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<SEC-DOCUMENT>0000950135-04-005273.txt : 20041110
<SEC-HEADER>0000950135-04-005273.hdr.sgml : 20041110
<ACCEPTANCE-DATETIME>20041110164759
ACCESSION NUMBER:		0000950135-04-005273
CONFORMED SUBMISSION TYPE:	N-CSR
PUBLIC DOCUMENT COUNT:		4
CONFORMED PERIOD OF REPORT:	20040831
FILED AS OF DATE:		20041110
DATE AS OF CHANGE:		20041110
EFFECTIVENESS DATE:		20041110

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			TAIWAN FUND INC
		CENTRAL INDEX KEY:			0000804123
		IRS NUMBER:				042942862
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		N-CSR
		SEC ACT:		1940 Act
		SEC FILE NUMBER:	811-04893
		FILM NUMBER:		041133665

	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>N-CSR
<SEQUENCE>1
<FILENAME>b51862tnnvcsr.txt
<DESCRIPTION>THE TAIWAN FUND, INC.
<TEXT>
<PAGE>
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM N-CSR

                   CERTIFIED SHAREHOLDER REPORT OF REGISTERED
                         MANAGEMENT INVESTMENT COMPANIES

                  Investment Company Act file number: 811-4893
                 ----------------------------------------------

                              THE TAIWAN FUND, INC.
 ------------------------------------------------------------------------------
               (Exact name of registrant as specified in charter)

                               225 FRANKLIN STREET
                                BOSTON, MA 02110
 ------------------------------------------------------------------------------
     (Address of principal executive offices in the United States)   (Zip code)

   (Name and Address of Agent for                        Copy to:
              Service)

        The Taiwan Fund, Inc.                      Leonard B. Mackey, Jr.
      c/o State Street Bank and                    Clifford Chance US LLP
            Trust Company                           31 West 52nd Street
     Attention: Ann M. Carpenter                  New York, NY 10019-6131
         225 Franklin Street
          Boston, MA 02110


Registrant's telephone number, including area code:  (800) 636-9242

Date of fiscal year end:  August 31, 2004

Date of reporting period:  August 31, 2004
<PAGE>
ITEM 1. REPORTS TO STOCKHOLDERS.





                                       2
<PAGE>
THE TAIWAN FUND, INC.(R)


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


ANNUAL REPORT
AUGUST 31, 2004


THE TAIWAN FUND, INC.

WHAT'S INSIDE


<Table>

<S>                                <C>
                                   Page
                                   ----

Chairman's Statement                2

Report of the Investment
  Manager                           5

Portfolio Snapshot                 10

Investments                        11

Financial Statements               13

Notes to Financial
  Statements                       16

Report of Independent
  Registered Public
  Accounting Firm                  20

Other Information                  21

Summary of Dividend
  Reinvestment and
  Cash Purchase Plan               22

Directors and Officers             24

</Table>
<PAGE>

    CHAIRMAN'S STATEMENT
- --------------------------------------------------------------------------------

Dear Shareholders:

We are pleased to present the Annual Report of The Taiwan Fund, Inc. (the
"Fund") for the fiscal year ended August 31, 2004.

During the fiscal year ended August 31, 2004, the Fund's net asset value ("NAV")
decreased by 0.85% (as restated) in U.S. dollar terms and decreased by 1.20% in
New Taiwan ("NT") dollar terms. During the same period, the Taiwan Stock
Exchange Index (the "TAIEX") increased by 2.38% in U.S. dollar terms and
increased by 2.03% in NT dollar terms. The NT dollar depreciated against the
U.S. dollar by 0.35% during this period. The Fund underperformed the TAIEX by
3.16% during the year.

On August 31, 2004, the Fund was trading at US$10.99 per share, reflecting a
discount of 14.00% to the Fund's NAV per share of US$12.78. The Fund's shares
were trading at a discount of 13.96% (as restated) on August 31, 2003. During
the past year, the Fund's shares traded at an average discount of approximately
12%, which was lower than the average discount of approximately 15% in the
previous year. We believe that the narrowing of the discount reflects investors'
growing optimism about the prospects for the Taiwanese market.

The global economy is expected to grow at above trend levels of 4.2% in 2004 and
higher than the 2.8% growth rate recorded in 2003. In the United States, for
example, growth has been driven by increased private consumption, improving
employment opportunities and better corporate earnings. Real GDP growth is
forecasted to be 4.3% in 2004, up from 3.0% in 2003. Strength has also been seen
in the leading indicator for U.S. manufacturing activity, the Institute for
Supply Management ("ISM") Index, which has shown sustained growth of above 60
points in the first half of 2004. The unemployment rate has declined from 6.1%
in September 2003 to 5.4% in August 2004. In China, the economy has also shown
strong growth. The country's real GDP growth rate reached 9.7% in the first half
of 2004, after growth of 9.1% in 2003. This is largely attributable to a
significant rise in fixed investments, strong domestic demand and exports. The
Japanese economy is projected to grow by 4.0% in 2004, after expanding 2.5% in
2003 on the back of stable domestic demand and strong exports.

Looking forward, disruptive oil price hikes and expected rising short-term
interest rates may increase the level of concern and interrupt the recovering
global economy. However, although we anticipate that the global rate of growth
will slow during the second half of 2004 and into

 2
<PAGE>

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

the first half of 2005, recent data provides evidence that in the U.S. real GDP
has slowed from 4.5% in the first quarter to 2.8% in the second quarter. The
current rising interest environment in the United States is one of a
normalization of rates from a previously untenable situation, and we do not
believe that the economic recovery will not be curtailed by this. We concur with
the Federal Reserve assumptions of an easing in oil prices and a declining
unemployment rate, which should position the U.S. economy for a mild expansion.
In turn, this will benefit the Taiwanese economy. According to the International
Monetary Fund, the U.S. economy is forecast to grow at around 4.3% in 2004 and
3.6% in 2005, whilst global economic growth is expected to remain at 4.2% in
2004 and 3.1% in 2005.

Taiwan's real GDP growth is expected to continue on its upward trajectory in
2004 (3.3% in 2003) as strong domestic demand and exports have seen Taiwan's
real GDP growth rise to 7.7% in the second quarter of 2004 from 6.7% in the
first quarter. Export orders have displayed double-digit growth rates of 25.7%
in the first half of 2004, buoyed by surging order growth from China, the United
States and Europe. These orders are projected to rise 21.3% in 2004 compared to
10.4% in 2003. Private consumption is also projected to expand from 0.6% in 2003
to 4.0% in 2004. For the full year, both Taiwan's private and government
investments are expected to jump to 24% in 2004 from a negative 0.7% in 2003.
Despite the forecast of U.S. interest rate rises, we expect the Taiwan Central
Bank to keep real interest rates low in the upcoming quarters in order to
facilitate economic growth.

We believe that Taiwan's economy is very resilient and strong exports and
domestic demand combined with a positive outlook for both the U.S. and Chinese
economies will support the market. China's real GDP is forecast to slow from
9.1% in 2003 to 8.6% in 2004 and 7.2% in 2005. In this context, Taiwan's
investment outlook remains favorable due to the economic links that exist
between China and Taiwan, with exports continuing to grow. According to the
Directorate General of Budget Accounting and Statistics, Taiwan's real GDP is
expected to grow 5.9% in 2004 and 4.5% in 2005. However, should the U.S. economy
slow down unexpectedly or if China were to impose additional macro-economic
cooling measures, then this would have an adverse impact on Taiwan. Other
uncertainties that could unsettle the market would be unfavorable cross-strait
relations or continuing oil price rises. However, at this juncture we do not
believe that any of these scenarios are likely, although we will continue to
monitor the situation.

                                                                               3
<PAGE>

    CHAIRMAN'S STATEMENT (continued)
- --------------------------------------------------------------------------------

Political tensions following the Taiwanese presidential elections in March 2004
have increased investor concerns about the cross strait relations. The current
focus is on Taiwan's Legislative Yuan election in December 2004 because it is a
very highly fought race between each party and the implications that this may
have on relations. In addition, the United States supports a one-China policy
and not Taiwan's independence, which should be another stabilizing factor. We
believe that a cautious approach by the United States, China and Taiwan has
always been taken when dealing with political crisis between them and they will
continue to do so. Therefore, we do not expect a significant impact to be felt
by the market from this year-end election as we believe that economic
development will remain the key priority for both Taiwan and China. Despite some
short-term concerns over the global economic slowdown, we believe Taiwan will
remain a favorable market for long-term investment. Against the uncertain
political backdrop, and slowing corporate earnings growth in the coming year,
Taiwan companies' long-term competitiveness should remain the same. This
competitive strength on a global basis, plus their leveraging of lower cost
production in China, will underpin the positive longer term outlook for the
stock market.

Taiwan's stock market will remain one of the more favorable places for global
investors in the future. The Board is confident about Taiwan's investment
outlook and the Fund's performance should provide satisfactory returns for
investors over the longer term.

We appreciate your support and look forward to sharing with you our improving
results over the longer term.

Sincerely,

/s/ S.Y. Wang

S. Y. Wang
Chairman

Returns for the Fund are historical total returns that reflect changes in net
asset value per share during each period and assume that dividends and capital
gains, if any, were reinvested. Returns for the TAIEX are not total returns and
reflect only changes in share price but do not assume that cash dividends, if
any, were reinvested, and thus are not strictly comparable to the Fund returns.
Past performance is not indicative of future results of the Fund.

 4
<PAGE>

    REPORT OF THE INVESTMENT MANAGER
- --------------------------------------------------------------------------------

INVESTMENT PERFORMANCE

The Fund's net asset value ("NAV") decreased by 0.85% (as restated) in U.S.
dollar terms and decreased by 1.20% in New Taiwan ("NT") dollar terms during the
fiscal year ended August 31, 2004. During the same period, the Taiwan Stock
Exchange Index (the "TAIEX") increased by 2.38% in USD terms and increased by
2.03% in NT dollar terms. The Fund underperformed the TAIEX by 3.16% during the
year. Relative to its peers, the Fund's performance was ranked in the second
quartile in the twelve months up to the end of Fiscal Year 2004.

Based on the performance attribution report generated by FactSet (an investment
research service), the Fund saw overall negative performance contributions from
both sector allocation and from stock selection during the year. On the sector
level, we received positive contributions from our overweight position in the
steel/construction sector but this was offset by the overweight positions in the
integrated circuit ("IC") design and handset sectors, which detracted value. At
the stock level, the portfolio benefited from good stock selection in the
financial sector but we suffered from poor selection in some technology stocks
(mainly memory IC and IC design companies), which hurt performance.

INVESTMENT OUTLOOK

At this juncture, our macro-economic outlook is mixed. However, we believe that
Taiwan's healthy economic condition indicates that the economic recovery cycle
still has some way to run. Thus, this should offer reasonable investment
opportunities for investors in the foreseeable future. There are four major
factors that will drive the market over the next year:

  - Economic conditions,

  - Market liquidity,

  - Corporate earnings and valuations, and

  - The Morgan Stanley Capital International's ("MSCI") re-weighting changes.

Taiwan's economic fundamentals remain supportive and are on track for continued
economic growth, although we expect this momentum to slow in the latter part of
2004 and 2005. This is due to our concerns related to external factors,
including high oil prices, rising U.S. interest rates and China's efforts to
cool its economy. For 2005, we believe

                                                                               5
<PAGE>

    REPORT OF THE INVESTMENT MANAGER (continued)
- --------------------------------------------------------------------------------

that ongoing private investments will foster domestic consumption and private
investment. These investments will be bolstered by historically low interest
rates and the government's policy incentives, an improving employment market and
asset price reflation that has been seen over the past year. For the rest of
2004, the Taiwan government is projecting a quarterly real GDP growth of 5.3% in
the third quarter of 2004 and 4.1% in the fourth quarter of 2004, compared to
6.7% and 7.7% in the first and second quarters of 2004, respectively. For real
GDP growth in 2005, the government's projections are 4.8% in the first quarter
of 2005, 4.4% in the second quarter of 2005, 4.8% in the third quarter of 2005
and 4.1% in the fourth quarter of 2005.

Following the recovery in the property market and decline in non-performing
loans in 2004, we expect M1b (the most narrowly defined measure of a nation's
money supply excluding time deposits and foreign currency deposits) and M2 (the
broadest measure of a nation's money supply) to stay at high levels. The Taiwan
government is projecting M1b growth of 18.5% in 2004 from 11.8% in 2003 and M2
at 7.6% in 2004 from 3.8% in 2003. Although higher oil costs may erode nominal
income and drain liquidity, the liquidity that the Taiwan Central Bank has
accumulated in the past should provide a significant buffer to cushion the
impact from the Fed's interest rate moves. We expect the Taiwan Central Bank's
loose monetary policy to remain in place and that foreign fund inflows will
continue to be an additional source of liquidity.

The consensus estimates indicate that Taiwan's corporate profit growth will be
over 54% in 2004, but a low single-digit growth is forecast in 2005 due to a
higher comparative base and slower growth momentum in exports. We expect that
Taiwan's economy will be supported by ongoing domestic demand, but due to the
forecasted slowdown in the global economy believe that this will have an impact
on growth in Taiwan. From a valuation perspective, we believe the TAIEX is not
stretched as it is trading at the lower end of its range, the current
price-to-earnings ratio is approximately 11.0 times (as of the end of August
2004) as compared to its historical five-year mean of 19.0 times. We believe
that the short-term downside risk for the Taiwanese market should be relatively
low. Moving into 2005, the market may start to discount the more moderate
economic growth and weak corporate earnings growth for certain sectors.

 6
<PAGE>

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

In addition, MSCI's re-weighting adjustments should come as a potential catalyst
later this year and in the first half of 2005. As a result of MSCI's decision to
remove the limited investability factor ("LIF") on Taiwan, Taiwan will become
the country with the largest weighting within the MSCI Emerging Market
Index -- a weighting of more than 20% in May 2005. These adjustments are
scheduled to take place in two phases: starting from November 30, 2004, and May
31, 2005. In the first phase, the LIF will rise to 75% from 55% and to a full
weighting from 75% in the second phase.

However, a number of risks remain, related to some upcoming events and current
situations that may impact the market and create some uncertainty; the results
from the U.S. presidential election and Taiwan's Legislative Yuan election,
subtle cross-strait relations, slower economic growth in the United States and
China and oil price movements. In our view, many of these events and the
subsequent results have been widely debated and to a certain extent such risks
have already largely been discounted by the Taiwanese market.

INVESTMENT STRATEGY

Our investment strategy will focus on five themes in the latter part of 2004 and
in 2005, including domestic consumption, liquidity, seasonal returns, new
product development and defensive and yield themes. Defensive and yield stocks
will constitute some of our investment ideas in the near-to-mid term should the
macro picture remain uncertain. We expect Taiwan's ample liquidity, NT dollar
strength and historical low interest rates to be major catalysts for domestic
consumption and companies' asset price reflation in Taiwan. At the end of
August, we witnessed steady share price performance within domestic-focused
sectors, namely cement, finance, property, transportation and retailing. As
fundamentals of these sectors further improve, share performance should continue
as we head into 2005.

We also embrace the positive effect of MSCI's phased re-weighting changes, which
are expected to draw foreign capital inflows, further boosting the Taiwan market
in the coming months. We should see large-cap stocks enjoying relatively
stronger performance as adjustment dates approach. We will continue to look for
opportunities to accumulate large-cap stocks in diverse sectors.

For the second half of 2004 and into 2005, we hold a conservative view on the
technology upstream players (Dynamic Random Access Memory

                                                                               7
<PAGE>

    REPORT OF THE INVESTMENT MANAGER (continued)
- --------------------------------------------------------------------------------

("DRAM"), foundry and IC packaging and testing) for two reasons; first, we
expect the utilization rate to fall to a 70%-80% level in 2005 from the current
full capacity and secondly these semiconductor companies may scale back their
2005 CAPEX (capital expenditure) plans. However, in process technology for IC
fabrication, the combination of the trend towards increased outsourcing and
Taiwan's outstanding capability in this sector should still favor IC foundry and
packaging companies to drive long-term growth. Although, DRAM companies'
capacity expansion in the second half of 2004 and 2005 may result in oversupply
concerns. To a large extent, we favor niche and selective downstream consumer
and hardware stocks in the year ahead, as some companies are likely to continue
their market share expansion through leveraging their broad product offerings
and market penetration for further earnings growth. In addition, softening
component costs will serve as another share stimulus to the downstream players.
Another positive factor for the Taiwan technology sector is the historic low
valuation at around 10 times price-to-earnings ratio, suggesting that much of
the earnings risks have been discounted in share prices.

As for the key cutting edge products, TFT-LCDs (thin film transistor-liquid
crystal displays), which are at the incubating and incremental growth stages,
should still draw market attention as prices becomes more affordable, thus
stimulating demand in 2005 and beyond. The increasing adoption of monitors,
notebooks and TVs has led to the proliferation of TFT-LCD products and increased
investors' interests. Despite this, there still remains some concern over price
falls due to production output increases and production yield improvements
somewhat hampered the market sentiment. Consensus estimates suggest that TFT-LCD
panel makers may suffer around a 25%-35% profit drop in 2005. In the
longer-term, the TFT-LCD industry is expected to double its growth to reach
US$42 billion in 2007. Such eye-catching growth is hard for one to ignore when
considering investment in technology stocks. The chief catalyst for this sector
will come from growth in the TFT-LCD TV segment whose growth is projected to be
at a compound annual growth rate (CAGR) of 41% in the four years leading to
2007. Other interesting areas within the new product theme include DSCs (digital
still cameras), camera handsets and optical storage media. We believe these
three industries are somewhat less attractive, owing to severe competition,
dangerously low margins, and the constant need for investments in new technology
in order to stay competitive.

 8
<PAGE>

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

While the financial sector has gone through the ongoing process of balance sheet
cleanup over the past few years, the sector's noticeable fundamental improvement
should be further enhanced from continued growth in the consumer and commercial
loan sectors. While a cyclical headwind in the technology sector will naturally
lead to default concerns, we doubt that the situation will pose any systemic
risk to financial stocks. As of the end of August 2004, the financial sector
traded at a fairly low price-to-book ratio of around 2 times, compared to the
sector's ten-year average of 3.4 times. Improving consumption trends and asset
price reflation should also benefit the financial sector.

Considering the fairly mixed outlook in the year ahead, our investment focus
will be in areas such as the cyclical industries which have steady earnings
growth, and non-cyclical industries (e.g. domestic consumption and retailing),
the financial and property sectors, as well as downstream technology stocks with
un-demanding valuations. We believe these sectors should show relatively strong
performance as evidenced in these companies' stable operating cash flows and
expected attractive cash dividend payout in 2005. We still like the China theme,
as companies with China exposure should still be the beneficiaries of China's
soft landing and relatively high economic growth in the years to come.

In the year ahead, we intend to continue our strategy of maintaining a balanced
portfolio to take advantage of these diverse themes. We will continue to strive
to beat the benchmark through a process of bottom-up stock selections. We are
confident that the Taiwanese stock market and healthy economic conditions will
provide significant investment opportunities for investors in the foreseeable
future. Thank you for your support and we look forward to presenting our
strategy again in coming reports.

Sincerely,

<Table>
<S>                          <C>
/s/ Victor Shih              /s/ Sally Chang
Victor Shih                  Sally Chang
Portfolio Manager            Deputy Portfolio Manager
</Table>

Returns for the Fund are historical total returns that reflect changes in net
asset value per share during each period and assume that dividends and capital
gains, if any, were reinvested. Returns for the TAIEX are not total returns and
reflect only changes in share price but do not assume that cash dividends, if
any, were reinvested, and thus are not strictly comparable to the Fund returns.
Past performance is not indicative of future results of the Fund.

                                                                               9
<PAGE>

    PORTFOLIO SNAPSHOT*
- --------------------------------------------------------------------------------

                            TOP TEN EQUITY HOLDINGS

<Table>
<S>                                       <C>  <C>
HOLDINGS AS OF AUGUST 31, 2004               %
- --------------------------------------------------
Taiwan Semiconductor Manufacturing Co.     7.9
- --------------------------------------------------
Asustek Computer, Inc.                     6.1
- --------------------------------------------------
Chunghwa Telecom Co. Ltd.                  6.0
- --------------------------------------------------
Cathay Financial Holding Co. Ltd.          5.3
- --------------------------------------------------
Hon Hai Precision Industry Co. Ltd.        4.5
- --------------------------------------------------
Mega Financial Holding Co.                 4.3
- --------------------------------------------------
Chinatrust Financial Holding Co. Ltd.      4.2
- --------------------------------------------------
China Steel Corp.                          4.0
- --------------------------------------------------
Taishin Financial Holdings Co. Ltd.        3.8
- --------------------------------------------------
United Microelectronics Corp. Ltd.         3.6
- --------------------------------------------------
</Table>

                       TOP TEN EQUITY INDUSTRY WEIGHTINGS

<Table>
<S>                                       <C>  <C>
WEIGHTINGS AS OF AUGUST 31, 2004             %
- --------------------------------------------------
Financial Services                        17.7
- --------------------------------------------------
Semi-conductor                            17.6
- --------------------------------------------------
PC & Peripherals                          14.3
- --------------------------------------------------
Electronics                               11.5
- --------------------------------------------------
Telecommunications                         9.9
- --------------------------------------------------
Plastics                                   4.6
- --------------------------------------------------
Iron & Steel                               4.0
- --------------------------------------------------
Textiles & Apparel                         2.6
- --------------------------------------------------
General Merchandise Stores                 2.4
- --------------------------------------------------
Petroleum Services                         2.1
- --------------------------------------------------
</Table>

                            TOP TEN EQUITY HOLDINGS

<Table>
<S>                                       <C>  <C>
HOLDINGS AS OF AUGUST 31, 2003               %
- --------------------------------------------------
Taiwan Semiconductor Manufacturing Co.     9.3
- --------------------------------------------------
Au Optronics Corp.                         3.8
- --------------------------------------------------
MediaTek, Inc.                             3.5
- --------------------------------------------------
Quanta Computer, Inc.                      2.9
- --------------------------------------------------
Compal Electronics, Inc.                   2.8
- --------------------------------------------------
Hon Hai Precision Industry Co. Ltd.        2.5
- --------------------------------------------------
Chunghwa Telecom Co. Ltd.                  2.5
- --------------------------------------------------
Asustek Computer, Inc.                     2.4
- --------------------------------------------------
Formosa Chemicals & Fibre Corp.            2.4
- --------------------------------------------------
United Microelectronics Corp. Ltd.         2.3
- --------------------------------------------------
</Table>

                       TOP TEN EQUITY INDUSTRY WEIGHTINGS

<Table>
<S>                                       <C>  <C>
WEIGHTINGS AS OF AUGUST 31, 2003             %
- --------------------------------------------------
Semi-conductor                            20.4
- --------------------------------------------------
PC & Peripherals                          16.6
- --------------------------------------------------
Electronics                               12.1
- --------------------------------------------------
Financial Services                         9.5
- --------------------------------------------------
Telecommunications                         7.8
- --------------------------------------------------
Plastics                                   5.2
- --------------------------------------------------
Automobiles, Tires & Accessories           5.0
- --------------------------------------------------
Textiles & Apparel                         4.0
- --------------------------------------------------
Iron & Steel                               3.1
- --------------------------------------------------
Others & Miscellaneous                     2.4
- --------------------------------------------------
</Table>

* Percentages based on total investments at August 31, 2004 and August 31, 2003.

 10
<PAGE>

    THE TAIWAN FUND, INC.
    INVESTMENTS/AUGUST 31, 2004 (SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT
    IN SECURITIES)
- --------------------------------------------------------------------------------

<Table>
<Caption>
                                                              US$
                                                             VALUE
                                              SHARES        (NOTE 1)
                                              ------        --------
<S>                                         <C>           <C>
COMMON STOCKS - 93.7%
BASIC INDUSTRIES -- 13.6%
CEMENT -- 1.3%
Asia Cement Corp. ........................    4,899,000   $  2,834,204
                                                          ------------
CHEMICALS -- 1.6%
Oriental Union Chemical Corp. ............    3,333,900      3,309,228
                                                          ------------
IRON & STEEL -- 4.0%
China Steel Corp. ........................    9,062,460      8,463,122
                                                          ------------
PETROLEUM SERVICES -- 2.1%
Formosa Petrochemical Corp. ..............    2,774,020      4,399,068
                                                          ------------
PLASTICS -- 4.6%
Formosa Plastic Corp. ....................    2,818,540      4,221,354
Nan Ya Plastics Corp. ....................    3,776,780      5,212,870
Taiwan Green Point Enterprises Co.
 Ltd. ....................................       70,892        195,696
                                                          ------------
                                                             9,629,920
                                                          ------------
TOTAL BASIC INDUSTRIES....................                  28,635,542
                                                          ------------
DURABLES -- 5.2%
AUTOMOBILES, TIRES & ACCESSORIES -- 1.4%
Cheng Shin Rubber Industry Co. Ltd. ......    2,193,096      2,833,790
                                                          ------------
ELECTRICAL EQUIPMENT -- 1.2%
Fu Sheng Industrial Co. Ltd. .............    1,700,000      2,620,992
                                                          ------------
TEXTILES & APPAREL -- 2.6%
Formosa Chemicals & Fibre Corp. ..........    3,372,840      5,398,208
                                                          ------------
TOTAL DURABLES............................                  10,852,990
                                                          ------------
FINANCE -- 17.7%
FINANCIAL SERVICES -- 17.7%
Cathay Financial Holding Co. Ltd. ........    6,400,000     11,182,896
Chinatrust Financial Holding Co. Ltd. ....    8,476,812      8,936,848
Mega Financial Holding Co. ...............   15,000,000      9,074,357
Polaris Securities Co. Ltd. ..............       71,779         33,727
Taishin Financial Holdings Co. Ltd. ......   10,625,574      8,081,827
                                                          ------------
                                                            37,309,655
                                                          ------------
TOTAL FINANCE.............................                  37,309,655
                                                          ------------
</Table>

<Table>
<Caption>
                                                              US$
                                                             VALUE
                                              SHARES        (NOTE 1)
                                              ------        --------
<S>                                         <C>           <C>
RETAIL & WHOLESALE -- 2.4%
GENERAL MERCHANDISE STORES -- 2.4%
President Chain Store Corp.  .............    3,344,800   $  4,960,425
                                                          ------------
TECHNOLOGY -- 53.3%
ELECTRONICS -- 11.5%
Asia Vital Components Co. Ltd. (a)........    1,314,000      1,582,110
Au Optronics Corp. .......................    4,605,300      5,910,126
Chi Mei Optoelectronics Corp. ............    3,470,836      4,393,076
Everlight Electronics Co. Ltd. ...........    1,650,000      1,788,001
Tripod Technology Corp. ..................    2,297,764      2,618,150
Unimicron Technology Corp. ...............    3,604,456      2,222,882
Walsin Technology Corp. ..................    1,515,291      1,005,685
Wus Printed Circuit Co. Ltd. .............    4,921,316      2,399,091
Ya Hsing Industrial Co. Ltd. .............    2,606,260      2,426,243
                                                          ------------
                                                            24,345,364
                                                          ------------
PC & PERIPHERALS -- 14.3%
Asustek Computer, Inc. ...................    5,780,000     12,900,270
Benq Corp.................................    4,000,000      4,087,866
Hon Hai Precision Industry Co. Ltd. ......    2,876,247      9,417,994
Quanta Computer, Inc. ....................    2,200,858      3,748,672
                                                          ------------
                                                            30,154,802
                                                          ------------
SEMI-CONDUCTOR -- 17.6%
Advanced Semiconductor Engineering, Inc.
  (a).....................................    6,316,907      4,600,590
Nanya Technology Corp. (a)................    3,600,000      2,653,589
Sunplus Technology Co. Ltd. ..............    3,850,000      5,562,669
Taiwan Semiconductor Manufacturing Co. ...   12,069,230     16,658,458
United Microelectronics Corp. Ltd. (a)....   11,238,480      7,623,895
                                                          ------------
                                                            37,099,201
                                                          ------------
TELECOMMUNICATIONS -- 9.9%
Chunghwa Telecom Co. Ltd. ................    8,000,000     12,686,479
Ichia Technologies, Inc. .................    1,786,500      3,095,369
Zyxel Communications Corp. ...............    2,530,000      5,052,273
                                                          ------------
                                                            20,834,121
                                                          ------------
TOTAL TECHNOLOGY..........................                 112,433,488
                                                          ------------
</Table>

    The accompanying notes are an integral part of the financial statements.  11
<PAGE>

    INVESTMENTS/AUGUST 31, 2004 (continued)
- --------------------------------------------------------------------------------

<Table>
<Caption>
                                                              US$
                                                             VALUE
                                              SHARES        (NOTE 1)
                                              ------        --------
<S>                                         <C>           <C>
COMMON STOCKS - continued
TRANSPORTATION -- 1.5%
TRANSPORTATION -- 1.5%
Yang Ming Marine Transport................    3,720,193   $  3,255,660
                                                          ------------
TOTAL COMMON STOCKS (Identified Cost --
 $163,102,091)............................                 197,447,760
                                                          ------------
<Caption>
                                             PRINCIPAL
                                              AMOUNT
                                                NT$
                                             ---------
<S>                                         <C>           <C>
CERTIFICATES OF DEPOSIT -- 2.6%
Taishin International Bank:
 0.95%, 10/04/04 (b)......................   30,224,808        887,607
 0.95%, 10/08/04 (b)......................   10,073,849        295,837
 0.96%, 10/08/04 (b)......................   50,370,286      1,479,217
 0.965%, 10/04/04 (b).....................   20,150,321        591,752
 0.965%, 10/06/04 (b).....................   40,301,786      1,183,537
 0.975%, 10/08/04 (b).....................   40,304,947      1,183,629
                                                          ------------
TOTAL CERTIFICATES OF DEPOSIT (Identified
 Cost -- $5,637,265)......................                   5,621,579
                                                          ------------
COMMERCIAL PAPER -- 3.6%
Allied Material Technology Corp.
 1.025%, 10/21/04 (b).....................   20,133,624        591,261
First Taisec Securities
 00.90%, 9/10/04 (b)......................  116,862,026      3,431,870
Tai Shin Enterprise:
 0.975%, 10/08/04 (b).....................   50,453,783      1,481,669
 0.975%, 10/11/04 (b).....................   50,397,816      1,480,025
 1.00%, 10/08/04 (b)......................   20,136,664        591,350
                                                          ------------
TOTAL COMMERCIAL PAPER (Identified Cost --
 $7,602,241)..............................                   7,576,175
                                                          ------------
<Caption>
                                             MATURITY
                                              AMOUNT
                                                US$
                                             --------
<S>                                         <C>           <C>
REPURCHASE AGREEMENT -- 0.1%
State Street Bank & Trust Co. at 0.15%
  dated 8/30/04, due 9/7/04
  (collateralized by U.S. Treasury Note
  1.625%, 3/31/05, market value
  $155,852)...............................  $   148,005   $    148,000
                                                          ------------
TOTAL INVESTMENTS -- 100% (Cost --
 $176,489,597)............................                $210,793,514
                                                          ============
</Table>

LEGEND:

US$ - United States dollar

NT$ - New Taiwan dollar

(a) Non-income producing

(b) Certificates of Deposit and Commercial Paper that are traded through Bills
    Finance Corporations must be guaranteed by either a bank, a trust company or
    a Bills Finance Corporation. Since there is no recognized credit rating
    system in the Republic of China, the guarantee may not be comparable to a
    guarantee issued by a U.S. institution.

INCOME TAX INFORMATION:

At August 31, 2004, the aggregate cost basis of the Fund's investment securities
for income tax purposes was $176,701,772.

Net unrealized appreciation of the Fund's investment securities was $34,091,742
of which $38,892,788 related to appreciated investment securities and $4,801,046
related to depreciated investment securities for the fiscal year ended August
31, 2004. In addition, as of August 31, 2004, the Fund had a capital loss
carryforward of ($71,371,135) for Federal income tax purposes which may be
utilized to offset future capital gains through August 31, 2009 ($7,374,675),
August 31, 2010 ($39,995,101) and August 31, 2011 ($24,001,359.)

 12 The accompanying notes are an integral part of the financial statements.
<PAGE>

    FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

STATEMENT OF ASSETS AND LIABILITIES
August 31, 2004

<Table>
<S>                                         <C>          <C>
ASSETS
Investments in securities, at value (cost
  $176,489,597) (Notes 1 and 2) - See
  accompanying schedule...................               $210,793,514
Cash......................................                        719
Cash in New Taiwan dollars (cost
 $2,157,649)..............................                  2,155,763
Receivable for investments sold...........                  1,644,065
Receivable from Investment Adviser (Notes
 3 and 6).................................                    889,700
Dividend receivable.......................                  1,258,277
Interest receivable.......................                      4,650
                                                         ------------
 Total assets.............................                216,746,688
                                                         ------------
LIABILITIES
Payable for investments purchased.........  $7,164,760
Taiwan withholding tax payable (Note 1)...     279,310
Other payables and accrued expenses.......     136,814
                                            ----------
 Total liabilities........................                  7,580,884
                                                         ------------
NET ASSETS................................               $209,165,804
                                                         ============
Net Assets consist of (Note 1):
Paid in capital...........................                244,846,401
Undistributed net investment income.......                  1,597,555
Accumulated undistributed net realized
 loss on investments in securities and
 foreign currency.........................                (71,583,311)
Net unrealized appreciation on investment
 securities and foreign currency..........                 34,305,159
                                                         ------------
NET ASSETS................................               $209,165,804
                                                         ============
NET ASSET VALUE, per share ($209,165,804 /
 16,365,572 shares outstanding)...........                      12.78
                                                         ============
</Table>

STATEMENT OF OPERATIONS
For the Year Ended August 31, 2004

<Table>
<S>                                        <C>            <C>
INVESTMENT INCOME
Dividends................................                 $  6,296,065
Interest.................................                       45,618
                                                          ------------
                                                             6,341,683
Less: Taiwan withholding tax (Note 1)....                   (1,250,771)
                                                          ------------
 Total Income............................                    5,090,912
EXPENSES:
Management fee (Note 3)
 Basic fee...............................  $  2,878,682
 Performance adjustment..................      (599,029)
Custodian fees and expenses..............       377,790
Administration and accounting fees (Note
 3)......................................       222,150
Directors compensation (Note 3)..........       412,655
Legal....................................       479,446
Audit....................................       112,334
Shareholder communications...............         5,554
Insurance fees...........................        74,617
Delaware franchise tax...................        49,679
Miscellaneous............................        16,016
Transfer agent fees......................        16,511
Taiwan stock dividend tax (Note 1).......       569,342
                                           ------------
 Total expenses..........................                    4,615,747
                                                          ------------
 NET INVESTMENT INCOME...................                      475,165
                                                          ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
 INVESTMENTS (NOTE 1)
Net realized gain (loss) on:
 Investment securities...................    23,795,853
 Foreign currency transactions...........       (34,517)
                                           ------------
                                                            23,761,336
Change in net unrealized appreciation
 (depreciation) on:
 Investment securities...................   (26,013,323)
 Assets and liabilities denominated in
   foreign currencies....................        (6,070)
                                           ------------
                                                           (26,019,393)
                                                          ------------
Net realized and unrealized loss.........                   (2,258,057)
                                                          ------------
NET DECREASE IN NET ASSETS RESULTING FROM
 OPERATIONS..............................                 $ (1,782,892)
                                                          ============
</Table>

    The accompanying notes are an integral part of the financial statements.  13
<PAGE>

    FINANCIAL STATEMENTS (continued)

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

STATEMENTS OF CHANGES IN NET ASSETS

<Table>
<Caption>
                                                                Year Ended         Year Ended
                                                              August 31, 2004    August 31, 2003
                                                              ---------------    ---------------
<S>                                                           <C>                <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
 Net investment income (loss)...............................   $    475,165       $     19,021(a)
 Net realized gain (loss) on investments and foreign
   currency transactions....................................     23,761,336        (18,213,889)
 Change in net unrealized appreciation (depreciation) on
   investments and foreign currency transactions............    (26,019,393)        43,111,605
                                                               ------------       ------------
 Net increase (decrease) in net assets resulting from
   operations...............................................     (1,782,892)        24,916,737(a)
                                                               ------------       ------------
NET ASSETS
 Beginning of period........................................    210,948,696(a)     186,031,959(a)
                                                               ------------       ------------
 End of period..............................................    209,165,804        210,948,696(a)
                                                               ============       ============
 Undistributed net investment income
 End of period..............................................   $  1,597,555       $  1,099,472(a)
                                                               ============       ============
</Table>

(a)  Restated (Note 6).

 14 The accompanying notes are an integral part of the financial statements.
<PAGE>

    FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS

<Table>
<Caption>
                                                                    Year Ended August 31,
                                          -------------------------------------------------------------------------
                                            2004         2003           2002                  2001         2000(d)
                                          --------     --------       --------              --------       --------
<S>                                       <C>          <C>            <C>                   <C>            <C>
SELECTED PER SHARE DATA
Net asset value, beginning of period....  $  12.89(c)  $  11.37(c)    $  10.81(c)           $  21.49(c)    $  21.67(c)
                                          --------     --------       --------              --------       --------
Income from Investment Operations
 Net investment income (loss)(a)........      0.03         0.00(c)       (0.12)(c)             (0.22)(c)      (0.35)(c)
 Net realized and unrealized gain (loss)
   on investments.......................     (0.14)        1.52           0.68                (10.26)          0.17
                                          --------     --------       --------              --------       --------
 Total from investment operations.......     (0.11)        1.52(c)        0.56(c)             (10.48)(c)      (0.18)(c)
                                          --------     --------       --------              --------       --------
Less Distributions
 From net realized gains................        --           --             --                 (0.20)            --
                                          --------     --------       --------              --------       --------
 Total distribution.....................        --           --             --                 (0.20)            --
                                          --------     --------       --------              --------       --------
Net asset value, end of period..........  $  12.78     $  12.89(c)    $  11.37(c)           $  10.81(c)    $  21.49(c)
                                          ========     ========       ========              ========       ========
Market value, end of period.............  $  10.99     $  11.09       $   9.27              $   9.88       $  17.63
                                          ========     ========       ========              ========       ========
TOTAL RETURN
Per share market value..................     (0.90)%      19.63%         (6.17)%              (43.16)%        (3.75)%
RATIO AND SUPPLEMENTAL DATA
Net assets, end of period (000
 omitted)...............................  $209,166     $210,949(c)    $186,032(c)           $176,945(c)    $351,741(c)
Ratio of expenses to average net
 assets(b)..............................      2.07%        2.05%(c)       2.20%(c)              2.69%(c)       2.28%(c)
Ratio of expenses to average net assets,
 excluding stock dividend tax expense...      1.82%        1.76%(c)       1.98%(c)              2.21%(c)       1.92%(c)
Ratio of net investment income (loss) to
 average net assets.....................      0.21%        0.01%(c)      (0.97)%(c)            (1.56)%(c)     (1.52)%(c)
Portfolio turnover rate.................        76%         148%           167%                  125%           139%
</Table>

(a)  Based on average shares outstanding during the period.
(b)  Expense ratio includes 20% tax paid on stock dividends received by the
     Fund.
(c)  Restated (Note 6).
(d)  Unaudited.

    The accompanying notes are an integral part of the financial statements.  15
<PAGE>

    NOTES TO FINANCIAL STATEMENTS

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

1. SIGNIFICANT ACCOUNTING POLICIES
The Taiwan Fund, Inc. (the "Fund"), a Delaware corporation, is registered under
the Investment Company Act of 1940, as amended (the "Act") as a diversified
closed-end management investment company.

The Fund is not permitted to invest directly in the securities of Republic of
China ("ROC") companies. Therefore, it invests through a contractual securities
investment trust fund arrangement. This arrangement was established by means of
the Securities Investment Trust, Investment Management and Custodian Contract
("Management Contract") among HSBC Asset Management (Taiwan) Limited
("Adviser"), the International Commercial Bank of China (Custodian) and the
Fund. Under the Management Contract, the Adviser manages and invests the assets
of the Fund and the Custodian holds the assets. The Fund is the sole beneficiary
of the assets held under the Management Contract and, as required by ROC
regulations, its interest in the assets is evidenced by units of beneficial
interest.

The Fund concentrates its investments in the securities listed on the Taiwan
Stock Exchange. Because of this concentration, the Fund may be subject to
additional risks resulting from future political or economic conditions in
Taiwan and the possible imposition of adverse governmental laws of currency
exchange restrictions affecting Taiwan.

The policies described below are consistently followed by the Fund in the
preparation of its financial statements in conformity with accounting principles
generally accepted in the United States of America.

Security Valuation.  All securities, including those traded over-the-counter for
which market quotations are readily available, are valued at the last sales
price prior to the time of determination of the Fund's net asset value per share
or, if there were no sales on such date, at the closing price quoted for such
securities (but if bid and asked quotations are available, at the mean between
the last current bid and asked prices, rather than such quoted closing price).
In certain instances where the price determined above may not represent fair
market value, the value is determined in such manner as the Board of Directors
may prescribe. Short-term investments, having a maturity of 60 days or less, are
valued at amortized cost, which approximates market value, with accrued interest
or discount earned included in interest receivable.

Repurchase Agreements.  In connection with transactions in repurchase
agreements, it is the Fund's policy that its custodian take possession of the
underlying collateral securities, the fair value of which exceeds the principal
amount of the repurchase transaction, including accrued interest, at all times.
If the seller defaults, and the fair value of the collateral declines,
realization of the collateral by the Fund may be delayed or limited by legal
proceedings.

Foreign Currency Translation.  The financial accounting records of the Fund are
maintained in U.S. dollars. Investment securities, other assets and liabilities
denominated in a foreign currency are translated into U.S. dollars at the
current exchange rate. Purchases and sales of securities, income receipts and
expense payments are translated into U.S. dollars at the exchange rate on the
dates of the transactions.

Reported net realized gains and losses on foreign currency transactions
represent net gains and losses from disposition of foreign currencies, currency
gains and losses realized between the trade dates and settlement dates of
security transactions, and the difference between the amount of net investment
income accrued and the U.S. dollar amount actually received. The effects of
changes in foreign currency exchange rates on investments in securities are not
segregated in the Statement of Operations from the effects of changes in market
prices of those securities, but are included in realized and unrealized gain or
loss on investments in securities.

Forward Foreign Currency Transactions.  A forward foreign currency contract
("Forward") is an agreement between two parties to buy or sell currency at a set
price on a future

 16
<PAGE>

    NOTES TO FINANCIAL STATEMENTS (continued)

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

1. SIGNIFICANT ACCOUNTING POLICIES - continued

date. The Fund may enter into Forwards in order to hedge foreign currency risk
or for other risk management purposes. Realized gains or losses on Forwards
include net gains or losses on contracts that have matured or which the Fund has
terminated by entering into an offsetting closing transaction. Unrealized
appreciation or depreciation of Forwards is included in the Statement of Assets
and Liabilities and is measured by the difference between the forward foreign
exchange rates at the dates of entry into the contracts and the rates at the
reporting date. The portfolio could be exposed to risk of loss if the
counterparty is unable to meet the terms of the contract or if the value of the
currency changes unfavorably. As of August 31, 2004, the Fund had no open
Forwards.

Indemnification Obligations.  Under the Trust's organizational documents, its
Officers and Trustees are indemnified against certain liabilities arising out of
the performance of their duties to the Trust. In addition, in the normal course
of business the Trust enters into contracts that provide general
indemnifications to other parties. The Trust's maximum exposure under these
arrangements is unknown as this would involve future claims that may be made
against the Trust that have not yet occurred.

Taxes.  As a qualified regulated investment company under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the extent
that it distributes all of its investment company taxable income and net
realized capital gains for its fiscal year. In addition to federal income tax
for which the Fund is liable on undistributed amounts, the Fund is subject to
federal excise tax on undistributed investment company taxable income and net
realized capital gains. The Schedule of Investments includes information
regarding income taxes under the caption "Income Tax Information." The Fund is
organized in Delaware and as such is required to pay Delaware an annual
franchise tax. Also, the Fund is currently subject to a Taiwan security
transaction tax of 0.3% on equities and 0.1% on mutual fund shares of the
transaction amount.

The Fund's functional currency for tax reporting purposes is the New Taiwan
dollar.

Investment Income.  Dividend income is recorded on the ex-dividend date or, for
certain dividends from foreign securities, when the Fund is informed of the
ex-dividend date.

Taiwanese companies typically declare dividends in the Fund's third fiscal
quarter of each year. As a result, the Fund receives substantially less dividend
income in the first half of its year. Interest income, which includes
amortization of premiums and accretion of discounts on debt securities, is
accrued as earned.

Dividend and interest income generated in Taiwan is subject to a 20% withholding
tax. Stock dividends received (except those which have resulted from
capitalization of capital surplus) are taxable at 20% of the par value of the
stock dividends received.

Distributions to Shareholders.  The distributable income from the assets held
under the Management Contract, which is limited to cash dividends and interest
income received, may be distributed to the Fund only once in each year at the
Fund's discretion and is recorded on the ex-dividend date. Realized capital
gains and stock dividends may also be distributed to the Fund. Within the above
limitations the Fund will, under current ROC regulations, be able to remit out
of the ROC the proceeds of income and capital gains distributions, unit
redemptions and other distributions of assets held under the Management
Contract.

The Fund distributes to shareholders at least annually, substantially all of its
taxable ordinary income and expects to distribute its taxable net realized
gains. Pursuant to the Dividend Reinvestment and Cash Purchase Plan (the
"Plan"), shareholders may elect to have all distributions automatically
reinvested in Fund shares. (See the summary of the Plan.) Shareholders who do
not participate in the

                                                                              17
<PAGE>

    NOTES TO FINANCIAL STATEMENTS (continued)

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

1. SIGNIFICANT ACCOUNTING POLICIES - continued

Plan will receive all distributions in cash paid by check in U.S. dollars.
Income and capital gain distributions are determined in accordance with income
tax regulations, which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments for foreign currency
transactions, losses deferred due to wash sales and excise tax regulations.
Permanent book and tax basis differences relating to shareholder distributions
will result in reclassifications to the Fund's components of net assets and
capital.

Security Transactions.  Security transactions are accounted for as of the trade
date. Gains and losses on securities sold are determined on the basis of
identified cost.

Use of Estimates.  The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.

2. PURCHASES AND SALES OF SECURITIES

For the fiscal year ended August 31, 2004, purchases and sales of securities,
other than short-term securities, aggregated $161,200,856 and $162,482,929,
respectively.

3. FEES AND OTHER TRANSACTIONS WITH AFFILIATES

Management Fee.  As the Fund's investment adviser, HSBC receives a fee that is
computed daily at an annual rate of 1.30% of the Fund's average net assets. The
basic fee is subject to a performance adjustment (up to a maximum of +/-0.30%)
based on the Fund's investment performance as compared to the Taiwan Stock
Exchange Index over a rolling 36-month period.

For the year ended August 31, 2004, the management fee, including the
performance adjustments, was equivalent to an annual rate of 1.02% of average
net assets.

Directors Fees.  No director, officer or employee of the Adviser or its
affiliates will receive any compensation from the Fund for serving as an
director or officer of the Fund. The Fund pays each of its directors who is not
a director, officer or employee of the Adviser an annual fee of $10,000 plus
$2,000 for each Board of Directors meeting or Audit Committee meeting attended,
and $1,000 for each meeting attended by telephone. In addition, the Fund will
reimburse each of the directors for travel and out-of-pocket expenses incurred
in connection with Board of Directors meetings.

Administration Fees.  State Street Corporation ("State Street") provides or
arranges for the provision of certain administrative and accounting services for
the Fund, including maintaining the books and records of the Fund, and preparing
certain reports and other documents required by federal and/or state laws and
regulations. The Fund pays State Street a fee at the annual rate of 0.11% of the
Fund's average daily net assets up to $150 million, 0.08% of the next $150
million and 0.05% of those assets in excess of $300 million, subject to certain
minimum requirements.

4. FUND SHARES

At August 31, 2004, there were 20,000,000 shares of $0.01 par value capital
stock authorized, of which 16,365,572 were issued and outstanding.

5. DISTRIBUTIONS

The Fund did not pay any distributions to shareholders during the year ended
August 31, 2004. As of August 31, 2004, the components of distributable earnings
on a tax basis were $498,083 of Undistributed Ordinary Income, $0 of
Undistributed Long-Term Capital Gain, $34,092,984 of Unrealized Appreciation and
($70,271,664) of accumulated capital and other losses.

The difference between book basis and tax basis unrealized appreciation and
depreciation is attributable primarily to the tax deferral of losses on wash
sales.

 18
<PAGE>

    NOTES TO FINANCIAL STATEMENTS (continued)

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

6. PRIOR PERIODS RESTATEMENT

The Fund has restated its statement of changes in net assets for the year ended
August 31, 2003 and its financial highlights for the years ended August 31, 2000
through 2003 to reflect correction of errors in the calculation of management
fee performance adjustments recorded by the Fund during these years and prior.
The incorrect performance adjustments were calculated based on average net
assets of the Fund over a period different than that stipulated in the
management contract and resulted in overpayments being made to the investment
adviser. The Fund recorded a receivable at August 31, 2004 for these net
overpayments. The cumulative effect at September 1, 1999, and the yearly net
effect, of these corrections on net assets, net asset value per share and the
ratio of expenses were as follows:

<Table>
<Caption>
                                      NAV PER   EXPENSE
                         NET ASSETS    SHARE     RATIO
                         ----------   -------   -------
<S>                      <C>          <C>       <C>
Cumulative effect at
  September 1, 1999....  $1,088,492   $ 0.06       n/a
Effect on Year Ended
  August 31, 2000......      58,392     0.01     (0.02)%
Effect on Year Ended
  August 31, 2001......    (163,948)   (0.01)     0.06%
Effect on Year Ended
  August 31, 2002......      (4,479)    0.00      0.00%
Effect on Year Ended
  August 31, 2003......     121,015     0.01     (0.07)%
</Table>

                                                                              19
<PAGE>

    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------

The Board of Directors and Shareholders
The Taiwan Fund, Inc.:

We have audited the accompanying statement of assets and liabilities of The
Taiwan Fund, Inc., including the Fund's investments, as of August 31, 2004, and
the related statement of operations for the year then ended, statements of
changes in net assets for each of the years in the two-year period then ended
and financial highlights for each of the years in the four-year period then
ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of August 31, 2004 by correspondence with the custodian. As
to securities purchased or sold but not yet received or delivered, we performed
other appropriate auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects the financial position of The
Taiwan Fund, Inc. as of August 31, 2004, the results of its operations for the
year then ended, the changes in its net assets for each of the years in the
two-year period then ended and financial highlights for each of the years in the
four-year period then ended, in conformity with accounting principles generally
accepted in the United States of America.

[KPMG LOGO]

Boston, Massachusetts
October 27, 2004

 20
<PAGE>

    OTHER INFORMATION (unaudited)
- --------------------------------------------------------------------------------

SHARE REPURCHASE PROGRAM

The Board of Directors of the Fund, at a meeting held on April 23, 2001,
authorized the Fund to repurchase up to 15% of the Fund's outstanding shares of
common stock. The Fund will purchase such shares in the open market at times and
prices determined by management of the Fund to be in the best interest of
stockholders of the Fund. As of August 31, 2004, no shares have been repurchased
by the Fund.

PRIVACY POLICY

                                 PRIVACY NOTICE

The Taiwan Fund, Inc. collects nonpublic personal information about its
shareholders from the following sources:

[ ] Information it receives from shareholders on applications or other forms;
[ ] Information about shareholder transactions with the Fund, its affiliates, or
    others; and
[ ] Information it receives from a consumer reporting agency.

THE FUND'S POLICY IS TO NOT DISCLOSE NONPUBLIC PERSONAL INFORMATION ABOUT ITS
SHAREHOLDERS TO NONAFFILIATED THIRD PARTIES (OTHER THAN DISCLOSURES PERMITTED BY
LAW).

The Fund restricts access to nonpublic personal information about its
shareholders to those agents of the Fund who need to know that information to
provide products or services to shareholders. The Fund maintains physical,
electronic, and procedural safeguards that comply with federal standards to
guard it shareholders' nonpublic personal information.

PROXY VOTING POLICIES AND PROCEDURES

A description of the policies and procedures that are used by the Fund's
investment adviser to vote proxies relating to the Fund's portfolio securities
is available (1) without charge, upon request, by calling 1-800-636-9242; and
(2) as an exhibit to the Fund's annual report on Form N-CSR which is available
on the website of the Securities and Exchange Commission (the "Commission") at
http://www.sec.gov. Information regarding how the investment adviser votes these
proxies is now available by calling the same number and on the Commission's
website. The Fund has filed its first report on Form N-PX covering the Fund's
proxy voting record for the 12-month period ending June 30, 2004.

QUARTERLY PORTFOLIO ON INVESTMENTS

Beginning November 30, 2004, a Portfolio of Investments will be filed as of the
end of the first and third quarter of each fiscal year on Form N-Q and will be
available on the Securities and Exchange Commission's website at
http://www.sec.gov. Additionally, the Portfolio of Investments may be reviewed
and copied at the Commission's Public Reference Room in Washington, DC.
Information on the operation of the Public Reference Room may be obtained by
calling 1.800.SEC.0330. The quarterly Portfolio of Investments will be made
available with out charge, upon request, by calling 866.443.6337.

                                                                              21
<PAGE>

    SUMMARY OF DIVIDEND REINVESTMENT AND

    CASH PURCHASE PLAN
- --------------------------------------------------------------------------------

WHAT IS THE DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN?

The Dividend Reinvestment and Cash Purchase Plan (the "Plan") offers
shareholders of The Taiwan Fund, Inc. (the "Fund") a prompt and simple way to
reinvest their dividends and capital gains distributions in shares of the Fund.
The Fund will distribute to shareholders, at least annually, substantially all
of its net income and expects to distribute annually its net realized capital
gains. Equiserve Trust Company, N.A. ("Equiserve" or the "Plan Administrator"),
a federally chartered trust institution, acts as Plan Administrator for
shareholders in administering the Plan. The Plan also allows you to make
optional cash investments in Fund shares through the Plan Administrator.

WHO CAN PARTICIPATE IN THE PLAN?

If you own shares in your own name, you can elect to participate directly in the
Plan. If you own shares that are held in the name of a brokerage firm, bank, or
other nominee, you should contact your nominee to arrange for them to
participate on your behalf.

WHAT DOES THE PLAN OFFER?

The Plan has two components; reinvestment of dividends and capital gains
distributions, and a voluntary cash purchase feature.

REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

If you choose to participate in the Plan, your dividends and capital gains
distributions will be promptly invested for you, automatically increasing your
holdings in the Fund. If the Fund declares a dividend or capital gains
distribution payable in cash, you will automatically receive shares purchased by
the Plan Administrator on the New York Stock Exchange or otherwise on the open
market.

If a distribution is declared which is payable in shares or cash at the option
of the shareholder and if on the valuation date (generally the payable date) the
market price of shares is equal to or exceeds their net asset value, the Fund
will issue new shares to you at the greater of the following: (a) net asset
value per share or (b) 95% of the market price per share. If the market price
per share on the valuation date is less than the net asset value per share, the
Fund will issue new shares to you at the market price per share on the valuation
date.

All reinvestments are in full and fractional shares, carried to three decimal
places. In the case of foreign (non-U.S.) shareholders, reinvestment will be
made net of applicable withholding tax.

VOLUNTARY CASH PURCHASE OPTION

Plan participants have the option of making investments in Fund shares through
the Plan Administrator. You may invest any amount from $100 to $3,000
semi-annually. The Plan Administrator will purchase shares for you on the New
York Stock Exchange or otherwise on the open market on or about February 15 and
August 15. If you hold shares in your own name, you should deal directly with
the Plan Administrator. We suggest you send your check to the following address
to be received on or about February 5 or August 5 to allow time for processing:
Equiserve, c/o The Taiwan Fund, Inc. at P.O. Box 43010, Providence, RI
02940-3010. The Plan Administrator will return any cash payments received more
than thirty days prior to February 15 or August 15, and you will not receive
interest on uninvested cash payments. If you own shares that are held in the
name of a brokerage firm, bank, or other nominee, you should contact your
nominee to arrange for them to participate in the cash purchase option on your
behalf.

 22
<PAGE>
    SUMMARY OF DIVIDEND REINVESTMENT AND

    CASH PURCHASE PLAN (continued)
- --------------------------------------------------------------------------------

IS THERE A COST TO PARTICIPATE?

Each participant will pay a pro rata portion of brokerage commissions payable
with respect to purchases of shares by the Plan Administrator on the New York
Stock Exchange or otherwise on the open market. Otherwise, there is no charge to
participants for reinvesting dividends and capital gains distributions, since
the Plan Administrator's fees are paid by the Fund. Brokerage charges for
purchasing shares through the Plan are expected to be less than the usual
brokerage charges for individual transactions, because the Plan Administrator
will purchase stock for all participants in blocks, resulting in lower
commissions for each individual participant.

For purchases from voluntary cash payments, participants are charged a service
fee of $.75 for each investment and a pro rata share of the brokerage
commissions.

Brokerage commissions and service fees, if any, will be deducted from amounts to
be invested.

WHAT ARE THE TAX IMPLICATIONS FOR PARTICIPANTS?

You will receive tax information annually for your personal records and to help
you prepare your federal income tax return. The automatic reinvestment of
dividends and capital gains distributions does not relieve you of any income tax
which may be payable on dividends or distributions.

If the Fund issues shares upon reinvestment of a dividend or capital gains
distribution, for U.S. federal income tax purposes, the amount reportable in
respect of the reinvested amount of the dividend or distribution will be the
fair market value of the shares received as of the payment date, which will be
reportable as ordinary dividend income and/or long term capital gains. The
shares will have a tax basis equal to such fair market value, and the holding
period for the shares will begin on the day after the payment date. State, local
and foreign taxes may also be applicable.

ONCE ENROLLED IN THE PLAN, MAY I WITHDRAW FROM IT?

You may withdraw from the Plan without penalty at any time by written notice to
the Plan Administrator.

If you withdraw, you will receive, without charge, stock certificates issued in
your name for all full shares, or, if you wish, the Plan Administrator will sell
your shares and send you the proceeds, less a service fee of $2.50 and less
brokerage commissions. The Plan Administrator will convert any fractional shares
you hold at the time of your withdrawal to cash at the current market price and
send you a check for the proceeds.

WHOM SHOULD I CONTACT FOR ADDITIONAL INFORMATION?

If you hold shares in your own name, please address all notices, correspondence,
questions, or other communications regarding the Plan to: Equiserve, c/o The
Taiwan Fund, Inc. at P.O. Box 43010, Providence, RI 02940-3010, 1-800-426-5523.
If your shares are not held in your name, you should contact your brokerage
firm, bank, or other nominee for more information and to arrange for them to
participate in the Plan on your behalf.

Either the Fund or the Plan Agent may amend or terminate the Plan. Except in the
case of amendments necessary or appropriate to comply with applicable law, rules
or policies or a regulatory authority, participants will be mailed written
notice at least 90 days before the effective date of any amendment. In the case
of termination, participants will be mailed written notice at least 90 days
before the record date of any dividend or capital gains distribution by the
Fund.

                                                                              23
<PAGE>

    DIRECTORS AND OFFICERS (Unaudited)

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

The following table sets forth certain information concerning each of the
directors and officers of the Fund.

<Table>
<Caption>
                                                             PRINCIPAL
                                                      OCCUPATION OR EMPLOYMENT
NAME, ADDRESS            PRESENT OFFICE    DIRECTOR         DURING PAST             DIRECTORSHIPS IN
AND (AGE)                 WITH THE FUND     SINCE            FIVE YEARS          PUBLICLY-HELD COMPANIES
- -------------            --------------    --------   ------------------------   -----------------------
<S>                      <C>               <C>        <C>                        <C>
Shao-Yu Wang (80)        Chairman of the     1986     Chairman of the Board of   --
Apt. 5H                  Board and                    Trustees, Soochow
No. 56 Tun Hwa           Director                     University
South Road, Section 2                                 (1987-present); Chairman
Taipei, Taiwan, ROC                                   of the Board of
                                                      Trustees, Min Chuan
                                                      University,
                                                      (1986-present); Chairman
                                                      of the Board of
                                                      Trustees, Fu-Dan High
                                                      School (1986-present)
                                                      Chairman, Evernew
                                                      Biotech, Inc. (1985-
                                                      Present); Director, TSR
                                                      Corp. (1985-present)
David Dean (77)          Director            1991     Senior Advisor of the      --
8361 B. Greensboro                                    Chiang-Ching-Kuo
Drive                                                 Foundation
McLean, Virginia 22102                                (1990-present)
Lawrence J. Lau (58)     Director            1998     Vice-Chancellor, The       Director, Media
Room 101, University                                  Chinese University of      Partners International
Administration                                        Hong Kong (July 1, 2004-   Holdings, Inc.
Building,                                             present); Kwoh-Ting Li     (2001-2004)
The Chinese University                                Professor of Economic
of Hong Kong,                                         Development, Stanford
Shatin, New Territories                               University
Hong Kong, China                                      (1992-present);
                                                      Director, Stanford
                                                      Institute for Economic
                                                      Policy Research at
                                                      Stanford University
                                                      (1997-1999)
</Table>

 24
<PAGE>

    DIRECTORS AND OFFICERS (continued) (unaudited)

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

<Table>
<Caption>
                                                             PRINCIPAL
                                                      OCCUPATION OR EMPLOYMENT
NAME, ADDRESS            PRESENT OFFICE    DIRECTOR         DURING PAST             DIRECTORSHIPS IN
AND (AGE)                 WITH THE FUND     SINCE            FIVE YEARS          PUBLICLY-HELD COMPANIES
- -------------            --------------    --------   ------------------------   -----------------------
<S>                      <C>               <C>        <C>                        <C>
Joe O. Rogers (55)       Director            1986     Manager, The J-Squared     Director, The China
2477 Foxwood Drive                                    Team LLC (2003-present)    Fund, Inc.
Chapel Hill, NC 27514                                 The Rogers Team LLC,       (1992-present)
                                                      Organizing Member (July
                                                      2001-present); Executive
                                                      Vice President, Business
                                                      Development, Planet
                                                      Portal Inc. (September
                                                      1999-May 2001);
                                                      President, Rogers
                                                      International, Inc.
                                                      (September 1986-
                                                      September 1999); Vice
                                                      President, Business
                                                      Development, Thomson
                                                      Consulting (1998-1999)
Jack C. Tang (75)        Director            1989     Honorary Chairman (April   --
Tristate Holdings Ltd.                                2001-present),
66-72 Lei Muk Road                                    Co-Chairman (April 1999-
Kwai Chung                                            April 2001), Chairman &
New Territories                                       CEO (June 1998-April
Hong Kong                                             1999), Chairman Emeritus
                                                      (January 1997-June
                                                      1998), Tristate Holdings
                                                      Ltd.
Lawrence F. Weber (69)   Director            1995     Independent Consultant     --
156 Ide Rd.                                           (1993-present)
Williamstown, MA 01267
M. Christopher Canavan,  Director            2003     Independent Consultant     Director and Chairman
Jr. (66)                                              (2000-present); Partner,   of Audit Committee,
73 Brook Street                                       Pricewaterhouse Coopers    Bruker Biosciences,
Wellesley, MA 02482                                   LLP (Coopers & Lybrand)    Inc.
                                                      (1972-1999)
Anthony Kai Yiu Lo (55)  Director            2003     Founder and Director,      Member of Listing
1201 Sun Hung Kai                                     Advantage Ltd. (August     Committee, Stock
Centre                                                2004-present); Founder     Exchange of Hong Kong
30 Harbor Road                                        and Managing Director,     Ltd. (1996-present)
Wanchai, Hong Kong                                    Advantage Ltd. (1999-
                                                      August 2004); Vice
                                                      Chairman, ABN Amro HG
                                                      Asia Ltd. (1998-1999)
</Table>

                                                                              25
<PAGE>

    DIRECTORS AND OFFICERS (continued) (unaudited)

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

<Table>
<Caption>
                                                              PRINCIPAL
                                                       OCCUPATION OR EMPLOYMENT
NAME, ADDRESS             PRESENT OFFICE    DIRECTOR         DURING PAST             DIRECTORSHIPS IN
AND (AGE)                 WITH THE FUND      SINCE            FIVE YEARS          PUBLICLY-HELD COMPANIES
- -------------             --------------    --------   ------------------------   -----------------------
<S>                      <C>                <C>        <C>                        <C>

*Benny T. Hu (54)        President and        1993     Chairman, China            Director, Compal
30 F, 99 Tun Hwa         Director                      Development Industrial     Electronics Inc. (2003-
South Road, Section 2                                  Bank (June                 present); Supervisor,
Taipei, Taiwan, ROC                                    2003-present); Chairman,   Winbond Electronics
                                                       China Development Asset    Corp. (2002-present);
                                                       Management Corp. (June     Director, China
                                                       2001-present);             Development Financial
                                                       Ambassador-at-Large,       Holding Corp. (June
                                                       Republic of China (May     2001-present)
                                                       2001-present)
**Adelina N.Y. Louie     Secretary and        2004     Vice President, Custody    --
(38)                     Treasurer                     & Clearing, HSBC
99 Tun Hwa South                                       (Philippines) Ltd. (May
Road, Section 2                                        1998-June 2000); Senior
Taipei, Taiwan, ROC                                    Vice President, Custody
                                                       & Clearing, HSBC
                                                       (Indonesia) Limited
                                                       (June 2000-February
                                                       2002) Area Commercial
                                                       Manager, HSBC (U.K.)
                                                       Ltd. (February
                                                       2002-February 2004)
                                                       Chief Operating Officer,
                                                       HSBC Asset Management
                                                       (Taiwan) Ltd. (March
                                                       2004-Present)
***Gloria Wang (48)      Director             1998     President, HSBC Asset      --
99 Tun Hwa South                                       Management (Taiwan)
Road, Section 2                                        Limited (February 2002-
Taipei, Taiwan, ROC                                    Present); Vice
                                                       President, HSBC Asset
                                                       Management (Taiwan)
                                                       Limited (1996-February
                                                       2002); Secretary and
                                                       Treasurer of the Fund
                                                       (1994-October 1998);
</Table>

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

*   Director is considered to be an "interested person" (as defined in the
    Investment Company Act of 1940, as amended (the "1940 Act")) of the Fund or
    of the Fund's investment adviser. Mr. Hu is considered to be an interested
    person because he is the President of the Fund.

**  Ms. Carol Wang resigned as the Fund's Secretary and Treasurer effective May
    25, 2004 and Adelina Louie was elected by the Board of Directors as the new
    Secretary and Treasurer of the Fund on the same day.

*** Ms. Gloria Wang resigned as President of HSBC Asset Management (Taiwan)
    Limited and Director of the Fund effective June 30, 2004. Ms. Wang is deemed
    to be an interested person because of her affiliation with the Fund's
    investment adviser.

 26
<PAGE>

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

    UNITED STATES ADDRESS
    The Taiwan Fund, Inc.
    225 Franklin Street
    Boston, MA
    1-800-636-9242
    www.thetaiwanfund.com

    INVESTMENT ADVISER
    HSBC Asset Management (Taiwan) Limited
    Taipei, Taiwan

    DIRECTORS AND OFFICERS
    S.Y. Wang, Chairman of the Board and Director
    Benny T. Hu, President and Director
    David Dean, Director
    Joe O. Rogers, Director
    Jack C. Tang, Director
    Lawrence J. Lau, Director
    Lawrence F. Weber, Director
    M. Christopher Canavan, Jr., Director
    Anthony Kai Yiu Lo, Director
    Adelina N.Y. Louie, Secretary and Treasurer
    Leonard B. Mackey, Jr., Assistant Secretary

    ADMINISTRATOR AND ACCOUNTING AGENT
    State Street Bank and Trust Company
    Boston, MA

    CUSTODIANS
    The International Commercial Bank of China
    Taipei, Taiwan
    State Street Bank and Trust Company
    Boston, MA

    TRANSFER AGENT, DIVIDEND PAYING AGENT AND REGISTRAR
    Equiserve Trust Company, N.A.

    LEGAL COUNSEL
    Clifford Chance US LLP
    New York, NY
    Lee and Li
    Taipei, Taiwan

    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
    KPMG LLP
    Boston, MA
<PAGE>
ITEM 2.  CODE OF ETHICS.

(a) The registrant has adopted a code of ethics (the "Code of Ethics") that
applies to the registrant's principal executive officer and principal financial
and accounting officer. A copy of the registrant's Code of Ethics is attached
hereto as Exhibit 11(a).

(b)      No information need be disclosed pursuant to this paragraph.

(c) The registrant has not amended the Code of Ethics during the period covered
by the shareholder report presented in Item 1 hereto.

(d)      The registrant has not granted a waiver or an implicit waiver from a
provision of its Code of Ethics.

(e)      Not applicable.

(f) (1)  The Code of Ethics is attached hereto as Exhibit 11(a).

    (2)  Not applicable.

    (3)  Not applicable.

ITEM 3.  AUDIT COMMITTEE FINANCIAL EXPERT.

The registrant's board of directors has determined that the registrant has at
least one audit committee financial expert serving on its audit committee. The
audit committee financial expert is M. Christopher Canavan, Jr. who is
"independent" for purposes of this item.

ITEM 4.  PRINCIPAL ACCOUNTANT FEES AND SERVICES.

(a)(b)(c)(d) and (g).  Based on fees billed for the periods shown:

<TABLE>
<CAPTION>

<S>                                                         <C>                   <C>
           2004
                                                            REGISTRANT            COVERED ENTITIES(1)
              AUDIT FEES..................................  $47,500               N/A

              NON-AUDIT FEES
                       AUDIT-RELATED FEES.................  $47,500(2)            $  --
                       TAX FEES...........................  $10,500(3)            $  --
                       ALL OTHER FEES.....................  $  --                 $  --
              TOTAL NON-AUDIT FEES........................  $58,000               $  --

              TOTAL.......................................  $105,500              $  --

           2003
                                                            REGISTRANT            COVERED ENTITIES(1)
              AUDIT FEES..................................  $45,000               N/A

</TABLE>

                                       3
<PAGE>
<TABLE>
<CAPTION>


<S>                                                         <C>                   <C>
              NON-AUDIT FEES
                       AUDIT-RELATED FEES.................  $  5,000(2)           $  --
                       TAX FEES...........................  $  9,500(3)           $  --
                       ALL OTHER FEES.....................  $   --                $  --
              TOTAL NON-AUDIT FEES........................  $14,500               $  --

              TOTAL.......................................  $59,500               $  --

</TABLE>

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

              N/A- Not applicable, as not required by Item 4.

              (1) "Covered Entities" include the registrant's investment adviser
                  (excluding any sub-adviser whose role is primarily portfolio
                  management and is subcontracted with or overseen by another
                  investment adviser) and any entity controlling, controlled by
                  or under common control with the registrant's adviser that
                  provides ongoing services to the registrant.

              (2) Audit-Related Fees represent procedures applied to the
                  semi-annual financial statement amounts (reading the
                  semi-annual report and valuation and existence procedures on
                  investments) as requested by the registrant's audit committee
                  amounting to $6,000 in 2004 and $5,000 in 2003. The 2004
                  amounts also include agreed-upon procedures engagements
                  performed to the registrant's performance calculations
                  (recalculation of the registrant's performance) included in
                  its monthly reports posted to the registrant's website. Total
                  fees received for the agreed-upon procedures engagements were
                  $41,500, of which $20,000 was paid by the registrant's service
                  providers and not charged to the registrant.

              (3) Tax Fees represent fees received for tax compliance services
                  provided to the registrant, including the review of tax
                  returns.

(e)(1)   Before the registrant's principal accountant is engaged to render audit
         or non-audit services to the registrant and non-audit services to the
         registrant's investment adviser and its affiliates, each engagement is
         approved by the registrant's audit committee.

(e)(2)   100% of the services described in each of (b) through (d) of this Item
         4 were approved by the registrant's audit committee pursuant to
         paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.

(f)      Not applicable.

(g)      See table above.

(h)      The registrant's audit committee of the board of directors has
         considered whether the provision of non-audit services that were
         rendered to Covered Entities that were not pre-approved pursuant to
         paragraph (C)(7)(ii) of Rule 2-01 of

                                       4
<PAGE>



         Regulation S-X is compatible with maintaining the auditors'
         independence in performing audit services.

ITEM 5.  AUDIT COMMITTEE OF LISTED REGISTRANTS.

The registrant has a separately-designated standing audit committee established
in accordance with Section 3(a)(58)(A) of the Exchange Act. The members of the
audit committee are as follows: M. Christopher Canavan, Jr., David Dean, Anthony
Kai Yiu Lo, Joe O. Rogers, Jack C. Tang, Shao-Yu Wang and Lawrence F. Weber.

ITEM 6.  SCHEDULE OF INVESTMENTS.

A Schedule of Investments is included as part of the report to shareholders
filed under Item 1.

ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.

The registrant has delegated to its investment adviser the voting of proxies
relating to the registrant's portfolio securities. The policies and procedures
used by the investment adviser to determine how to vote proxies relating to the
registrant's portfolio securities, including the procedures used when a vote
presents a conflict of interest involving the investment adviser or any of its
affiliates, are contained in the investment adviser's Proxy Voting Guidelines,
which are attached hereto as Exhibit 11(c).

ITEM 8. PURCHASE OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.

                    REGISTRANT PURCHASES OF EQUITY SECURITIES

<TABLE>
<CAPTION>



<S>                   <C>                 <C>               <C>                      <C>
Period                (a)                 (b)               (c)                      (d)
                      Total Number of     Average Price     Total Number of Shares   Maximum Number (or Approximate
                      Shares (or Units)   Paid per Share    (or Units) Purchased     Dollar Value) of Shares (or
                      Purchased           (or Unit)         as Part of Publicity     Units) that may yet be
                                                            Announced Plans or       Purchased Under the Plans or
                                                            Programs                 Programs
September             0                   N/A               0                        0

October               0                   N/A               0                        0

November              0                   N/A               0                        0

December              0                   N/A               0                        0

January               0                   N/A               0                        0

February              0                   N/A               0                        0

March                 0                   N/A               0                        0

April                 0                   N/A               0                        0

</TABLE>

                                       5
<PAGE>
<TABLE>
<CAPTION>


<S>                   <C>                 <C>               <C>                      <C>
                      0                   N/A               0                        0
May

June                  0                   N/A               0                        0

July                  0                   N/A               0                        0

August                0                   N/A               0                        0

Total                 0                   N/A               0                        0

</TABLE>



ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

There have been no material changes to the procedures by which shareholders may
recommend nominees to the registrant's board of directors.

ITEM 10.  CONTROLS AND PROCEDURES.

(a) Within 90 days of the filing date of this Form N-CSR, Benny T. Hu, the
registrant's President, and Adelina Louie, the registrant's Treasurer, reviewed
the registrant's disclosure controls and procedures (the "Procedures") and
evaluated their effectiveness. Based on their evaluation, Mr. Hu and Ms. Louie
determined that the Procedures adequately ensure that information required to be
disclosed by the registrant in its periodic reports is recorded, processed,
summarized and reported within the time periods required by the Securities and
Exchange Commission's rules and regulations.

(b) Following the discovery of errors in the calculation of the registrant's
management fee performance adjustments dating back to the period when the
registrant first began recording management fee performance adjustments, the
registrant's administrator, investment adviser and management have modified the
procedures used to determine such performance adjustments. Going forward, the
registrant's administrator will calculate the monthly management fee performance
adjustments based on the average net assets of the registrant over the period
stipulated in the management contract. The registrant's investment adviser will
independently calculate the registrant's management and performance fees for
comparison with the administrator's records, and the registrant's management
will review the administrator's monthly calculation of such fees to ensure
adherence to the management contract. When conducting their semi-annual review,
the registrant's independent auditors will verify that the management and
performance fees accrued to the registrant during the period are reflective of
the policy set forth in the management contract.

ITEM 11.  EXHIBITS

(a)      Code of Ethics for Principal Executive and Senior Financial Officers.

(b) Certifications required by Rule 30a-2(a) of the Investment Company Act of
1940, as amended, and Section 906 of the Sarbanes-Oxley Act of 2002 are attached
hereto.

(c)      Proxy Voting Guidelines.


                                       6
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

THE TAIWAN FUND, INC.

By:      /s/ Benny T. Hu
         ------------------
         Benny T. Hu
         President of The Taiwan Fund, Inc.

Date:    November 9, 2004

Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.

By:      /s/ Benny T. Hu
         ------------------
         Benny T. Hu
         President of The Taiwan Fund, Inc.

By:      /s/ Adelina Louie
         ------------------
         Adelina Louie
         Treasurer of The Taiwan Fund, Inc.

Date:    November 9, 2004



                                       7

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.11(A)
<SEQUENCE>2
<FILENAME>b51862tnexv99w11xay.txt
<DESCRIPTION>CODE OF ETHICS
<TEXT>
<PAGE>





                                  EXHIBIT 11(a)


      CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS



I.        This Code of Ethics (the "Code") for The Taiwan Fund, Inc. (the
          "Fund") applies to the Fund's Chief Executive Officer, Chief Financial
          Officer, President and Treasurer (or persons performing similar
          functions) ("Covered Officers") for the purpose of promoting:

          -    honest and ethical conduct, including the ethical handling of
               actual or apparent conflicts of interest between personal and
               professional relationships.

          -    full, fair, accurate, timely and understandable disclosure in
               reports and documents that the Fund files with, or submits to,
               the Securities and Exchange Commission ("SEC") and in other
               public communications made by the Fund;

          -    compliance with applicable laws and governmental rules and
               regulations;

          -    prompt internal reporting of violations of the Code to an
               appropriate person or persons identified in the Code; and

          -    accountability for adherence to the Code.

          Each Covered Officer should adhere to a high standard of business
ethics and should be sensitive to situations that may give rise to actual as
well as apparent conflicts of interest. The Fund will expect all Covered
Officers to comply at all times with the principles in this Code. A violation of
this Code by an employee is grounds for disciplinary action up to and including
discharge and possible legal prosecution. Any question about the application of
the Code should be referred to the Audit Committee of the Fund's Board of
Directors (the "Audit Committee").

II.       COVERED OFFICERS SHOULD HANDLE ETHICALLY ACTUAL AND APPARENT
          CONFLICTS OF INTEREST

          OVERVIEW. A "conflict of interest" occurs when a Covered Officer's
private interest interferes with the interests of, or his service to, the Fund.
For example, a conflict of interest would arise if a Covered Officer, or a
member of his family, receives improper personal benefits as a result of his
position with the Fund.

          Certain conflicts of interest arise out of the relationships between
Covered Officers and the Fund and already are subject to conflict of interest
provisions in the




<PAGE>

Investment Company Act of 1940 (the "Investment Company Act") and the Investment
Advisers Act of 1940 (the "Investment Advisers Act"). For example, Covered
Officers may not individually engage in certain transactions (such as the
purchase or sale of securities or other property) with the Fund because of their
status as "affiliated persons" of the Fund. The compliance programs and
procedures of the Fund and HSBC Asset Management (Taiwan) Ltd., the Fund's
investment adviser (the "Adviser") are designed to prevent, or identify and
correct, violations of these provisions. Certain conflicts of interest also
arise out of the personal securities trading activities of the Covered Officers
and the possibility that they may use information regarding the Fund's
securities trading activities for their personal benefit. The Fund's Code of
Ethics under Rule 17j-1 under the Investment Company Act is designed to address
these conflicts of interest. This Code does not, and is not intended to, replace
these programs and procedures or the Fund's Rule 17j-1 Code of Ethics, and this
Code's provisions should be viewed as being additional and supplemental to such
programs, procedures and code.

         Although typically not presenting an opportunity for improper personal
benefit, conflicts arise from, or as a result of, the contractual relationship
between the Fund and the Adviser of which the Covered Officers are also officers
or employees. As a result, this Code recognizes that the Covered Officers will,
in the normal course of their duties (whether formally for the Fund or for the
Adviser, or for both), be involved in establishing policies and implementing
decisions that will have different effects on the Adviser and the Fund. The
participation of the Covered Officers in such activities is inherent in the
contractual relationship between the Fund and the Adviser and is consistent with
the performance by the Covered Officers of their duties as officers of the Fund.
Thus, if performed in conformity with the provisions of the Investment Company
Act and the Investment Advisers Act, such activities will be deemed to have been
handled ethically. In addition, it is recognized by the Fund's Board of
Directors (the "Board") that the Covered Officers may also be officers or
employees of one or more other investment companies covered by other codes.

          Each Covered Officer must not:

          -    use his personal influence or personal relationships improperly
               to influence investment decisions or financial reporting by the
               Fund whereby the Covered Officer would benefit personally to the
               detriment of the Fund;

          -    cause the Fund to take action, or fail to take action, for the
               individual personal benefit of the Covered Officer rather than
               the benefit of the Fund; and

          -    use material non-public knowledge of portfolio transactions made
               or contemplated for, or actions proposed to be taken by, the Fund
               to trade personally or cause others to trade personally in
               contemplation of the market effect of such transactions.

          Each Covered Officer must, at the time of signing this Code, report
all material business affiliations outside the Fund and must update the report
annually.






<PAGE>





          Covered Officers should avoid situations which involve the appearance
of, or potential for, conflicts of interest. Examples of these situations
include:

          -    accepting directly or indirectly, anything of value, including
               gifts and gratuities in excess of $100 per year from any person
               or entity with which the Fund has current or prospective business
               dealings, not including occasional meals or tickets to theatre or
               sporting events or other similar entertainment, provided it is
               business-related, reasonable in cost, appropriate as to time and
               place and not so frequent as to raise any question of
               impropriety.

          -    any ownership interest in, or any consulting or employment
               relationship with, any of the Fund's service providers, other
               than its investment adviser or any affiliated person thereof; and

          -    a direct or indirect financial interest in commissions,
               transaction charges or spreads paid by the Fund for effecting
               portfolio transactions or for selling or redeeming shares other
               than an interest arising from the Covered Officer's employment,
               such as compensation or equity ownership.

          In situations involving a Covered Officer which involve the appearance
of, or the potential for, conflicts of interest, but where the Covered Officer
believes that no significant conflict of interest exist, the Covered Officer
must obtain prior written approval from the Audit Committee before becoming
involved in that situation. No such approval shall be considered a waiver of
this Code.

III.      DISCLOSURE AND COMPLIANCE

          -    Each Covered Officer should familiarize himself with the
               disclosure and compliance requirements generally applicable to
               the Fund;

          -    each Covered Officer should not knowingly misrepresent, or cause
               others to misrepresent, facts about the Fund to others, whether
               within or outside the Fund, including to the Fund's directors and
               auditors, or to governmental regulators and self-regulatory
               organizations;

          -    each Covered Officer should, to the extent appropriate within his
               area of responsibility, consult with other officers and employees
               of the Fund and the Adviser with the goal of promoting full,
               fair, accurate, timely and understandable disclosure in the
               reports and documents the Fund files with, or submits to, the SEC
               and in other public communications made by the Fund; and

          -    it is the responsibility of each Covered Officer to promote
               compliance with the standards and restrictions imposed by
               applicable laws, rules and regulations.





<PAGE>

IV.       REPORTING AND ACCOUNTABILITY

          Each Covered Officer must:

          -    upon adoption of the Code or (thereafter as applicable, upon
               becoming a Covered Officer), affirm in writing to the Board that
               he has received, read and understands the Code;

          -    annually thereafter affirm to the Board that he has complied with
               the requirements of the Code;

          -    not retaliate against any other Covered Officer or any employee
               of the Fund or their affiliated persons for reports of potential
               violations that are made in good faith; and

          -    notify the Audit Committee promptly if he knows of any violation
               of this Code. Failure to do so is itself a violation of this
               Code.

          The Audit Committee is responsible for applying this Code to specific
situations in which questions are presented under it and has the authority to
interpret this Code in any particular situation. Any waivers sought by a Covered
Officer must be considered by the Audit Committee.

          A copy of this Code shall be delivered to each employee of the Fund
and each employee of the Adviser annually together with a memorandum requesting
that any violations of the Code be communicated immediately to the Audit
Committee.

          The Fund will follow these procedures in investigating and enforcing
this Code:

          -    the Audit Committee will take all appropriate action to
               investigate any potential violations reported to it;

          -    if, after such investigation, the Audit Committee believes that
               no violation has occurred, the Audit Committee is not required to
               take any further action;

          -    if the Audit Committee determines that a violation has occurred,
               it will consider appropriate action, which may include review of,
               and appropriate modifications to, applicable policies and
               procedures; notification to appropriate personnel of the Adviser
               or its board; or a recommendation to dismiss the Covered Officer;

          -    the Audit Committee will be responsible for granting waivers of
               this Code, as appropriate; and

          -    any changes to or waivers of this Code will, to the extent
               required, be disclosed as provided by SEC rules.


<PAGE>
V.        CHANGES TO OR WAIVERS OF THE CODE

          No change to or waiver of any provision of this Code will be effective
until the Fund discloses the nature of any amendment to, or waiver from, a
provision of the Code in its Form N-CSR, or on its website within five business
days following the date of the amendment or waiver if this method of disclosure
has been established in its Form N-CSR and made available on its website for
twelve months. Any waiver of provisions of this Code will be reported in filings
with the SEC and otherwise reported to the Fund's stockholders to the full
extent required by the rules of the SEC and by any applicable rules of any
securities exchange on which the Fund's securities are listed.



VI.       OTHER POLICIES AND PROCEDURES

          This Code shall be the sole code of ethics adopted by the Fund for
purposes of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules and
forms applicable to registered investment companies thereunder. Insofar as other
policies or procedures of the Fund or the Adviser or other service providers
govern or purport to govern the behavior or activities of the Covered Officers
who are subject to this Code, they are superseded by this Code to the extent
that they conflict with the provisions of this Code.

VII.      AMENDMENTS

          Any amendments to this Code must be approved or ratified by a majority
vote of the Audit Committee and the Board, including a majority of directors who
are not interested persons as defined in the Investment Company Act.

VIII.     CONFIDENTIALITY

          All reports and records prepared or maintained pursuant to this Code
will be considered confidential and shall be maintained and protected
accordingly. Except as otherwise required by law or this Code, such matters
shall not be disclosed to anyone other than the Audit Committee, the Board, the
Fund and its counsel and the Adviser and its counsel.


<PAGE>
IX.       INTERNAL USE

          The Code is intended solely for the internal use by the Fund and does
not constitute an admission, by or on behalf of the Fund, as to any fact,
circumstance or legal conclusion.



I have read and understand the terms of the Code. I recognize the
responsibilities and obligations incurred by me as a result of my being subject
to the Code. I hereby agree to abide by the Code.


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

Date:
     ---------------------



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.CERT
<SEQUENCE>3
<FILENAME>b51862tnexv99wcert.txt
<DESCRIPTION>CERTIFICATIONS
<TEXT>
<PAGE>



                                                                   EXHIBIT 11(b)

                                 CERTIFICATIONS

Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Benny T. Hu, certify that:

1.       I have reviewed this report on Form N-CSR of The Taiwan Fund, Inc.;

2.       Based on my knowledge, this report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances under which
         such statements were made, not misleading with respect to the period
         covered by this report;

3.       Based on my knowledge, the financial statements, and other financial
         information included in this report, fairly present in all material
         respects the financial condition, results of operations, changes in net
         assets, and cash flows (if the financial statements are required to
         include a statement of cash flows) of the registrant as of, and for,
         the periods presented in this report;

4.       The registrant's other certifying officer(s) and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Rule 30a-3(c) under the Investment Company Act of 1940) for
         the registrant and have:

         (a)      Designed such disclosure controls and procedures, or caused
                  such disclosure controls and procedures to be designed under
                  our supervision, to ensure that material information relating
                  to the registrant, including its consolidated subsidiaries, is
                  made known to us by others within those entities, particularly
                  during the period in which this report is being prepared;

         (b)      Evaluated the effectiveness of the registrant's disclosure
                  controls and procedures and presented in this report our
                  conclusions about the effectiveness of the disclosure controls
                  and procedures, as of a date within 90 days prior to the
                  filing date of this report based on such evaluation; and



<PAGE>




         (c)      Disclosed in this report any change in the registrant's
                  internal control over financial reporting that occurred during
                  the registrant's most recent fiscal half-year (the
                  registrant's second fiscal half-year in the case of an annual
                  report) that has materially affected, or is reasonably likely
                  to materially affect, the registrant's internal control over
                  financial reporting; and

5.       The registrant's other certifying officer(s) and I have disclosed to
         the registrant's auditors and the audit committee of the registrant's
         board of directors (or persons performing the equivalent functions):

         (a)      All significant deficiencies and material weaknesses in the
                  design or operation of internal control over financial
                  reporting which are reasonably likely to adversely affect the
                  registrant's ability to record, process, summarize, and report
                  financial information; and

         (b)      Any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal control over financial reporting.


/s/ Benny T. Hu
- ----------------------------------
Benny T. Hu
President of The Taiwan Fund, Inc.
Date: November 9, 2004





<PAGE>


I, Adelina Louie, certify that:

1.       I have reviewed this report on Form N-CSR of The Taiwan Fund, Inc.;

2.       Based on my knowledge, this report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances under which
         such statements were made, not misleading with respect to the period
         covered by this report;

3.       Based on my knowledge, the financial statements, and other financial
         information included in this report, fairly present in all material
         respects the financial condition, results of operations, changes in net
         assets, and cash flows (if the financial statements are required to
         include a statement of cash flows) of the registrant as of, and for,
         the periods presented in this report;

4.       The registrant's other certifying officer(s) and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Rule 30a-3(c) under the Investment Company Act of 1940) for
         the registrant and have:

         (a)      Designed such disclosure controls and procedures, or caused
                  such disclosure controls and procedures to be designed under
                  our supervision, to ensure that material information relating
                  to the registrant, including its consolidated subsidiaries, is
                  made known to us by others within those entities, particularly
                  during the period in which this report is being prepared;

         (b)      Evaluated the effectiveness of the registrant's disclosure
                  controls and procedures and presented in this report our
                  conclusions about the effectiveness of the disclosure controls
                  and procedures, as of a date within 90 days prior to the
                  filing date of this report based on such evaluation; and

         (c)      Disclosed in this report any change in the registrant's
                  internal control over financial reporting that occurred during
                  the registrant's most recent fiscal half-year (the
                  registrant's second fiscal half-year in the case of an annual
                  report) that has materially affected, or is reasonably likely
                  to materially affect, the registrant's internal control over
                  financial reporting; and




<PAGE>

5.       The registrant's other certifying officer(s) and I have disclosed to
         the registrant's auditors and the audit committee of the registrant's
         board of directors (or persons performing the equivalent functions):

         (a)      All significant deficiencies and material weaknesses in the
                  design or operation of internal control over financial
                  reporting which are reasonably likely to adversely affect the
                  registrant's ability to record, process, summarize, and report
                  financial information; and

         (b)      Any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal control over financial reporting.


/s/ Adelina Louie
- ----------------------------------
Adelina Louie
Treasurer of The Taiwan Fund, Inc.
Date: November 9, 2004




<PAGE>



Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

I, Benny T. Hu, President of The Taiwan Fund, Inc. (the "Fund"), certify that:

1.       The N-CSR of the Fund (the "Report") fully complies with the
         requirements of Section 13(a) or 15(d) of the Securities Exchange Act
         of 1934; and

2.       The information contained in the Report fairly presents, in all
         material respects, the financial condition and results of operations of
         the Fund.


By:    /s/ Benny T. Hu
       ---------------------------------
       Benny T. Hu
       President of The Taiwan Fund, Inc.

Date:  November 9, 2004







<PAGE>


I, Adelina Louie, Treasurer of The Taiwan Fund, Inc. (the "Fund"), certify that:

1.       The N-CSR of the Fund (the "Report") fully complies with the
         requirements of Section 13(a) or 15(d) of the Securities Exchange Act
         of 1934; and

2.       The information contained in the Report fairly presents, in all
         material respects, the financial condition and results of operations of
         the Fund.


By:    /s/ Adelina Louie
       ----------------------------------
       Adelina Louie
       Treasurer of The Taiwan Fund, Inc.

Date:  November 9, 2004






</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.11(C)
<SEQUENCE>4
<FILENAME>b51862tnexv99w11xcy.txt
<DESCRIPTION>PROXY VOTING GUIDELINES
<TEXT>
<PAGE>


                                  EXHIBIT 11(c)





















                     HSBC ASSET MANAGEMENT (TAIWAN) LIMITED

                             Proxy Voting Guidelines

                              As of August 1, 2003

<PAGE>




                     HSBC ASSET MANAGEMENT (TAIWAN) LIMITED

                             Proxy Voting Guidelines

         HSBC Asset Management (Taiwan) Limited (the "Advisor") is an investment
advisor registered with the U.S. Securities and Exchange Commission, that serves
as the investment manager for the Taiwan Fund, Inc. (the "Fund") pursuant to a
Securities Investment Trust-Investment Management and Custodian Contract dated
August 22, 2001 (the "Management Contract") among the Fund, the Advisor and the
International Commercial Bank of China, the Fund's Taiwan custodian.

         Under the Taiwan Regulations Governing Securities Investment Trust Fund
Enterprises (the "SITE Regulations") and the Taiwan Rules Governing the Use of
Proxies for Attendance at Shareholder Meetings of Public Companies (the "Proxy
Rules"), the Advisor has the responsibility for exercising voting rights
("Voting Rights") on the shares of Taiwan companies held under the Management
Contract, and the Fund has delegated to the Advisor the duty to exercise Voting
Rights with respect to such shares. Under the SITE Regulations and the Proxy
Rules, the Advisor must exercise the Voting Rights on behalf of the Fund in a
manner which is in the best interests of the Fund; provided that the Advisor is
required to vote in favor of proposals made or candidates for director or
supervisor nominated by the Board of Directors of the company issuing the shares
which are being voted (the "Issuing Company") unless the Advisor determines that
there is unsound management of the Issuing Company which may cause damage to the
interests of the Issuing Company or its shareholders ("Unsound Management"). If
the Advisor determines that there is Unsound Management with respect to an the
Issuing Company, the SITE Regulations and the Proxy Rules require that the
shares at issue be voted in accordance with a resolution of the Board of
Directors of the Advisor.

         Under the U.S. Investment Advisors Act of 1940, the Advisor is a
fiduciary that owes the Fund a duty of care and loyalty with respect to all
services it undertakes on the Fund's behalf, including exercising Voting Rights.
The Advisor is therefore subject to a fiduciary duty, within the confines of
applicable Taiwan law, to exercise Voting Rights in a manner the Advisor
believes is consistent with the Fund's best interests. In fulfilling its
obligations to the Fund, the Advisor will seek to act in a manner that it
believes is most likely to enhance the economic value of the underlying
securities held for the Fund under the Management Contract.

Proxy Voting Committee

         In light of these fiduciary duties, and given the complexity of the
issues that may arise in connection with the exercise of Voting Rights, the
Advisor has formed a Proxy Voting Committee (the "Committee") to address issues
on behalf of the Advisor relating to the exercise of Voting Rights.

Scope of Committee Responsibilities

         The Committee shall have responsibility for determining how to exercise
Voting Rights. In doing so, the Committee will seek to ensure that Voting Rights
are exercised in the best interests of the Fund, and that Voting Rights are
exercised in a manner free from unwarranted influences.


<PAGE>





         The Committee shall also establish the Advisor policies with respect to
Voting Rights, with such advice, participation and research as the Committee
deems appropriate from Portfolio Managers or other knowledgeable interested
parties. The Committee shall be responsible for determining how the Voting
Rights policies will be applied to specific votes, in light of each Issuing
Company's unique structure, management, strategic options and probable economic
consequences of alternative actions.

         In view of the requirements of Taiwan law with respect to the exercise
of Voting Rights, the Committee's primary focus will be on determining whether
or not voting in favor of proposals made by an Issuing Company's Board of
Directors or management are consistent with the best interests of the Fund as a
shareholder. In circumstances where the Committee determines that voting in
favor of such a proposal (or a proposal supported by the Issuing Company's Board
of Directors) is consistent with the best interests of the Fund as a
shareholder, the Committee will cause the Advisor to exercise the Voting Rights
in favor of the proposal following applicable Taiwan legal and voting
procedures. In circumstances where the Committee determines that voting shares
in favor of a proposal is clearly not in the best interests of the Fund as a
shareholder, the Committee will present the matter to the Board of Directors of
the Advisor in a timely manner with a recommendation that the Board of Directors
adopt a resolution authorizing the Advisor to vote against the proposal based on
the fact that the proposal reflects Unsound Management. The Advisor believes
that any circumstance where the Board of Directors or management of an Issuing
Company makes or supports a proposal submitted to a shareholder vote which is
clearly not in the best interests of shareholders reflects Unsound Management.

         The Committee will adopt policies with respect to recurring shareholder
voting matters, such as the election of directors and supervisors, which it
generally will follow with respect to these recurring matters and which are
attached to these voting guidelines. The Committee may, however, determine that
the subject matter of a proposal is not suitable for general voting guidelines
and requires a case-by-case determination. The Advisor believes that certain
Voting Rights issues require investment analysis -- such as approval of mergers
and other significant corporate transactions -- akin to investment decisions,
and are therefore not suitable for general guidelines.

         Pursuant to Article 44 of the SITE Regulations, prior to voting at a
shareholder meeting of an Issuing Company in which the Fund holds shares, the
Committee will prepare a written report describing the assessment and analysis
process used in determining how to exercise the Voting Rights. In addition, if
Voting Rights are exercised pursuant to a resolution of the Advisor's Board of
Directors, a written report of the exercise of Voting Rights will be submitted
to the Board after the shareholder meeting.

         The Committee shall obtain copies of shareholder meeting notifications
and attendance cards and shall retain a written record of the exercise of Voting
Rights by the Advisor and the results of the voting. This record shall be kept
in consecutive order in files which shall be maintained for at least five years
after the shareholder meeting.

Committee Membership

         The Committee will be chaired by the Chief Investment Officer of the
Advisor responsible for the investment of the Fund's securities. The Committee
shall also include the deputy portfolio manager for the Fund, the Advisor's
senior compliance officer and such other personnel with investment and/or
relevant experience as the Chief Investment Officer deems appropriate. No
employee of the Advisor whose responsibilities relate primarily to marketing or

<PAGE>





sales, and no person with any investment banking, trading, retail brokerage or
research responsibilities for the Advisor's affiliates may serve as a member of
the Committee or participate in its decision-making.

Circumstances Involving Conflicts of Interest

         In circumstances where the exercise of Voting Rights involves an actual
or apparent conflict of interest involving the Advisor or any of the Advisor's
affiliates, the decision regarding the exercise of Voting Rights will be made
exclusively by members of the Committee who have no personal involvement with or
relationship to the matter which produces the conflict of interest. For example,
if an Issuing Company is an investment advisory client of the Advisor, no
individual associated with the Advisor who has any relationship or involvement
with providing advisory services to the Issuing Company shall participate in the
decision with respect to the exercise of those Voting Rights.



<PAGE>





                                 VOTING POLICIES

         The Committee will analyze each exercise of Voting Rights individually.
The Committee has adopted the following voting guidelines, which represent the
Committee's usual voting position on certain recurring Voting Rights issues that
do not involve unusual circumstances. With respect to any Voting Rights issue,
however, the Committee may vote differently than a voting guideline if the
Committee determines that doing so is in the best interests of the Fund.

         (a) Board of Directors

         The Committee's general policy is to vote for nominees for director in
uncontested elections, except for nominees which have demonstrably poor records
of representing shareholder interests.

         (b) Auditors

         The Committee's general policy is to vote for approval of independent
auditors, except for

         -    Auditors that have a financial interest in, or material
              association with, the Issuing Company they are auditing, and are
              therefore believed not to be independent.

         -    Auditors who have rendered an opinion to any company which is
              either not consistent with best accounting practices or indicative
              of the company's financial situation.

         (c) Compensation and Benefits

         The Committee's general policy is to recommend a vote against proposals
regarding compensation and benefits for senior executive officers and directors
of issuing companies which are clearly in excess of levels of compensation and
benefits provided typically by Taiwan companies in similar circumstances.




</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
