City of London Investment Management Company Limited Sent the Following Letter to the Chairman of The Taiwan Fund, Inc.

City of London Investment Management Company Limited was prompted to send the following letter by the announcement made by The Taiwan Fund, Inc. that the Board of Directors had decided to postpone its Annual Meeting of Stockholders that had been scheduled for April 22, 2014, in order to solicit favorable votes for the approval of the Investment Management Agreement (the "IMA”) between the Fund and Allianz Global Investors US LLC.:

April 29, 2014

Mr. Joe O. Rogers, Chairman
The Taiwan Fund, Inc.

RE: The Taiwan Fund, Inc.

Dear Mr. Rogers,

City of London Investment Management Company Limited is a long-term investor in The Taiwan Fund, Inc. ("the Fund”). At the time of our most recent disclosure, City of London’s clients held 2,219,538 shares representing approximately 27% of the Fund.

We are writing in response to the Fund’s recent announcement that the Board of Directors had determined to postpone its Annual Meeting of Stockholders. The announcement makes reference to the Board’s desire to solicit favorable votes for the approval of the Investment Management Agreement (the "IMA”) between the Fund and Allianz Global Investors US LLC.

City of London has no confidence in the current Board of Directors of The Taiwan Fund, Inc., nor do we believe that there currently exists a mechanism whereby the Board may be held accountable by stockholders for its actions. Further, we have no confidence in the soundness of the Board’s recommendation that Allianz Global Investors U.S. LLC be approved as the Fund’s investment manager.

As a direct result of the decisions made by you and the rest of the Board of Directors (M. Christopher Canavan, Jr., Michael F. Holland, William C. Kirby, and Anthony Kai Yiu Lo), this Fund would seem to be in disarray. The fact that a majority of the stockholders apparently voted against approval of the recently proposed IMA is a direct and unambiguous indication that the Board no longer possesses the investors’ confidence. The counsel provided by service providers to the Fund has exacerbated the situation. The Board is in the midst of adopting a Managed Distribution Policy that we believe is ill-conceived and further erodes confidence. In our opinion, the Board’s actions have caused significant instability and insecurity, as evidenced by the series of announcements since January, 2010, listed below that all relate to investment management changes:

January 22, 2010 – Board announced its selection of Martin Currie, Inc. as investment manager subject to stockholder approval.

July 28, 2011 – Board announced that Martin Currie, Inc.’s joint venture via which it provided investment management services would be terminated.

November 10, 2011 – Board announced interim arrangement with Martin Currie Inc. and APS Asset Management Pte Ltd. to provide investment management services which was subsequently approved and made permanent by stockholders.

September 12, 2013 – Board announced that APS Asset Management Pte Ltd. has resigned effective February 22, 2014.

January 24, 2014 – Board announced selection of Allianz Global Investors U.S. LLC to replace APS Asset Management subject to stockholders’ approval.

April 22, 2014 – Board announced that stockholders have effectively rejected the Board’s selection of Allianz Global Investors U.S. LLC.

As you are aware, we have written two letters directly to the Board of Directors before the meeting on April 22^nd (dated March 11, 2014, and April 10, 2014). In those letters we raised several concerns. An excerpt from the second letter appears below:

[Beginning of excerpt]
Looking at The Taiwan Fund, Inc. from our perspective, we begin with the question of the status (and advisability) of the announcement on July 29, 2013, that the Fund was discontinuing the ‘discount management program’ (we might have termed it a Discount Control Mechanism – DCM) that had previously been in place. We note that the conversion to a ‘managed distribution program’ announced at that point has not come to fruition. We firmly believe that our reaction, as articulated in our letter of August 8, 2013, remains correct, and note that the Fund has now been without a DCM for more than seven months. As stated in our letter from last August, we are skeptical that the managed distribution program will prove an effective tool for narrowing the Fund’s discount and we would not support the program if it were put to a shareholder vote. We believe that a well-managed DCM, with an explicit maximum discount level under normal market conditions, is the most effective means to control a Fund’s discount.
As we stated in a prior letter dated October 2, 2013, we believe that the DCM would have been successful if diligently and skillfully applied. We have no confidence in the Managed Distribution Policy and have seen nothing since [our letter of] March 11 to help us understand how it could be successful. The Policy would seem to require a distribution (return) of capital when discounts are narrow, which is ill-advised. We believe shareholders should have been given a vote in such a radical change in the Fund’s structure.

In last Tuesday’s meeting we asked questions regarding the management of the realization of capital gains in the portfolio. Without unfairly jumping to a conclusion regarding the topic, we would say that this is an area where more work needs to be done between the Board and the Manager.
To date, this point has not been addressed.

We appreciate [a representative’s] offer to give us more information about the manner in which meetings could be held wherein both City of London and AGI can meet our respective regulatory responsibilities, specifically with respect to Reg F-D but not limited thereto, yet at the same time be able to conduct a conversation appropriate for an institutional investment client. As discussed, this topic arose in the context of considering AGI for TWN given our (disappointing) experiences with both CHN and KF.
We appreciated your discussion of this topic when we met but we expected a written explanation of how the issue would be addressed.

On a related topic, we hope that the publicly available information for TWN would follow the general framework laid down by CHN, which we rate as quite good. Specifically, the CHN factsheet contains useful commentary related to macro, outlook, and portfolio review, although it usually lacks any reference to purchases and sales. The CHN performance history data provided is also useful, including the reference to the Fund’s benchmark across multiple time periods. The CHN country and sector data is useful for investors although we would appreciate a comparison with the benchmark for sectors. We would rate the current TWN factsheet’s format, however, as more professional and pleasing to the eye. We also give good marks to CHN for the timing of the publication of the factsheet, which is usually available before the 20^th of the month.
Our points related to the factsheet have been resolved.

The CHN website does not rate quite as highly as the factsheet. The NAV is only updated weekly on the website and we would advocate that it be updated daily by 7 AM Eastern time. We also note that the most recently filed CHN documents are not always on the website, which is potentially unfair to investors who are not accustomed to checking the SEC website.
The website data problems remain an open issue.

On a related point, our view is that there exists an inconsistency in terms of when NAVs are calculated for CHN with respect to holidays. We believe a new NAV should be calculated for all US business days (regardless of whether it is a local holiday in China, Hong Kong, or Taiwan). We understand that an NAV may not be calculated on non-US business days. Related to that point, we would like a contact from within the area at State Street that you said is managed by [a contact at State Street].
Without going into too much detail, the NAV problems continue. The published NAV for the Fund was unchanged for four consecutive business days (April 3, 4, 7, 8) and we are still awaiting clarity from State Street on whether the NAVs were accurately reported.

Subsequent to our meeting, the Fund’s Schedule 14A was filed on EDGAR. We continue to be disappointed that the election of Directors requires only a plurality and thus votes that are withheld will have no effect on the outcome of elections. In our Statement on Corporate Governance document, including the one published in November of last year, we have always contended that a Director should be elected only if he or she receives a majority of the votes that are cast.
In an email sent to us on March 25, 2014, you stated that the Board deferred discussion of this item until after the scheduled vote on April 22, 2014. We regard this item as linked to the situation surrounding the Managed Distribution Policy. If shareholders could vote against Directors, then Directors could be held accountable for their decisions.
[end of excerpt]

In conclusion, we urge the current Board and associated service providers to consider what is in the best interest of the Fund and its stockholders. We would suggest that either stockholder votes in Director elections should count (i.e., a Director would be elected only if a majority of the votes cast in a quorate election were ‘For’ that Director) as a matter of fundamental policy or, alternatively, the Board should consider taking the appropriate actions that would result in an orderly transition to a new Board of Directors that would be accountable to stockholders and in whom stockholders could have confidence. In the present set of circumstances, stockholders are unable to hold the Board accountable for its actions.

Our reason for writing this letter and making it public is to provide our fellow stockholders with an explanation of our vote against approval of the IMA with Allianz Global Investors US LLC. Many closed-end funds undertake some actions that appear to us not to be in the best interest of their stockholders. In this case we have identified so many items under the direct purview of the Board that we find the Board’s position untenable.

Sincerely,

Jeremy Bannister
Corporate Governance

City of London Investment Management Company Limited is an emerging markets fund manager which specialises in investing in closed-end investment companies. The firm is authorised and regulated by the Financial Conduct Authority and registered as an Investment Advisor with the Securities and Exchange Commission.