COATESVILLE, Pa.--(BUSINESS WIRE)--The following letter was sent to the Chairman of The Greater China Fund, Inc. The Fund continues to trade at a discount to its net asset value (“NAV”) after last year’s rights offering. City of London Investment Management Company Limited urges the Board to take steps to provide all shareholders with an opportunity to realize a substantial return of capital at net asset value.
| February 23, 2011 |
| Mr. Edward Y. Baker |
| Chairman, Greater China Fund |
| 15 Artinger Court |
| Toronto, ON |
| M3B 1J9 |
| RE: The Greater China Fund, Inc. |
| Dear Mr. Baker, |
|
City of London Investment Management Company Limited (hereafter “CLIM”) continues to monitor the situation with respect to The Greater China Fund, Inc. (“the Fund”). In our exchange of letters over the past year or so, it would seem that we have established that the views of CLIM and the Board differ with respect to several aspects of the Fund. We note that the Fund is currently trading on a discount of circa 13%. |
| In your letter of 20 December 2010, you did not address a key point we had made regarding our opportunity to purchase a substantial number of shares at a very large discount (circa 18%) as a direct result of the rights offering. As we noted, the acquisition of shares on behalf of our clients was nearly equal to the entire corpus of the offering. Surely, this must now be a significant issue for the Board? |
| After the Fund’s initial filing of its Registration Statement for the offering, we were fortunate enough to have a meeting with a highly-placed official of a prominent regulatory agency, the purpose of which was to discuss the closed-end fund industry in general. As an example of an action that would hurt investors (and in particular retail investors), we raised the possibility that your Fund would conduct a rights offering despite its then-current discount. After some discussion, we were told that there was nothing that they could do to prevent such an offering, but were also told that there must be an opportunity for our clients to benefit from the transaction if we were so sure of the outcome. |
| We are now proceeding along that path. We continue to be patient investors. We see closed-end funds competing in the marketplace with other investment products. The key product feature being delivered, ultimately, is investment performance, both NAV performance relative to the benchmark index [the Manager’s job] and the share price performance relative to the NAV [the Board’s job]. Tracking (i.e. the volatility of returns) is of critical importance. Sustained volatility (i.e. large oscillations) in either NAV performance or share price performance will render a CEF uncompetitive in the marketplace. Once the marketplace perceives that a CEF has failed to deliver reasonable ‘tracking’ over time, the Board will find it very difficult to overcome that perception and to subsequently control the discount. |
| The Board created this situation. Unsolicited, we advised against the transaction after we saw the Registration Statement had been filed. We then took advantage of the opportunity after the Board proceeded. We now expect that all shareholders in the Fund will be provided an opportunity to realize a substantial return of capital at net asset value – at least as large as the rights offering. Therefore, we ask whether the Board will provide this opportunity to shareholders before 1 September 2011? If the Board has taken no meaningful action by that date, we will reconsider our position. |
| Sincerely, |
|
Jeremy Bannister |
| Director, Corporate Governance |
| City of London Investment Management Company Limited |
City of London Investment Management Company Limited is an emerging markets fund manager which specializes in investing in closed-end investment companies and is a registered investment adviser under Section 203 of the Investment Advisers Act of 1940.