfied in a timely manner (as a result, for instance, of a need to adjourn
the Meeting in order to obtain the requisite stockholder vote), the Management
Contract would continue in effect in its current form until December 15, 1998
and thereafter from year to year as set forth below, pending a determination by
the Board of how to respond to such a failure by the stockholders to approve, or
any failure to satisfy any other condition to the implementation of, the reduced
advisory fee.
FURTHER INFORMATION CONCERNING THE ADVISER
The Adviser was incorporated on April 14, 1986 under the laws of the ROC as
a securities investment trust enterprise with limited liability and with
authority to raise and manage investment trust funds. In its capacity as
investment adviser to the Fund, the Adviser is responsible for the continuing
administration of the assets of the Fund in accordance with the Management
8
<PAGE> 13
Contract, the Investment Advisory and Management Agreement, dated December 16,
1986 (the "U.S. Investment Contract") among the Fund and the Adviser, and all
applicable laws and regulations of the ROC and the United States. The Adviser's
offices are located at 24th Floor, Section 2, 99 Tun Hwa South Road, Section 2,
Taipei, Taiwan, ROC.
The principal shareholder of the Adviser is China Development Corporation,
an ROC corporation formed in 1959 which is engaged in the investment and trust
business in Taiwan and the shares of which are listed on the Taiwan Stock
Exchange. As of August 31, 1997, a portion of China Development Corporation's
outstanding shares were owned by agencies or instrumentalities of the ROC
government or by entities wholly-owned or majority-owned by the ROC government.
China Development Corporation owns 58% of the Adviser's capital stock.
The Adviser's Board of Directors consists of ten directors, five of whom
are nominated by China Development Corporation, two by Merrill Lynch
International Incorporated and one by each of the other institutional
shareholders. I-Ming Lin, the President of the Adviser, is responsible for the
day-to-day business and operations of the Adviser.
THE NATURE OF THE FUND'S MANAGEMENT ARRANGEMENTS
The following is a summary description of certain provisions of the
Management Contract and the U.S. Investment Contract. The described provisions
of the Management Contract will also be included in the contract if it is
amended to incorporate the proposed reduced advisory fee.
Under current regulations of the ROC, the Fund may not invest directly in
securities issued by Taiwanese companies. However, the Fund may invest in such
securities through a securities investment trust fund arrangement established
under ROC regulations. This arrangement has been established by means of the
Management Contract.
Under the Management Contract, the Adviser is required to manage the
investment of the Fund's assets held by the Custodian for the exclusive benefit
of the Fund. The Adviser's duties include making investment decisions,
supervising the acquisition and disposition of investments and selecting brokers
or dealers to carry out portfolio transactions, all in accordance with the
Fund's investment objective and policies and within the guidelines and
directions established by the Fund's Board of Directors.
The Management Contract was last voted upon by stockholders in 1997 when
the investment limitation with respect to TSE listed securities was amended and,
unless amended as contemplated in this Proxy Statement, the Management Contract
will remain in force until December 15, 1998 and thereafter from year to year,
subject to its continuance being approved at least annually by the vote of a
majority of the Independent Directors, cast in
9
<PAGE> 14
person at a meeting called for that purpose, and by either (a) the vote of a
majority of the Board of Directors as a whole or (b) the vote of a majority of
the Fund's outstanding shares of common stock as defined in the 1940 Act. The
Management Contract also governs the relationship between the Fund and the
Custodian.
The Management Contract may be terminated by the Fund upon the vote of a
majority of the directors or by the vote of a majority of the Fund's outstanding
shares of common stock as defined in the 1940 Act, without payment of any
penalty, upon 60 days' written notice to the Adviser and the Custodian, and will
terminate automatically in the event of its assignment (as defined in the 1940
Act) by the Adviser or the Custodian or a transfer or other disposition by the
Fund of units of beneficial interest in the assets held under the Management
Contract. The Management Contract will also terminate (i) if required by the
Commission, (ii) if in the opinion of the Adviser further operation of the Fund
in accordance with the Management Contract is illegal, impractical or
inadvisable having regard solely to the interests of the Fund, or (iii) upon the
removal of the Adviser or the Custodian (the liquidation or bankruptcy or
revocation of the ROC license of the Adviser or the Custodian being deemed to be
a removal of the Adviser or the Custodian, as the case may be).
The Adviser manages the assets of the Fund held in the United States
pursuant to the U.S. Investment Contract. Such assets may be held pending
remittance to the ROC of the proceeds of any offering that may be made by the
Fund of its securities, or after any distribution to the Fund under the
Management Contract, or to pay the Fund's expenses in the United States, or upon
borrowing by the Fund from a bank in the United States for temporary or
emergency purposes, or otherwise as permitted under applicable ROC laws and
regulations. The amount of such assets, however, has been, and is generally
expected to continue to be, small in relation to the total assets of the Fund.
The Fund does not and will not pay any additional compensation to the Adviser,
and has not incurred and will not incur any additional expenses, with respect to
the services provided or to be provided by the Adviser under the U.S. Investment
Contract.
The U.S. Investment Contract, which became effective on December 16, 1986,
will be in force until December 15, 1998 and thereafter from year to year,
subject to its continuance being approved at least annually by the vote of a
majority of the Independent Directors, cast in person at a meeting called for
that purpose, and by either (a) the vote of a majority of the Board of Directors
as a whole or (b) the vote of a majority of the Fund's outstanding shares of
common stock as defined in the 1940 Act.
The U.S. Investment Contract may be terminated by the Fund, or by the
Adviser, without payment of any penalty, upon 60 days' written notice to the
other party, and will terminate automatically in the event of its assignment
10
<PAGE> 15
(as defined in the 1940 Act). The U.S. Investment Contract will also terminate
upon the termination of the Management Contract in accordance with the
provisions thereof.
FUND ADMINISTRATION AND EXPENSES
The Adviser or its shareholders bear all expenses associated with its
investment management duties under the Management Contract as well as all
salaries, fees and expenses of the Fund's officers and directors who are
interested persons of the Adviser. Other than expenses borne by the Adviser or
the Fund's administrator, the Fund will bear all of its expenses including: fees
and expenses of the Fund's Independent Directors; interest expense; taxes and
governmental fees; brokerage commissions and other expenses incurred in
acquiring or disposing of portfolio securities; expenses of preparing stock
certificates and other expenses in connection with the issuance, offering,
distribution, sale or underwriting of securities issued by the Fund; expenses of
registering and qualifying the Fund's shares for sale with the Commission and in
various states and foreign jurisdictions; auditing, accounting, insurance and
legal costs; custodian, dividend disbursing and transfer agent expenses;
expenses of obtaining and maintaining stock exchange listings of the Fund's
shares; and the expenses of stockholders' meetings and of the preparation and
distribution of reports to stockholders.
PORTFOLIO TRANSACTIONS AND BROKERAGE
In portfolio transactions involving equity securities, the Adviser places
orders on behalf of the Fund directly with brokers except that the purchase of
shares in rights offerings is made directly from the issuer. In portfolio
transactions involving debt securities, the Adviser may place orders on behalf
of the Fund directly with brokers, bills companies or other institutions or may
make purchases directly from the issuer.
The primary objective of the Adviser in placing orders for the purchase and
sale of securities for the Fund's portfolio will be to obtain the most favorable
net results, taking into account such factors as price, commission, size of
order, difficulty of execution and skill required of the broker/dealer.
Brokerage commissions are fixed under the rules of the TSE.
REQUIRED VOTE
Approval of the proposed amendment to the Management Contract to reduce
advisory fees payable thereunder 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 Management
Contract and advisory fee calculation if this proposal is
11
<PAGE> 16
not approved by the stockholders, or if any other condition to the
implementation of the reduced advisory fee is not satisfied.
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE "FOR" APPROVAL OF THE REDUCTION
OF ADVISORY FEES.
(4) APPROVAL OF AN AMENDMENT TO THE FUND'S
INVESTMENT LIMITATIONS TO PERMIT THE
FUND TO INVEST IN STOCKS TRADED IN
THE OVER-THE-COUNTER MARKET IN TAIWAN
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 invest in stocks traded
in the over-the-counter market in Taiwan (the "OTC Market") rather than only
Taiwan Stock Exchange ("TSE") listed stocks or equity securities which will be
listed on the TSE immediately following the offering of such securities. At the
Annual Meeting of Stockholders of the Fund as adjourned and held on April 22,
1997, the stockholders of the Fund approved 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 TSE immediately following such offerings. The Fund's current investment
limitations, however, prevent the Fund from investing in stocks traded in the
OTC Market. This change is being recommended to permit the Fund to acquire
securities in the growing OTC Market and thus provide the Fund more flexibility
to take advantage of investment opportunities in Taiwan.
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 SEC after stockholder
approval. If the proposed change is not approved by the ROC SEC after
stockholder approval, it will not become effective. In addition, the Fund's
investment limitations are set forth in the Management Contract and the By-Laws
of the Fund (the "By-Laws"). Accordingly, an amendment to the Fund's investment
limitations necessitates an amendment to those documents as well and, if
adopted, this Proposal (4) will authorize identical amendments to the investment
limitations set forth in the Management Contract and the By-Laws.
The text (as stated in the Fund's Statement of Additional Information, the
Management Contract and the By-Laws) of the Fund's investment limitation
limiting its ability to purchase securities to TSE listed securities or equity
securities which will be listed on the TSE immediately following the offering of
such securities is set forth in Exhibit A to this Proxy Statement. It is
proposed that such text of the Fund's Statement of Additional Information,
Management Contract and By-Laws be amended as set forth in Exhibit A so
12
<PAGE> 17
as to permit the fund to invest in stocks traded in the OTC Market. 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 Taiwan. Furthermore, the
Board of Directors intends to limit the Fund's investment in stocks traded in
the OTC Market by adopting a non-fundamental operating policy to this effect.
As discussed above, the primary reason for the proposed change in the
Fund's investment limitation is to expand the range of 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 or will be listed on the TSE, and thus the Fund has not been
permitted to purchase securities traded in the OTC Market. The Fund's management
believes that the existing investment limitation has placed the Fund at a
disadvantage compared to other investors particularly in light of the growth of
the OTC Market.
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.
THE OVER-THE-COUNTER MARKET IN TAIWAN
The OTC Market was established in Taiwan in 1982 on the initiative of the
ROC SEC. The OTC Market has grown dramatically in recent years. At September 30,
1997, the total market capitalization of the OTC Market was approximately NT$1
trillion, increasing from approximately NT$300 billion in January 1996. The OTC
Market represented approximately 10% of the total market capitalization of the
TSE at September 30, 1997. Monthly turnover in the OTC Market has increased from
less than NT$25 billion in January 1996 to approximately NT$350 billion in July
1997.
The number of registered companies in the OTC Market has grown from 48 in
January 1996 to 101 at September 30, 1997. At November 30, 1997, there were 796
brokers in the OTC Market of which 164 were able to trade for their own account.
Active traders include trust and investment companies and bills finance
companies. The ROC SEC has promulgated regulations designed to encourage trading
of unlisted equity and debt securities of companies whose securities are not
qualified for listing on the TSE. To become a quotable security, the issuer must
meet certain requirements, including having a paid-in capital of at least NT$50
million. In addition, the security must be recommended by two members of the
Taipei Securities Dealers Association, each of which must be qualified as both
an
13
<PAGE> 18
underwriter and trader, who will serve as market makers. The OTC Market has been
computerized in conjunction with this expansion.
RISKS OF INVESTING IN STOCKS TRADED IN THE OVER-THE-COUNTER MARKET IN TAIWAN
Investments in stocks traded in the OTC Market involve greater risks than
are customarily associated with investing in companies that are listed on an
exchange. The market price for the stock may be highly volatile depending on a
number of factors. Many companies trading stocks in the OTC Market have limited
operating and financial histories. Many companies whose securities are offered
through the OTC Market may be smaller, newer and less seasoned than companies
whose securities have been trading for some time on the TSE. The risks and
complications frequently encountered in connection with a development stage
business are often greater than those encountered with more seasoned companies.
Such risks include the fact that securities in small or emerging growth
companies may be subject to more abrupt or erratic market movements than larger,
more established companies or the market average in general. Also, these
companies may have limited product lines, markets or financial resources, or
they may be dependent on a limited management group.
REQUIRED VOTE
Approval of the proposed amendment will require the affirmative vote of a
majority of the Fund's outstanding shares of common stock. As defined in the
1940 Act, a "majority of outstanding shares" means the lesser of 67% of the
voting securities present at the Annual Meeting of Stockholders, if a quorum is
present, or 50% of the outstanding securities. For this purpose, both
abstentions and broker non-votes will have the effect of a vote to disapprove
the proposed amendment. The Fund will continue under its current investment
limitations if this proposal is not approved by the stockholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE AMENDMENT TO THE
FUND'S INVESTMENT LIMITATIONS TO PERMIT THE FUND TO INVEST IN STOCKS TRADED IN
THE OVER-THE-COUNTER MARKET IN TAIWAN.
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 Shareholder Communications Corporation
14
<PAGE> 19
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 1999 must be
received by the Fund at 225 Franklin Street, Boston, Massachusetts 02110 not
later than September 15, 1998.
By order of the Board of Directors,
Gloria Wang
Secretary
225 Franklin Street
Boston, Massachusetts 02110
January 13, 1998
15
<PAGE> 20
EXHIBIT A
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, 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..."
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 (i) listed and traded on the TSE, (ii)
purchased in initial public offerings and secondary public offerings but
only if such securities will be listed on the TSE immediately following
such offering, or (iii) traded in the over-the-counter market in Taiwan..."
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, 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..."
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 (i) listed and traded on the Taiwan Stock Exchange, (ii)
purchased in initial public offerings and secondary public offerings but
only if such securities will be listed on the Taiwan Stock Exchange
immediately following such offering, or (iii) traded in the over-the-
counter market in Taiwan..."
A-1
<PAGE> 21
BY-LAWS
Currently, the Fund's investment limitations as set forth in the 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, 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..."
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 (i) listed and traded on the Taiwan
Stock Exchange, (ii) purchased in initial public offerings and secondary
public offerings but only if such securities will be listed on the Taiwan
Stock Exchange immediately following such offering, or (iii) traded in the
over-the-counter market in Taiwan..."
A-2
<PAGE> 22
PROXY CARD
THE TAIWAN FUND, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS -- FEBRUARY 13, 1998
The undersigned hereby appoints Lawrence F. Weber, 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 Friday, February 13, 1998 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 13, 1998.
UNLESS OTHERWISE SPECIFIED IN THE BOXES PROVIDED, THE UNDERSIGNED'S VOTE
WILL BE CAST FOR ITEMS (1), (2), (3) AND (4).
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.
<TABLE>
<S> <C>
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
- --------------------------------------------------------------- ---------------------------------------------------------------
- --------------------------------------------------------------- ---------------------------------------------------------------
- --------------------------------------------------------------- ---------------------------------------------------------------
</TABLE>
FRONT OF PROXY CARD
<PAGE> 23
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE
<TABLE>
<S> <C> <C>
1. The election of directors:
[ ] FOR [ ] WITHHOLD
<CAPTION>
1.
<S> <C>
[ ] FOR ALL EXCEPT
Nominees: Benny T. Hu David Dean Joe O. Rogers
Jack C. Tang Shao-Yu Wang Lawrence F. Weber
</TABLE>
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK THE
"FOR ALL EXCEPT" BOX AND STRIKE A LINE THROUGH THAT NOMINEE'S NAME
IN THE LIST ABOVE.
2. Ratification of the selection of Coopers & Lybrand L.L.P. as independent
certified public accountants:
<TABLE>
<S> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
3. Approval of an amendment to the Fund's Securities Investment
Trust -- Investment Management and Custodian Contract dated December 16,
1986, as amended (the "Management Contract") among the Fund, China Securities
Investment Trust Corporation (the "Adviser") and the International Commercial
Bank of China, to reduce, in the manner described in the accompanying Proxy
Statement, the advisory fees payable thereunder.
<TABLE>
<S> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
4. Approval of an amendment to the Fund's investment limitations to permit the
Fund to invest in stocks traded in the over-the-counter market in Taiwan,
rather than only Taiwan Stock Exchange ("TSE") listed stocks or equity
securities which will be listed on the TSE immediately following the offering
of such securities and, in connection therewith, corresponding amendments to
the Management Contract and By-Laws of the Fund:
<TABLE>
<S> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
5. In their discretion on any other business which may properly come before the
meeting or at any adjournments thereof.
Mark box at right if an address
change or comment has been noted on
the reverse side of this card. [ ]
Please be sure to sign and date this
Proxy.
Date:
------------------------------------
------------------------------------
Signature of Stockholder
------------------------------------
Signature of Joint Owner, if any
RECORD DATE SHARES:
BACK OF CARD
