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<SEC-DOCUMENT>0000950123-01-504064.txt : 20010703
<SEC-HEADER>0000950123-01-504064.hdr.sgml : 20010703
ACCESSION NUMBER:		0000950123-01-504064
CONFORMED SUBMISSION TYPE:	PRES14A
PUBLIC DOCUMENT COUNT:		1
CONFORMED PERIOD OF REPORT:	20010822
FILED AS OF DATE:		20010702

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			TAIWAN FUND INC
		CENTRAL INDEX KEY:			0000804123
		STANDARD INDUSTRIAL CLASSIFICATION:	UNKNOWN SIC - 0000 [0000]
		IRS NUMBER:				042942862
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		PRES14A
		SEC ACT:		
		SEC FILE NUMBER:	811-04893
		FILM NUMBER:		1673968

	BUSINESS ADDRESS:	
		STREET 1:		225 FRANKLIN STREET
		CITY:			BOSTON
		STATE:			MA
		ZIP:			02110
		BUSINESS PHONE:		6176622789

	MAIL ADDRESS:	
		STREET 1:		225 FRANKLIN STREET
		STREET 2:		PO BOX 9110
		CITY:			BOSTON
		STATE:			MA
		ZIP:			02110
</SEC-HEADER>
<DOCUMENT>
<TYPE>PRES14A
<SEQUENCE>1
<FILENAME>y51079pres14a.txt
<DESCRIPTION>THE TAIWAN FUND, INC.
<TEXT>

<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:

/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.


                              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
       For questions about the Proxy Statement, please call [            ]

                                                                 July [__], 2001

Dear Stockholder:


         Enclosed you will find a Notice and Proxy Statement for the Special
Meeting of Stockholders of The Taiwan Fund, Inc. (the "Fund") to be held on
Wednesday, August 22, 2001.


         The matters on which you, as a stockholder of the Fund, are being asked
to vote are: (i) the approval of a new Securities Investment Trust -- Investment
Management and Custodian Contract (the "Management Contract") among the Fund,
China Securities Investment Trust Corporation ("CSITC") and the Fund's
custodian, pursuant to which CSITC will continue to serve as the investment
advisor with respect to the assets of the Fund and (ii) the approval of a new
U.S. Asset Advisory Agreement between the Fund and CSITC (the "U.S. Asset
Advisory Agreement") pursuant to which CSITC will continue to serve as the
investment advisor with respect to the assets of the Fund held in the United
States. After reviewing each matter carefully, the Board of Directors recommends
that you vote FOR the proposals.


         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.

         Thank you very much for your assistance.

                                                        Sincerely,


                                                        Benny T. Hu
                                                        President
<PAGE>   3
                              THE TAIWAN FUND, INC.

                    NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
                                 AUGUST 22, 2001

To the Stockholders of THE TAIWAN FUND, INC.:

         NOTICE IS HEREBY GIVEN that the Special Meeting of Stockholders of The
Taiwan Fund, Inc. (the "Fund") will be held at the offices of Clifford Chance
Rogers & Wells LLP, 200 Park Avenue, 52nd Floor, New York, New York 10166, on
Wednesday, August 22, 2001 at 11:00 A.M., New York time, for the following
purpose:

         (1)      To approve the new Management Contract between the Fund and
                  CSITC.

         (2)      To approve the new U.S. Asset Advisory Agreement between the
                  Fund and CSITC.

         (3)      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 July 13, 2001
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,

                                        Haichi Vicki Hau
                                        Secretary

July [_], 2001
<PAGE>   4
                              THE TAIWAN FUND, INC.
                               225 Franklin Street
                           Boston, Massachusetts 02110

                               QUESTIONS & ANSWERS

WE RECOMMEND THAT YOU READ ALL OF THIS PROXY STATEMENT. FOR YOUR CONVENIENCE, WE
HAVE PROVIDED A BRIEF OVERVIEW OF THE ISSUES TO BE VOTED UPON AT THE SPECIAL
MEETING OF SHAREHOLDERS.

Q:       WHAT IS HAPPENING?

A:       On May 16, 2001, China Development Industrial Bank ("CDIB") entered
         into an agreement with HSBC Asset Management (Europe) Limited ("HSBC
         Asset Management") to sell its controlling interest in China Securities
         Investment Trust Corporation ("CSITC") to HSBC Asset Management. CSITC
         is the investment advisor for the Taiwan Fund, Inc. (the "Fund"). The
         closing of the sale by CDIB of its interest in CSITC is scheduled to
         take place in September 2001, subject to the receipt of necessary
         regulatory approvals. This transfer of interest will automatically
         terminate the Fund's existing advisory contracts with CSITC. The reason
         that the advisory contracts will terminate is because Section 15(a) of
         the Investment Company Act of 1940 (the "Investment Company Act")
         requires that any assignment of an advisory contract automatically
         results in its termination, and the sale of a controlling interest in
         CSITC is deemed by the Securities and Exchange Commission (the "SEC")
         to be an assignment. We are convening a Special Meeting of Shareholders
         to give the Fund's shareholders the opportunity to approve new advisory
         contracts for the Fund.


Q:       WHY AM I BEING ASKED TO VOTE?

A:       The Investment Company Act, which regulates investment companies in the
         United States such as the Fund, requires a shareholder vote to approve
         a new investment advisory contract whenever there is a change in
         control of a fund's investment advisor.


Q:       HOW WILL THE NEW AGREEMENT AFFECT MY SHARES?

A:       The Fund and its investment objectives will remain the same. CSITC's
         fee structure, and underlying expenses will not change as a result of
         the transfer of controlling interest by CDIB to HSBC Asset Management.
         The primary consequence of the transaction is that CSITC will become a
         subsidiary of HSBC Asset Management. The new investment advisory
         contracts between the Fund and CSITC would be virtually identical to
         the old advisory contracts and call for CSITC to operate as it has done
         in the past. You will continue to receive the same level of services
         that you have come to expect over the years.


Q:       WILL THE INVESTMENT ADVISORY FEES BE THE SAME?

A:       Yes, the investment advisory fees paid by the Fund to CSITC will remain
         the same.


Q:       WILL MY VOTE MAKE A DIFFERENCE?

A:       Yes, your vote is needed to ensure that the new advisory contracts are
         approved. It is important that as many shareholders as possible be
         represented in the voting process.
<PAGE>   5
Q:       HOW DOES THE BOARD SUGGEST THAT I VOTE?

A:       The Board of Directors for the Fund recommends that you vote "FOR" the
         proposed new advisory contracts between the Fund and CSITC.


Q:       WHO IS PAYING FOR EXPENSES RELATED TO THE SPECIAL MEETING OF
         SHAREHOLDERS?

A:       All costs of the proxy solicitation and the Special Meeting of
         Shareholders will be paid by CSITC. None of the costs associated with
         the transaction or this shareholder vote will be borne by the Fund.


Q:       WHO DO I CALL IF I HAVE QUESTIONS?

A:       We will be happy to answer your questions about the proxy solicitation.
         Please call us at [___________].


Q:       WHERE DO I MAIL MY PROXY CARD?

A:       You may mail your proxy card using the enclosed postage paid envelope.
<PAGE>   6
                                 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 Special Meeting of Stockholders (the "Meeting"), to be held at the
offices of Clifford Chance Rogers & Wells LLP, 200 Park Avenue, 52nd Floor, New
York, New York 10166, on Wednesday, August 22, 2001 at 11:00 A.M., New York
time, and at any adjournments thereof to consider and act upon proposals to
approve new advisory contracts between the Fund and China Securities Investment
Trust Corporation ("CSITC") pursuant to which CSITC will continue to serve as
the investment advisor with respect to the assets of the Fund.

         The approximate date on which this Proxy Statement and the form of
proxy will be mailed to stockholders is July [__], 2001. 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 July 13, 2001
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.

         The required majority for approval of each of the new advisory
contracts is the lesser of:

         (1)      67% of the outstanding shares of the Fund present at the
                  Meeting; or

         (2)      More than 50% of the outstanding shares of the Fund.

         Management of the Fund knows of no business other than that mentioned
in Proposals (1) and (2) 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, 2000 and a copy of its semi-annual report for
the six-month period ended February 28, 2001 to any stockholder requesting such
reports. Requests for these reports should be made by writing to The Taiwan
Fund, Inc., 225 Franklin Street, Boston, Massachusetts 02110, attention: Ann
Casey, or by calling 1-800-636-9242.



                                       1
<PAGE>   7
                     BACKGROUND AND TRANSFER OF INTEREST IN
                  CHINA SECURITIES INVESTMENT TRUST CORPORATION
                      BY CHINA DEVELOPMENT INDUSTRIAL BANK

         China Securities Investment Trust Corporation ("CSITC"), incorporated
in Taipei, Taiwan in 1986 and registered as an investment adviser under the
Investment Advisers Act of 1940, currently serves as the investment advisor to
the Fund. China Development Industrial Bank ("CDIB") currently holds a
controlling interest in CSITC. On May 16, 2001, CDIB entered into an agreement
to sell its 52.87% interest in CSITC to HSBC Asset Management Europe (Limited)
("HSBC Asset Management"), subject to the receipt of necessary regulatory
approvals. It is also expected that, following this sale, all or most of the
remaining 47.13% interest in CSITC (12.71% of which is held by Merrill Lynch and
the remainder of which is held by a number of shareholders, including individual
employees of CSITC), will also be sold eventually to HSBC Asset Management. The
closing for this sale is expected to take place in September 2001 (the "Closing
Date").

         This sale of a controlling interest in CSITC will be deemed by the
Securities and Exchange Commission (the "SEC") to be an assignment of the
Securities Investment Trust -- Investment Management and Custodian Contract and
the U.S. Asset Advisory Agreement each between CSITC and the Fund, and each
dated as of December 16, 1986 (together and as subsequently amended, the "Prior
Agreements"). Due to this assignment, the Prior Agreements will automatically
terminate on the Closing Date. The Prior Agreements originally became effective
on December 16, 1986 in connection with the establishment of the Fund and were
last approved by the Fund's shareholders on February 8, 1995. The original
Securities Investment Trust - Investment Management and Custodian Agreement has
been amended twice, once in June 1997 and later in February 1998, and both of
these amendments were approved by the Fund's shareholders.

         On June 13, 2001, the Board of Directors of the Fund (the "Board")
approved the new advisory agreements for the Fund which are being submitted for
shareholder approval at this stockholders meeting. The Board also approved
temporary advisory agreements (the "Interim Agreements") which will become
effective on the Closing Date if the new advisory agreements have not been
approved by the Fund's stockholders by that date. If the Interim Agreements do
become effective, they will terminate automatically on the 150th day following
the Closing Date. The purpose of the Interim Agreements is to allow additional
time for shareholders to vote on the new advisory contracts.

                  INFORMATION CONCERNING HSBC ASSET MANAGEMENT

         HSBC Asset Management is a wholly-owned subsidiary of HSBC Holdings
plc, one of the largest banks and financial services companies in the world with
assets of US$674 billion as of December 31, 2000. HSBC Asset Management is one
of the leading global asset management companies in the world. As of March 31,
2001 HSBC Asset Management had US$133.6 billion of assets assets under
management globally, including US$14.6 billion in the Asia Pacific region. HSBC
Asset Management has over 1,300 employees and maintains offices in ten different
locations in key financial centers around the world. The principal address of
HSBC Asset Management is 6 Bevis Marks, London, England EC3A 7JQ.


               SECTION 15(F) OF THE INVESTMENT COMPANY ACT OF 1940

         The sale by CDIB of its interest in CSITC is subject to Section 15(f)
of the Investment Company Act. Section 15(f) provides in substance that, when a
sale of a controlling interest in an investment advisor, which manages an
investment company registered under the, occurs, the investment advisor or any
of its affiliated persons, as defined in the Investment Company Act, may receive
any amount or benefit in connection with the sale as long as two conditions are
satisfied.

                                       2
<PAGE>   8
         First, an "unfair burden" must not be imposed on the investment company
as a result of the transaction relating to the sale of such interest, or any
express or implied terms, conditions or understandings applicable to the sale.
The term "unfair burden" (as defined in the Investment Company Act) includes any
arrangement during the two-year period after the transaction whereby the
investment advisor (or predecessor or successor advisor), or any "interested
person" (as defined in the Investment Company Act) of any such advisor, receives
or is entitled to receive any compensation, directly or indirectly, from the
investment company or its security holders (other than fees for bona fide
investment advisory or other services) or from any person in connection with the
purchase or sale of securities or other property to, from or on behalf of the
investment company. The Board is not aware of any circumstances arising from the
sale that might result in an unfair burden being imposed on the Fund. CSITC and
HSBC Asset Management have represented to the Board that no unfair burden will
be placed on the Fund as a result of the acquisition.

         The second condition of Section 15(f) is that during the three-year
period following the completion of a sale transaction, at least 75% of the
investment company's directors must not be "interested persons" (as defined in
the Investment Company Act) of the investment advisor or predecessor advisor or
its affiliates. The Fund's current Board complies with this requirement and the
Fund intends to maintain a Board similarly comprised for at least the three
years required by Section 15(f).


                             THE INTERIM AGREEMENTS

         Pursuant to Section 15(a)(4) of the Investment Company Act, upon the
consummation of the sale by CDIB on the Closing Date, the Prior Agreements will
be immediately terminated. If, as of the Closing Date, shareholders of the Fund
have not yet approved new advisory contracts for the Fund, the Interim
Agreements authorized by the Board pursuant to Rule 15a-4 under the Investment
Company Act on June 13, 2001 will take effect and will continue to operate for
up to 150 days following the Closing Date. The Interim Agreements operate
exactly as the Prior Agreements did with the following exception: all
compensation earned by CSITC during the term of the Agreement will be held in an
interest-bearing escrow account with the Fund's custodian or a bank. If the new
advisory contracts are approved by a majority of the Fund's shares (see below)
then the entire amount in the escrow account, including the earned interest,
will be paid to CSITC. If, however, the new advisory contracts are not approved
a majority of the Fund's shares, then CSITC will be paid out of the escrow
account the lesser of (i) any costs incurred by CSITC in performing under the
Interim Agreements (plus interest earned on that amount while in escrow), or
(ii) the entire amount in the escrow account (including interest earned). In
addition, the Interim Agreements provide that they may be terminated at any
time, without penalty, by either the Fund's Board of Directors or a majority of
the Fund's outstanding voting securities on not more than 10 days' written
notice to CSITC.


              THE NEW MANAGEMENT AND U.S. ASSET ADVISORY AGREEMENTS

         On June 13, 2001 the Board, and all of the Independent Directors, voted
to approve and recommend to shareholders a new Investment Management and
Custodian Contract (the "Management Contract") and a new U.S. Asset Advisory
Agreement (the "U.S. Asset Advisory Agreement" and together with the Management
Contract, the "New Agreements") which will, if approved by the Fund's
shareholders, replace the Prior Agreements (and the Interim Agreements if they
became effective as described below). Shareholders will vote on the New
Agreements at the Special Meeting of Shareholders. The New Agreements are in
substance identical to the Prior Agreements except for the effective date. The
fees will likewise remain unchanged. Under the Prior Agreements, CSITC is
entitled to receive from the Fund an annual fee equal to 1.30% of the value of
the average daily assets of the Fund, subject to a performance adjustment of up
to a maximum of plus or minus 0.30%. The performance adjustment is calculated
based on a rolling 36-month performance period. Under both the New Agreements
and the Interim Agreements, the performance adjustment will continue to be
calculated as if these agreements were extensions of the Prior Agreements,
rather than new advisory


                                       3
<PAGE>   9
agreements, and thus the existing 36-month rolling performance period
will continue uninterrupted. This is being done in order to avoid a termination
of the existing 36-month rolling performance period which would occur if new
performance periods were commenced under the New Agreements and the Interim
Agreements. Such a termination could result in the Fund paying a greater or
lesser aggregate fee to CSITC than would be the case if the Prior Agreements
were not terminated. The Board believes that this approach is appropriate and
most fair to the Fund's shareholders since it will result in the Fund paying
exactly the same level of advisory fees as it would if the Prior Agreements were
not terminated.

         Under the New Agreements, CSITC will continue to provide the same
investment advisory services to the Fund that it provided under the Prior
Agreements, including deciding what securities will be purchased and sold by the
Fund, when purchases and sales are to be made, and arranging for such purchases
and sales, all in accordance with the provisions of the Investment Company Act
and any rules thereunder, the governing documents of Fund and any policies and
determinations of the Board.

         As compensation for its services to the Fund under the New Agreements,
CSITC will be entitled to receive from the Fund fees calculated at the same rate
as those charged under the Prior Agreements, as described above. If approved by
shareholders, the New Agreements will become effective either immediately (if
the Interim Agreements have become effective) or on the Closing Date (if they
have not), and will remain in effect for an initial term of two years and shall
continue thereafter provided their continuance is specifically approved by:

         1.       A majority vote of the Board, cast in person at a meeting
                  called for that purpose; or

         2.       A vote of the holders of a majority of the outstanding voting
                  securities of the Fund; and

         3.       In either event, by a majority of the Board who are not
                  parties to the New Agreements or interested persons of the
                  Board or of any such party ("Independent Directors").

         The New Agreements provide that they may be terminated at any time,
without penalty, by either party upon 60 days' written notice, provided that
termination by the Fund shall be directed or approved by a vote of the Board or
by a vote of holders of a majority of the shares of the Fund.

         Forms of the Management Contract and the U.S. Asset Advisory Agreement
are attached hereto as Appendices A and B respectively.


                            THE BOARD'S CONSIDERATION

         On June 13, 2001, the Board, including all of the Independent
Directors, met and unanimously voted (i) to approve the New Agreements and
recommend them to shareholders, and (ii) to approve the Interim Agreements
(which do not require shareholder approval). In an effort to maximize continuity
in the management of the Fund, the Board in approving and recommending the New
Agreements and approving the Interim Agreements decided to maintain the same
management relationship with CSITC. The Board expressed its desire that the Fund
continue to be managed by the current portfolio management team, based on the
Fund's performance record and CSITC's highly regarded investment capability in
Taiwan. The Board also determined that the current fee level is appropriate and
fair to the Fund.

         The Board recommends that the shareholders vote "FOR" the proposals to
approve the Management Contract and the U.S. Asset Advisory Agreement between
the Fund and CSITC.


                                       4
<PAGE>   10
BOARD OF DIRECTORS

         The following table presents information concerning the current Board
of Directors. The information includes their positions and principal occupations
during the last five years. Each director who is an "interested person" of the
Fund (within the meaning of Section 2(a)(19) of the Investment Company Act) is
indicated by an asterisk ("*") preceding his name.



<TABLE>
<CAPTION>
                                                                                               SHARES
                                     PRESENT OFFICE WITH THE FUND, PRINCIPAL                BENEFICIALLY
                                      OCCUPATION OR EMPLOYMENT DURING PAST                      OWNED       PERCENT
    NAME AND ADDRESS                     FIVE YEARS AND DIRECTORSHIPS IN         DIRECTOR     JULY 13,        OF
    OF NOMINEE (AGE)                         PUBLICLY-HELD COMPANIES              SINCE        2001(1)       CLASS
    ----------------                         -----------------------              -----        -------       -----
<S>                               <C>                                            <C>        <C>             <C>
Shao-Yu Wang (77)                 Chairman of the Board of Trustees, Soochow       1986         None           --
Apt. 5H                           University (1987-present); Chairman of the
No. 56 Tun Hwa South Road,        Board of Trustees, Min Chuan University,
Section 2nd                       (1986-present); Chairman of the Board of
Taipei, Taiwan, ROC               Trustees, Fu-Dan High School (1986-present);
                                  Chairman, China American Petrochemical Co.,
                                  Ltd. (1997-2000); Executive Director, China
                                  American Petrochemical Co., Ltd.
                                  (1976-present).

*Benny T. Hu (52)                 President, China Development Industrial Bank     1993         None           --
125 Nanking E. Road               (1993-2001); Ambassador-at-Large, Republic
Section 5                         of China (May 2001-present); Chairman, Far
Taipei, Taiwan, ROC               Eastern Air Transport Corp. (1995-present);
                                  Chairman, China Securities Investment Trust
                                  Corporation (1992-1993); President, China
                                  Securities Investment Trust Corporation
                                  (1986-1992); Director, China Steel
                                  Corporation (1993-present).

David Dean (75)                   Senior Advisor of the Chiang-Ching-Kuo           1991          540           +
8361 B. Greensboro Drive          Foundation (1990-present).
McLean, Virginia 22102

Lawrence J. Lau (56)              Kwoh-Ting Li Professor of Economic               1998         None           --
Stanford University               Development, Stanford University
Landau Economics                  (1992-present); Director, Stanford Institute
Building, Room 340                for Economic Policy Research at Stanford
579 Serra Mall                    University (1997-1999).
Stanford, CA 94305-6072

Joe O. Rogers (52)                Vice President, Business Development,            1986         2,000          +
2477 Foxwood Drive                PlanetPortal.com (September 1999-present);
Chapel Hill, NC 27514             President, Rogers International, Inc.
                                  (1986-present); Director, The China Fund,
                                  Inc. (1992-present); Vice President,
                                  Business Development, Thomson Consulting
                                  (1998-1999); Partner, PHH Fantus Consulting
                                  (1993-1996); Vice President, PHH Asia
                                  Corporation (1993-1996).
</TABLE>


                                       5
<PAGE>   11
<TABLE>
<CAPTION>
                                                                                               SHARES
                                     PRESENT OFFICE WITH THE FUND, PRINCIPAL                BENEFICIALLY
                                      OCCUPATION OR EMPLOYMENT DURING PAST                      OWNED       PERCENT
    NAME AND ADDRESS                     FIVE YEARS AND DIRECTORSHIPS IN         DIRECTOR     JULY 13,        OF
    OF NOMINEE (AGE)                         PUBLICLY-HELD COMPANIES              SINCE        2001(1)       CLASS
    ----------------                         -----------------------              -----        -------       -----
<S>                               <C>                                            <C>        <C>             <C>
Jack C. Tang (73)                 Co-Chairman (May 1999-present), Chairman &       1989         None           --
5737 Baja Way                     CEO (June 1998-May 1999), Chairman Emeritus
La Jolla, CA 92037                (January 1997-June 1998), Chairman & CEO
                                  (1987-December 1996), Tristate Holdings
                                  Ltd.; Director, Mid Pacific Air Corporation
                                  (1986-present); Director (1991-1999),
                                  Pacific Rim Investments Ltd.

*Gloria Wang (46)                 Secretary and Treasurer of the Fund              1998         None           --
99 Tunhwa South                   (1994-October 1998); Executive Vice
Road, Section 2                   President, China Securities Investment Trust
Taipei, Taiwan, ROC               Corporation (1996-present).

Lawrence F. Weber (68)            Independent Consultant (1993-present).           1995         None           --
156 Ide Rd.
Williamstown, MA 01267
</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 the Fund or of the Fund's investment
         advisor. Mr. Hu is deemed to be an interested person because of his
         affiliation with China Development Industrial Bank, the principal
         shareholder of the Fund's investment advisor, China Securities
         Investment Trust Corporation (99 Tunhwa S. Road, Section 2, 24th Floor,
         Taipei, Taiwan ROC). Ms. Wang is deemed to be an interested person
         because of her affiliation with the Fund's investment advisor.


         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 and Wang.

         The Fund's Board of Directors has an Audit Committee which is
responsible for reviewing financial and accounting matters. The Fund's Audit
Committee is composed of directors who are not interested persons of the Fund
and its actions are governed by the Fund's Audit Committee Charter. The current
members of the Audit Committee are Messrs. Dean, Lau, Rogers, Tang, Wang and
Weber. The Audit Committee convened four times during the fiscal year ended
August 31, 2000.

         The Board of Directors of the Fund held two regular meetings and one
special meeting during the fiscal year ended August 31, 2000. Mr. Hu attended
fewer than 75% of the aggregate number of Board meetings.

         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 52), a director of the Fund, has served as
President of the Fund since 1986.

                                       6
<PAGE>   12
         Ms. Haichi Vicki Hau (age 38), Secretary and Treasurer of the Fund
since October 1998, also serves as a Senior Analyst of CSITC.

         Both Mr. Hu and Ms. Hau are considered to be "interested persons" (as
defined in the Investment Company Act) of the Fund and CSITC.

TRANSACTIONS WITH AND REMUNERATION OF OFFICERS AND DIRECTORS

         The aggregate remuneration, including expenses relating to attendance
at board meetings reimbursed by the Fund, paid in cash to directors not
affiliated with CSITC was US$154,188 during the fiscal year ended August 31,
2000. The Fund currently pays each director that is not affiliated with CSITC an
annual fee of US$10,000 plus US$1,000 for each directors' meeting and committee
meeting attended.

         CSITC pays the compensation and certain expenses of Ms. Gloria Wang, a
director of the Fund, and of Ms. Haichi Vicki Hau, an employee of CSITC who
serves as Secretary and Treasurer of the Fund. Ms. Wang and Ms. Hau may
participate in the advisory fees paid by the Fund to CSITC, although the Fund
makes no direct payments to either of them.

         Mr. Lawrence J. Lau serves as a consultant to CSITC and receives a
monthly fee of approximately US$2,500 for his consulting services. Mr. Lau's
status as a consultant to CSITC does not render him an "interested person" of
the Fund or CSITC under the Investment Company Act.

         The following table sets forth the aggregate compensation from the Fund
paid to each director during the fiscal year ended August 31, 2000. CSITC 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>
Shao-Yu Wang...............................................................................           $17,000
Benny T. Hu*...............................................................................                --
David Dean.................................................................................           $17,000
Lawrence J. Lau............................................................................           $17,000
Joe O. Rogers..............................................................................           $17,000
Jack C. Tang...............................................................................           $16,000
Lawrence Weber.............................................................................           $17,000
Gloria Wang*...............................................................................                --
</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 Ms. Wang, who are affiliated with CSITC and are therefore
         "interested persons" of the Fund, do not receive any compensation from
         the Fund for their service as directors.



THE INVESTMENT ADVISOR

         CSITC, the Fund's investment advisor, was incorporated in Taipei,
Taiwan in 1986 and is registered as an investment advisor under the Investment
Advisers Act of 1940. CSITC's principal address is 99 Tunhwa South Road, Section
2, Taipei, Taiwan ROC.

         The following table contains information concerning the principal
executive officers and directors of CSITC. The address of each, as it relates to
his duties at CSITC, is the same as that of CSITC (unless otherwise indicated):

                                       7
<PAGE>   13
<TABLE>
<CAPTION>
                                                                         POSITION WITH CSITC AND
                    NAME                                                   PRINCIPAL OCCUPATION
                    ----                                                   --------------------
<S>                                                     <C>
       I-Ming Lin                                       Chairman and Director of CSITC

       Albert King                                      President and Director of CSITC

       Gloria Wang                                      Executive Vice President and Director of CSITC

       Debra Wang                                       Vice President and Director of CSITC

       Hui-ming Cheng                                   Director of CSITC; CFO, Winbond Electronic
       4 Yenshin Road
       Section 3,
       Shinchu Industrial Science Park
       Shinchu, Taiwan, ROC

       Chris Hsu                                        Director of CSITC; Deputy Manager, CDIB
       11th Floor
       125 Nankin E. Road
       Section 5
       Taipei, Taiwan, ROC

       Kathy Young                                      Director of CSITC; Deputy Manager, CDIB
       11th Floor
       125 Nankin E. Road
       Section 5
       Taipei, Taiwan, ROC

       Winnie Wang                                      Director of CSITC; Assistant Manager, CDIB
       11th Floor
       125 Nankin E. Road
       Section 5
       Taipei, Taiwan, ROC

       Shih-yi Huang                                    Director of CSITC; Assistant Manager, CDIB
       11th Floor
       125 Nankin E. Road
       Section 5
       Taipei, Taiwan, ROC

       Jennifer Shao                                    Director of CSITC; Assistant Manager, CDIB
       11th Floor
       125 Nankin E. Road
       Section 5
       Taipei, Taiwan, ROC

       David Kao                                        Director of CSITC; Director, Merrill Lynch Capital Markets
       19th Floor                                       (Taiwan) Ltd.
       207 Tunhwa South Road
       Section 2
       Taipei, Taiwan, ROC

       Wanlop Wthitabha                                 Director of CSITC; General Manager, Bangkok Bank Public
       2nd Floor                                        Co., Ltd.
       121 Sungchain Road
       Taipei, Taiwan, ROC
</TABLE>

                                       8
<PAGE>   14
         CSITC manages five funds with a similar investment objective as the
Fund. CSITC has never waived or reduced compensation for any of these funds and
their details are as follows:


                            ANNUAL ADVISORY FEE RATE

<TABLE>
<CAPTION>
                                                                                         ANNUAL COMPENSATION (AS A
                                                               NET ASSETS AS OF       PERCENTAGE OF THE AVERAGE DAILY
                       NAME OF FUND                            DECEMBER 31, 2000                NET ASSETS)
                       ------------                            -----------------                -----------
<S>                                                            <C>                    <C>
China Securities Investment Trust Fund                             20,279,298                      1.51%
China Growth Securities Investment Fund                            36,165,536                      1.50%
China Success Securities Investment Trust Fund                     32,756,430                      0.70%
China Phoenix Securities Investment Trust Fund                     43,039,773                      1.21%
Taiwan Blue Chips Securities Investment Trust Fund                 26,623,663                      1.53%
</TABLE>

THE ADMINISTRATOR

         The Fund's Administrator is State Street Bank and Trust Company, whose
address is 2 Avenue de Lafayette, Boston, Massachusetts 02111.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

         Set forth below is information with respect to persons who, to the
knowledge of the management of the Fund, owned beneficially more than 5% of the
Fund's outstanding shares as of July 13, 2001. The information is based on
publicly available Schedule 13D and 13G disclosures filed with the Securities
and Exchange Commission.

<TABLE>
<CAPTION>
                                       NAME AND ADDRESS                     AMOUNT AND NATURE OF          PERCENT
     TITLE OR CLASS                   OF BENEFICIAL OWNER                   BENEFICIAL OWNERSHIP         OF CLASS
     --------------                   -------------------                   --------------------         --------
<S>                                 <C>                                <C>                               <C>
Common Stock............            Lazard Freres & Co. LLC                Has sole power to vote          8.82%
                                     30 Rockefeller Plaza              and dispose of 994,300 shares.
                                      New York, NY 10020

Common Stock                                UBS AG                     Has the sole power to vote and      5.5%
                                    Bahnhofstrasse 45 8021               dispose of 893,225 shares.
                                      Zurich, Switzerland
</TABLE>



                                       9
<PAGE>   15
MISCELLANEOUS

         The cost of soliciting the proxies and preparing the proxy materials
will be borne by CSITC. Proxies will be solicited by mail and may be solicited
in person or by telephone by officers of the Fund or personnel of CSITC. The
Fund's brokers, custodians, nominees, and fiduciaries are to forward
solicitation material to the beneficial owners of stock held of record and CSITC
will reimburse them for their reasonable out-of-pocket expenses in forwarding
such solicitation material. In addition, the Fund has retained Georgeson
Shareholder Communications Corporation to assist in the proxy solicitation. The
cost of their services is estimated at US$10,000, plus out-of-pocket expenses.

         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

         In order to submit a stockholder proposal to be considered for
inclusion in the Fund's proxy statement for the Fund's 2002 Annual Meeting of
Stockholders (expected to be held in February 2002), stockholder proposals must
be received by the Fund (addressed to The Taiwan Fund Inc., 225 Franklin Street,
Boston, Massachusetts 02110) not later than August 24, 2001. Any stockholder who
desires to bring a proposal at the Fund's 2002 Annual Meeting of Stockholders
without including such proposal in the Fund's proxy statement, must deliver
written notice thereof to the Secretary of the Fund (addressed to The Taiwan
Fund, Inc., 225 Franklin Street, Boston, Massachusetts 02110), not before
November 8, 2001 and not later than December 8, 2001.

By order of the Board of Directors,
Haichi Vicki Hau
Secretary
225 Franklin Street
Boston, Massachusetts 02110

July [__], 2001




                                       10

<PAGE>   16
                                                                      APPENDIX A


                                                                 English Version


                              THE TAIWAN TRUST FUND

                          SECURITIES INVESTMENT TRUST -

                  INVESTMENT MANAGEMENT AND CUSTODIAN CONTRACT

                              [       ], 2001


                                       A-1
<PAGE>   17
                              THE TAIWAN TRUST FUND

                          SECURITIES INVESTMENT TRUST -

                  INVESTMENT MANAGEMENT AND CUSTODIAN CONTRACT

                                      INDEX
                                      -----
<TABLE>
<CAPTION>
ARTICLE                                                                                                        PAGE
- -------                                                                                                        ----
<S>      <C>                                                                                                   <C>
1.       INTRODUCTION AND POLICY...............................................................................A-3

2.       BASIC OBLIGATIONS AND RIGHTS..........................................................................A-3

3.       ASSETS HELD IN THE TRUST FUND.........................................................................A-5

4.       UNITS.................................................................................................A-6

5.       CALCULATION OF NET ASSET VALUE........................................................................A-7

6.       REDEMPTION OF UNITS...................................................................................A-8

7.       SUSPENSION OF VALUATION, ISSUES, REDEMPTIONS AND PAYMENTS.............................................A-9

8.       EXPENSES..............................................................................................A-9

9.       MANAGEMENT AND CUSTODIAN FEES........................................................................A-10

10.      INVESTMENT OBJECTIVES AND POLICIES AND RESTRICTIONS..................................................A-12

11.      DURATION, CHANGES IN MANAGER AND CUSTODIAN, AND TERMINATION..........................................A-14

12.      ACCOUNTS AND STATEMENTS..............................................................................A-15

13.      DISTRIBUTIONS........................................................................................A-16

14.      CURRENCY.............................................................................................A-16

15.      INFORMATION AND NOTICES..............................................................................A-16

16.      AMENDMENTS...........................................................................................A-17

17.      CONNECTED PERSONS....................................................................................A-17

18.      ATTACHMENT...........................................................................................A-17

19.      GOVERNING LAW, JURISDICTION AND LANGUAGE.............................................................A-17

20.      EFFECTIVE DATE.......................................................................................A-18

EXHIBIT A.....................................................................................................A-19
</TABLE>


                                       A-2
<PAGE>   18
                    SECURITIES INVESTMENT TRUST - INVESTMENT

                        MANAGEMENT AND CUSTODIAN CONTRACT

1.       INTRODUCTION AND POLICY

         1.1 The Taiwan Trust Fund (the "Trust Fund") is a securities investment
trust fund established under the laws of the Republic of China for the exclusive
benefit of The Taiwan Fund, Inc. (the "Unitholder") of 225 Franklin Street,
Boston, Massachusetts on the basis of this Securities Investment Trust -
Investment Management and Custodian Contract (the "Investment Contract") among,
China Securities Investment Trust Corporation ("CSITC" or the "Manager"), of 99
Tunhwa South Rd., Section 2, Taipei, Taiwan, Republic of China, The
International Commercial Bank of China (the "Custodian") of 100 Chilin Road,
Taipei, Taiwan, Republic of China and the Unitholder. This Investment Contract,
together with relevant provisions of the laws and regulations of the Republic of
China, alone shall govern the relationship, which is a contractual relationship
(the Trust Fund is not a separate legal entity) among the Manager, the Custodian
and the Unitholder. This Investment Contract supersedes and replaces the
Securities Investment Trust - Investment Management and Custodian Contract dated
December 16, 1986, as amended (the "Original Investment Contract"), [as well as
the Interim Securities Investment Trust - Investment Management and Custodian
Contract dated ___________, 2001 (the "Interim Investment Contract"), each of]*
which contain[s] substantially the same terms and conditions as this Investment
Contract. This Investment Contract was made necessary by a change in control of
CSITC which automatically terminated the Original Investment Contract on
_________, 2001. [The Interim Investment Contract became effective on ________,
2001 pursuant to Rule 15a-4 under the United States Investment Company Act of
1940, as amended, to permit additional time for the shareholders of the
Unitholder to approve this Investment Contract. Where the context requires,
references to "this Investment Contract" herein include the Original Investment
Contract [and/or the Interim Investment Contract].

         1.2 The investment objective of establishing the Trust Fund is to
achieve for the benefit of the Unitholder capital growth through investment in
securities listed on the Taiwan Stock Exchange, and other debentures, government
bonds and money market instruments.

2.       BASIC OBLIGATIONS AND RIGHTS

         2.1 The obligation and duties of the Manager are as follows:

                  (a) The Manager shall be obligated to manage the investment of
the assets held by the Custodian in the Trust Fund for the exclusive, full
benefit of the Unitholder (including making investment decisions, supervising
the acquisition and disposition of investments, instructing the Custodian with
respect thereto and otherwise with respect to the assets held in the Trust Fund,
and selecting brokers or dealers to carry out portfolio transactions) in good
faith and to the best of its ability and without gaining any advantage for
itself or any of its Connected Persons (as defined in Article 17 below) thereby
except as expressly provided in this Investment Contract, all in accordance with
the Trust Fund's investment objectives and policies and in accordance with
guidelines and directions from the Unitholder's Board of Directors;


- --------
* The bracketed language here and elsewhere will be included only if the Interim
Investment Contract becomes effective.


                                      A-3
<PAGE>   19
                  (b) The Manager shall be obligated to account to the
Unitholder for any loss in value of assets of the Trust Fund where such loss has
been caused by its willful or negligent default, reckless disregard of its
duties hereunder or bad faith;

                  (c) The Manager shall be responsible to the Unitholder for the
acts and omissions of all persons to whom it may delegate any of its functions
as Manager as if they were its own acts and omissions;

                  (d) The Manager shall promptly report to the Securities and
Exchange Commission of the Ministry of Finance of the Republic of China (the
"SEC") and to the Unitholder any matter which, in the opinion of the Manager, is
an actual or anticipated breach by the Custodian of any of the provisions of
this Investment Contract or of any relevant provisions of the laws and
regulations of the Republic of China;

                  (e) The Manager shall, to the extent permitted by the laws of
the Republic of China, take such action to enforce on behalf, and for the
benefit, of the Unitholder the obligations of the Custodian under this
Investment Contract as it shall think fit or as shall from time to time be
required by the SEC or the Unitholder;

                  (f) Notwithstanding and without prejudice to any other
provisions of this Investment Contract, the Manager shall, and shall instruct
all brokers used by the Manager in relation to the sale or purchase of assets
for the account of the Trust Fund to, act in accordance with the best practice
then applicable in the ROC for the settlement of sales and purchases of
securities and other investments;

                  (g) The proper costs incurred by the Manager in enforcing the
obligations of the Custodian shall be borne out of the assets of the Trust Fund.
To the extent that they are not borne by a person other than the Manager, the
Manager shall be entitled to an indemnity out of the assets of the Trust Fund
against all claims (and against all costs and expenses in relation to such
claims) incurred or suffered by it as a result of its acting as the Manager
under this Investment Contract which claims are not attributable to its own
willful or negligent default, reckless disregard of its duties hereunder or bad
faith ("disabling conduct"); provided that the Manager shall not receive any
indemnification out of the assets held in the Trust Fund against any liability
to the Unitholder or its shareholders to which the Manager would otherwise be
subject unless there has been (1) a final decision on the merits by a court or
other body before whom the proceeding alleging liability of the Manager was
brought that the Manager was not liable by reason of disabling conduct, or (2) a
reasonable determination, based upon a review of the facts, that the Manager was
not liable by reason of disabling conduct, by (i) the vote of a majority of a
quorum of the Unitholder's directors who are neither "interested directors" as
defined in the United States Investment Company Act of 1940 nor parties to the
proceeding ("disinterested, non-party directors"), or (ii) an independent legal
counsel in a written opinion; and provided further that, the Manager shall not
receive out of the assets held in the Trust Fund an advance of attorneys' fees
or other expenses incurred by it in defending a proceeding alleging such
liability except upon the undertaking of the Manager to repay the advance unless
it is ultimately determined that it is entitled to indemnification, but only if
at least one of the following is also required as a condition to the advance:
(1) the Manager shall provide a security for its undertaking, (2) the Unitholder
shall be insured against losses arising by reason of any lawful advances, or (3)
a majority of a quorum of the disinterested, non-party directors of the
Unitholder, or an independent legal counsel in a written opinion, shall
determine, based on a review of readily available facts (as opposed to a full
trial-type inquiry), that there is reason to believe that the Manager ultimately
will be found entitled to indemnification; and

                  (h) The Manager shall perform its obligations under this
Investment Contract so as to (i) comply with all laws and regulations of the
Republic of China and of the United States applicable to


                                      A-4
<PAGE>   20
the Manager and the Unitholder, and (ii) permit the Unitholder to qualify as a
regulated investment company under applicable United States tax law.

         2.2 The obligations and duties of the Custodian are as follows:

                  (a) The Custodian shall be responsible absolutely and without
qualification as a fiduciary to the Unitholder for the safekeeping of all assets
held in the Trust Fund for the time being, and of all amounts from time to time
set aside and held for the purpose of distribution to the Unitholder in
accordance with this Investment Contract (see relevant provisions under Article
3 below), and shall indemnify the Unitholder in the event of any loss of such
assets and amounts resulting from a breach of its duties hereunder; such assets
and amounts shall be adequately insured against loss; and the Custodian shall
not be responsible for the willful or negligent default (including non-payment
or failure to deliver securities) by securities brokers or other persons
selected by the Manager and dealt with by the Custodian, unless such default is
contributed to by the Custodian;

                  (b) The Custodian shall comply with the instructions of the
Manager given from time to time on behalf of the Unitholder pursuant to this
Investment Contract in relation to the disposition of the assets held in the
Trust Fund from time to time and the exercise of rights and obligations
attaching thereto except where, in the opinion of the Custodian, to do so would
or might involve a breach of this Investment Contract or of any relevant
provisions of the laws and regulations of the Republic of China;

                  (c) The Custodian shall report to the SEC and the Unitholder
any matter which in the opinion of the Custodian is an actual or anticipated
breach by the Manager of any of the provisions of this Investment Contract or of
any relevant provisions of the laws and regulations of the Republic of China;
and

                  (d) To the extent that they are not borne by a person other
than the Custodian, the Custodian shall be entitled to indemnity out of the
assets held in the Trust Fund against all claims incurred or suffered by it
which are not attributable to its own willful or negligent default, reckless
disregard of its duties hereunder or bad faith.

                  (e) The assets held in the Trust Fund will not be subject to
any right, charge, security interest, lien or claim of any kind in favor of the
Custodian or its creditors; beneficial ownership of the assets held in the Trust
Fund will be freely transferable without payment of money or value to the
Custodian; the Custodian will maintain adequate records identifying the assets
held in the Trust Fund as being held for the benefit of the Unitholder; the
Unitholder's independent public accountants will be given access to such records
during normal business hours upon request; and the Manager (acting on behalf of
the Unitholder) will receive periodic reports from the Custodian with respect to
the safekeeping of the assets held in the Trust Fund, including, but not limited
to, notification of any transfer of assets to or from the Trust Fund.

                  The Custodian shall not be responsible for any investment loss
of assets held in the Trust Fund and shall have no responsibility to the Manager
or the Unitholder other than as provided in Articles 2.2 and 3.5 hereof and as
otherwise expressly set forth in this Investment Contract.

         2.3 The Unitholder shall have the right at all times to enforce against
the Manager the obligations of the Manager and against the Custodian the
obligations of the Custodian under this Investment Contract.

                                      A-5
<PAGE>   21
3.       ASSETS HELD IN THE TRUST FUND

         3.1 All assets held in the Trust Fund shall at all times be held by the
Custodian and, where in registered form, shall be registered in the name of
"Special Account for the Taiwan Trust Fund under the Custody of the
International Commercial Bank of China."

         3.2 The Trust Fund is established for an unspecified period.

         3.3 No offering of the shares of the Unitholder ("Shares") can be made
without prior approval of the SEC. The Unitholder will deliver the proceeds of
any offering (after deduction of offering expenses and amounts not intended to
be held in the Trust Fund) to the Custodian under this Investment Contract. As
evidence of its exclusive interest in the assets held by the Custodian in the
Trust Fund, the Unitholder has been issued Units, and shall receive additional
Units to the extent that the proceeds of any additional offering of its shares
are delivered to the Custodian under this Investment Contract.

         3.4 The provisions of Article 18-2 of the Securities and Exchange Law
of the Republic of China (the "Securities Law") shall apply to the assets held
in the Trust Fund and such assets shall not form part of the assets of the
Custodian or of the Manager. To the extent that legitimate claims made by third
parties against the assets held in the Trust Fund exceed the value of those
assets, the satisfaction of such claims shall be the responsibility of the
Unitholder and not the Manager or Custodian.

         3.5 The Custodian shall not dispose of assets held in the Trust Fund
except:

         (a) in accordance with instructions received by it from the Manager in
relation to:

             (1)  the investment of or realization on assets for the account of
                  the Trust Fund; or

             (2)  the payment or discharge of other amounts of liabilities
                  properly payable or dischargeable out of the assets held in
                  the Trust Fund in accordance with the provisions of this
                  Investment Contract; or

             (3)  the payment of amounts to the Unitholder as distributions of
                  income as provided in this Investment Contract; or

             (4)  the payment of amounts to the Unitholder upon redemption of
                  Units; or

         (b) to the Unitholder on final liquidation of the Trust Fund; or

         (c) as otherwise required by any mandatory provision of law.

4.       UNITS

         4.1 The Manager and the Custodian shall each maintain a record of the
number of Units held from time to time by the Unitholder. A Unit shall not
represent any right in respect of any particular assets but a pro rata
entitlement to all of the net assets held in the Trust Fund, and a contractual
right against the Manager and the Custodian accordingly.

         4.2 A beneficial certificate (the "Certificate") in a form approved by
the Manager and the SEC, and in substantially the form of Exhibit A attached
hereto, has been issued to the Unitholder in respect of all Units acquired by
it. The Certificate has been signed on behalf of the Manager and the


                                      A-6
<PAGE>   22
Custodian and indicates thereon the amount of funds delivered to the Custodian
under this Investment Contract. If any additional Units are issued, a
replacement or additional Certificate shall be issued reflecting such issuance,
and the amount of funds delivered to the Custodian with respect to such
issuance.

         4.3 The issue of Units shall be subject to the prior approval of and to
any conditions imposed by the SEC.

         4.4 Each Unit issued in the initial issue of Units which took place in
December 1986 represented US$1 or its equivalent in NT Dollars delivered to the
Custodian under the Original Investment Contract.

         4.5 Each Unit issued after the initial issue of Units has represented,
and (if additional Units are issued) shall represent, that amount (delivered to
the Custodian hereunder) obtained by dividing (a) the amount equal to the net
asset value (as defined in the following sentence) of the previously outstanding
Units calculated as at the date (or, if that date is not a Valuation Date as
defined in Article 5 below, on the next following Valuation Date) immediately
following the date of receipt by the Manager of the application for issuance of
the Units in question by (b) the number of Units outstanding (including Units
scheduled to be redeemed on that Valuation Date but excluding Units scheduled to
be issued on that Valuation Date). "Net asset value" shall mean the value of the
assets held in the Trust Fund less the liabilities of the Trust Fund (including
such provisions and allowances for contingencies as the Manager may think
appropriate in respect of the costs and expenses payable out of the assets of
the Trust Fund as set forth in Article 8 below), as calculated pursuant to
Article 5.

         4.6 Payment for each Unit shall be made in cash in advance of issue.
Once the relevant amount to be delivered to the Custodian in respect of a Unit
has been paid, no further amount shall be payable by the Unitholder in respect
of that Unit.

         4.7 No fractions of Units may be issued.

5.       CALCULATION OF NET ASSET VALUE

         5.1 The net asset value of the assets held in the Trust Fund and the
net asset value per Unit shall be calculated by the Manager as at each business
day in Taipei (a "Valuation Date") by reference to (inter alia) the following
criteria:

         5.2 The value of assets held in the Trust Fund, other than cash, or
assets not specified in (a) to (d) below which are considered by the Manager to
be the effective equivalent of cash ("cash equivalents"), shall be determined as
follows:

                  (a) where the assets are listed and traded on the Taiwan Stock
Exchange, by reference to the last dealt price on such exchange on the
applicable Valuation Date or, if there is no last dealt price on such exchange
on that date, the last dealt price on such exchange on or before the relevant
Valuation Date;

                  (b) where the assets are bonds, debentures or notes not listed
and traded on the Taiwan Stock Exchange, by reference to the valuation thereof
on the applicable Valuation Date by the Stock Brokers' Association of Taipei,
or, if there is no such valuation, at their par value plus interest accrued but
unpaid to the relevant Valuation Date;

                                      A-7
<PAGE>   23
                  (c) where the assets are money market instruments, at cost
plus interest accrued but unpaid from the date of purchase to the applicable
Valuation Date; and

                  (d) in any other case by reference to valuation procedures
consistent with guidelines from time to time laid down by the SEC.

         5.3 In the case of any interest-bearing investment, or other investment
on which income is accruing, not included within (b) or (c) above there shall be
included in the value thereof all interest or other income accruing up to the
applicable Valuation Date.

         5.4 Cash and cash equivalents and amounts receivable and prepaid shall
be included at the full face or market value thereof.

         5.5 There shall be made such allowance (if any) as the Manager may
consider appropriate in the case of any asset which the Manager considers may
not be fully recoverable.

         5.6 Unperformed or partially performed agreements for the acquisition
or disposal of assets shall be treated as if they had been completely performed.

         5.7 Liabilities shall include the amount of any fee payable to the
Custodian or the Manager as contemplated by Article 9 below and accrued at or
accruing to the applicable Valuation Date but remaining unpaid.

         5.8 The number of Units outstanding at any time shall include Units
scheduled to be redeemed on or as of the applicable Valuation Date but shall
exclude Units scheduled to be issued on or as of the applicable Valuation Date
but shall exclude Units scheduled to be issued on or as of that Valuation Date.

         5.9 With respect to acquisition or disposition transactions initiated
but not fully consummated, there may be excluded from the value of any assets in
respect of the acquisition or disposition of which brokerage, duties and other
similar costs would fail to be paid out of the assets held in the Trust Fund if
they had been acquired or disposed of, as the case may be, on the applicable
Valuation Date an amount not exceeding the Manager's bona fide estimate of the
amount of such costs which would have been so payable.

         5.10 Any currency transaction shall be made at the rate which is the
average of the rates of exchange quoted on the applicable Valuation Date by the
Foreign Exchange Trading Centre in Taipei as the rates for buying and selling
the one currency for the other.

         5.11 If in any respect extraordinary circumstances render it
impracticable or inappropriate to conduct a valuation on the basis of the
foregoing provisions of this Article 5, the Manager shall to the extent
necessary follow other valuation procedures consistent with guidelines from time
to time laid down by the SEC.

6.       REDEMPTION OF UNITS

         6.1 Subject to Article 6.2 and relevant laws and regulations of the
Republic of China governing foreign investment and foreign exchange control, the
Unitholder may redeem all or any of its Units by delivering the Certificate in
respect of the Units to be redeemed together with an appropriate request for
redemption to the Manager at its principal office in Taipei. The amount to be
paid to the Unitholder upon any redemption of Units shall be the net asset value
per Unit as at the Valuation Date


                                      A-8
<PAGE>   24
next following the date of receipt by the Manager of the applicable redemption
request and the accompanying Certificate (such Valuation Date being a
"Redemption Date") multiplied by the number of Units being redeemed.

         6.2 Such net asset value per Unit shall be calculated in accordance
with Article 4 and Article 5 above except that: if the number of Units which,
but for this provision, would be subject to redemption on any Redemption Date
exceeds ten (10) percent of the number of Units issued and outstanding
immediately before such Redemption Date, the Manager may limit the number of
Units which are redeemed on such Redemption Date to ten (10) percent of the
number of Units issued and outstanding immediately before such Redemption Date.
In such case, the Manager shall as reasonably practicable dispose of such assets
as required to redeem those Units subject to redemption but not redeemed on such
Redemption Date.

         6.3 The Manager shall, no later than 5 days after the Redemption Date,
cause the Custodian to pay the redemption proceeds to the Unitholder.

         6.4 When the Unitholder requests the redemption of less than all of the
Units represented by the Certificate, the Manager shall, in addition to making
redemption payments in accordance with Article 6.3 above, within fourteen days
after the applicable Redemption Date, issue free of charge therefor a new
Certificate to represent the Units not requested to be redeemed.

7.       SUSPENSION OF VALUATION, ISSUES, REDEMPTIONS AND PAYMENTS

         7.1 The Manager may temporarily suspend valuation of the assets held in
the Trust Fund in the following events:

                  (a) when the Taiwan Stock Exchange is closed otherwise than
for ordinary holidays or if dealings thereon are restricted or suspended; or

                  (b) in the case of breakdown of the means of communication
normally used for the valuation of any material part of the assets held in the
Trust Fund, or if for any reason the value of any material part of the assets
held in the Trust Fund may not be determined as rapidly and accurately as
required; or

                  (c) when, as a result of political, economic, military or
monetary reasons or of any circumstance beyond the control of the Manager,
disposal of assets held in the Trust Fund or determination of the value of
assets held in the Trust Fund and/or liabilities of the Trust Fund are to any
material extent not reasonably or normally practicable.

         7.2 During such time as valuation is suspended as specified in Article
7.1, no issue or redemption of Units shall be made and no payment shall be made
of any redemption moneys payable but unpaid in respect of any Units already
redeemed.

8.       EXPENSES

         8.1 The following items shall be the only costs and expenses payable
out of the assets held in the Trust Fund:

                  (a) the acquisition price and brokerage, stamp duty and
similar direct acquisition costs of assets acquired for the account of the Trust
Fund;

                                      A-9
<PAGE>   25
                  (b) brokerage, stock transfer tax, stamp duty and similar
direct disposal costs arising on the disposal of assets held in the Trust Fund;

                  (c) all stamp and similar duties and charges payable from time
to time in respect of the Trust Fund;

                  (d) all expenses incurred in relation to the registration of
any assets in the name of the Custodian for the benefit of the Trust Fund;

                  (e) all expenses properly incurred in the collection and
distribution of income derived from assets held in the Trust Fund;

                  (f) all fees and expenses of any auditors or legal advisers in
connection with the assets held in the Trust Fund;

                  (g) all taxation payable in respect of income of (including
stock dividends), or the holding of or dealings with assets held in, the Trust
Fund;

                  (h) all proper expenses including postage and telex and
telephone costs incurred by the Custodian in connection with the acquisition or
disposal of any assets held in the Trust Fund;

                  (i) any compensation payable to the Manager or the Custodian
as contemplated by Article 9 below;

                  (j) legal fees and expenses incurred in connection with the
interpretation or amendment for the benefit of the Unitholder of this Investment
Contract; and all such proper costs as are provided for in Articles 2.1(g) and
2.2(d);

                  (k) the cost relating to the publication of Unit prices and/or
the net asset value, and the printing, mailing and similar costs for any regular
report sent to the Unitholder;

                  (l) all attestation fees incurred in connection with the
issuance of Certificates;

                  (m) all ordinary and necessary expenses incurred by the
Unitholder in connection with its organization, the public offering of its
Shares to investors in the United States and elsewhere, its registration and
operation as a regulated investment company under the Investment Company Act of
1940 and its qualification as a regulated investment company under the United
States Internal Revenue Code, all as described in the Prospectus of the
Unitholder dated December 16, 1986 used for the public offering and sale of the
Unitholder's shares (together with, and as supplemented or updated by, each
subsequent Prospectus used for subsequent offerings and sales of such shares,
the "Prospectus"); and

                  (n) all other necessary and appropriate costs, fees and
expenses incurred by the Manager or the Custodian on behalf of the Trust Fund or
the Unitholder in the course of performing their respective duties; provided
that, the Manager and the Custodian shall each bear all expenses associated with
the performance of its duties hereunder (including employee salaries and
overhead) other than expenses to be paid out of the assets held in the Trust
Fund as specifically provided in this Article 8 and the Manager shall bear the
fees and expenses of the Unitholder's officers and directors who are interested
persons of the Manager.

                                      A-10
<PAGE>   26
9.       MANAGEMENT AND CUSTODIAN FEES

         9.1 As compensation for the investment management services and expenses
borne by the Manager pursuant to this Investment Contract, the Manager shall be
entitled to receive out of the assets held in the Trust Fund a monthly fee
payable in NT Dollars. Such fee shall consist of a basic fee (the "Basic Fee")
and performance adjustments (the "Performance Adjustments"), which may serve
either to increase or decrease the Basic Fee.

                  (a) The Basic Fee shall be computed promptly after the end of
each month by multiplying (i) the average daily Net Fund Value (as defined
below) for such month by (ii) an annual rate of 1.30%. For any period of less
than a full month during which this Investment Contract is in effect with
respect to the Trust Fund, the Basic Fee shall be calculated by multiplying (i)
the average daily Net Fund Value for such period prorated according to the
proportion that the number of business days in such period bears to the number
of business days in such month times (ii) an annual rate of 1.30%. As used
herein, "Net Fund Value" shall mean the value of the net assets of the
Unitholder (including the assets held in the Trust Fund) calculated as described
under "Net Asset Value" in the Prospectus.

                  (b) The Basic Fee shall be subject to upward or downward
Performance Adjustments on the basis of investment performance, as follows:

                  The Performance Adjustment shall be made by multiplying (x)
the Applicable Performance Adjustment Rate times (y) the average Net Fund Value
over the performance period. The resulting Performance Adjustments shall then be
added to or subtracted from the Basic Fee. The performance periods and the
Applicable Performance Adjustment Rates shall be calculated as follows:

                        (1) First, the performance period shall commence with
the first business day of the first full month following the date upon which 75%
or more of the assets constituting the Net Fund Value are invested in equity
securities. During the first eleven (11) months thereafter there shall be no
Performance Adjustment. Starting with the twelfth month of operation, the
Performance Adjustment shall take effect. Following the twelfth month a new
month shall be added to the performance period until the performance period
equals 36 months. Thereafter the performance period shall consist of the current
month plus the previous 35 months. Notwithstanding the provisions of this
Article 9.1(b)(1), Performance Adjustments under this Investment Contract shall
be made as if this Investment Contract were a continuation of the Original
Investment Contract [and the Interim Investment Contract], rather than a new
Investment Contract. In addition, the termination of the Original Investment
Contract [and the Interim Investment Contract] shall not, for purposes of the
last paragraph of Article 9.1(b) of the Original Investment Contract [or the
Interim Investment Contract] be deemed a termination thereof and thereby result
in any prorated fee calculation.

                        (2) Second, compute the percentage difference between
(a) the opening Net Fund Value per Share of the Unitholder on the first business
day of the performance period and (b) the sum of (1) the closing Net Fund Value
per Share on the last business day of such period plus (ii) the value of the
Unitholder's cash distributions to its shareholders per Share made during the
performance period plus (iii) the value of capital gains taxes per Share paid or
payable by or on behalf of the Unitholder on undistributed realized long-term
capital gains during the performance period.

                        (3) Third, compute the percentage change in Taiwan Stock
Exchange Index (the "Index") during such period. In making such computation the
value of cash distributions made during the performance period by companies
whose securities comprise the Index shall be accumulated to the end of such
period and added to the closing value of the Index, with cash distributions of
the securities comprising the Index being treated as reinvested in the Index as
of the end of each calendar quarter


                                      A-11
<PAGE>   27
following the payment of the cash distribution. (In both such computations of
percentages, the percentage rate shall be rounded to the nearest full point
(rounding up if a computation produces a result of exactly one-half point)).

                        (4) Fourth, the Applicable Performance Adjustment Rate
shall be the Applicable Adjustment Percentage (as defined in (5) below) times
the number (whether positive or negative) obtained by subtracting the percentage
change in the Index during the performance period from the percentage change in
the Net Fund Value of a Share during that period, provided that if the number
thus obtained is greater than ten (either positive of negative) the Applicable
Performance Adjustment Rate shall be the Applicable Performance Adjustment
Percentage times ten (positive or negative, as appropriate).

                        (5) The Applicable Adjustment Percentage shall be an
annual rate of 0.03%.

                  In computing the investment performance of the Net Fund Value
and the investment record of the Index, distributions of realized capital gains,
dividends paid out of investment income, the value of capital gains' taxes per
share paid or payable on undistributed realized long-term capital gains, and all
cash distributions of the companies whose stocks comprise the Index shall be
treated as reinvested in accordance with Rule 205-1 or any other applicable
rules under the United States Investment Advisers Act of 1940.

                  In the case of termination of the Trust Fund, the transfer of
the Trust Fund to another securities investment trust enterprise, or the
termination of this Investment Contract during any month, the fee for that month
shall be reduced proportionately on the basis of the number of business days
during which this Investment Contract is in effect during that month. The Basic
Fee rate in that month shall be computed on the basis of and applied to the Net
Fund Value, averaged over that month and ending on the last business day on
which this Investment Contract is in effect. The amount of the Performance
Adjustment (or Adjustments) shall be computed on the basis of and applied to the
Net Fund Value, averaged over the 36-month period ending on the last business
day on which this Investment Contract is in effect, provided that if this
Investment Contract has been in effect for lass than 36 months, the computation
shall be made on the basis of the period of time during which this Investment
Contract has been in effect.

         9.2 As compensation for the custodial services and expenses borne by
the Custodian pursuant to this Investment Contract, the Custodian shall be
entitled to receive out of the assets held in the Trust Fund a fee which shall
be computed and paid promptly after the end of each month by multiplying (i) the
average daily net asset value of the assets held in the Trust Fund for such
month by (ii) an annual rate of 0.2%, provided that the Custodian shall be
entitled to receive a minimum annual fee of 2.0 million NT Dollars.

10.      INVESTMENT OBJECTIVES AND POLICIES AND RESTRICTIONS

         10.1 The Unitholder's investment objective in placing proceeds of its
offering in the Trust Fund is to seek long-term capital appreciation through
investment primarily in equity securities of Republic of China companies listed
on the Taiwan stock Exchange, as more fully described in the Prospectus.
Investment may also be made in debt securities listed on the Taiwan Stock
Exchange and in debt securities traded on the over-the-counter market.

         10.2 The assets held in the Trust Fund, after having been remitted into
the Republic of China and delivered to the Custodian, shall be invested only in
securities and money market instruments


                                      A-12
<PAGE>   28
denominated in NT Dollars and in NT Dollars cash and banking and similar
accounts, except to the extent otherwise permitted by Republic of China law and
regulations.

         10.3 The Manager agrees that it will not, using the assets held in the
Trust Fund:

                  (a) Purchase any security (other than obligations of the U.S.
Government, its agencies or instrumentalities, subject to Article 10.2), if as a
result: (i) as to 75% of the assets held in the Trust Fund, more than 5% of the
total assets held in the Trust Fund (taken at their current value) would then be
invested in securities of a single issuer, (ii) as to the remaining 25% of the
assets held in the Trust Fund, more than 10% of the total assets held in the
Trust Fund (taken at their current value) would then be invested in the
securities of a single issuer (except that the Manager may invest not more than
25% of the assets held in the Trust Fund in obligations of the Republic of China
Government or its agencies or instrumentalities), (iii) more than 10% of the
voting equity securities (at the time of such purchase) of any one issuer would
be held in the Trust Fund, and (iv) more than 25% of the total assets held in
the Trust Fund (taken at current value) would be invested in a single industry;
or

                  (b) purchase any equity securities which, at the time the
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; or

                  (c) purchase partnership interests; or

                  (d) borrow money or pledge the assets in the Trust Fund; or

                  (e) purchase securities on margin, except for short-term
credits as may be necessary for clearance of transactions; or

                  (f) make short sales of securities or maintain a short
position; or

                  (g) buy or sell commodities or commodity contracts or real
estate or interests in real estate, except that it may enter into foreign
currency exchange contracts, foreign currency futures contracts, and options on
foreign currencies and foreign currency futures contracts for bona fide hedging
purposes; or

                  (h) act as an underwriter of securities of other issuers; or

                  (i) make loans, including loans of cash or portfolio
securities, to any person; for purposes of this investment restriction, the term
"loans" shall not include the purchase of a portion of an issue of publicly
distributed bonds, debentures of other securities; or

                  (j) purchase securities issued by any issuer which owns,
whether directly or indirectly or in concert with another person, more than 5%
of the equity securities (whether voting or non-voting) of the Adviser or which
takes a significant role in the management of the Adviser; or

                  (k) issue senior securities; or

                  (l) purchase beneficiary certificates representing interests
in other ROC securities investment trust funds or effect any transaction in
securities with another ROC securities investment trust fund managed by the
Manager.

                                      A-13
<PAGE>   29
         10.4 Nothing in Article 10.3 above shall require the sale or
disposition of any relevant assets held in the Trust Fund where any of the
restrictions there set out is breached as a result of any event outside the
control of the Manager and occurring after the investment in the relevant assets
is made (including but not limited to redemptions of Units or securities, any
reorganization or amalgamation of any company and the suspension of any
listing), but no further relevant assets shall be acquired until the relevant
limitation can again be complied with, except pursuant to the exercise of
subscription rights to purchase securities of an ROC issuer at a time when the
Fund's portfolio holdings of securities of that issuer (or that issuer's
industry) would otherwise exceed the limits set forth in clause (i), (ii), (iii)
or (iv) of Article 10.3(a), where prior to such exercise and after the
announcement of such rights, the Manager sells at least the number of securities
which it subsequently purchases through the exercise of the rights.

         10.5 To not less than the extent (if any) from time to time required by
the SEC a proportion of the assets held in the Trust Fund shall be retained at
all times in liquid form in assets of a type specified by the SEC.

         10.6 The Manager shall not hold or have an interest in securities
issued by the Unitholder or securities issued by any investment fund investing
in Republic of China securities in the management of which the Manager
participates or has an interest.

         10.7 To the maximum possible extent all transactions in assets in the
Trust Fund shall be carried out through stock exchanges and other officially
designated markets. Subject to any limitations which may be imposed under the
U.S. Investment Company Act of 1940 and any rules and regulations adopted
thereunder, such transactions may be carried out through a broker who is a
connected person of the Manager to such extent as the Manager may think fit
provided that the cost thereof is not greater than it would have been had the
transactions been carried out through a broker who was not a connected person.

11.      DURATION, CHANGES IN MANAGER AND CUSTODIAN, AND TERMINATION

         11.1 The Trust Fund is established for an unspecified period. This
Investment Contract shall become effective on [ ] and shall continue in effect
until [ ], 2003. If not sooner terminated, this Investment Contract shall
continue in effect for successive periods of 12 months each thereafter, provided
that each such continuance shall be specifically approved annually by the vote
of a majority of the Unitholder's Board of Directors who are not parties to this
Investment Contract or interested persons (as such term is defined in the U.S.
Investment Company Act of 1940) of any such party, cast in person at a meeting
called for the purpose of voting on such approval and (a) either the vote of a
majority of the outstanding voting securities of the Unitholder, or (b) a
majority of the Unitholder's Board of Directors as a whole. Notwithstanding the
foregoing, this Investment Contract may be terminated at any time by the
Unitholder, without the payment of any penalty, upon a vote of a majority of the
Unitholder's Board of Directors or a majority of the outstanding voting
securities of the Unitholder, or by the Manager or the Custodian, on sixty (60)
days' written notice to the other parties. This Investment Contract shall
automatically terminate in the event of its assignment (as such term is defined
in the U.S. Investment Company Act of 1940). Any transfer, assignment or other
disposition of any of the Units by the Unitholder shall constitute an assignment
of this Investment Contract. As used herein the phrase "majority of the
outstanding voting securities" shall have the meaning set forth in the U.S.
Investment Company Act of 1940. In addition, this Investment Contract shall
automatically terminate if either the Manager or the Custodian is removed as
provided in this Article 11.

         11.2 The Investment Contract shall also terminate if

                  (a) the SEC by notice in writing to the Manager and/or the
Custodian so requires; or

                                      A-14
<PAGE>   30
                  (b) the Manager notifies the Unitholder, the Custodian and the
SEC that in its opinion further operation of the Trust Fund in accordance with
this Investment Contract is illegal, impracticable or inadvisable having regard
solely to the interests of the Unitholder.

         11.3 Upon termination of this Investment Contract, unless a new
Investment Contract is entered into (as provided in Article 11.7), the Manager
shall, within three (3) months after the effective date of termination, promptly
dispose of assets held in the Trust Fund at reasonable prices, satisfy any
liabilities relating to the Trust Fund, and distribute the available balance to
the Unitholder.

         11.4 The SEC may order that the Manager or Custodian be removed and
that a new Manager or Custodian be appointed within six months if the SEC
considers that the Manager or (as the case may be) the Custodian is incapable of
carrying out its functions properly.

         11.5 The Manager and/or the Custodian may be removed by the Unitholder
by 60 days' written notice to the other parties hereto.

         11.6 If either the Manager or the Custodian goes into liquidation or
bankruptcy or if its permit to act as Manager or Custodian has been revoked, it
shall be deemed to have been forthwith removed as Manager or (as the case may
be) Custodian.

         11.7 If the Manager and/or Custodian is removed or resigns, the
Unitholder may appoint a new Manager and/or Custodian and enter into a new
Investment Contract containing substantially the same terms and conditions as
this Investment Contract. The appointment of a new Manager shall be approved by
the Custodian and by the SEC and the appointment of a new Custodian shall be
approved by the Manager and by the SEC, provided that if the SEC has, in the
circumstances specified in the Regulations Governing the Administrating of
Securities Investment Trust Funds (effective August 10, 1983), as from time to
time amended, required the appointment of a new Manager or a new Custodian and
the Unitholder has not appointed a new Manager or a new Custodian within three
months after the SEC has so required, the SEC may require the liquidation and
distribution of the assets held in the Trust Fund as provided in Article 11.3.

12.      ACCOUNTS AND STATEMENTS

         12.1 The Manager shall maintain in its principal office in Taipei
sufficient accounts and records to enable a complete and accurate view to be
formed of the assets and liabilities and the income and expenditure of the Trust
Fund, all transactions for the account of the Trust Fund and amounts received in
the Trust Fund in respect of issues of Units and paid out on redemptions of
Units and by way of distributions.

         12.2 The Manager shall prepare financial statements of the Trust Fund
for successive accounting periods, each accounting period commencing immediately
after the end of the last preceding such accounting period (as in the case of
the first such period from the date of establishment of the Trust Fund) and
ending on December 31 in each year (the "final statements") and shall also
prepare such financial statements as at and for the monthly periods ending on
the last day of each calendar month (which monthly reports shall be prepared
within ten days after the end of each month), in each case in the respective
forms and containing the information for the time being required by the SEC.

         12.3 The Manager shall:

                  (a) cause the final statements to be audited by a person or
firm authorized under the laws of the Republic of China and the regulations of
the SEC ("Auditors");

                                      A-15
<PAGE>   31
                  (b) submit the final statements, together with such report as
the Manager may intend to make to the Unitholder in relation thereto and the
Auditors' report thereon, to the SEC for comment and approval within two months
after the end of the relevant accounting period;

                  (c) comply with such requirements as the SEC may make in
relation to such statements and report within two weeks after the date on which
such requirements are made; and

                  (d) send to the Unitholder and to the SEC, copies of all such
final statements within twelve weeks after the end of the relevant accounting
period.

         12.4 The Manager shall sign and the Custodian shall countersign all
final and monthly statements which shall then be published in Taipei.

         12.5 The Auditors' report on the final statements of the Trust Fund
shall be in the form required by the SEC and where relevant shall indicate the
extent to which such a report cannot be given and the reasons therefor.

13.      DISTRIBUTIONS

         13.1 Distributions of income in respect of each accounting period ended
December 31, will be made not later than March 31 in the next following year to
the Unitholder. Distributions may not be made out of capital. The Manager in
conjunction with the Auditors shall determine what is income and what is
capital, except that stock dividends and gains (realized or unrealized) on
investments shall not be regarded as income and realized discounts on debt
securities and money market instruments may be regarded as income. Costs and
expenses payable out of the assets held in the Trust Fund may be charged against
income or capital as the Manager in conjunction with the Auditors may determine,
provided that the allocation of such costs and expenses as to income or to
capital shall be consistent from year to year. When expenses are charged against
capital, they may be amortized on a straight line basis over a period not
exceeding five years.

         13.2 The aggregate amount of each distribution shall be credited to a
separate account in the name of the Custodian and such amount shall thereupon
cease to form part of the assets of the Trust Fund accordingly, but interest
earned on such amount pending payment shall be paid into and form part of the
assets of the Trust Fund.

14.      CURRENCY

         14.1 The accounts and records of the Trust Fund shall be maintained in
NT Dollars, payments into the Trust Fund on the issue of Units and payments out
of the Trust Fund on the redemption of Units and by way of distributions shall
be made in NT Dollars, the net asset value of the assets held in the. Trust Fund
shall be calculated in NT Dollars, and the financial statements of the Trust
Fund shall be prepared in NT Dollars.

15.      INFORMATION AND NOTICES

         15.1 There shall be held available for inspection by any person without
charge at the principal office of the Manager in Taipei at all reasonable
business hours copies of:

                  (a) this Investment Contract as from time to time amended;

                  (b) the current sales prospectus (if any) in relation to
Shares of the Unitholder;

                                      A-16
<PAGE>   32
                  (c) all interim and final statements, together with any
relevant Auditors' reports and reports of the Manager relative thereto, for the
two latest accounting periods of the Trust Fund or (if less) for all periods
since the establishment of the Trust Fund, and all interim and final statements
for such periods.

         15.2 All notices to the Unitholder shall be sent to it by hand or by
airmail at its registered address.

         15.3 The Manager shall at all times maintain an office or offices in
Taipei and shall notify the Unitholder of any change in the address of its
principal office in Taipei for the time being.

16.      AMENDMENTS

         This Investment Contract shall be amended only with the prior written
agreement of the Manager, the Custodian and the Unitholder, subject to the
approval of the SEC, and subject to approval in accordance with applicable U.S.
law.

         Notwithstanding the foregoing, if any of the parties to this Agreement
changes its name, such changed name shall be automatically substituted therefore
hereunder.

17.      CONNECTED PERSONS

         For the purposes of this Investment Contract, a person is a connected
person of another if:

                  (a) together with any person acting in concert with it in this
connection, it owns or otherwise controls for its own account, and directly or
indirectly, an interest of more than five percent (5%) (or, in the case of an
interest of the Custodian, ten percent (10%)) of that other, whether or not a
voting interest; or

                  (b) it is a director or supervisor of or takes any significant
active role in the management of that other.

18.      ATTACHMENT

         The Attachment I hereto (a list of the Board of Directors of the
Unitholder) shall be regarded as part of this Investment Contract. Any directors
listed therein can be replaced from time to time in accordance with the
procedures applicable to a Delaware corporation.

19.      GOVERNING LAW, JURISDICTION AND LANGUAGE

         19.1 The Trust Fund, this Investment Contract and the Certificate shall
be governed by, and this Investment Contract and the Certificate construed in
accordance with, the laws of the Republic of China.

         19.2 Any dispute arising out of or in respect of the Trust Fund, this
Investment Contract or the Certificate shall be subject to the nonexclusive
jurisdiction of the courts of the Republic of China having original jurisdiction
and, in the case of any action against the Manager or the Custodian, any court
having original jurisdiction in the place in which the Manager of the Custodian
has its principal office.

         19.3 The governing language of this Investment Contract shall be
Chinese, but documents issued in relation to the Trust Fund may be in either the
Chinese or the English language.

                                      A-17
<PAGE>   33
20.      EFFECTIVE DATE

         This Investment Contract shall become effective on the date hereof.

Dated:   [                 ], 2001

                            CHINA SECURITIES INVESTMENT TRUST
                               CORPORATION, AS MANAGER

                            By:
                               -------------------------------------------------

                            THE INTERNATIONAL COMMERCIAL BANK
                               OF CHINA, AS CUSTODIAN

                            By:
                               -------------------------------------------------

                            THE TAIWAN FUND, INC.
                               (The Unitholder)



                            By:
                               -------------------------------------------------




                                      A-18

<PAGE>   34

                                                                       EXHIBIT A

                                                                    (Front page)

                            (Beneficiary Certificate)

                  China Securities Investment Trust Corporation

                                Taiwan Trust Fund

Date of Issue:

<TABLE>
<CAPTION>
Manager                                                                      Custodian
<S>                                                               <C>
China Securities Investment Trust Corporation                     International Commercial Bank of
99 Tunhwa South Rd.                                               China
Section 2                                                         100 Chilin Road
Taipei, Taiwan ROC                                                Taipei, Taiwan, ROC



Name of the Holder of this                                             Total Number of Units Comprised
Beneficiary Certificate:                                               by this Beneficiary Certificate:

The Taiwan Fund, Inc.                                                  -----------------------------------
225 Franklin St.                                                       (There is no charge for the
Boston, Massachusetts USA                                              issuance of this certificate)
</TABLE>



Other Notes:
- -----------

1.       This Certificate acknowledges receipt by the Manager and the Custodian
         of the funds constituting the Units referred to herein, and is issued
         in accordance with the provisions of the Regulations Governing the
         Administration of Securities Investments Trust Funds of the Republic of
         China and the Securities Investment Trust-Investment Management and
         Custodian Contract dated December 16, 1986, as superseded (the
         "Investment Contract"). The Unitholder will be entitled to repatriate
         the earnings and principal in respect of Units in accordance with the
         provisions of the Regulations Governing Securities Investment by
         Overseas Chinese and Foreign Investors and Procedures for Remittance.

2.       Reference should be made to the relevant ROC regulations relating to
         securities investment trusts, the Investment Contract and the
         Prospectus dated December 16, 1986 (as superseded by later
         Prospectuses) published by The Taiwan Fund, Inc.


                                      A-19
<PAGE>   35
                                                                  (Reverse page)

                            (Beneficiary Certificate)

1.       Investment Policy and Scope

         The investment objective of the Taiwan Trust Fund (the "Trust Fund") is
to achieve capital appreciation through investment in securities listed on the
Taiwan Stock Exchange, money market instruments, government bonds, and
debentures.

2.       Duration of the Trust Fund

         The duration of the Trust Fund shall be determined in accordance with
the provisions of the Investment Contract.

3.       Calculation and Announcement of the Net Asset Value per Unit

         The net asset value per Unit of the Trust Fund is calculated in NT$ by
dividing the value of the assets of the Trust Fund less its liabilities by the
number of Units in issue and rounding any fraction of NT$l up or down to the
nearest NT Dollar (NT$0.5 being rounded up). The net asset value per Unit is
calculated and published on a daily basis.

4.       Redemption

         After one year from the date of issue, the Holder of the Units
comprised in this Certificate may apply for redemption by submitting this
Certificate to the Manager or its agent together with a written application. The
redemption price will be the net asset value per Unit as calculated in
accordance with the method specified in the preceding paragraph on the next
valuation date following the receipt of the redemption application by the
Manager or its agent less the Manager's assessment of the cost of realizing an
appropriate amount of the Trust Fund's assets. Redemption proceeds will normally
be paid out within five days after the valuation date.

5.       Fees Payable to the Manager and the Custodian

         The Manager shall be entitled to receive out of the assets held in the
Trust Fund a monthly fee payable in NT Dollars. Such fee shall consist of a
basic fee and performance adjustments, as more fully described in the Investment
Contract. The Custodian shall be entitled to receive out of the assets held in
the Trust Fund an annual fee (payable monthly) equal to 0.2% of the average
daily net asset value of the assets held in the Trust Fund, subject to a minimum
annual fee of 2.0 million NT Dollars.

6.       Distribution

         Distributions of income will be made within three months after the
close of each fiscal year to the Unitholder. Capital gains and stock dividends
will not be considered as income.

7.       Liquidation

         Upon expiration of the term of this Trust Fund or termination of the
Investment Contract, the Manager shall, within three months, liquidate the Trust
Fund and distribute the available balance to the Unitholder according to its
entitlements.


                                      A-20
<PAGE>   36
8.       Amendment and Termination of the Investment Contract

         The Investment Contract may be amended with the prior approval of the
Securities and Exchange Commission, by the Manager and the Custodian with the
approval of the Unitholder. The Investment Contract may be terminated in
accordance with provisions of the relevant Republic of China Securities
Investment Trust Fund regulations and provisions of the Investment Contract.


                                      A-21
<PAGE>   37
                                  ATTACHMENT I

Board of Directors of The Taiwan Fund, Inc.:

David Dean

Benny T. Hu

Lawrence J. Lau

Joe O. Rogers

Jack C. Tang

Gloria Wang

Shao-Yu Wang

Lawrence F. Weber


                                      A-22
<PAGE>   38

                                                                      APPENDIX B







                               INVESTMENT ADVISORY
                            AND MANAGEMENT AGREEMENT


         THIS AGREEMENT dated as of [ ], 2001 between THE TAIWAN FUND, INC., a
Delaware corporation (the "Fund"), and CHINA SECURITIES INVESTMENT TRUST
CORPORATION, a Republic of China ("ROC") corporation ("CSITC" or the "Adviser")
having its principal office in Taipei, Taiwan, ROC.

         WHEREAS, the Fund is a diversified, closed-end management investment
company registered under the Investment Company Act of 1940 (the "1940 Act"),
and the Adviser is an investment adviser registered under the Investment
Advisers Act of 1940 (the "Advisers Act"), and is authorized by the ROC
Securities and Exchange Commission (the "CSEC") to conduct business in the ROC;

         WHEREAS, the Fund, the Adviser and the International Commercial Bank of
China ("ICBC") have entered into a Securities Investment Trust-Investment
Management and Custodian Contract dated of even date herewith (as the same may
be amended or modified, the "Management Contract") providing for management by
the Adviser of assets of the Fund held in the ROC;

         WHEREAS, certain of the assets of the Fund may be held in the United
States, either pending remittance to the ROC of the net proceeds of any offering
of the Common Stock of the Fund, or after distribution to the Fund under the
Management Contract (whether as investment income or unit redemption proceeds),
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 law and
regulations (such assets of the Fund being referred to herein as the "U.S.
Assets"); and

         WHEREAS, the Fund desires to retain the Adviser to furnish investment
advisory and management services for the Fund's assets in the United States, and
the Adviser is willing to furnish such services;

         NOW THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties as follows:

         1. Appointment of the Adviser. The Fund appoints the Adviser to act as
investment adviser to the Fund with respect to the U.S. Assets for the period
and on the terms set forth in this Agreement. The Adviser accepts such
appointment and agrees to furnish the services herein set forth for the
compensation provided.

         2. Custodian. The State Street Bank and Trust (the "U.S. Custodian")
has been retained by the Fund to act as custodian for the U.S. Assets. The Fund
will deliver to the U.S. Custodian a photocopy of this Agreement executed by the
Fund and the Adviser.

         3. Investment Advisory and Management Services. The Adviser undertakes
and agrees:

                  (a) To manage the investment of the U.S. Assets for the
         exclusive, full benefit of the Fund (including making investment
         decisions, supervising the acquisition and disposition of investments,
         instructing the U.S. Custodian with respect thereto and otherwise with
         respect to the U.S. Assets held by the U.S. Custodian, and selecting
         brokers or dealers to carry out portfolio transactions) in good faith
         and to the best of its ability and without gaining any advantage for
         itself or any of its Connected Persons (as defined in Article 17 of the
         Management Contract) thereby except as expressly provided in this
         Agreement or the Management Contract, all in accordance with the
         investment objectives and policies set forth in the Management Contract
         and in accordance with guidelines and directions from the Fund's Board
         of Directors;

                                      B-1
<PAGE>   39
                  (b) To account to the Fund for any loss in value of the U.S.
         Assets where such loss has been caused by its willful or negligent
         default or reckless disregard of its duties hereunder;

                  (c) To be responsible to the Fund for the acts and omissions
         of all persons to whom it may delegate any of its functions as the
         Adviser as if they were its own acts and omissions;

                  (d) Notwithstanding and without prejudice to any other
         provisions of this Agreement, to, and to instruct all brokers used by
         the Adviser in relation to the sale or purchase of assets for the
         account of the Fund to, act in accordance with the best practice then
         applicable for the settlement of sales and purchases of securities and
         other investments; and

                  (e) To perform its obligations under this Agreement so as to
         (i) comply with all laws and regulations of the United States and the
         ROC applicable to the Adviser and (ii) permit the Fund to qualify as a
         regulated investment company under applicable United States tax law.

         4. Compensation. The Adviser acknowledges that the compensation to be
paid to it pursuant to Article 9 of the Management Contract shall constitute
full and sufficient compensation for performance by it of its obligations under
this Agreement.

         5. Expenses. Expenses shall be borne by the Adviser in accordance with,
and to the extent provided under, Article 8 of the Management Contract.

         6. Duration and Termination. (a) This Agreement shall become effective
on the date first above written, and shall continue in effect until [ ], 2003.
If not sooner terminated, this Agreement shall continue in effect for successive
periods of 12 months each thereafter; provided that each such continuance shall
be specifically approved annually by the vote of a majority of the Fund's Board
of Directors who are not parties to this Agreement or interested persons (as
such term is defined in the 1940 Act) of any such party, cast in person at a
meeting called for the purpose of voting on such approval and (i) either the
vote of a majority of the outstanding voting securities of the Fund, or (ii) a
majority of the Fund's Board of Directors as a whole. Notwithstanding the
foregoing, this Agreement may be terminated at any time by the Fund, without the
payment of any penalty, upon vote of a majority of the Fund's Board of Directors
or a majority of the outstanding voting securities of the Fund, or by the
Adviser, on sixty (60) days' written notice to the other party. This Agreement
shall automatically terminate in the event of its assignment (as such term is
defined in the 1940 Act). As used herein the phrase "majority of the outstanding
voting securities" shall have the meaning set forth in the 1940 Act. In
addition, this Agreement shall automatically terminate if the Adviser is removed
as provided in Article 11 of the Management Contract.

                  (b) Without limitation of the provisions of clause (a), this
         Agreement shall also terminate upon the termination of the Management
         Contract in accordance with the provisions thereof.

                  (c) Upon termination of this Agreement, unless a new Agreement
         is entered into (as provided in clause (f)), the Adviser shall, within
         three months after the effective date of termination, promptly dispose
         of U.S. Assets at reasonable prices, satisfy any liabilities relating
         to the Fund, and distribute the available balance to the Fund.

                  (d) The Adviser may be removed by the Fund by 60 days' written
         notice.

                  (e) If the Adviser goes into liquidation or bankruptcy, or if
         it ceases to be registered as an investment adviser under the Advisers
         Act, or if its ROC permit to act as Manager under the


                                      B-2
<PAGE>   40
         Management Contract has been revoked, it shall be deemed to have been
         forthwith removed as Adviser.

                  (f) If the Adviser is removed or resigns, the Fund may appoint
         a new Adviser and enter into a new Agreement containing substantially
         the same terms and conditions as this Agreement, subject to
         satisfaction of the requirements set forth in, and subject to the
         provisions of Article 11.7 of the Management Contract.

                  (g) This Agreement shall continue in full force and effect
         notwithstanding the resignation or removal of ICBC, or any successor,
         as Custodian under the Management Contract.

         7. Liability of the Adviser. The Adviser may rely on information
reasonably believed by it to be accurate and reliable. Except as may otherwise
be provided by the 1940 Act, neither the Adviser nor its stockholders, officers,
directors, employees or agents shall be subject to, and the Fund shall indemnify
and hold such persons harmless from and against, any liability for and any
damages, expenses or losses incurred in connection with any act or omission in
the course of, connected with or arising out of any services to be rendered
hereunder, except by reason of willful misfeasance, bad faith or gross
negligence in the performance of the Adviser's duties or by reason of reckless
disregard of the Adviser's obligations and duties under this Agreement
("disabling conduct"); provided that the Adviser shall not receive any
indemnification from the Fund against any liability to the Fund or its
shareholders to which the Adviser would otherwise be subject unless there has
been (1) a final decision on the merits by a court or other body before whom the
proceeding alleging liability of the Adviser was brought that the Adviser was
not liable by reason of disabling conduct, or (2) a reasonable determination,
based upon a review of the facts, that the Adviser was not liable by reason of
disabling conduct, by (i) the vote of a majority of a quorum of the Fund's
directors who are neither "interested directors" as defined in the United States
Investment Company Act of 1940 nor parties to the proceeding ("disinterested,
non-party directors"), or (ii) an independent legal counsel in a written
opinion; and provided further that, the Adviser shall not receive an advance of
attorneys' fees or other expenses incurred by it in defending a proceeding
alleging such liability except upon the undertaking of the Adviser to repay the
advance unless it is ultimately determined that it is entitled to
indemnification, but only if at least one of the following is also required as a
condition to the advance: (1) the Adviser shall provide a security for its
undertaking, (2) the Fund shall be insured against losses arising by reason of
any lawful advances, or (3) a majority of a quorum of the disinterested,
non-party directors of the Fund, or an independent legal counsel in a written
opinion, shall determine, based on a review of readily available facts (as
opposed to a full trial-type inquiry), that there is reason to believe that the
Adviser ultimately will be found entitled to indemnification.

         8. Services Not Exclusive. It is understood that the services of the
Adviser are not deemed to be exclusive, and nothing in this Agreement shall
prevent the Adviser, or any affiliate thereof, from providing similar services
to other investment companies and other clients (whether or not their investment
objectives and policies are similar to those of the Fund) or from engaging in
other activities. When other clients of the Adviser desire to purchase or sell a
security at the same time such security is purchased for the Fund, it is
understood that such purchases and sales and will be made as nearly as
practicable on a pro rata basis in proportion to the amounts desired to be
purchased or sold by each client.

         9.   Miscellaneous.

                  (a) This Agreement shall be governed by and constructed in
         accordance with the laws of the State of Delaware; provided that
         nothing herein shall be construed as being inconsistent with (i) the
         1940 Act or the Advisers Act or regulations issued under such statutes,
         or (ii) applicable ROC law and regulations.


                                      B-3
<PAGE>   41
                  (b) The captions in this Agreement are included for
         convenience only and in no way define or delimit any of the provisions
         hereof or otherwise affect their instruction or effect.

                  (c) If any provision of this Agreement shall be held or made
         invalid by a court decision, statute, rule or otherwise, the remainder
         of this Agreement shall not be affected thereby and, to this extent,
         the provisions of this Agreement shall be deemed to be severable.

                  (d) Nothing herein shall be construed as constituting the
         Adviser an agent of the Fund.

                  (e) If any of the parties to this Agreement changes its name,
such changed name shall be automatically substituted therefore hereunder.

         IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed as of the day and year first above written.


                                      CHINA SECURITIES INVESTMENT TRUST
                                         CORPORATION


                                      By: _____________________________
                                           Title:


                                      THE TAIWAN FUND, INC.



                                      By: _____________________________
                                           Title:


                                      B-4
<PAGE>   42

                                   PROXY CARD

                              THE TAIWAN FUND, INC.
           THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
                SPECIAL MEETING OF STOCKHOLDERS - AUGUST 22, 2001


         The undersigned hereby appoints Lawrence F. Weber, Haichi Vicki Hau 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 Special Meeting of
Stockholders of The Taiwan Fund, Inc. to be held at the offices of Clifford
Chance Rogers & Wells LLP, 200 Park Avenue, 52nd Floor, New York, New York
10166, on Wednesday, August 22, 2001 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 July [__], 2001.


         UNLESS OTHERWISE SPECIFIED IN THE BOXES PROVIDED, THE UNDERSIGNED'S
VOTE WILL BE CAST FOR ITEMS (1) AND (2).

- --------------------------------------------------------------------------------

                    PLEASE VOTE, DATE AND SIGN ON OTHER SIDE
                   AND RETURN PROMPTLY IN ENCLOSED ENVELOPE.

- --------------------------------------------------------------------------------

Please sign exactly as your name(s) appear(s). 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>   43
[X]      PLEASE MARK VOTES AS IN THIS EXAMPLE

1.       The approval of a new Securities Investment Trust -- Investment
         Management and Custodian Contract:

                  For  [ ]      Against  [ ]       Abstain  [ ]


2.       The approval of a new U.S. Asset Advisory Agreement:

                  For  [ ]      Against  [ ]       Abstain  [ ]


3.       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: _________________________


__________________________________________       _______________________________
Stockholder sign here                            Co-owner sign here


RECORD DATE SHARES:

                                  BACK OF CARD

</TEXT>
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