Section 240.14a-101 Schedule
14A. Information required in
proxy statement.
Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy
Statement [ ] Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
TAIWAN GREATER CHINA FUND
.................................................................
(Name of Registrant as Specified In Its Charter)
.................................................................
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box): [X] No fee required [ ] Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
--------------------------------------------------------------------------------
TAIWAN GREATER CHINA FUND May [ ], 2004
c/o Citigate Financial Intelligence, 111 River Street, Suite 1001, Hoboken, New
Jersey 07030
Telephone: 1-800-343-9567
Dear Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders (the
'Meeting') of the Taiwan Greater China Fund (the 'Trust,' formerly known as The
R.O.C. Taiwan Fund), which will be held at the offices of Paul, Weiss, Rifkind,
Wharton & Garrison LLP, 24th Floor, 1285 Avenue of the Americas, New York, New
York on Tuesday, June 22, 2004 at 9:30 a.m., New York City time. A formal notice
and a Proxy Statement regarding the Meeting, a proxy card for your vote at the
Meeting and a postage prepaid envelope in which to return your proxy are
enclosed.
At the Meeting, shareholders will:
(i) Elect one trustee, to serve for a term expiring on the date of the 2007
Annual Meeting of Shareholders or the special meeting in lieu thereof;
and
(ii) Consider whether to approve the conversion of the Trust from a
closed-end investment company into an open-end investment company and
certain related matters.
The Board of Trustees recommends that you vote for the nominee for trustee
named in the accompanying Proxy Statement and against proposal (ii).
Whether or not you plan to attend the Meeting in person, it is important
that your shares be represented and voted. After reading the enclosed notice and
Proxy Statement, please complete, date, sign and return the enclosed proxy card
at your earliest convenience. Your return of the proxy card will not prevent you
from voting in person at the Meeting should you later decide to do so.
If you are a beneficial owner holding shares through a broker-dealer, please
note that, under the rules of the New York Stock Exchange, broker-dealers may
not vote your shares on the proposal described in paragraph (ii) above without
your instructions. In addition, if you are a beneficial owner holding shares
through a bank or trust company nominee, you may find that such nominee will not
vote your shares in respect of some or all of the matters to be considered at
the Meeting without your instructions. Accordingly, the Board of Trustees of the
Trust urges all beneficial owners of shares who are not also record owners of
such shares to contact the institutions through which their shares are held and
give appropriate instructions, if necessary, to vote their shares. The Trust
will also be pleased to cooperate with any appropriate arrangement pursuant to
which beneficial owners desiring to attend the Meeting may be identified as such
and admitted to the Meeting as shareholders.
Time will be provided during the Meeting for discussion, and shareholders
present will have an opportunity to ask questions about matters of interest to
them.
Respectfully,
/s/ Robert P. Parker /s/ Steven R. Champion
Robert P. Parker Steven R. Champion
Chairman President
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IMPORTANT MATTERS WILL BE CONSIDERED, AND YOUR VOTE MAY BE NECESSARY TO INSURE
THE PRESENCE OF A QUORUM, AT THE MEETING. ACCORDINGLY, ALL SHAREHOLDERS,
REGARDLESS OF THE SIZE OF THEIR HOLDINGS, ARE URGED TO SIGN AND MAIL THE
ENCLOSED PROXY IN THE ENCLOSED ENVELOPE, OR TO GIVE APPROPRIATE
INSTRUCTIONS TO PERSONS HOLDING SHARES OF RECORD ON THEIR BEHALF, PROMPTLY.
------------------------------------------------------------------------------
TAIWAN GREATER CHINA FUND
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 22, 2004
To the Shareholders of the
Taiwan Greater China Fund:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the
'Meeting') of the Taiwan Greater China Fund (the 'Trust,' formerly known as The
R.O.C. Taiwan Fund) will be held at the offices of Paul, Weiss, Rifkind, Wharton
& Garrison LLP, 24th Floor, 1285 Avenue of the Americas, New York, New York on
Tuesday, June 22, 2004 at 9:30 a.m., New York City time, for the following
purposes:
1. To elect one trustee to serve for a term expiring on the date of the 2007
Annual Meeting of Shareholders or the special meeting in lieu thereof.
2. To consider whether to approve the conversion of the Trust from a
closed-end investment company into an open-end investment company and
certain related matters.
3. To transact such other business as may properly come before the Meeting
or any adjournment thereof.
The Board of Trustees of the Trust has fixed the close of business on
Monday, April 19, 2004, as the record date for the determination of shareholders
entitled to notice of and to vote at the Meeting and at any adjournment thereof.
Shareholders are entitled to one vote for each share of beneficial interest of
the Trust held of record on the record date with respect to each matter to be
voted upon at the Meeting.
You are cordially invited to attend the Meeting. All shareholders are
requested to complete, date and sign the enclosed proxy card and return it
promptly in the envelope provided for that purpose, which does not require any
postage if mailed in the United States. If you are able to attend the Meeting,
you may, if you wish, revoke the proxy and vote personally on all matters
brought before the Meeting. The enclosed proxy is being solicited by the Board
of Trustees of the Trust.
BY ORDER OF THE BOARD OF TRUSTEES
Peggy Chen, Secretary
May [ ], 2004
TAIWAN GREATER CHINA FUND
PROXY STATEMENT
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Trustees (the 'Board of Trustees' or the 'Board') of the
Taiwan Greater China Fund (the 'Trust,' formerly known as The R.O.C. Taiwan
Fund) for use at the Annual Meeting (the 'Meeting') of holders (the
'Shareholders') of shares of beneficial interest of the Trust (the 'Shares') to
be held at the offices of Paul, Weiss, Rifkind, Wharton & Garrison LLP, 24th
Floor, 1285 Avenue of the Americas, New York, New York on Tuesday, June 22, 2004
at 9:30 a.m., New York City time, and at any adjournment thereof.
This Proxy Statement and the accompanying proxy are first being mailed to
Shareholders on or about May [ ], 2004. Any Shareholder giving a proxy has the
power to revoke it by mail (addressed to Marc E. Perlmutter, Assistant Secretary
of the Trust, at the Trust's address c/o Citigate Financial Intelligence,
111 River Street, Suite 1001, Hoboken, New Jersey 07030) or in person at the
Meeting, by executing a superseding proxy or by submitting a notice of
revocation to the Trust. All properly executed proxies received by mail on or
before the close of business on June 21, 2004 or delivered personally at the
Meeting will be voted as specified in such proxies or, if no specification is
made, for the nominee for election named and against proposal II described below
in this Proxy Statement.
The Board of Trustees has fixed the close of business on Monday, April 19,
2004, as the record date for the determination of Shareholders entitled to
notice of and to vote at the Meeting and at any adjournment thereof.
Shareholders of record will be entitled to one vote for each Share. No Shares
have cumulative voting rights for the election of trustees.
As of the record date, the Trust had outstanding 32,698,976 Shares.
Abstentions and 'non-votes' will be counted as present for all purposes in
determining the existence of a quorum. (A 'non-vote' occurs when a nominee
(typically, a broker-dealer) holding shares for a beneficial owner attends a
meeting with respect to such shares (in person or by proxy) but does not vote on
one or more proposals because the nominee does not have discretionary voting
power with respect to that matter and has not received instructions from the
beneficial owner.) One third of the Trust's outstanding Shares, present in
person or represented by proxy at the Meeting, will constitute a quorum for the
transaction of business at the Meeting. The affirmative vote of a plurality of
the Shares present or represented by proxy and voting on the matter in question
at the Meeting will be required at the Meeting to elect the nominee for election
as trustee. Proposal II below would require for its adoption the affirmative
vote of a majority of all outstanding Shares.
Abstentions and 'non-votes' will not have the effect of votes in opposition
to the election of a trustee. However, because proposal II below would require
for its adoption the affirmative vote of a majority of all outstanding Shares,
abstentions and 'non-votes' will have the effect of votes in opposition to the
adoption of proposal II.
The Trust knows of no business that may or will be presented for
consideration at the Meeting, other than that mentioned in proposals I and II
below. If any matter not referred to above is properly presented, the persons
named in the enclosed proxy will vote in accordance with their discretion.
However, no business that is not on the agenda for the Meeting may be presented
for consideration or action at the Meeting without the approval of the Board of
Trustees.
The address of Citigate Financial Intelligence, which provides certain
administrative services for the Trust, is 111 River Street, Suite 1001, Hoboken,
New Jersey 07030. The address of International Investment Trust Company Limited
('IIT'), which also provides certain administrative services for the Trust, is
17th Floor, 167 FuXing North Road, Taipei, Taiwan, Republic of China.
BENEFICIAL OWNERSHIP OF SHARES
The following table provides information, as of May [ ], 2004, except as
noted, regarding the beneficial ownership of Shares by (i) each person or group
known to the Trust to be the beneficial owner of more than 5% of the Shares
outstanding, (ii) each of the Trust's trustees or trustee nominees, (iii) each
executive officer of the Trust and (iv) all trustees, trustee nominees and
executive officers of the Trust as a group. Except as noted, each of the named
owners has sole voting and dispositive power over the Shares listed.
----------------------------------------------------------------------------------------------------
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership Percent of Class
----------------------------------------------------------------------------------------------------
Laxey Partners Limited ('Laxey') 5,334,856(1) 16.3%
Stanley House
7-9 Market Hill, Douglas
Isle of Man IM1 2BF
U.K.
Colin Kingsnorth 5,334,856(1) 16.3%
Stanley House
7-9 Market Hill, Douglas
Isle of Man IM1 2BF
U.K.
Andrew Pegge 5,334,856(1) 16.3%
Stanley House
7-9 Market Hill, Douglas
Isle of Man IM1 2BF
U.K.
Lazard Asset Management LLC ('Lazard') 4,495,500(2) 13.7%
30 Rockefeller Plaza
New York, New York 10112
U.S.A.
Newgate LLP ('Newgate') 2,787,506(3) 8.5%
One Sound Shore Drive
Greenwich, Connecticut 06830
U.S.A.
City of London Investment Group plc ('CLIG') 1,659,600(4) 5.1%
10 Eastcheap
London EC3M 1LX
U.K.
City of London Investment Management 1,659,600(4) 5.1%
Company Limited ('CLIM')
10 Eastcheap
London EC3M 1LX
U.K.
Alex Hammond-Chambers 7,500 *
29 Rutland Square
Edinburgh EH1 2BW
U.K.
(table continued on next page)
2
(table continued from previous page)
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Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership Percent of Class
----------------------------------------------------------------------------------------------------
Steven R. Champion 2,300 *
Bank Tower
Room 1001
DunHua North Road
Taipei, Taiwan, R,O,C.
Robert P. Parker 1,000 *
101 California Street
Suite 2830
San Francisco, California 94111
U.S.A.
All trustees, trustee nominees and executive officers as a 10,800 *
group
* Less than 1%
(1) Based upon information provided by Laxey and Messrs. Kingsnorth and Pegge in
a Statement on Schedule 13D filed on November 13, 2003 with respect to
ownership as of November 5, 2003. In that Statement it was reported that
Messrs. Kingsnorth and Pegge control Laxey, and that Laxey and Messrs.
Kingsnorth and Pegge hold shared voting and shared dispositive power over
(i) 953,000 Shares by virtue of Laxey's discretionary authority over certain
accounts managed for unaffiliated third parties in which such Shares are
held, (ii) 1,000 Shares by virtue of Laxey's beneficial ownership of such
Shares and (iii) 4,380,856 Shares by virtue of Laxey's position as
investment manager for each of The Value Catalyst Fund Limited, which holds
974,840 Shares, LP Value Limited, which holds 968,600 Shares, Laxey
Universal Value, LP, which holds 965,000 Shares, Laxey Investors, L.P.,
which holds 779,216 Shares, and Laxey Investors Limited, which holds 693,200
Shares.
(2) Based upon information provided by Lazard in a Statement on Schedule 13G
filed on February 17, 2004 declaring that it held sole voting and sole
dispositive power over its Shares.
(3) Based upon information provided by Newgate in a Statement on Schedule 13G
filed on February 17, 2004 with respect to ownership as of December 31, 2003
declaring that it held sole voting and sole dispositive power over its
Shares.
(4) Based upon information provided by CLIG and CLIM in a Statement on
Schedule 13G jointly filed on February 12, 2004 with respect to ownership as
of December 31, 2003. In that statement CLIM reported that it held its
Shares as investment advisor to certain investment funds. CLIG reported that
its ownership included the Shares held by CLIM as a result of CLIG's status
as the parent holding company of CLIM. CLIG and CLIM stated that they held
sole voting power and sole dispositive power over their Shares.
I. ELECTION OF TRUSTEES
The Trust terminated its investment management agreement with IIT and became
an internally managed investment company effective February 23, 2004.
Mr. Chi-Chu Chen, Chairman of IIT's Board of Directors and Chairman of the
Trust's Board of Trustees, and Mr. Michael Ding, President and Chief Executive
Officer of IIT and of the Trust and portfolio manager of the Trust, resigned
from the Board of Trustees and their other positions with the Trust upon the
termination of the investment management agreement. Also in February 2004,
Mr. Pedro-Pablo Kuczynski resigned from the Board of Trustees following his
appointment as the Minister of Economy and Finance of Peru. As a result of the
resignations of Messrs. Chen, Ding and Kuczynski, the Board reduced its size
from eight to five trustees.
Since the inception of the Trust in 1989, the trustees of the Trust have
been divided into three classes, each having a term of three years, with the
term of one class expiring each year. The resignations noted above resulted in
Board classes consisting of three trustees with terms ending at the Trust's 2006
Annual Meeting of Shareholders and one trustee each with a term ending at the
Trust's 2004 and 2005 Annual Meetings of Shareholders, respectively. In order to
rebalance the Board to comply with New York Stock Exchange ('NYSE') requirements
that trustee classes be as nearly equal in number as possible, Mr. Alex
Hammond-Chambers resigned from the class of trustees whose
3
terms of office will expire at the 2006 Annual Meeting of Shareholders and was
then appointed to the class of trustees whose terms of office will expire at the
2005 Annual Meeting of Shareholders.
At a meeting in February 2004, the Board of Trustees nominated David N. Laux
to stand for election as a trustee at the Meeting. Mr. Laux currently is a
trustee of the Trust and, if reelected, will serve for a term expiring on the
date of the 2007 Annual Meeting of Shareholders or the special meeting in lieu
thereof.
The persons named in the accompanying proxy will, in the absence of contrary
instructions, vote all proxies FOR the election of Mr. Laux. If Mr. Laux should
be unable to serve (an event not now anticipated), the proxies will be voted for
such person, if any, as is designated by the Board of Trustees to replace
Mr. Laux. Proxies may only be voted for one trustee.
INFORMATION CONCERNING NOMINEE
The following table sets forth certain information concerning Mr. Laux.
Mr. Laux was recommended for reelection as a trustee of the Trust by his fellow
trustees.
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Other Business Experience,
Other Positions with
Affiliated Persons of the
Name (Age) and Principal Trust and Other
Address Position(s) Held Term of Office and Occupation(s) Directorships Held by
of Nominee with the Trust Length of Time Served During the Past Five Years Nominee
------------------------------------------------------------------------------------------------------------------------------
Non-Interested Nominee
David N. Laux (76) Trustee Trustee since 1992 and President, US-Taiwan Director, US-ROC (Taiwan)
2560 N. 23rd Road until the 2004 Annual Business Forum, since 2000; Business Council, since
Arlington, Virginia Meeting of Shareholders President, US-ROC (Taiwan) 1990; Chairman and Managing
22207 or the special meeting Business Council, 1990-2000 Director, American
U.S.A. in lieu thereof Institute in Taiwan,
1987-90; Director of Asian
Affairs, National Security
Council, The White House,
1982-86
INFORMATION CONCERNING OTHER TRUSTEES
The following table sets forth certain information concerning the trustees
of the Trust (other than Mr. Laux).
-------------------------------------------------------------------------------------------------------------------------------
Other Business
Experience, Other
Principal Positions with Affiliated
Name (Age) and Occupation(s) Persons of the Trust and
Address Position(s) Held Term of Office and During the Past Five Other Directorships
of Trustee with the Trust Length of Time Served Years Held by Trustee
-------------------------------------------------------------------------------------------------------------------------------
Interested Trustee*
Cheng-Cheng Tung (64) Trustee Trustee since February President, Cathay Financial Director, Financial
167 FuXing North Road 2002 and until the 2006 Holdings, since Information Service Co.,
Taipei, Taiwan, R.O.C. Annual Meeting of November 2002; President, Ltd., since January 2002;
Shareholders or the United World Chinese Director, Cathay Financial
special meeting in lieu Commercial Bank** Holdings, since November
thereof ('UWCCB'), 2000-2003; 2002; Managing Director,
Executive Vice President, Cathay United Bank, since
UWCCB, 1989-2000 October 2003; Director,
Taipei Smart Card Corp.,
2001-2003
-------------------------------------------------------------------------------------------------------------------------------
(table continued on next page)
4
(table continued from previous page)
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Other Business
Experience, Other
Principal Positions with Affiliated
Name (Age) and Occupation(s) Persons of the Trust and
Address Position(s) Held Term of Office and During the Past Five Other Directorships
of Trustee with the Trust Length of Time Served Years Held by Trustee
-------------------------------------------------------------------------------------------------------------------------------
Non-Interested Trustees
Edward B. Collins (61) Trustee Trustee since 2000 and Managing Director, China Director, Advantage and
China Vest LLC until the 2006 Annual Vest Group (venture capital Prime Credit, since 2002;
160 Sansome Street Meeting of Shareholders investment), since 1995 Director, Medio Stream,
18th Floor or the special meeting Inc., since 2000
San Francisco, in lieu thereof
California 94104
U.S.A.
Alex Hammond-Chambers Trustee Trustee since June 2002 Chairman, Alex Hammond- Board member of various
(61) and until the 2005 Chambers & Company non-U.S. investment funds
29 Rutland Square Annual Meeting of (investment company and operating companies,
Edinburgh EH1 2BW Shareholders or the independent directorial including the following:
U.K. special meeting in lieu services), since 1991 Chairman, Close Finsbury
thereof Global Investment Funds
plc, since 2000; Director,
Asia Phoenix Fund Ltd.,
since 2000; Chairman, FPK
Far Eastern Financial Fund
Ltd., since 1996; Chairman,
Fidelity Japanese Values
plc, since 1997 and
Director since 1994;
Chairman, Korea
International Investment
Fund, since 1996 and
Director since 1992.
Chairman, Ivory & Sime plc,
1985-1991 and Director from
1975 to 1991
Robert P. Parker (62) Trustee and Trustee since 1998 and Chairman, Parker Price Director, NexFlash
101 California Street Chairman until the 2005 Annual Venture Capital, Inc. Technologies, Inc., since
Suite 2830 Meeting of Shareholders (formerly known as Allegro 2001; Partner, McCutchen,
San Francisco, or the special meeting Capital, Inc.), since 1997 Doyle, Brown & Enersen,
California 94111 in lieu thereof; 1988-97
U.S.A. Chairman since February
2004
* Mr. Tung is considered by the Trust's counsel to be an 'interested person,'
as that term is defined in the Investment Company Act of 1940, as amended
(the 'Investment Company Act'), of the Trust because of his affiliation with
Cathay United Bank, a bank that has engaged during the last six months in
brokerage or principal transactions directly with the Trust or other
investment funds managed by IIT.
** On October 27, 2003, UWCCB changed its name to Cathay United Bank in
connection with a merger of the two banks.
BOARD AND COMMITTEE MEETINGS
The Board of Trustees of the Trust held four regularly scheduled meetings
and two special meetings during the fiscal year ended December 31, 2003. Each
trustee attended at least 75% of the total of (i) all meetings of the Board of
Trustees and (ii) all meetings of each committee of the Board on which he served
during the fiscal year ended December 31, 2003, except for Mr. Tung and Mr.
Hammond-Chambers, each of whom attended two-thirds of the meetings in question.
EXECUTIVE COMMITTEE
The Trust's Board of Trustees has an Executive Committee, which, subject to
certain restrictions, may exercise all powers and authority of the Board between
meetings of the Board. The current members of the Executive Committee are
Messrs. Edward B. Collins, Alex Hammond-Chambers and
5
Robert P. Parker, all of whom are disinterested trustees of the Trust, as
defined in the Investment Company Act, and are independent trustees of the
Trust, as defined in the rules of the NYSE. Mr. Chi-Chu Chen was a member of the
Executive Committee until February 2004. The Executive Committee did not meet
during the fiscal year ended December 31, 2003.
NOMINATING COMMITTEE
The Board of Trustees has a Nominating Committee, the current members of
which are Messrs. David N. Laux (chair) and Robert P. Parker. Messrs. Edward B.
Collins, Alex Hammond-Chambers and Pedro-Pablo Kuczynski were members of the
Nominating Committee until February 2004. The former and current members of the
Nominating Committee were or are disinterested trustees of the Trust, as
defined in the Investment Company Act, and also were or are independent trustees
of the Trust, as defined in the rules of the NYSE. The Nominating Committee has
a charter, which is attached hereto as Appendix A. The charter provides that the
Nominating Committee will consider recommendations of trustee nominees submitted
by shareholders at any time. Any such recommendations should be sent to the
Trust's Nominating Committee c/o Citigate Financial Intelligence, 111 River
Street, Suite 1001, Hoboken, New Jersey 07030. The charter also provides that
the Nominating Committee will consider potential candidates who are personally
known to members of the Nominating Committee, persons who are recommended to the
Nominating Committee by other members of the Board and other persons known by
Board members or persons identified by any search firm retained by the
Nominating Committee. In considering whether to recommend that an individual be
nominated as a trustee, the Nominating Committee will take the following
criteria, among others, into account: (i) the Board's size and composition; (ii)
applicable listing standards and laws; (iii) an individual's expertise
(especially with regard to matters relating to Taiwan, mainland China and public
and private investment funds), experience and willingness to serve actively;
(iv) whether an individual will enhance the functioning of the Board; and (v)
the number of company boards of directors on which such individual serves.
During the fiscal year ended December 31, 2003, the Nominating Committee did
not retain any search firm or pay a fee to any third party to identify trustee
candidates.
The Nominating Committee held one meeting during the fiscal year ended
December 31, 2003 at which it recommended that Messrs. Collins, Hammond-Chambers
and Tung be nominated to stand for election at the 2003 Annual Meeting of
Shareholders. See 'Information Concerning Other Trustees' above. The Nominating
Committee also held a meeting on February 16, 2004 at which it recommended that
Mr. Laux be nominated to stand for election at the Meeting. See 'Information
Concerning Nominee' above.
COMPENSATION COMMITTEE
At its meeting in February 2004 the Board created a Compensation Committee,
the current members of which are Messrs. Alex Hammond-Chambers (chair), Edward
B. Collins and David N. Laux. The function of the Compensation Committee is to
set and review the compensation and terms of employment of the Trust's Chief
Executive and Chief Financial Officers and to oversee the compensation of the
Trust's other employees. The Committee does not yet have a charter.
AUDIT COMMITTEE AND INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Trustees has an Audit Committee established in accordance with
Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the
'Exchange Act'), the current members of which are Messrs. Edward B. Collins
(chair), Alex Hammond-Chambers and Robert P. Parker. Messrs.
6
Pedro-Pablo Kuczynski and David N. Laux were members of the Audit Committee
until February 2004. The former and current members of the Audit Committee were
or are disinterested trustees of the Trust, as defined in the Investment
Company Act, and also were or are independent trustees of the Trust, as
defined in the rules of the NYSE. The Audit Committee has a charter, which is
attached hereto as Appendix B. Mr. Hammond-Chambers serves on the Trust's Audit
Committee as well as on the audit committees of seven companies listed on the
London Stock Exchange, which include six investment companies and one operating
company. The Board of Trustees has determined that such simultaneous service
will not impair his ability to effectively serve on the Trust's Audit Committee.
The responsibilities of the Audit Committee include, among other things, review
and recommendation of the selection of the independent public accountants of the
Trust, review of the Trust's financial statements prior to their submission to
the Board of Trustees and of other accounting matters of the Trust, and review
of the administration of the Trust's Codes of Ethics and Whistleblower Policy.
The Audit Committee held two meetings during the fiscal year ended December 31,
2003 and also met on February 16, 2004. At those meetings the Audit Committee,
among other things:
(i) approved the selection of KPMG LLP ('KPMG') as the Trust's
independent public accountants for its 2003 and 2004 fiscal years;
(ii) reviewed the audited financial statements of the Trust for its 2002
and 2003 fiscal years and discussed those statements with the Trust's
management and KPMG;
(iii) discussed with the Trust's management and KPMG those matters
requiring discussion by the Accounting Standards Board's Statement of
Auditing Standards No. 61 as currently in effect, including the independence
of KPMG;
(iv) received the written disclosures and the letters from KPMG required
by the Independence Standards Board's Standard No. 1 as currently in effect;
(v) adopted a revised and expanded charter for the Audit Committee;
(vi) reviewed the investment management arrangements between the Trust
and IIT, including the management fee payable by the Trust to IIT; and
(vii) considered the compatibility of KPMG's independence as the Trust's
principal accountants with KPMG's provision of services for the matters in
relation to which fees billed by KPMG to the Trust and IIT are described in
'Non-Audit Fees' below.
Based upon the reviews, discussions and consideration described above, the
Audit Committee recommended to the Board of Trustees that the Trust's audited
financial statements be included in its Annual Report to Shareholders for the
Trust's fiscal year ended December 31, 2003.
Members of the Audit Committee:
Edward B. Collins (chair)
Alex Hammond-Chambers
Robert P. Parker
Representatives of KPMG are expected to be present at the Meeting, will have
an opportunity to make a statement if they desire to do so and are expected to
be available during the Meeting to respond to appropriate questions from
Shareholders.
7
AUDIT FEES
The aggregate fees billed for professional services rendered by KPMG, the
Trust's independent auditors, in connection with the annual audit of the Trust's
financial statements and for services normally provided by KPMG in connection
with statutory and regulatory filings or engagements for the fiscal years ended
December 31, 2002 and December 31, 2003 were $53,500 and $53,500, respectively.
NON-AUDIT FEES
Audit-Related Fees. The Trust did not pay KPMG any audit-related fees (other
than those disclosed under 'Audit Fees' above), and there were no audit-related
fees paid by IIT to KPMG that were required to be approved by the Trust's Audit
Committee, in the fiscal years ended December 31, 2002 and December 31, 2003.
Tax Fees. The aggregate fees billed for professional services rendered by
KPMG for the preparation of the Trust's federal income and excise tax returns
and the provision of tax advice and planning services for the fiscal years ended
December 31, 2002 and December 31, 2003 were $50,000 and $50,000, respectively.
There were no tax related fees paid by IIT to KPMG that were required to be
approved by the Trust's Audit Committee in the fiscal years ended December 31,
2002 and December 31, 2003.
All Other Fees. The aggregate fees billed for professional services rendered
by KPMG for services to the Trust other than the services referenced above for
the fiscal years ended December 31, 2002 and December 31, 2003 were $3,360 and
$9,127, respectively. The fees incurred by the Trust in fiscal year 2002 related
to the preparation of an application by the Trust for distributing fund status
in the United Kingdom. The fees incurred by the Trust in fiscal year 2003
related to the preparation of an application for distributing fund status in the
United Kingdom and research and preparation of a memorandum of advice concerning
the tax implications in the Republic of China of the Trust's becoming an
internally managed investment company. There were no other fees paid by IIT to
KPMG that were required to be approved by the Trust's Audit Committee in the
fiscal years ended December 31, 2002 and December 31, 2003.
Aggregate Amount of Non-Audit Fees. The aggregate amount of non-audit fees
billed by KPMG for services rendered to the Trust and IIT were $53,360 and
$9,988, respectively, for the fiscal year ended December 31, 2002 and were
$59,127 and $9,376, respectively, for the fiscal year ended December 31, 2003.
Such fees paid to KPMG by IIT related to applications for distributing fund
status in the United Kingdom on behalf of other, non-U.S. funds managed by IIT.
Because such services did not relate to the Trust's operations and financial
reporting, no pre-approval by the Audit Committee was required under standards
established by the Exchange Act and the regulations under it. Consequently, the
Audit Committee did not have occasion to consider whether the provision of such
services by KPMG to IIT was compatible with maintaining KPMG's independence.
AUDIT COMMITTEE'S PRE-APPROVAL POLICIES AND PROCEDURES
The Audit Committee approves the engagement of the Trust's accountants to
render audit or non-audit services before such accountants perform such
services.
All services described under 'Audit Fees' and 'Non-Audit Fees' above that
required approval were pre-approved by the Audit Committee before KPMG's
engagement to perform them.
8
POLICY ON TRUSTEES' ATTENDANCE AT ANNUAL SHAREHOLDER MEETINGS
The Trust's policy with regard to attendance by members of the Board of
Trustees at its Annual Meetings of Shareholders is that all trustees are
expected to attend, absent extenuating circumstances. The number of trustees who
attended the 2003 Annual Meeting was 7 (out of 8 trustees). Mr. Tung did not
attend the 2003 Annual Meeting because of limitations on travel from the
Republic of China due to the SARS epidemic in Asia.
COMMUNICATIONS WITH THE BOARD OF TRUSTEES
Shareholders who wish to communicate with Board members with respect to
matters relating to the Trust may address their correspondence to the Board as a
whole or to individual members c/o Citigate Financial Intelligence, 111 River
Street, Suite 1001, Hoboken, New Jersey 07030.
OFFICERS OF THE TRUST
The following table sets forth certain information concerning the officers
of the Trust (other than Mr. Parker, who holds the office of Chairman and is
also a trustee). The Chairman and the President (Messrs. Parker and Champion,
respectively) each holds office until his successor is duly elected and
qualified, and all other officers hold office at the discretion of the trustees.
---------------------------------------------------------------------------------------------------------------
Name (Age) and Address Position(s) Held with Principal Occupation(s)
of Officer the Trust Length of Time Served During the Past Five Years
---------------------------------------------------------------------------------------------------------------
Steven R. Champion (58) President, Chief Since February 2004 Executive Vice President, Bank of
Bank Tower Executive Officer and Hawaii, 2001-2003; Chief Investment
Room 1001 Portfolio Manager Officer, Aetna International, from
DunHua North Road prior to 1999 to 2001
Taipei, Taiwan, R.O.C.
Peggy Chen (41) Secretary, Treasurer and Since 2000 Vice President (Finance) of IIT
167 FuXing North Road Chief Financial Officer since 2000; Manager of Finance, Shin
Taipei, Taiwan, R.O.C. Fu Life Insurance Co., Ltd., from
prior to 1999 to 2000
Dirk Bennett (57) Vice President and Assistant Secretary Manager of Research Department of
Bank Tower Assistant Secretary since prior to 1999; IIT since prior to 1999
Room 1001 Vice President since
DunHua North Road February 2004
Taipei, Taiwan, R.O.C.
Marc E. Perlmutter (51) Assistant Vice President Since prior to 1999 Partner of the law firm of Paul,
Paul, Weiss, Rifkind, and Assistant Secretary Weiss, Rifkind, Wharton & Garrison
Wharton & Garrison LLP LLP, U.S. legal counsel to the
1285 Avenue of the Trust, since prior to 1999
Americas
New York, New York
10019-6064
U.S.A.
Edwin C. Laurenson (55) Assistant Vice President Since prior to 1999 Partner of the law firm of Baker &
Baker & McKenzie and Assistant Secretary McKenzie since March 2000;
805 Third Avenue Securities Counsel to the law firm
New York, New York 10022 of Paul, Weiss, Rifkind, Wharton &
U.S.A. Garrison LLP, U.S. legal counsel to
the Trust, from prior to 1999 to
March 2000
---------------------------------------------------------------------------------------------------------------
TRUSTEE AND OFFICER COMPENSATION
The compensation received by each trustee of the Trust for the fiscal year
ended December 31, 2003 is set forth below. Officers of the Trust during the
fiscal year ended December 31, 2003 received no renumeration from the Trust for
such fiscal year.
9
----------------------------------------------------------------------
Total Compensation
from the Trust
Name Position Paid to Trustees(1)(2)
----------------------------------------------------------------------
Chi-Chu Chen(3) Trustee --
Edward B. Collins Trustee $19,180
Michael Ding(3) Trustee --
Alex Hammond-Chambers Trustee $31,811
Pedro-Pablo Kuczynski Trustee $16,500
David N. Laux Trustee $17,402
Robert P. Parker Trustee $24,627
Cheng-Cheng Tung(3) Trustee --
----------------------------------------------------------------------
(1) The trustees of the Trust do not receive any pension or retirement benefits
from the Trust and did not receive any such benefits from IIT, in its role
as the Trust's investment adviser, during the fiscal year ended
December 31, 2003.
(2) With respect to service in 2003, each trustee of the Trust who was not
affiliated with IIT was entitled to receive fees paid by the Trust of $1,000
for each Board of Trustees meeting or committee meeting attended in person,
$500 for each Board of Trustees meeting or committee meeting attended by
telephone and an annual trustee's fee of $10,000, as well as reimbursement
for each Trustee's and his spouse's travel expenses in connection with each
trustee's meeting attendance. Spousal travel expenses for the fiscal year
ended December 31, 2003 were included in each trustee's compensation. IIT,
which supervised the Trust's investments and paid the compensation and
certain expenses of the personnel and certain other interested persons of
the Trust who served as trustees and/or officers of the Trust during the
fiscal year ended December 31, 2003, received an investment advisory fee for
such period.
At its meeting on February 17, 2004, the Board of Trustees decided that from
such date the Trust would no longer reimburse spousal travel expenses in
connection with the trustees' meeting attendance.
(3) The trustees of the Trust who were officers of IIT, or who were otherwise
deemed to be 'interested persons' (as defined in the Investment Company Act)
of IIT, received no remuneration from the Trust during the fiscal year ended
December 31, 2003.
II. CONVERSION OF THE TRUST FROM A CLOSED-END INVESTMENT COMPANY
TO AN OPEN-END INVESTMENT COMPANY
BACKGROUND AND SUMMARY
The Trust is registered as a closed-end investment company under the
Investment Company Act and has operated as a closed-end fund since the
reorganization of The Taiwan (R.O.C.) Fund (which was an open-end fund not
registered in the United States) into the Trust on May 19, 1989. The Trust's
Amended and Restated Declaration of Trust (the 'Declaration of Trust') and
By-Laws provide that the Board of Trustees is required to submit to the
Shareholders at their next annual meeting a binding resolution to convert the
Trust into an open-end investment company if the Shares trade on the NYSE at an
average discount from their net asset value ('NAV') of more than 10% during any
twelve-week period beginning after the most recent such vote (which in the
current case occurred at last year's annual meeting). For these purposes the
average variation of the trading price of the Shares from their NAV is
determined on the basis of such variances as of the last trading day in each
week. The affirmative vote of a majority of the outstanding Shares is required
for the adoption of such a resolution.
By the terms of the Declaration of Trust, this requirement became effective
on June 1, 1992, and since then the Shareholders have voted on such a resolution
eight times, in 1995 and each of the years from 1997 through 2003. In each
instance the Board recommended that Shareholders vote against the resolution to
convert the Trust into an open-end investment company, and such resolution was
not adopted by the Shareholders. In the most recent vote, on June 24, 2003,
23.44% of the outstanding
10
Shares were voted in favor of the proposal, 34.25% were voted against, and
42.31% were either not present at the meeting or were not voted on that
particular matter.
After last year's vote, the Shares, like those of most other country funds,
continued to trade at a discount. While the Shares traded at an average discount
of less than 10% for [twelve] of the twelve-week periods from June 29, 2003 to
May [ ], 2004, the Shares traded at an average discount of greater than 10% for
the remainder of those periods. Thus, the Board of Trustees is required to
submit to the Shareholders the proposal described herein. The average discount
ranged from [13.41]% for the twelve-week period ended [September 26, 2003] to
[8.19]% for the twelve-week period ended [February 13, 2004].
On May [ ], 2004, the Shares' trading price on the NYSE closed at a
discount to NAV of [ ]%. Conversion would eliminate the trading market in the
Shares and provide each Shareholder with a continuing opportunity to redeem his
Shares at their NAV. However, for the reasons described below, the Board of
Trustees recommends, as it has in the past, that Shareholders vote against this
proposal, which will be adopted, as provided in the Declaration of Trust, only
if approved by holders of a majority of the outstanding Shares.
At meetings on December 9, 2003 and February 17, 2004, the Board of Trustees
of the Trust reviewed, as it has in the past, information concerning the legal,
operational and practical differences between closed-end and open-end investment
companies, the Trust's performance to date as a closed-end fund, the historical
relationship between the market price of the Shares and their NAV, the possible
effects of conversion on the Trust and alternatives to conversion. At its
meeting on February 17, 2004, the Board, including a majority of the trustees
who are not interested persons (as defined in the Investment Company Act) of the
Trust, unanimously concluded that it is in the best interests of the Trust and
the Shareholders that the Trust remain a closed-end investment company.
The Board of Trustees continues to believe that conversion to an open-end
investment company could adversely affect the functioning of the Trust's
investment operations and its investment performance, as described below under
'Effect of Conversion on the Trust -- Portfolio Management.' The Board also
believes that conversion could expose the Trust to the risk of a substantial
reduction in its size and a corresponding loss of economies of scale and
increase in its expenses as a percentage of NAV, as described below under
'Effect of Conversion on the Trust -- Potential Increase in Expense Ratio and
Decrease in Size.'
In deciding how to recommend that the Shareholders vote on this matter, the
Board of Trustees took note of the fact that, since the inception of the Trust
in 1989 (although not in recent years), the Shares periodically have traded at a
premium above NAV. (See below under 'Differences Between Open-end and Closed-end
Investment Companies -- Fluctuation of Capital; Redeemability of Shares;
Elimination of Discount and Premium.') The Shares' average annual
discount/premium (determined
11
by comparing the Shares' NAV to their closing price on the NYSE on each trading
day) by year is as follows:
DISCOUNT(-)/
YEAR PREMIUM
---- ------------
1989 (May 12 to December 31).................... 2.71%
1990............................................ -9.47%
1991............................................ -3.29%
1992............................................ 4.26%
1993............................................ 3.45%
1994............................................ 0.75%
1995............................................ 1.23%
1996............................................ 3.28%
1997............................................ -17.06%
1998............................................ -17.67%
1999............................................ -14.24%
2000............................................ -18.82%
2001............................................ -14.51%
2002............................................ -14.95%
2003............................................ -11.33%
2004 (January 1 to May [ ]).................... -[ ]%
The Board of Trustees believes that eliminating the possibility of a
discount would not justify the fundamental changes that conversion would entail
to the Trust's portfolio management and operations, the risk of reduced size and
the potential adverse effect on the Trust's investment performance. In order to
reduce or eliminate the discount without impairing the Trust's closed-end format
and the benefits it derives from that format, the Board has sought to increase
awareness about the Trust through Shareholder and market communications and
meetings by management with members of the investment community specializing in
the closed-end funds sector. While these efforts have not eliminated the Shares'
tendency in recent years to trade at a discount to NAV, the Board of Trustees
believes that such efforts have had a favorable effect on Shareholder relations
by keeping major Shareholders informed concerning the Trust's investment
strategies and policies, as well as by informing the Board of those
Shareholders' views concerning the Trust's management, strategies and policies.
In addition, the Board of Trustees recognizes that discounts (and possible
premiums) are an inherent consequence of the closed-end fund format. Discounts
can vary widely over time, and a market discount can offer an investment
advantage. For example, Shareholders have the opportunity to purchase
additional Shares in the market at the discounted price when the Shares trade
below their NAV. Shareholders who make such purchases could benefit in
circumstances in which the gap between the NAV and the market price of the
Shares shrinks after they make their purchases, especially when the NAV is also
increasing as a result of increases in the value of the Trust's investments. The
Shares' NAV at the end of each week is published in compilations of such
information for all closed-end funds in publications such as The Wall Street
Journal, The New York Times and Barron's; the daily NAV at the close of the
preceding trading day in Taiwan can be obtained by calling the Trust at
1-800-343-9567 or by accessing the Trust's website at
www.taiwangreaterchinafund.com.
The Board of Trustees also has considered from time to time various
alternative measures that could be adopted for the purpose of seeking to reduce
the discount to NAV at which the Shares have
12
traded. In 1991 the Board of Trustees authorized a periodic share repurchase
program under Rule 10b-18 under the Exchange Act, pursuant to which purchases of
Shares may be made by the Trust when the Shares trade at a discount to their
NAV. Purchases under that program were made during the second half of 1991 and
during May through July of 1997, and such purchases could be recommenced at any
time after appropriate notice to Shareholders. However, the trustees believe,
based upon the Trust's own experience and information that the trustees have
reviewed with respect to share repurchase programs implemented by other
closed-end funds, that additional purchases of Shares by the Trust pursuant to
such a program are unlikely to significantly affect the discount to NAV at which
the Shares may otherwise trade. In addition, the trustees believe that the
recommendation or adoption of other measures that they have considered
(including committing to make periodic tender offers for Shares and the adoption
of a managed distribution policy providing for mandatory distributions to
Shareholders) is unlikely to have a meaningful long-term effect upon the
discount to NAV at which the Shares may otherwise trade. Moreover, any such
actions by the Trust could substantially reduce the funds available to the Trust
for investment in the Taiwan market, which the trustees believe would be
inconsistent with the investment objectives of many Shareholders. Accordingly,
although the trustees intend to continue to consider various measures that might
have a favorable impact on any discount to NAV at which the Shares may continue
to trade, the Board of Trustees has no current intention to cause the Trust to
make any further purchases of Shares or to recommend or adopt any of the other
alternative measures that it has considered.
If this proposal is not approved, the Shares continue to trade at a discount
and the average discount is again greater than 10% during a twelve-week period
beginning after the date of the Meeting, the Board of Trustees and the
Shareholders will have an opportunity to consider again converting the Trust
into an open-end investment company. The Board of Trustees may also decide at
any time to present to the Shareholders the question of whether the Trust should
be converted to an open-end investment company; however, under the Declaration
of Trust such a voluntary submission would require the approval of two-thirds of
the outstanding Shares for its adoption.
As described below under 'Measures to be Adopted if the Trust Becomes an
Open-end Fund -- Redemption Fee,' if the Shareholders vote to convert the Trust
into an open-end fund, the Board of Trustees may cause the Trust to impose a fee
payable to the Trust on all redemptions of up to 2.00% of redemption proceeds
for a period of up to nine months from conversion.
DIFFERENCES BETWEEN OPEN-END AND CLOSED-END INVESTMENT COMPANIES
1. Fluctuation of Capital; Redeemability of Shares; Elimination of Discount
and Premium. Closed-end investment companies generally do not redeem their
outstanding shares or engage in the continuous sale of new securities, and thus
operate with a relatively fixed capitalization. The shares of closed-end
investment companies are normally bought and sold in the securities market at
prevailing market prices, which may be equal to, less than or more than NAV.
From May 12, 1989 to May [ ], 2004 the Shares traded on the NYSE at prices
ranging from 31.55% below NAV (on April 27, 1990) to 35.36% above NAV (on
December 31, 1993). The Shares most recently traded at a premium to their NAV on
January 30, 1998. On January 6, 2004, however, the Shares traded a discount of
only 1.9% below NAV. On May [ ], 2004, the closing price of a Share on the NYSE
was [ ]% below its NAV.
Although it is now possible, subject to certain restrictions, for both
institutions and individuals outside Taiwan to invest directly in R.O.C. stocks,
the Board of Trustees believes that many foreign investors, and particularly
foreign individuals, continue to invest in the R.O.C. market through a managed
intermediary like the Trust. The Board recently revised the Trust's investment
strategy to
13
provide that the Trust will primarily invest in Taiwan companies that derive or
expect to derive a significant portion of their revenues from operations in or
exports to mainland China, and the Board believes that substantial expertise is
required to select and assess companies with that profile. The full
liberalization of the right of foreign investors to invest in Taiwan has been in
effect since 1996; however, additional alternatives to the Trust can be expected
to develop as vehicles for investment in R.O.C. securities by investors outside
the R.O.C., which could have the effect of reducing or eliminating (or changing
to a discount) any premium, or increasing any discount, at which the Shares
trade in relation to their NAV.
By contrast, open-end investment companies in the United States, commonly
referred to as mutual funds, issue redeemable securities with respect to which,
traditionally, no secondary trading market has been permitted to develop.
(Although this has changed in recent years with the establishment of
exchange-traded open-end index funds, it remains true that the vast majority of
open-end funds, both in number and total assets, do not offer secondary market
trading in their shares.) Except during periods when the NYSE is closed or
trading thereon is restricted, or when redemptions may otherwise be suspended in
an emergency as permitted by the Investment Company Act, the holders of these
redeemable securities have the right to surrender them to the mutual fund and
obtain in return their proportionate share of the mutual fund's NAV at the time
of the redemption (less any redemption fee charged by the fund or contingent
deferred sales charge imposed by the fund's distributor).
Most mutual funds also continuously issue new shares to investors at a price
based upon their shares' NAV at the time of issuance. Accordingly, an open-end
fund experiences continuing inflows and outflows of cash and may experience net
sales or net redemptions of its shares.
Upon conversion of the Trust into an open-end investment company,
Shareholders who wished to realize the value of their Shares would be able to do
so by redeeming their shares at NAV (less the possible temporary redemption fee
discussed below under 'Measures to be Adopted if the Trust Becomes an Open-end
Fund -- Redemption Fee'), which would rise or fall based upon the performance of
the Trust's investment portfolio. The trading market for the Shares would be
eliminated, and with it the discount from NAV at which the Shares have
periodically tended to trade on the NYSE. Conversion would also eliminate,
however, any possibility that the Shares could trade at a premium over NAV. (See
the chart on page [12] for information with regard to the periods during which
the Shares have, on the average, traded at a premium to their NAV.)
2. Cash Reserves. Because closed-end investment companies are not required
to meet redemptions, their cash reserves can be substantial or minimal,
depending on the investment manager's investment strategy. The managers of many
open-end investment companies, on the other hand, believe it desirable to
maintain cash reserves adequate to meet anticipated redemptions without
prematurely liquidating their portfolio securities. Although many open-end funds
operate successfully in this environment, the maintenance of larger cash
reserves required to operate prudently as an open-end investment company when
net redemptions are anticipated may reduce an open-end investment company's
ability to achieve its investment objective by limiting its investment
flexibility and the scope of its investment opportunities. In addition, open-end
investment companies are subject to a requirement that no more than 15% of their
net assets may be invested in securities that are not readily marketable or are
otherwise considered to be illiquid. However, the Trust currently does not
invest in, nor does it anticipate investing in, illiquid securities to any
material extent.
14
3. Raising Capital. Closed-end investment companies may not issue new shares
at a price below NAV except in rights offerings to existing shareholders, in
payment of distributions and in certain other limited circumstances.
Accordingly, the ability of closed-end funds to raise new capital is restricted,
particularly at times when their shares are not trading at a premium to NAV. The
shares of open-end investment companies, on the other hand, are offered by such
companies (in most cases continuously) at NAV, or at NAV plus a sales charge,
and the absence of a secondary trading market generally makes it impossible to
acquire such shares in any other way. The Trust most recently raised additional
capital in 1995, when it obtained net offering proceeds of approximately
$64,000,000 upon the completion of a public offering of additional Shares at a
small premium to NAV.
4. NYSE Delisting; State and Federal Fees on Sales of Shares. If the Trust
converted to an open-end fund, the Shares would immediately be delisted from the
NYSE. Some investment managers believe that the listing of an investment company
on a U.S. stock exchange, particularly the NYSE, represents a valuable asset,
especially in terms of attracting non-U.S. investors. Delisting would save the
Trust annual NYSE fees of approximately $35,000; but the absence of a stock
exchange listing, combined with the need to issue new Shares when investors wish
to increase their holdings, would have the effect of requiring the Trust to pay
federal and state fees on sales of Shares, except to the extent that the
underwriter of such sales paid some or all of such fees. Any net savings or
increased cost to the Trust because of the different expenses would not,
however, be expected to materially affect the Trust's expense ratio.
5. Underwriting; Brokerage Commissions or Sales Charges on Purchases and
Sales. Open-end investment companies typically seek to sell new shares on a
continuous basis in order to offset redemptions and avoid shrinkage in size.
Shares of 'load' open-end investment companies are normally offered and sold
through a principal underwriter, which deducts a sales charge from the purchase
price at the time of purchase or from the redemption proceeds at the time of
redemption, receives a distribution fee from the fund (called a Rule 12b-1 fee),
or both, to compensate it and securities dealers for sales and marketing
services (see 'Measures to be Adopted if the Trust Becomes an Open-end
Fund -- Underwriting and Distribution' below). Shares of 'no-load' open-end
investment companies are sold at NAV, without a sales charge, with the fund's
investment adviser or an affiliate normally bearing the cost of sales and
marketing from its own resources. Shares of closed-end investment companies, on
the other hand, are bought and sold in secondary market transactions at
prevailing market prices subject to the brokerage commissions charged by the
broker-dealer firms executing such transactions. Except in the case of shares
sold pursuant to a dividend reinvestment plan, when a closed-end fund sells
newly issued shares, it typically does so in an underwritten public offering in
which an underwriting fee of 5% or more is imposed. Except in the case of a
rights offering, such sales can be made only at or above the shares' then
applicable NAV after the deduction of such an underwriting fee.
6. Shareholder Services. Open-end investment companies typically provide
more services to shareholders and may incur correspondingly higher shareholder
servicing expenses. One service that is generally offered by open-end funds is
enabling shareholders to transfer their investment from one fund into another
fund that is part of the same 'family' of open-end funds at little or no cost to
the shareholders. The Trust has engaged in no discussions with any family of
funds to become a part of such family, and there can be no assurance that the
Trust would be able to make such an arrangement if the Shareholders voted to
convert the Trust to an open-end fund. If the requisite majority of the
Shareholders approve this proposal, the Board of Trustees would weigh the cost
of any particular service against the anticipated benefit of such service. The
Board of Trustees has no current view as to
15
which, if any, Shareholder services it would seek to make available to
Shareholders and implement as part of the Trust's joining a family of funds or
otherwise.
7. Leverage. Open-end investment companies are prohibited by the Investment
Company Act from issuing 'senior securities' representing indebtedness (i.e.,
bonds, debentures, notes and other similar securities), other than indebtedness
to banks with respect to which there is asset coverage of at least 300% for all
borrowings, and may not issue preferred stock. Closed-end investment companies,
on the other hand, are permitted to issue senior securities representing
indebtedness when the 300% asset coverage test is met, may issue preferred stock
subject to a 200% asset coverage test and are not limited to borrowings solely
from banks. This greater ability to issue senior securities gives closed-end
investment companies more flexibility in 'leveraging' their shareholders'
investments than is available to open-end investment companies. This difference
is not likely to be of importance with respect to the Trust, however, because
the Trust's fundamental investment policies (which may be changed only with
Shareholder consent) forbid it to borrow more than 5% of its NAV (a restriction
that would continue to apply if the Trust were an open-end fund) or to issue
preferred stock (even though such issuance is permitted by the Trust's
Declaration of Trust).
8. Annual Shareholders Meetings. The Trust is organized as a Massachusetts
business trust under the terms of the Declaration of Trust. As a closed-end
investment company listed on the NYSE, the Trust is required by the rules of the
NYSE to hold annual meetings of its Shareholders. This requirement would cease
upon a delisting of the Shares from the NYSE. A provision in the Declaration of
Trust provides that, if the Trust were converted to an open-end investment
company, the Declaration of Trust could be amended to provide that the Trust
would no longer be required to hold annual meetings. However, no vote is being
sought on such a proposal at this time. If the Trust were no longer required to
hold annual meetings of Shareholders, it would still be required by the
Investment Company Act to have periodic meetings to approve certain matters and,
under certain circumstances, to elect trustees. (See the discussion below under
'Measures to be Adopted if the Trust Becomes an Open-end Fund -- Effect on the
Trust's Declaration of Trust.') The Trust would save the cost of annual
meetings, which management estimates to be approximately $50,000 per year;
however, these savings would not be expected to materially affect the Trust's
expense ratio.
9. Reinvestment of Dividends and Distributions. Like the plans of many other
closed-end funds, the Trust's Dividend Reinvestment Plan (the 'Plan') permits
Shareholders to elect to reinvest their dividends and distributions on a
different basis than would be the case if the Trust converted to an open-end
investment company. Currently, if the Shares are trading at a discount, the
agent for the Plan will attempt to buy as many of the Shares as are needed for
this purpose on the NYSE or elsewhere. This permits a reinvesting Shareholder to
benefit by purchasing additional Shares at a discount, and this buying activity
may tend to lessen any discount. If Shares are trading at a premium, reinvesting
Shareholders are issued Shares at the higher of NAV and 95% of the market price.
As an open-end investment company, all dividends and distributions would be
reinvested at NAV unless Shareholders elected to receive their dividends and
distributions in cash.
10. Capital Gains. The treatment of capital gains required under the
Internal Revenue Code (the 'Code') may be disadvantageous to non-redeeming
stockholders of an open-end fund. Although the fund's manager may be able to
sell portfolio securities at a price that does not reflect a taxable gain in
order to raise cash to satisfy redeeming stockholders, a mutual fund that is
required to sell portfolio securities may realize a net capital gain if the
fund's basis in the portfolio securities sold is less than the sale price
obtained. The Code imposes both an income tax and an excise tax on a regulated
investment company's net capital gain (regardless of whether the fund is
open-end or closed-end)
16
unless the gain is distributed to all stockholders, including non-redeeming
stockholders. Furthermore, in order to make a capital gain distribution, a fund
may need to sell additional portfolio securities, thereby reducing further its
size and, possibly, creating additional capital gain. While, as noted, taxes on
such gains are also imposed on closed-end funds, a closed-end fund does not face
the possible need to sell appreciated securities in order to raise funds to meet
redemption requests.
EFFECT OF CONVERSION ON THE TRUST
In addition to the inherent characteristics of open-end investment companies
described above, the Trust's conversion to an open-end investment company would
potentially have the consequences described below.
1. Portfolio Management. As noted above, a closed-end investment company
operates with a relatively fixed capitalization while the capitalization of an
open-end investment company fluctuates depending upon whether it experiences net
sales or net redemptions of its shares. Although the data on the subject are
unclear, some observers believe that open-end funds tend to have larger net
sales near market highs and larger net redemptions near market lows. To the
extent that this is true, if the Trust were to convert to an open-end investment
company, the Trust might be faced with a need to invest new monies near market
highs and to sell portfolio securities in a falling market when it might
otherwise wish to invest. Because the Trust is a closed-end fund, however, the
Trust currently is not required to invest new monies or liquidate portfolio
holdings at what may be inopportune times, and can manage its portfolio with a
primary emphasis on long-term considerations.
The Board of Trustees also believes that the closed-end format is better
suited than the open-end format to the Trust's investment objective of achieving
long-term capital appreciation through investment primarily in publicly traded
equity securities of R.O.C. issuers, particularly in view of the Trust's primary
strategic focus on companies whose business is becoming increasingly integrated
with the economy of mainland China. The Board of Trustees believes that,
notwithstanding developments in Taiwan that have had the effect of liberalizing
restrictions on investment by foreign investors in the Taiwan securities market,
investor psychology towards Taiwan (and mainland China) remains susceptible of
rapid and extreme swings that would be likely to have a material and
unpredictable impact on inflows and outflows from the Trust if it were to become
an open-end fund. The Board of Trustees believes that the Trust can better
pursue its long-term investment objective without short-term pressures to invest
new monies or liquidate portfolio holdings at times when its investment style
would dictate doing otherwise. Furthermore, the Board of Trustees believes that
a need for the Trust to maintain some level of cash reserves to fund redemptions
could restrict the Trust's ability to remain fully invested in equity securities
in circumstances in which its portfolio manager otherwise thought it
advantageous to be so invested.
2. Potential Increase in Expense Ratio and Decrease in Size. Conversion to
an open-end investment company would raise the possibility of the Trust
suffering substantial redemptions of Shares, particularly in the period
immediately following the conversion, although the potential temporary
redemption fee of up to 2.00% described below under 'Measures to be Adopted if
the Trust Becomes an Open-end Fund' might reduce the number of initial
redemptions that would otherwise occur. Unless the Trust's principal
underwriter, if any, were able to generate sales of new Shares sufficient to
offset these redemptions or the performance of the Trust's investments was
sufficiently favorable to offset net redemptions, the size of the Trust would be
expected to shrink. (See 'Measures to be Adopted if the Trust Becomes an
Open-end Fund -- Underwriting and Distribution.') Because a majority of the
Trust's operating expenses are fixed and others decline as a percentage of the
Trust's
17
NAV as the NAV increases, a decrease in the Trust's asset size would likely
increase the ratio of its operating expenses to its income and net assets and,
as a result, decrease the Trust's net income per Share. Such a decrease in size
could result in a decision by the Board of Trustees to terminate and liquidate
the Trust if the amount of the Trust's assets were reduced such that it was no
longer considered economically feasible for the Trust to continue to carry on
business.
3. Continuous Public Offering Costs. In addition, the Trust might be
required to engage in a continuous public offering intended, at a minimum, to
offset redemptions. A continuous public offering of the Shares would require the
Trust to maintain current registrations under federal and state securities laws
and regulations, which would involve additional costs. See 'Differences Between
Open-end and Closed-end Investment Companies -- Underwriting; Brokerage
Commissions or Sales Charges on Purchases and Sales' above.
4. Possible Sales of Portfolio Securities. If the Trust were to experience
substantial redemptions of Shares following its conversion to an open-end
investment company, it would probably not have sufficient cash reserves to fund
such redemptions and therefore could be required to sell portfolio securities
and incur increased transaction costs in order to raise cash to meet such
redemptions. See 'Differences Between Open-end and Closed-end Investment
Companies -- Capital Gains' above.
5. Conversion Costs. The process of converting the Trust to an open-end
investment company would involve legal and other expenses to the Trust,
including the preparation of a registration statement under the Securities Act
of 1933, as amended (the 'Securities Act') (see 'Measures to be Adopted if the
Trust Becomes an Open-end Fund -- Timing' below), and the payment of necessary
fees with respect to such registration statement and the sale of Shares in
various states. The Board of Trustees has been advised that these conversion
expenses, which would be paid by the Trust and would result in a one-time
increase in the Trust's current expense ratio, could be expected to total at
least $150,000. Because the Trust is unable to determine at this time the actual
costs that would be involved, it is possible that the conversion expenses would
be substantially higher.
MEASURES THAT MAY BE ADOPTED IF THE TRUST BECOMES AN OPEN-END FUND
If the Shareholders voted to convert the Trust to an open-end fund, the
Board of Trustees may take the following actions.
1. Redemption Fee. In order to reduce the number of redemptions of the
Shares immediately following conversion (thereby reducing any disruption of the
Trust's normal portfolio management), and to offset the brokerage and other
costs of such redemptions, for a period of up to nine months following the
Trust's conversion to an open-end investment company, the Board of Trustees may
decide that the Trust should impose a fee, to be retained by the Trust, of up to
2.00% of the redemption proceeds payable by the Trust on all redemptions. While
not required, such a fee would be similar to fees that have been proposed by
other funds considering a conversion from closed-end to open-end status.
2. Underwriting and Distribution. If the Shareholders voted to convert the
Trust to an open-end investment company, the Board would consider whether to
select a principal underwriter of the Shares. The Shares could be offered and
sold directly by the Trust itself, and by any other broker-dealers who enter
into selling agreements with the principal underwriter. The Trust has engaged in
no discussions with prospective principal underwriters, and there can be no
assurance regarding whether satisfactory arrangements with a principal
underwriter would be achieved. The Board of Trustees reserves the right to cause
the Trust to enter into an underwriting agreement with a principal
18
underwriter in such form and subject to such conditions as the Board of Trustees
deems desirable. If a principal underwriter were selected, there could be no
assurance that any such broker-dealer firms would be able to generate sufficient
sales of Shares to offset redemptions, particularly in the initial months
following conversion.
3. Effect on the Trust's Declaration of Trust. The Declaration of Trust
provides that, if the Shareholders voted to change the Trust's subclassification
under the Investment Company Act from a closed-end investment company to an
open-end investment company, provisions in the Declaration of Trust (set forth
in Appendix C to this Proxy Statement) would become effective that authorize the
issuance of redeemable securities at NAV and provide that the outstanding Shares
will be redeemable at the option of the Shareholders. In addition, the
Declaration of Trust provides that if the Trust becomes an open-end fund and is
no longer required by stock exchange rules to hold annual meetings for the
election of trustees, the Board of Trustees may submit a proposal, which may be
adopted by vote of a majority of the Trust's outstanding Shares, that the Trust
cease to hold annual meetings of its Shareholders and that it eliminate its
staggered Board of Trustees. These actions would have the consequence of
requiring Shareholders' meetings to be held only when required by the Investment
Company Act, either for the election of trustees (if a majority of the trustees
in office were not elected by the Shareholders) or to approve specific matters
in accordance with the Investment Company Act's requirements.
4. Timing. If the Shareholders voted to convert the Trust to an open-end
investment company, a number of steps would be required to implement such
conversion, including the preparation, filing and effectiveness of a
registration statement under the Securities Act covering the offering of the
Shares and the negotiation and execution of a new or amended agreement with the
Trust's transfer agent. It is anticipated that such conversion would become
effective no later than December 31, 2004 and that the discount, if any, at
which the Shares trade in relation to their NAV would be reduced in anticipation
of the ability to redeem Shares at NAV upon the completion of the conversion.
The provisions of the Declaration of Trust set forth in Appendix C would become
effective simultaneously with the effectiveness of the registration statement
referred to above under the Securities Act. If, as noted immediately above in
'Effect on the Trust's Declaration of Trust,' the Board of Trustees submitted,
and Shareholders approved, a proposal that the Trust no longer hold annual
meetings of Shareholders after becoming an open-end fund, the attendant savings
in the cost of holding such meetings (see 'Differences Between Open-end and
Closed-end Investment Companies -- Annual Shareholders Meetings') would accrue
in the years following such approval.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS VOTE AGAINST CONVERSION
OF THE TRUST FROM A CLOSED-END INVESTMENT COMPANY INTO AN OPEN-END INVESTMENT
COMPANY. THE PERSONS NAMED IN THE ACCOMPANYING PROXY WILL, IN THE ABSENCE OF
CONTRARY INSTRUCTIONS, VOTE ALL PROXIES AGAINST THIS PROPOSAL.
MISCELLANEOUS
Proxies will be solicited by mail and may be solicited in person or by
telephone, email or facsimile by officers or employees of the Trust. The Trust
has also retained MacKenzie Partners, Inc. to assist in the solicitation of
proxies from Shareholders at an anticipated cost not to exceed $[25,000] plus
reimbursement of out-of-pocket expenses. The expenses connected with the
solicitation of these proxies and with any further proxies that may be solicited
by such officers or employees or by MacKenzie Partners, Inc. in person or by
telephone, email or facsimile will be borne by the Trust. The Trust will
reimburse banks, brokers and other persons holding Shares registered in their
names or in
19
the names of their nominees for their expenses incurred in sending proxy
material to and obtaining proxies from the beneficial owners of such Shares.
THE TRUST'S ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31, 2003, INCLUDING
FINANCIAL STATEMENTS, WAS MAILED ON OR ABOUT MARCH 1, 2004 TO SHAREHOLDERS OF
RECORD ON MARCH 1, 2004. HOWEVER, A COPY OF THIS REPORT WILL BE PROVIDED,
WITHOUT CHARGE, TO ANY SHAREHOLDER UPON REQUEST. PLEASE CALL 1-800-343-9567 OR
WRITE TO THE TRUST C/O CITIGATE FINANCIAL INTELLIGENCE, 111 RIVER STREET, SUITE
1001, HOBOKEN, NEW JERSEY 07030 TO REQUEST THE REPORT.
In the event that a quorum is not obtained for the transaction of business
at the Meeting by June 22, 2004, the persons named as proxies in the enclosed
proxy may propose one or more adjournments of the Meeting to permit further
solicitation of proxies in order to obtain such a quorum. Any such adjournment
would require the affirmative vote of the holders of a majority of the Shares
voting that are present in person or by proxy at the session of the Meeting to
be adjourned. The persons named as proxies in the enclosed proxy will vote in
favor of such adjournment if it is required. The costs of any such additional
solicitation and of any adjourned session will be borne by the Trust.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
To the knowledge of the Trust, certain individuals or organizations reported
below, which during 2003 were either 'affiliated persons' (as that term is
defined in the Investment Company Act) of IIT, or 'ten percent beneficial
owners' (as that term is defined in Rule 16a-2 of the Exchange Act) of the
Trust, did not make timely filings, or failed to make filings, required during
or with respect to 2003 by rules of the United States Securities and Exchange
Commission (the 'Commission') pursuant to Section 30(h) of the Investment
Company Act, with respect to holdings of, or transactions during 2003 in, shares
of the Trust. The Kuomintang, which controls Central Investment Holding Co.,
Ltd. ('CIHC') and Asia Pacific Holdings Corp. ('Asia Pacific'), affiliated
persons of IIT, indirectly controls 24.24% of IIT's outstanding voting
securities, but has failed to make any filings on Forms 3, 4 or 5. However, CIHC
and Asia Pacific did make timely filings (or have provided statements in lieu of
required filings). In addition, if CIHC, Asia Pacific and the Kuomintang are
deemed to be controlling persons of IIT, then persons controlled by CIHC, Asia
Pacific or the Kuomintang would have been required to file statements on
Forms 3, 4 and 5 with respect to ownership of, or transactions in, shares of the
Trust. No such persons have made any such filings. During 2003 Messrs. Colin
Kingsnorth and Andrew Pegge and Laxey Partners Limited, Laxey Investors Limited,
Laxey Universal Value, LP, Laxey Investors, L.P., LP Value Limited and The Value
Catalyst Fund Limited, each a ten percent beneficial owner of the Trust, failed
to make timely filings on Form 4 with respect to certain transactions concerning
the Trust's shares. Each of such individuals and entities subsequently made the
required filings on Form 4.
20
SHAREHOLDER PROPOSALS AND NOMINATIONS
Any proposal by a Shareholder intended to be presented at the 2005 Annual
Meeting of Shareholders must be received by the Trust c/o Citigate Financial
Intelligence, 111 River Street, Suite 1001, Hoboken, New Jersey 07030 not later
than January [ ], 2005. The Board of Trustees will consider whether any such
proposal should be submitted to a Shareholder vote in light of applicable rules
and interpretations promulgated by the Commission; but a Shareholder's timely
submission of a proposal will not automatically confer a right to have that
proposal presented for a vote at the Trust's 2005 Annual Meeting. Any nomination
by a Shareholder of a person to stand for election as a trustee at the 2005
Annual Meeting of Shareholders must be received by the Trust c/o Secretary, Bank
Tower, Room 1001, DunHua North Road, Taipei, Taiwan, Republic of China not later
than February [ ], 2005.
BY ORDER OF THE BOARD OF TRUSTEES
Peggy Chen
Secretary
May [ ], 2004
21
APPENDIX A
TAIWAN GREATER CHINA FUND
CHARTER OF THE NOMINATING COMMITTEE OF THE BOARD OF TRUSTEES
PURPOSE
The purpose of the Nominating Committee (the 'Committee') is to identify,
communicate with and recommend persons qualified to serve on the Trust's Board
of Trustees (the 'Board') for election by shareholders at each annual meeting
and to fill vacancies on the Board.
COMPOSITION
Membership. The Committee shall consist of at least two trustees. The
members of the Committee shall be appointed by the Board at the annual
organizational meeting of the Board and shall serve until their successors are
duly appointed and qualified. The Chair of the Committee may be designated by
the full Board or, if it does not do so, the members of the Committee may elect
a Chair.
Independence. Each Committee member shall be a trustee who is not an
'interested person' of the Trust (as defined in the Investment Company Act of
1940) and free from any relationship that, in the opinion of the Board, would
interfere with the exercise of the member's independence from the management of
the Trust. Each member shall meet the further restrictions set forth on Annex I
to the charter of the Board's Audit Committee.
FUNCTIONS
Qualifications of trustees. The Committee shall periodically assess, develop
and communicate with the Board concerning the appropriate criteria for
nominating and appointing trustees, including:
the Board's size and composition;
applicable listing standards and laws;
individual trustee performance, expertise (especially with regard to
matters relating to Taiwan, mainland China and public and private
investment funds), experience and willingness to serve actively;
whether a potential nominee will enhance the functioning of the Board and
the compatibility of his or her views concerning the manner in which the
Trust should be governed with the Board's assessment of the best interests
of the Trust's shareholders;
the number of other public and private company boards of directors on which
a trustee candidate serves; and
other appropriate factors.
Trustee nominees and vacancies. The Committee shall recommend to the Board
the individuals to be nominated for election as trustees at each annual meeting
of shareholders and to fill vacancies on the Board.
A-1
Committee appointments. If and when requested periodically by the Board, the
Committee shall identify and recommend to the Board the appointees to be
selected by the Board for service on committees of the Board.
Other functions. The Committee may perform such other activities consistent
with this charter, the Trust's Declaration of Trust and By-Laws and applicable
listing standards, laws and regulations as the Committee or the Board may
consider appropriate.
Annual performance review. The Committee shall evaluate its own performance
as a Committee and this charter on an annual basis.
IDENTIFICATION OF POTENTIAL TRUSTEES
The Committee shall consider as potential candidates for election or
appointment as trustees persons who are personally known to Committee members,
persons recommended to Committee members by other members of the Board and other
persons known by Committee members or other Board members, persons identified by
a search firm retained by the Committee and persons recommended by shareholders.
Shareholders may submit trustee nominees at any time for the Committee's
consideration. The Committee shall have the power, in its discretion, to
interview nominees and engage in such background inquiries and solicit such
information concerning any nominee and his or her views as the Committee may
deem appropriate. The Committee shall have authority to retain at the Trust's
expense and terminate the services of any search firm for the purpose of
identifying trustee candidates and to approve the related fees and other terms
of retention.
MEETINGS, REPORTS AND RESOURCES
Meetings. The Committee shall meet as often as it determines is necessary,
but not less than annually. Either the Chair or a majority of the Committee's
members shall be authorized to call a meeting of the Committee and send notice
thereof. The Committee shall ordinarily meet in person, provided that members
may attend telephonically and the Committee may act by unanimous written
consent. A majority of the members of the Committee shall constitute a quorum
for the transaction of business at any meeting of the Committee. The action of a
majority of the members of the Committee present at a meeting at which a quorum
is present shall be the action of the Committee. The Committee may meet in
separate executive sessions with other trustees, the chief executive officer and
other Trust employees, agents or representatives invited by the Committee.
Procedures. The Committee may establish its own procedures, including the
formation and delegation of authority to subcommittees, in a manner not
inconsistent with this charter and applicable laws, regulations or listing
standards. The Committee may, but shall not be required to, keep written minutes
of its meetings.
Reports. The Committee shall report its recommendations of trustee nominees
for an annual meeting of shareholders to the Board at an appropriate time prior
to preparation of the Trust's proxy statement for that annual meeting. The
Committee shall also report to the Board on the major items covered at each
Committee meeting, report to the Board annually the results of an annual review
by the Committee of its own performance and provide such additional reports to
the Board as the Committee may determine to be appropriate.
Committee access. The Committee shall have direct, independent and
confidential access to the Trust's other trustees, management and personnel to
carry out the Committee's purposes.
A-2
APPENDIX B
TAIWAN GREATER CHINA FUND
CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF TRUSTEES
I. PURPOSE
The primary functions of the Audit Committee (referred to below either as
the Audit Committee or simply as the 'Committee') of the Taiwan Greater China
Fund (the 'Trust') are to (i) oversee the accounting and financial reporting
processes of the Trust and its internal controls over financial reporting,
accounting, legal compliance and ethical behavior and, as the Committee deems
relevant or appropriate, to inquire into the internal control over financial
reporting of third-party service providers to the Trust, (ii) assist the Trust's
Board of Trustees (the 'Board') in its oversight of the Trust's internal audit
functions, (iii) oversee the quality and integrity of the Trust's financial
statements, the independent audit of those statements and other financial
information provided by the Trust to shareholders, (iv) oversee, or, as
appropriate, assist oversight by the Board of, the Trust's compliance with legal
and regulatory requirements relating to the Trust's accounting and financial
reporting, internal controls over financial reporting and independent audits,
(v) approve the engagement of the Trust's independent auditors and, in
connection therewith, review and evaluate the qualifications, independence and
performance thereof, (vi) act as a liaison between the Trust's independent
auditors and the full Board and (vii) prepare any reports of the Committee
required by applicable securities laws or stock exchange listing requirements or
rules to be included in any proxy statements, information statements or other
documents. Consistent with these functions, the Committee should encourage
continuous improvement of, and should foster adherence to, the Trust's policies,
procedures and practices at all levels.
The independent auditors for the Trust shall report directly to the
Committee.
In meeting its responsibilities, the Committee is expected to:
Serve as an independent and objective party to review the Trust's financial
reporting process and internal control system.
Review and appraise the audit activities of the Trust's outside auditors
and internal auditing department.
Provide an open avenue of communication among the outside auditors,
financial and senior management, the internal auditors and the Board.
Review such aspects of the Trust's relationship with affiliated persons of
the Trust, including potential conflicts of interest, as the Committee
deems necessary or desirable.
The Committee shall have the resources and authority appropriate to
discharge its responsibilities, including appropriate funding, as determined by
the Committee, for payment of compensation to the Trust's independent auditors
for the purpose of conducting the audit and rendering their audit report, the
authority to retain and compensate special counsel and other experts or
consultants as the Committee deems necessary, and the authority to obtain
specialized training for Committee members, at the expense of the Trust, as
appropriate.
The Committee will primarily fulfill these responsibilities by carrying out
the activities enumerated in Section IV of this Charter.
B-1
II. ORGANIZATION
The Audit Committee shall be comprised of three or more trustees as
determined by the Board, each of whom shall be a trustee who is not an
'interested person' of the Trust (as defined in the Investment Company Act of
1940) and free from any relationship that, in the opinion of the Board, would
interfere with the exercise of the trustee's independence from the management of
the Trust. Each member shall meet the further restrictions set forth on Annex I.
Each member of the Committee must be financially literate, as that
qualification is interpreted by the Board in its business judgment, or must
become financially literate within a reasonable time after appointment to the
Committee. At least one member of the Committee must have accounting or related
financial management expertise, as such qualification is interpreted by the
Board in its business judgment.
The members of the Committee shall be elected by the Board at the annual
organizational meeting of the Board, and the members shall serve until their
successors shall be duly elected and qualified. The Chair of the Committee may
be designated by the full Board or, if it does not do so, the members of the
Committee may elect a Chair by vote of a majority of the full Committee
membership.
A majority of the members of the Committee shall constitute a quorum for the
transaction of business at any meeting of the Committee. The action of a
majority of the members of the Committee present at a meeting at which a quorum
is present shall be the action of the Committee.
The Committee may delegate any portion of its authority, including the
authority to grant pre-approvals of audit and permitted non-audit services, to a
subcommittee of one or more members. Any decisions of the subcommittee to grant
pre-approvals shall be presented to the full Committee at its next regularly
scheduled meeting.
III. MEETINGS
The Audit Committee shall meet at least two times each year, or more
frequently as circumstances require. Either the Chair or a majority of the
Committee's members shall be authorized to call a meeting of the Committee and
send notice thereof. The Committee shall ordinarily meet in person, provided
that members may attend telephonically and the Committee may act by unanimous
written consent. The Committee shall have authority to meet privately and to
admit non-members by invitation, and may require members of management or others
to attend meetings and to provide pertinent information as necessary. As part of
its job to foster open communication, the Committee shall meet at least two
times each year with management, and at least annually with the Trust's outside
auditors and the Trust's internal auditor, in separate executive sessions if
deemed appropriate by the Committee, to discuss any matters that the Committee
or any of the foregoing believe should be discussed. The Committee may also meet
with personnel of entities that provide significant accounting or administrative
services to the Trust to discuss matters relating to the Trust's accounting and
compliance and such other matters as the Committee may deem relevant. In
addition, if required, the Committee as a whole or its Chair individually shall
meet with management and the Trust's outside auditors semiannually to review the
Trust's annual and semi-annual financial statements (consistent with IV.7
below). The Committee shall meet in November or December of each year to review
the Trust's results of operation as they appear at that time and to determine
whether to recommend the payment of a dividend or distribution in that year in
accordance with the Trust's
B-2
declared policies. The Committee shall prepare and retain minutes of its
meetings and appropriate documentation of decisions made outside of a meeting by
delegated authority.
IV. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties, the Audit Committee shall:
1. Appoint and engage on an annual basis, and have the power to
terminate the engagement of, the Trust's independent
auditors and, in connection therewith, review and evaluate
matters potentially affecting the independence and
capabilities of such auditors. In reviewing and evaluating
the auditors' qualifications, performance and independence,
the Committee shall, among other things, obtain and review a
report by the audit firm, at least annually, describing the
following items:
all relationships between the independent auditors and the
Trust, as well as all relationships between the independent
auditors and any service provider to the Trust that the
Committee considers to be material to the Trust's business;
any material issues raised by the most recent internal
quality control review or peer review of the audit firm or
by any inquiry or investigation by governmental or
professional authorities within the preceding five years
respecting one or more independent audits carried out by
such firm, and any steps taken to deal with any such
issues; and
the audit firm's internal quality control procedures.
2. Approve prior to appointment the engagement of the Trust's
independent auditors to provide other audit or non-audit
services to the Trust.
3. Develop, to the extent deemed appropriate by the Committee,
policies and procedures for pre-approval of the engagement
of the Trust's independent auditors to provide any of the
services described in 2 above.
4. Have the power to consider the controls applied by the
Trust's independent auditors and any measures taken by
management in an effort to assure that all items requiring
pre-approval by the Committee are identified and referred to
the Committee in a timely fashion.
5. Review the arrangements for and scope of the Trust's annual
audit and any special audits.
6. Review and approve the fees proposed to be charged to the
Trust by its independent auditors for each audit and
non-audit service.
7. Review and discuss with financial management and the Trust's
outside auditors all financial statements and related
disclosure documents prior to the filing of such reports
with the Securities and Exchange Commission and, if
feasible, prior to any public announcement of financial
results for the periods covered thereby, including any
certification, report, opinion or review rendered by the
Trust's outside auditors, and resolve any disagreements
between management and the Trust's independent auditors
regarding financial reporting. The Chair of the Committee
may represent the entire Committee for purposes of this
review. In this connection the Committee shall:
Periodically consult with the Trust's outside auditors,
without management being present if thought appropriate by
the Committee, about the completeness and accuracy of the
Trust's financial statements, and the critical accounting
judgments utilized in the preparation of those financial
statements;
B-3
Discuss with the outside auditors their judgments about the
quality and appropriateness, as opposed to the
acceptability, of the Trust's accounting principles and
financial disclosure practices as applied in its financial
reporting;
Discuss the Trust's disclosures with regard to its
performance in any such reports; and
Establish regular and separate systems of reporting to the
Committee by each of management, the outside auditors and
the Trust's internal auditor regarding any significant
judgments made in management's preparation of the financial
statements and the view of each as to the appropriateness
of those judgments.
8. Review the regular internal reports to management prepared
by the Trust's internal auditor and any provider of
administrative services to the Trust and management's
response to these reports and, in consultation with the
Trust's outside auditors, the Trust's internal auditor and
any such provider of services, review the integrity of the
Trust's financial reporting processes, both internal and
external.
9. Review with the Trust's chief executive officer and/or chief
financial officer in connection with their certifications on
Form N-CSR any significant deficiencies in the design or
operation of internal controls over financial reporting or
material weaknesses therein and any reported evidence of
fraud involving management or other employees who have a
significant role in such controls.
10. Establish procedures for the receipt, retention and
treatment of complaints received by the Trust relating to
accounting, internal accounting controls or auditing
matters, and the confidential, anonymous submission by
employees of the Trust, any provider of administrative
services to the Trust, any principal underwriter for the
Trust or any other provider of accounting related services
for the Trust of concerns about accounting or auditing, and
address reports from auditors of possible violations of
federal or state law or any fiduciary duty.
11. Discuss generally the Trust's press releases concerning the
results of its operations, as well as any financial
information or guidance provided to analysts and rating
agencies (if any), with regard to, for example, the types of
information to be disclosed and the type of presentation to
be made.
12. Review in a general matter, but not assume responsibility
for, the Trust's processes with respect to risk assessment
and risk management.
13. Set clear policies relating to the hiring by the Trust of
employees or former employees of the Trust's independent
auditors.
14. Investigate or initiate an investigation of reports of
improprieties or suspected improprieties in connection with
the Trust's accounting or financial reporting.
15. Review and reassess the adequacy of the Committee's Charter
annually and recommend to the Board any changes deemed
appropriate by the Committee. The Chair of the Committee may
represent the entire Committee for purposes of this review.
16. Evaluate the Committee's own performance at least annually.
B-4
17. Following completion of the annual audit, review, separately
if thought appropriate by the Committee, with each of
management, the Trust's outside auditors, the Trust's
internal auditor and any provider of administrative services
to the Trust any significant difficulties encountered during
the course of the audit, including any restrictions on the
scope of work or access to required information, and
consider and approve, if appropriate, either following such
review or at any other time the Committee may deem
appropriate, major changes to the Trust's auditing and
accounting principles and practices as suggested by such
persons. Thereafter, the Committee shall, as it deems
appropriate, review with such persons the extent to which
changes or improvements in financial or accounting
practices, as approved by the Committee, have been
implemented.
18. Review performance of and fees paid by the Trust to proxy
solicitors, custodians, legal counsel and any provider of
administrative services.
19. Review legal compliance matters with the Trust's counsel,
including the Trust's Code of Ethics and Officers' Code of
Ethics.
20. Review any legal matter that could have a significant impact
on the Trust's financial statements with the Trust's
counsel.
21. Report its activities to the full Board on a regular basis
and make such recommendations with respect to the above and
other matters as the Committee may deem necessary or
appropriate.
22. Perform any other activities consistent with this Charter,
the Trust's By-Laws and governing law as the Committee or
the Board deems necessary or appropriate.
V. ROLE
The function of the Audit Committee is oversight; it is management's
responsibility to maintain appropriate systems for accounting and internal
control over financial reporting, and the auditor's responsibility to plan and
carry out a proper audit. Specifically, the Trust's management is responsible
for (i) the preparation, presentation and integrity of the Trust's financial
statements, (ii) the maintenance of appropriate accounting and financial
reporting principles and policies and (iii) the maintenance of internal control
over financial reporting and other procedures designed to assure compliance with
accounting standards and related laws and regulations. The independent auditors
are responsible for planning and carrying out an audit consistent with
applicable legal and professional standards and the terms of their engagement
letter. Nothing in this Charter shall be construed to reduce the
responsibilities or liabilities of the Trust's service providers, including the
auditors.
Although the Committee is expected to take a detached and questioning
approach to the matters that come before it, the review of the Trust's financial
statements by the Committee is not an audit, nor does the Committee's review
substitute for the responsibilities of the Trust's management for preparing, or
the independent auditors for auditing, the financial statements. Members of the
Committee are not full-time employees of the Trust and in serving on the
Committee are not, and do not hold themselves out to be, acting as accountants
or auditors. As such, it is not the duty or responsibility of the Committee or
its members to conduct 'field work' or other types of auditing or accounting
reviews or procedures.
B-5
In discharging their duties the members of the Committee are entitled to
rely on information, opinions, reports or statements, including financial
statements and other financial data, if prepared or presented by (i) one or more
officers of the Trust whom the member reasonably believes to be reliable and
competent in the matters presented, (ii) legal counsel, public accountants or
other persons as to matters the member reasonably believes are within the
person's professional or expert competence or (iii) a Board committee of which
the Committee member is not a member.
ANNEX I
Further restrictions:
(a) Employees. A trustee who is an employee (including non-employee
executive officers) of the Trust or any of its affiliates may not serve on the
Committee until three years following the termination of his or her employment.
In the event the employment relationship is with a former parent or predecessor
of the Trust, the trustee may serve on the Committee after three years following
the termination of the relationship between the Trust and the former parent or
predecessor.
(b) Business Relationship. A trustee (i) who is a partner, controlling
shareholder or executive officer of an organization that has a business
relationship with the Trust or (ii) who has a direct business relationship with
the Trust (e.g., a consultant) may serve on the Committee only if the Trust's
Board determines in its business judgment that the relationship does not
interfere with the trustee's exercise of independent judgment. In making a
determination regarding the independence of a trustee pursuant to this
paragraph, the Board should consider, among other things, the materiality of the
relationship to the Trust, to the trustee, and, if applicable, to the
organization with which the trustee is affiliated.
'Business relationships' can include commercial, industrial, banking,
consulting, legal, accounting and other relationships. A trustee can have such a
relationship directly with the Trust, or the trustee can be a partner, officer
or employee of an organization that has such a relationship. A trustee may serve
on the Committee without such a determination by the Board after three years
following the termination of, as applicable, either (1) the relationship between
the organization with which the trustee is affiliated and the Trust, (2) the
relationship between the trustee and his or her partnership status, shareholder
interest or executive officer position or (3) the direct business relationship
between the trustee and the Trust.
(c) Cross Compensation Committee Link. A trustee who is employed as an
executive of another entity where any executive officer of the Trust serves on
that entity's compensation committee may not serve on the Committee.
(d) Immediate Family. A trustee who is an Immediate Family member of a
person who is an executive officer of the Trust or any of its affiliates may not
serve on the Committee until three years following the termination of that
employment relationship. Paragraph 303.02 of the NYSE Listed Company Manual
defines 'Immediate Family' to include 'a person's spouse, parents, children
siblings, mothers-in-law and fathers-in-law, sons- and daughters-in-law,
brothers- and sisters-in-law, and anyone (other than employees) who shares such
person's home.'
B-6
APPENDIX C
ARTICLE X OF THE TRUST'S DECLARATION OF TRUST
REDEMPTIONS
In the event that the Shareholders of the Trust vote to convert the Trust
from a 'Closed-end company' to an 'Open-end company'. . . , the following
provisions shall, upon the effectiveness of such conversion, become effective:
SECTION 10.1. REDEMPTIONS. All outstanding Shares may be redeemed at the
option of the holders thereof, upon and subject to the terms and conditions
provided in this Article X. The Trust shall, upon application of any
Shareholder or pursuant to authorization from any Shareholder, redeem or
repurchase from such Shareholder outstanding Shares for an amount per Share
determined by the Trustees in accordance with any applicable laws and
regulations; provided that (a) such amount per Share shall not exceed the
cash equivalent of the proportionate interest of each Share in the assets of
the Trust attributable thereto at the time of the redemption or repurchase
and (b) if so authorized by the Trustees, the Trust may, at any time and
from time to time, charge fees for effecting such redemption or repurchase,
at such rates as the Trustees may establish, as and to the extent permitted
under the 1940 Act, and may, at any time and from time to time, pursuant to
the 1940 Act, suspend such right of redemption. The procedures for and fees,
if any, chargeable in connection with the effecting and suspending
redemption of Shares shall be as set forth in the prospectus filed as part
of the Trust's effective Registration Statement with the Commission from
time to time. Payment will be made in such manner as described in such
prospectus.
SECTION 10.2. REDEMPTIONS OF ACCOUNTS. The Trustees may redeem Shares of
any Shareholder at a redemption price determined in accordance with Section
10.1 if, immediately following a redemption of Shares for any reason, the
aggregate net asset value of the Shares in such Shareholder's account is
less than an amount determined by the Trustees. If the Trustees redeem
Shares pursuant to this Section 10.2, a Shareholder will be notified that
the value of his account is less than such amount and be allowed sixty (60)
days to make an additional investment before the redemption is processed.
C-1
APPENDIX 1
TAIWAN GREATER CHINA FUND
This Proxy is Solicited on Behalf of the Board of Trustees
Annual Meeting of Shareholders
June 22, 2004
The undersigned hereby appoints Steven R. Champion and Dirk Bennett, or each or
either of them, as Proxies of the undersigned, with full power of substitution
to each of them, to vote all shares of the Taiwan Greater China Fund (the
"Trust") which the undersigned is entitled to vote at the Annual Meeting of
Shareholders of the Trust (the "Meeting") to be held at the offices of Paul,
Weiss, Rifkind, Wharton & Garrison LLP, 24th Floor, 1285 Avenue of the Americas,
New York, New York on Tuesday, June 22, 2004 at 9:30 a.m., New York City time,
and at any adjournment thereof, in the manner indicated on the reverse side and,
in their discretion, on any other business that may properly come before the
Meeting or any such adjournment.
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PLEASE VOTE, DATE AND SIGN ON REVERSE SIDE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
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Please sign exactly as your name(s) appear(s) on the books of the Trust. Joint
owners should each sign personally. Trustees and other fiduciaries should
indicate the capacity in which they sign, and where more than one name appears,
a majority must sign. If a corporation, this signature should be that of an
authorized officer who should state his or her title.
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HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
------------------------------------- ------------------------------------
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[x] Please mark
votes as in
this example.
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TAIWAN GREATER CHINA FUND
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The following items are proposed by the Trust (in the case of Item 2 pursuant to
requirements contained in the Trust's Declaration of Trust and By-laws):
1. The election of one Trustee, Mr. David N. Laux, to serve for a term expiring
on the date of the 2007 Annual Meeting of Shareholders or the special meeting
in lieu thereof.
Nominee: (01) David N. Laux.
FOR THE NOMINEE [ ] [ ] WITHHELD FROM THE NOMINEE
FOR AGAINST ABSTAIN
2. Conversion of the Trust from a closed-end investment [ ] [ ] [ ]
company into an open-end investment company and
certain related matters.
Properly executed proxies will be voted in the manner directed herein by the
undersigned. If no such directions are given, such proxies will be voted FOR the
nominee referred to in Item 1 and AGAINST the proposition referred to in
Item 2.
Please sign and return promptly in the enclosed envelope.
No postage is required if mailed in the United States.
Mark box at right if you have noted an address change or [ ]
comments on the reverse side of this card.
Please be sure to sign and date this Proxy.
Signature:_______________ Date:________ Signature:________________ Date:_______