fp0007668_ex99.htm

THE TAIWAN FUND, INC. (THE ‘FUND’)

MONTHLY INSIGHT

JUNE 30, 2013

IN BRIEF

Net asset value per share	US$18.36
Market price	US$16.25
Premium/(discount)	(11.49%)
Total net assets	US$153.1m
Market cap	US$135.5m

Source: State Street Bank and Trust Company.

At June 30, 2013		US$ return
	Fund* %	TAIEX Total Return Index† %
One month	(1.9)	(2.4)
Three months	1.9	1.7
One year	11.8	14.3
Three years % pa	8.8	9.7

Returns are annualized, except for periods of less than one year.

*	Source: State Street Bank and Trust Company.

NAV performance.

†	Source: TWSE.

Past performance is not a guide to future returns.

FUND MANAGERS


Wong Kok Hoi	James Liu

MANAGER’S COMMENTARY

The TAIEX Total Return index fell 2.4% in June, as concerns regarding a credit crunch in China and an end to quantitative easing in the United States negatively affected market sentiment. However, as Taiwan companies are far more exposed to the broader global economy – including a strengthening US economy – than other markets, the TAIEX performed better than some of its regional counterparts.

As expected, the amendment to the controversial capital gains tax was passed on its third reading by Taiwan legislators. Small individual investors will be exempt from the tax, with only transactions exceeding NT$1 billion subject to the levy; the clause which stated that individual domestic investors would be taxed once the TAIEX crosses 8,500 was also removed. Our view is that the amendment to the tax is positive for the Taiwan market, as trading volumes that declined by up to 30% in the first four months of 2013 should gradually recover.

In early June, at Taipei’s Computex Show, several tablet manufacturers launched competitive low-end products, priced at US $150 and below. Given the currently low penetration of tablet sales in emerging markets – including China – due to high prices, our assessment is that growth in demand for these cheaper versions will potentially drive sales of performance chips from foundries for quite a few years to come.

MONTHLY INSIGHT

INVESTMENT REVIEW

The Fund’s net asset value fell 1.9% in US dollar terms over the month. Among the Fund’s top contributors were the online platform PC Home Online, and clothing manufacturer Makalot Industrial. The former is likely to benefit directly from the recent liberalization of third-party payment systems in Taiwan. As PC Home Online is the market leader, with more than 50% market share, we think it will be well placed to take advantage of the subsequent potential growth of the e-commerce industry. Additionally, possible investment under the ‘cross-strait trade services pact’ may give the company an opportunity to grow its online retail business in mainland China. Makalot Industrial also performed strongly in June after it announced robust sales in May – up 26%, as new capacity for key clients in Vietnam and Cambodia came on-stream.

As the prospect of a sooner-than-expected end to US quantitative easing saw Taiwan mortgage rates edge higher, the real estate sector accounted for some of the Fund’s weaker performances during the month. Kings Town Construction, which is based in the southern municipality of Kaohsiung, was notable here. Although the Kaohsiung property market grew strongly in 2012 and has continued to do so in the year to date, there are concerns that it could soften as interest rates rise. However, Kings Town’s strong sales pipeline for 2013/14 should stand it in good stead. Ruentex Development, the supermarket operator and property developer, was another of the Fund’s holdings affected by the negative sentiment on real estate stocks.

In terms of portfolio activity during the month, we bought Taiwan Semiconductor Manufacturing Company (TSMC). The company is the largest independent foundry in the world and it derives 85% of its revenue from fabless integrated circuit design companies. Given its dominant position in foundry services, we expect TSMC to benefit from the proliferation of low-end smartphones. Capacity will remain tight in 2013, and revenue growth is expected to continue into 2014 on the back of strong smartphone demand and new orders from US customers. With regards to sales, we decided to exit the Fund’s entire position in Wistron NeWeb (already mentioned), due to the limited growth potential in the satellite-TV market and because of margin-erosion from intensified competition.

Source: Martin Currie Inc. and APS Asset Management Pte Ltd.

For further information please go to www.thetaiwanfund.com.

Martin Currie Inc. took over management of the Fund on May 9, 2010.

FUND DETAILS

June 30, 2013
Shares outstanding	8,340,021
Exchange listed	NYSE
Listing date	1986
Investment manager	Martin Currie Inc.

Source: State Street Bank and Trust Company.

PERFORMANCE

(US$ RETURNS)

(US$ returns)	NAV %	Market price %
One month	(1.9)	(2.7)
Three months	1.9	(0.8)
Three years % pa	8.8	8.8

Returns are annualized, except for periods of less than one year.

Source: State Street Bank and Trust Company.

Past performance is not a guide to future returns.

SECTOR ALLOCATION

	Fund %*	Benchmark %†
Electronics	31.6	50.8
Construction	14.7	2.1
Wholesale and retail	14.6	5.1
Healthcare	8.7	—
Textiles	6.9	2.0
Others	5.6	3.1
Transportation	4.4	1.9
Electric and machinery	4.1	1.3
Finance	4.0	13.4
Plastics	3.4	6.9
Steel and iron	—	2.5
Chemicals	—	2.1
Foods	—	2.1
Rubber	—	2.0
Automobile	—	1.8
Cement	—	1.3
Tourism	—	0.6
Electrical appliance and cable	—	0.4
Glass and ceramics	—	0.3
Paper and pulp	—	0.3
Other assets and liabilities, net	2.0	—

*	Source: State Street Bank and Trust Company.

†	Source: TWSE.

15 LARGEST HOLDINGS*

64.0% of holdings	Sector	% of net assets
WT Microelectronics	Electronics	8.2
Advantech	Electronics	5.6
Yungshin Global Holding	Healthcare	5.6
Aurora	Electronics	5.0
Mercuries & Associates	Wholesale and retail	4.7
Taiwan Semiconductor Manufacturing	Electronics	4.2
Yungtay Engineering	Electric and machinery	4.1
Makalot Industrial	Textiles	3.8
PC Home Online	Wholesale and retail	3.6
Yem Chio	Plastics	3.4
Ruentex Development	Others	3.3
Test-Rite International	Wholesale and retail	3.2
Taiwan Tea	Wholesale and retail	3.1
Far Eastern New Century	Textiles	3.1
Pacific Hospital Supply	Healthcare	3.1

*	Source: State Street Bank and Trust Company.

PERFORMANCE

(US$ returns at June 30, 2013)

	One month %	Three months %	Calendar year to date %	One year %	Three years % pa	Five years % pa	Ten years % pa	Since launch % pa
The Taiwan Fund, Inc.*	(1.9)	1.9	2.6	11.8	8.8	3.0	8.2	8.6
TAIEX Index†	(2.5)	1.6	1.5	10.2	5.7	1.7	6.7	8.4
TAIEX Total Return Index†	(2.4)	1.7	1.6	14.3	9.7	5.6	10.6	na
MSCI Taiwan Index†	(2.3)	1.6	1.4	15.1	10.3	3.9	8.5	na

Returns are annualized, except for periods of less than one year.

*	Source: State Street Bank and Trust Company. Launch date December 23, 1986. Returns for the Fund are historical total returns that reflect changes in net asset value per share during each period and assume that dividends and capital gains, if any, were reinvested.

†	Source: MSCI for the MSCI Taiwan Index and TWSE for the TAIEX Total Return Index and the TAIEX Index. For a full description of each index please see the index descriptions section.

Returns for the TAIEX Index are not total returns and reflect only changes in the share price but do not assume that cash dividends, if any, were reinvested, and thus are not strictly comparable to the Fund returns.

The TAIEX Total Return Index commenced January 1, 2003.

Past performance is not a guide to future returns.

MONTHLY INSIGHT

PORTFOLIO IN FULL

Sector	Company (BGB ticker)	Price NT$	Holding	Value US$	% of net assets
ELECTRONICS					31.6
WT Microelectronics	3036 TT	34.6	10,901,900	12,567,504	8.2
Advantech	2395 TT	143.0	1,808,100	8,626,949	5.6
Aurora	2373 TT	56.6	4,060,000	7,667,278	5.0
Taiwan Semiconductor Manufacturing	2330 TT	111.0	1,748,000	6,473,858	4.2
Taiflex Scientific	8039 TT	40.3	3,452,821	4,642,778	3.0
MPI	6223 TT	67.5	1,448,000	3,261,153	2.1
King Slide Works	2059 TT	220.0	285,000	2,092,022	1.4
Lumax International	6192 TT	65.7	844,000	1,850,148	1.3
Tatung	2371 TT	7.6	4,770,897	1,201,838	0.8

CONSTRUCTION					14.7
Hung Poo Real Estate Development	2536 TT	29.6	4,615,873	4,551,034	3.0
Goldsun Development & Construction	2504 TT	11.9	11,314,980	4,492,618	2.9
King’s Town Construction	2524 TT	28.4	4,474,764	4,232,744	2.8
Acter	5536 TT	129.0	941,179	4,050,986	2.6
Taiwan Land Development	2841 TT	10.8	8,681,129	3,113,748	2.0
Good Friend International Holdings	912398 TT	9.1	6,990,000	2,110,690	1.4

WHOLESALE AND RETAIL					14.6
Mercuries & Associates	2905 TT	23.6	9,178,175	7,227,151	4.7
PC Home Online	8044 TT	157.5	1,048,128	5,507,996	3.6
Test-Rite International	2908 TT	23.7	6,075,260	4,793,964	3.2
Taiwan Tea	2913 TT	17.5	8,231,000	4,792,331	3.1

HEALTHCARE					8.7
YungShin Global Holding	3705 TT	42.0	6,146,000	8,612,725	5.6
Pacific Hospital Supply	4126 TT	103.5	1,345,456	4,646,315	3.1

TEXTILES					6.9
Makalot Industrial	1477 TT	143.0	1,220,000	5,820,960	3.8
Far Eastern New Century	1402 TT	32.4	4,343,341	4,695,347	3.1

OTHER					5.6
Ruentex Development	9945 TT	54.3	2,809,082	5,089,358	3.3
Taiwan Secom	9917 TT	72.9	728,000	1,770,752	1.2
Taiwan Sogo Shinkong Security	9925 TT	37.5	1,378,000	1,724,167	1.1

Sector	Company (BGB ticker)	Price NT$	Holding	Value US$	% of net assets
TRANSPORTATION					4.4
First Steamship	2601 TT	20.6	6,677,714	4,578,660	3.0
Taiwan High Speed Rail	2633 TT	5.0	12,597,600	2,114,241	1.4

ELECTRIC AND MACHINERY					4.1
Yungtay Engineering	1507 TT	59.8	3,134,000	6,253,151	4.1

FINANCE					4.0
Yuanta Financial Holding	2885 TT	15.6	6,321,000	3,290,101	2.1
Union Bank of Taiwan	2838 TT	11.2	7,807,280	2,917,538	1.9

PLASTICS					3.4
Yem Chio	4306 TT	20.8	7,647,915	5,294,926	3.4

OTHER ASSETS AND LIABILITIES, NET				3,080,969	2.0

MONTHLY INSIGHT

THE TAIWAN FUND, INC. PREMIUM/DISCOUNT

Source: State Street Bank and Trust Company as of June 30, 2013.

INDEX DESCRIPTIONS

TAIEX Index

The TWSE, or TAIEX Index is a capitalization-weighted index of all listed common shares traded on the Taiwan Stock Exchange. The Index was based in 1966 and does not include re-invested dividends.

TAIEX Total Return Index

The TAIEX Total Return Index is a capitalization-weighted index of all listed common shares traded on the Taiwan Stock Exchange, based in 1966, which includes re-invested dividends.

MSCI Taiwan Index

The MSCI Total Return Taiwan Index is a free-float adjusted market capitalization index. The Index represents Taiwanese companies that are available to investors worldwide. The Index has a base date of December 31, 1987. As of June 30, 2013, it contained 107 constituents.

OBJECTIVE

The Fund was launched on December 23, 1986 to allow US and other investors to access and participate in the growth of the economy and the stock market in Taiwan, the Republic of China. The Fund’s investment objective is to seek long-term capital appreciation primarily through investments in equity securities listed in Taiwan. The Fund is a diversified, closed-end management investment company listed on the New York Stock Exchange (NYSE) under the symbol ‘TWN’.

Taiwan, with its global market leadership in high technology goods and its significant investments throughout mainland China and Southeast Asian economies, is now an integral economic player in the Asia Pacific Region as well as around the world. Investing in Taiwan not only allows investors to capitalize on Taiwan’s dynamic economy, but also allows investors to reap the growth and investment potential of the mainland China and other emerging economies of the region.

CONTACTS

The Taiwan Fund, Inc.

c/o State Street Bank and Trust Company

2 Avenue de Lafayette

PO Box 5049

Boston, MA 02111

Tel: (1) 877-864-5056

www.thetaiwanfund.com

IMPORTANT INFORMATION

This document is issued and approved by Martin Currie Inc. (‘MC Inc.’), as investment adviser of The Taiwan Fund, Inc. (the ‘Fund’). MC Inc. is authorised and regulated by the Financial Conduct Authority (‘FCA’) and incorporated under limited liability in New York, USA. Registered in Scotland (No BR2575), registered address Saltire Court, 20 Castle Terrace, Edinburgh, EH1 2ES. Information herein is believed to be reliable but has not been verified by MC Inc. MC Inc. makes no representation or warranty and does not accept any responsibility in relation to such information or for opinion or conclusion which the reader may draw from this newsletter.

The Fund is classified as a diversified investment company under the US Investment Company Act of 1940 as amended. It meets the criteria of a closed ended US fund and its shares are listed on the New York Stock Exchange. MC Inc. has been appointed investment adviser to the Fund.

Investors are advised that they will not generally benefit from the rules and regulations of the United Kingdom Financial Services and Markets Act 2000 and the FCA for the protection of investors, nor benefit from the United Kingdom Financial Services Compensation Scheme, nor have access to the Financial Services Ombudsman in the event of a dispute. Investors will also have no rights of cancellation under the FCA’s Conduct of Business Sourcebook of the United Kingdom.

This newsletter does not constitute an offer of shares. MC Inc., its ultimate and intermediate holding companies, subsidiaries, affiliates, clients, directors or staff may, at any time, have a position in the market referred to herein, and may buy or sell securities, currencies, or any other financial instruments in such markets. The information or opinion expressed in this newsletter should not be construed to be a recommendation to buy or sell the securities, commodities, currencies or financial instruments referred to herein.

The information provided in this report should not be considered a recommendation to purchase or sell any particular security. There is no assurance that any securities discussed herein will remain in an account’s portfolio at the time you receive this report or that securities sold have not been repurchased.

It should not be assumed that any of the securities transactions or holdings discussed here were or will prove to be profitable, or that the investment recommendations or decisions we make in the future will be profitable or will equal the investment performance of the securities discussed herein.

Investing in the Fund involves certain considerations in addition to the risks normally associated with making investments in securities. The value of the shares issued by the Fund, and the income from them, may go down as well as up and there can be no assurance that upon sale, or otherwise, investors will receive back the amount originally invested. There can be no assurance that you will receive comparable performance returns, or that investments will reflect the performance of the stock examples contained in this document. Movements in foreign exchange rates may have a separate effect, unfavorable as well as favorable, on the gain or loss otherwise experienced on an investment. Past performance is not a guide to future returns. Accordingly, the Fund is only suitable for investment by investors who are able and willing to withstand the total loss of their investment. In particular, prospective investors should consider the following risks:

–

It should be noted that investment in the Fund is only suitable for sophisticated investors who are aware of the risk of investing in Taiwan and should be regarded as long term. Funds which invest in one country carry a higher degree of risk than those with portfolios diversified across a number of markets.

–

Investment in the securities of smaller and unquoted companies can involve greater risk than is customarily associated with investment in larger, more established, companies. In particular, smaller companies often have limited product lines, markets or financial resources and their management may be dependent on a smaller number of key individuals. In addition, the market for stock in smaller companies is often less liquid than that for stock in larger companies, bringing with it potential difficulties in acquiring, valuing and disposing of such stock. Proper information for determining their value, or the risks to which they are exposed, may not be available.

–

Investments within emerging markets such as Taiwan can be of higher risk. Many emerging markets, and the companies quoted on their stock exchanges, are exposed to the risks of political, social and religious instability, expropriation of assets or nationalization, rapid rates of inflation, high interest rates, currency depreciation and fluctuations and changes in taxation which may affect the Fund’s income and the value of its investments.

–

The marketability of quoted shares may be limited due to foreign investment restrictions, wide dealing spreads, exchange controls, foreign ownership restrictions, the restricted opening of stock exchanges and a narrow range of investors. Trading volume may be lower than on more developed stockmarkets, and equities are less liquid. Volatility of prices can also be greater than in more developed stockmarkets. The infrastructure for clearing, settlement and registration on the primary and secondary markets may be undeveloped. Under certain circumstances, there may be delays in settling transactions in some of the markets.

Martin Currie Inc. registered in Scotland (no BR2575)

Registered office: Saltire Court, 20 Castle Terrace, Edinburgh EH1 2ES

Tel: 44 (0) 131 229 5252 Fax: 44 (0) 131 228 5959 www.martincurrie.com

North American office: 1350 Avenue of the Americas, Suite 3010, New York, NY

10019, USA Tel: (1) 212 258 1900 Fax: (1) 212 258 1919

Authorised and regulated by the Financial Conduct Authority and incorporated with limited liability in New York, USA. Registered with the SEC as an investment adviser.

Please note: calls to the above numbers may be recorded.