NEW FORMOSA FUND INC, N-2, 1995-11-17

NEW FORMOSA FUND INC
N-2, 1995-11-17

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<PAGE>
As filed with the U.S. Securities and Exchange Commission on November 17,
1995
Securities Act File No. 33-_____
Investment Company Act File No. 811-07429

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form N-2

/X/ Registration Statement Under The Securities Act of 1933
/ / Pre-Effective Amendment No. __
/ / Post-Effective Amendment No.
and/or
/X/ Registration Statement Under The Investment Company Act of 1940
/ / Amendment No. __
(check appropriate box or boxes)

The New Formosa Fund, Inc.
(Exact Name of Registrant as Specified in Charter)

c/o Brown & Wood
One World Trade Center
New York, New York 10048
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (212) 839-5300

John A. MacKinnon
Brown & Wood
One World Trade Center
New York, New York 10048
(Name and Address of Agent for Service of Process)

With copies to:

JOHN A. MacKINNON, ESQ. WILLIAM H. BOHNETT, ESQ.
Brown & Wood Fulbright & Jaworski L.L.P.
One World Trade Center 666 Fifth Avenue
New York, New York 10048 New York, New York 10103

APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable
after the effective date of this registration statement.
If any securities being registered on this Form will be offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act
of 1933, other than securities offered in connection with a dividend
reinvestment plan, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

<TABLE> CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<CAPTION> Proposed
Proposed Maximum
Maximum Aggregate Amount of
Title of Securities Amount Being Offering Price Offering Registration
Being Registered Registered Per Share(2) Price(2) Fee
<S> <C> <C> <C> <C>
Common Stock, $.10 Par 383,334
Value . . . . . . . . . . . . . . . Shares(1) $15.00 $5,750,010 $1,150

(1) Includes 50,000 shares subject to the Underwriters' over-allotment options.
(2) Estimated solely for purposes of calculating the registration fee.
</TABLE>

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE
COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.

<PAGE>
EXPLANATORY NOTE

This Registration Statement relates to the offering of 333,334 shares of
common stock of The New Formosa Fund, Inc. (without giving effect to the
Underwriters' over-allotment options), of which ___________ shares will be
offered in the United States and Canada and ____________ shares will be
offered internationally outside the United States, Canada and Japan. The
Registration Statement includes the U.S. Prospectus followed by an alternate
front cover page and back cover page for the International Prospectus as
indicated on each page.

<PAGE>
CROSS REFERENCE SHEET
PARTS A AND B OF PROSPECTUS

Items in Parts A and B of Form N-2 Location in Prospectus
1. Outside Front Cover . . . . . . . . . . . Front Cover Page
2. Inside Front and Outside Back Cover Page
Front Cover Page, Inside Front
Cover Page, Outside Back Cover
Page
3. Fee Table and Synopsis . . . . . . . . . Prospectus Summary; Fund
Expenses
4. Financial Highlights . . . . . . . . . . Not Applicable
5. Plan of Distribution . . . . . . . . . . Cover Page; Prospectus Summary;
Underwriting
6. Selling Shareholders . . . . . . . . . . Not Applicable
7. Use of Proceeds . . . . . . . . . . . . . Use of Proceeds
8. General Description of the Registrant . . Cover Page; Prospectus Summary;
The Fund; Investment
Restrictions; Investment
Objective and Policies; Risk
Factors and Special
Considerations; Description of
Common Stock
9. Management . . . . . . . . . . . . . . . Management of the Fund;
Portfolio Transactions and
Brokerage; Estimated Expenses;
Custodians; Transfer Agent,
Dividend Disbursing Agent and
Registrar; Description of
Common Stock
10. Capital Stock, Long-Term Debt and Other Prospectus Summary; Description
Securities . . . . . . . . . . . . . . . of Common Stock; Dividends and
Distributions; Dividend
Reinvestment Plan;
Underwriting; Taxation
11. Defaults and Arrears on Senior Securities
Not Applicable
12. Legal Proceedings . . . . . . . . . . . . Not Applicable
13. Table of Contents of the Statement of
Additional Information . . . . . . . . Not Applicable
14. Cover Page . . . . . . . . . . . . . . . Not Applicable

15. Table of Contents . . . . . . . . . . . . Not Applicable
16. General Information and History . . . . . The Fund
17. Investment Objective and Policies . . . . Investment Objective and
Polices; Investment
Restrictions
18. Management . . . . . . . . . . . . . . . Management of the Fund
19. Control Persons and Principal Holders of Not Applicable
Securities . . . . . . . . . . . . . . .
20 Investment Advisory and Other Services . Management of the Fund;
Custodian; Transfer Agent,
Dividend Disbursing Agent and
Registrar; Experts
21. Brokerage Allocation and Other Practices
Portfolio Transactions and
Brokerage
22. Tax Status . . . . . . . . . . . . . . . Taxation
23. Financial Statements . . . . . . . . . . Report of Independent Accounts;
Statement of Assets and
Liabilities

* Pursuant to General Instructions to Form N-2, all information required
to be set forth in Part B: Statement of Additional Information has been
included in Part A: The Prospectus.
Information required to be included in Part C is set forth under the
appropriate item, so numberred in Part C of this Registration Statement.

<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there by any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.

PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION, DATED NOVEMBER 17, 1995
PROSPECTUS
333,334 SHARES
THE NEW FORMOSA FUND, INC.
Common Stock

The New Formosa Fund, Inc. (the "Fund") is a newly organized, non-
diversified closed-end management investment company. The Fund's investment
objective is long-term capital appreciation, which it seeks to achieve
through investment primarily in publicly traded equity securities of Republic
of China ("ROC") companies. Under normal circumstances, the Fund will invest
at least 65% of its total assets in such securities. The Fund may also
invest up to 35% of its total assets in publicly traded equity securities of
companies that do not qualify as ROC companies, but, in the judgment of the
Fund's investment manager, are expected to benefit from developments in the
economy of Taiwan. In addition, to the extent permitted by applicable law,
the Fund may invest up to 15% of its total assets in non-publicly traded
equity securities of ROC companies. There can be no assurance that the
Fund's investment objective will be achieved. See "Investment Objective and
Policies." The address of the Fund is __________________________________
(telephone number) _______________________.

STANDARDS. CONSEQUENTLY, AN INVESTMENT IN THE FUND SHOULD BE CONSIDERED
SPECULATIVE. SEE "RISK FACTORS AND SPECIAL CONSIDERATIONS" ON PAGE .
Kwang Hua Securities Investment & Trust (H.K.) Co., Limited, Hong Kong
(the "Investment Manager") will act as the investment manager for the Fund.
Kwang Hua Securities Investment & Trust Co., Ltd., Taipei, Taiwan (the
"Investment Adviser") will act as the investment adviser for the Fund.

Of the 333,334 shares of Common Stock offered (the "Shares"), __________
are being offered by the U.S. Underwriters in the United States and Canada
(the "U.S. Offering"), ____________ are being offered by Japanese
Underwriters in Japan (the "Japanese Offering") and ________ Shares are being
offered by International Underwriters outside the United States, Canada and
Japan (the "International Offering"), subject to transfer among the U.S.
Underwriters, the Japanese Underwriters and the International Underwriters
(collectively, the "Underwriters"). The initial public offering price and
sales load per Share are the same for the U.S. Offering, the Japanese
Offering and the International Offering.
PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE SHARES.
Shares of closed-end investment companies that invest primarily in securities
of issuers in foreign countries have in the past frequently traded at
discounts from their net asset values and initial offering prices. The risks
associated with this characteristic of closed-end investment companies may be
greater for investors expecting to sell shares of a closed-end investment
company soon after the completion of an initial public offering of the
company's shares. Application will be made to list the Shares on the New
York Stock Exchange and the Osaka Securities Exchange.

This Prospectus sets forth concisely information about the Fund that a
prospective investor ought to know before investing. Investors are advised
to read this Prospectus and retain it for future reference.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION> Maximum Price to Maximum Sales Proceeds to the
Public(1) Load(1)(2) Fund(3)
<S> <C> <C> <C>
Per Share . . . . . . . . . . . . . $15.00 $ $
Total(4) . . . . . . . . . . . . . $ $ $

(1) The "Maximum Price to Public" and "Maximum Sales Load" per Share will be reduced to $_____ and
$_____, respectively, for purchases in single transactions (as defined herein under
"Underwriting") of between _____ and _____ Shares and to $_____ and $_____, respectively, for
purchases in single transactions of _____ or more Shares. See "Underwriting." Purchasers who
purchase Shares at the reduced price will be restricted from transferring such Shares for a
period of 90 days after the Offerings. See "Underwriting."
(2) The Fund, the Investment Manager and the Investment Adviser have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the Securities Act of 1933,
as amended. See "Underwriting."
(3) Before deducting organizational and offering expenses payable by the Fund, estimated at $______,
including an aggregate of $______ to be paid to the Underwriters in partial reimbursement of
their expenses.
(4) The Fund has granted to the U.S. Underwriters and the International Underwriters options,
exercisable for 45 days from the date of this Prospectus, to purchase up to an aggregate of
_______ additional shares of Common Stock, solely to cover over-allotments. If such options are
exercised in full, the total Maximum Price to Public will be $________, the Maximum Sales Load
will be $________ and the Proceeds to the Fund will be $__________. See "Underwriting."

</TABLE>

The Shares are offered by the U.S. Underwriters subject to prior sale
when, as and if delivered to and accepted by them and subject to certain
other conditions. The U.S. Underwriters reserve the right to reject orders
in whole or in part. It is expected that delivery of the Shares will be made
in New York, New York, on or about ______________, 1996.

NOMURA SECURITIES INTERNATIONAL, INC.

The date of this Prospectus is ____________, 1996.

<PAGE>

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
COMMON STOCK AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED,
MAY BE DISCONTINUED AT ANY TIME.

The information set forth in this Prospectus, including Appendix A,
regarding the economy of The Republic of China and its securities market has
been extracted from various government and private publications and other
sources. The Fund and its Board of Directors make no representations as to
the accuracy of such information.

In this Prospectus, unless otherwise specified, all references to "U.S.
Dollars," "US$" or "$" are to United States Dollars and to "NT$" or "NT
Dollars" are to New Taiwan Dollars. On _____________, 1995, the noon buying
rate quoted by dealers in New York City for cable transfers in NT Dollars, as
certified for customs purposes by the Federal Reserve Bank of New York, was
NT$_______ = US$1.00. No representation is made that the NT Dollars or
United States Dollar amounts in this Prospectus could have been or could be
converted into U.S. Dollars or New Taiwan Dollars, as the case may be, at any
particular rate or at all. See "Appendix A: The Republic of China--Foreign
Exchange" for information regarding historical rates of exchange between the
New Taiwan Dollar and the U.S. Dollar.

Unless otherwise indicated, U.S. Dollar equivalent information for
information in NT Dollars that is undated is translated at the noon buying
rate given above, for a specified date is based on the closing price for U.S.
Dollars in Taiwan on that date and for a specified period is based on the
average of the daily exchange rates, so computed, for the days in such,
period.

Certain numbers in the tables in this Prospectus have been rounded for
ease of presentation and, as a result, may not total precisely.
2
<PAGE>

PROSPECTUS SUMMARY

The following is qualified in its entirety by the more detailed
information included elsewhere in this Prospectus.

The Fund The Fund is a newly incorporated, non-diversified,
closed-end management investment company designed
for investors seeking to invest a portion of their
assets in a portfolio of equity securities of
Republic of China ("ROC") companies.

The Offerings The Fund is offering 333,334 shares of Common Stock
("Shares"), par value $0.10 per Share, at a maximum
offering price of $15.00 per Share. The price will
be reduced to $_____ for purchases in single

transactions (as defined herein under
"Underwriting") of between ______ and _____ Shares
and to $_______ for purchases in single transactions
of _____ or more Shares. Of the 333,334 Shares,
________ Shares are being offered in the United
States and Canada by a group of United States
underwriters (the "U.S. Underwriters") represented
by Nomura Securities International, Inc.; _________
Shares are being offered in Japan by a group of
Japanese underwriters (the "Japanese Underwriters")
represented by The Nomura Securities Co., Ltd.; and
_________ Shares are being offered outside the
United States, Canada and Japan by a group of
international underwriters led by Nomura
International (Hong Kong) Limited (the
"International Underwriters"). In addition, the
U.S. Underwriters and the International Underwriters
have been granted options, exercisable for 45 days
from the date of this Prospectus, to purchase up to
an aggregate of ________ additional Shares to cover
over-allotments, if any. Purchasers who agree to
purchase Shares at the reduced price will be
restricted from transferring such Shares for a
period of 90 days after the closing of the
Offerings. The minimum purchase is 100 Shares
($1,500). See "Underwriting."

Investment Objective and
Policies The Fund's investment objective is long-term capital
appreciation. As a matter of fundamental policy,
the Fund will, under normal circumstances, invest at
least 65% of its total assets in publicly traded
equity securities of ROC companies. As used herein,
"ROC companies" means entities (i) that are
organized under the laws of, or with a principal
office in, the ROC, (ii) the equity or debt
securities of which are traded principally in the
ROC or (iii) that alone or on a consolidated basis
derive
3
<PAGE>
50% or more of their total revenues from business in
the ROC, or have at least 50% of their assets in the
ROC. Equity securities include common stocks,
preferred stocks (including convertible preferred
stock), rights or warrants to purchase common or
preferred stock, debt securities convertible into
common or preferred stock, equity interests in
trusts or partnerships and American, Global or other
types of Depositary Receipts.

The Fund may also invest up to 35% of its total assets
in publicly traded equity securities of companies
that do not qualify as ROC companies, but, in the
judgment of the Investment Manager, are expected to
benefit from developments in the economy of Taiwan.
In addition, to the extent permitted by applicable
law, the Fund may invest up to 15% of its total
assets in non-publicly traded equity securities of
ROC companies. To the extent that the Fund's assets
are not invested in equity securities of ROC
companies or companies that in the judgment of the
Investment Manager are expected to benefit from
developments in Taiwan, its assets will be invested,
if permitted under local investment restrictions, in
(i) debt securities of ROC companies, (ii) debt
securities issued or guaranteed by the ROC
government or a ROC governmental entity, and (iii)
short-term and medium- term debt securities of the
type described below under "Investment Objective and
Policies--Temporary Investments." No assurance can
be given that the Fund's investment objective will
be realized. See "Investment Objective and
Policies."

The Fund intends to invest its assets over a broad
spectrum of industries within the ROC economy,
including, but not limited to, as conditions warrant
from time to time, cement, chemicals and plastics,
construction, electrical and electronics, finance,
banking, food, textiles, glass, rubber, pulp and
paper, metal products and machinery, retailing and
tourism. The initial focus of the Fund's investment
strategy is expected to include companies which are:
(i) in the high technology and strategic sectors
including electronics, communications, environmental
protection and energy; (ii) likely to benefit from
the ROC's National Development Plan (e.g.,
infrastructure stocks); (iii) likely to benefit from
the increasing trade and investments between The
People's Republic of China ("PRC") and ROC; or (iv)
relatively smaller in market capitalization but are
expected to outperform the Taiwan Stock Exchange
index. In selecting industries and companies for
investment, the Investment Manager will consider
overall growth
4
<PAGE>
prospects, competitive positions in export markets,
technologies, research and development,
productivity, labor costs, raw material costs and
sources, profit margins, returns on investment,
capital resources, government regulation, management
and other factors.

Listings Prior to this offering, there has been no public market
for the Fund's Shares. Application will be made to
list the Shares on the New York Stock Exchange and
the Osaka Securities Exchange.

Investment Manager Kwang Hua Securities Investment & Trust (H.K.) Co. ,
Limited (the "Investment Manager"), a corporation
organized under the laws of Hong Kong, will manage
the investments of the Fund pursuant to an
Investment Management Agreement. The Investment
Manager is a wholly-owned subsidiary of Kwang Hua
Securities Investment & Trust Co., Ltd. (the
"Investment Adviser"). The Investment Adviser is
the largest and second oldest fund manager in the
ROC with assets under management of approximately
US$ 1.3 billion as of October 31, 1995. The
Investment Manager has applied for an investment
permit as a qualified foreign institutional investor
which will permit the Investment Manager to make
investments on behalf of the Fund in Taiwan. It is
anticipated that the approval for the investment
permit will be granted by the ROC Securities and
Exchange Commission on or about December , 1995.
The Investment Manager will apply for registration
as an investment adviser under the U.S. Investment
Advisers Act of 1940 (the "Advisers Act"). See
"Management of the Fund."

Investment Adviser The Investment Adviser, a limited liability company
organized under the laws of the ROC, will act as the
investment adviser to the Fund pursuant to an
Investment Advisory Agreement. The Investment
Adviser will apply for registration as an investment
adviser under the Advisers Act. See "Management of
the Fund."

Management Fee The Fund will pay the Investment Manager a fee (the
"Management Fee"), computed weekly and payable
monthly, at the annual rate of ____% of the Fund's
average weekly net assets. The Investment Adviser
will receive no separate compensation from the Fund.
The Management Fee is higher than that paid by most
other U.S. investment companies investing
exclusively in the securities of U.S. issuers,
primarily because of the additional time and expense
required in pursuing the
5
<PAGE>
Fund's objective by investing in securities of ROC
companies. See "Management of the Fund."

Administration ____________________________ (the "Administrator") will
provide administrative services to the Fund pursuant
to an Administration Agreement (the "Administration
Agreement") with the Fund. For its services, the
Fund will pay to the Administrator a fee, computed
weekly and payable monthly at the annual rate of
____% of the Fund's average weekly net assets. See
"Management of the Fund--The Administrator."

Custodian ____________________________ (the "Custodian"), will act
as custodian of the Fund's assets. The Custodian
may employ sub-custodians outside of the United
States approved by the Board of Directors in
accordance with regulations under the Investment
Company Act of 1940.

Distributions The Fund intends to distribute, at least annually, to
shareholders substantially all of its net investment
income and its net realized capital gains.

Dividend
Reinvestment Plan Shareholders will receive dividends in cash, except that
shareholders may elect to have their dividends or
other distributions from the Fund automatically
reinvested in additional shares of the Fund pursuant
to the Fund's Dividend Reinvestment and Cash
Purchase Plan (the "Plan"). Shareholders whose
shares are held in the name of a broker or nominee
who wish to participate in the Plan should contact
such broker or nominee to confirm that shareholders
may participate in the Plan. See "Dividend
Reinvestment Plan."

Risk Factors and Special
Considerations Investments in equity securities of ROC companies
involves certain risks not typically associated with
similar investments in securities of U.S. issuers,
including (i) the historical volatility of the ROC
securities market, (ii) significant political and
economic risks, (iii) significant restrictions on
foreign investments and on repatriation of capital
invested in the ROC, (iv) fluctuations in currency
exchange rates and (v) different corporate
disclosure standards.

The securities market of the ROC has experienced
historically significant volatility. Since 1990 the
Taiwan Stock Exchange Index has ranged from a low of
2484.25 to a high of 12,682.41, and on October 30,
1995 closed at 4817.04. See "Risk Factors and
Special Considerations--Market Volatility."

6
<PAGE>

Both the ROC and the PRC assert sovereignty over all of
China (including Taiwan and mainland China). The
PRC has repeatedly indicated that it would use force
to attempt to gain control over Taiwan if, for
example, Taiwan were to take any concrete steps
toward political independence or if the political
and social situation in Taiwan became destabilized.
Relations between ROC and the PRC have recently been
strained. See "Risk Factors and Special
Considerations--Political and Economic Factors" and
"Appendix A: The Republic of China."

Under current ROC exchange control regulations, the Fund
will be able to remit out of the ROC the proceeds of
income distributions, capital gains and stock
distributions and other distributions of assets. To
the extent the Fund is limited in its ability to
repatriate assets out of the ROC, the Fund may be
required to incur borrowings in order to make
distributions required to maintain the special tax
treatment of the Fund as a regulated investment
company. See "Risk Factors and Special
Considerations--Currency Fluctuations" and "Appendix
A: The Republic of China--Foreign Exchange--Exchange
Controls."

The NT Dollar rate has fluctuated between NT$27.1 = US$1
and NT$24.5 = US$1 since 1989. On ____________,
1995, the exchange rate was NT$_______= US$1. See
"Appendix A: The Republic of China--Foreign
Exchange."

ROC accounting, auditing, financial and other reporting
standards are not equivalent to U.S. standards and,
therefore, certain material disclosures may not be
made and less information may be available to
investors investing in the ROC than in the United
States. There is also generally less governmental
regulation of the securities industry in the ROC
than in the United States. See "Risk Factors and
Special Considerations" and "Foreign Investment and
Exchange Controls in the ROC." Reference is also
made to "The Securities Market of the ROC" and
"Appendix A: The Republic of China."

Investing in securities of ROC issuers and of the ROC
government involves the risk that it may be more
difficult to obtain and/or enforce a judgment in a
court in the ROC than in a court in the United
States.

<PAGE>
The Fund may be subject to income or withholding taxes
imposed by the ROC or other foreign governments.
See "Taxation--ROC Income Taxes."

The ROC government is currently considering the
reimposition of a capital gains tax on securities
transactions that was suspended in 1990. This
reimposition is subject to legislative approval and
it cannot be predicted when or whether the
legislature will grant such approval. Therefore,
there can be no assurance that the capital gains tax
will not be reimposed in the future. See "Taxation-
-ROC Income Taxes."

While the Fund expects primarily to invest in equity
securities of publicly traded ROC issuers, it may,
if permitted under local investment restrictions,
invest up to 15% of its total assets in non-publicly
traded equity securities of ROC companies. Such
investments may involve a high degree of business
and financial risk. Because of the absence of any
liquid trading market for these investments, the
Fund may take longer to liquidate these positions
than is the case for listed securities. In addition
to financial and business risks, issuers whose
securities are not publicly traded may not be
subject to the same disclosure requirements
applicable to issuers whose securities are publicly
traded. See "Risk Factors and Special
Considerations--Investments in Illiquid Securities."

The Fund may, if permitted under local investment
restrictions, also invest a portion of its assets in
(i) debt securities of ROC companies, (ii) debt
securities issued or guaranteed by the ROC
government or a ROC governmental entity, and (iii)
short-term and medium-term debt securities of the
type described below under "Investment Objective and
Policies--Temporary Investments." In addition, the
Fund may enter into options and futures contracts on
a variety of instruments and indexes and forward
currency exchange contracts in order to protect
against fluctuation in interest rates, foreign
currency exchange risks and declines in the value of
portfolio securities or increases in the costs of
securities to be acquired. Additionally, the Fund
may enter into options transactions on securities
for purposes of increasing its investment returns.
Each of these types of transactions involves special
risks. See "Investment Objective and Policies" and
Appendix B to this Prospectus.

8
<PAGE>
The Fund is classified as a "non-diversified" investment
company under the U.S. Investment Company Act of
1940, as amended (the "1940 Act"), which means that
the Fund is not limited by the 1940 Act in the
proportion of its assets that may be invested in the
securities of a single issuer. As a non-diversified
investment company, the Fund may invest a greater
proportion of its assets in the securities of a
smaller number of issuers and, as a result, may be
subject to greater risk of loss with respect to its
portfolio securities. However, the Fund intends to
comply with the diversification requirements imposed
by the U.S. Internal Revenue Code of 1986, as
amended (the "Code"), for qualification as a
regulated investment company. See "Investment
Objective and Policies," "Investment Restrictions"
and "Taxation--U.S. Federal Income Taxes."

Shares of closed-end investment companies frequently
trade at a discount from net asset value. This
characteristic of shares of a closed-end fund is a
risk separate and distinct from the risk that a
fund's net asset value will decrease. The Fund
cannot predict whether its shares will trade at,
above or below net asset value. The risk of
purchasing shares of a closed end investment company
which might trade at a discount from net asset value
is more pronounced for investors who purchase shares
in the initial public offering and who wish to sell
their shares in a relatively short period of time.
See "Risk Factors and Special Considerations--Net
Asset Value Discount."

As described under "Underwriting," the public offering
price of the Shares will be reduced for purchases in
single transactions of _____ or more Shares.
Purchasers who agree to purchase Shares at the
reduced price will be restricted from transferring
such Shares for period of 90 days after the closing
of the Offerings. To the extent investors who are
subject to the transfer restriction sell their
Shares once the transfer restriction is no longer
applicable, the market price of the Fund's Common
Stock could be adversely affected. In addition, the
transfer restriction will reduce the number of
Shares available for sale in the secondary market
during the 90-day restriction period.

The Fund's Articles of Incorporation contain certain
anti-takeover provisions that may have the effect of
inhibiting the Fund's possible conversion to
open-end status and limiting the ability of other
persons to acquire control of the Fund. In certain
circumstances, these provisions might also inhibit
the ability of shareholders to sell their
9
<PAGE>
shares at a premium over prevailing market prices.
See "Risk Factors and Special Considerations--
Additional Considerations" and "Description of
Common Stock--Special Voting Provisions."

Investors should carefully consider their ability to
assume the foregoing risks before making an
investment in the Fund. An investment in shares of
the Fund should be considered speculative and should
not be considered as a complete investment program.
See "Risk Factors and Special Considerations."
10
<PAGE>
FUND EXPENSES

The following tables are intended to assist investors in understanding
the costs and expenses that an investor in the Fund will bear directly or
indirectly.

SHAREHOLDER TRANSACTION EXPENSES:

Maximum Sales Load (as a percentage of offering price) . . . . % (a)
---
Dividend Reinvestment and Cash Purchase Plan Fees . . . . . . . . . (b)

ANNUAL EXPENSES (AS A PERCENTAGE OF NET ASSETS) (C):

Management Fee . . . . . . . . . . . . . . . . . . . . . . . %
---
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . %
---

Total Annual Expenses . . . . . . . . . . . . . . . . . . . . . . . %
===

____________

(a) Reduced to _____% for purchases in single transactions (as defined
herein under "Underwriting") of between _____ and _____ Shares and to
____% for purchases in single transactions of _____ or more Shares. See
the cover page of this Prospectus and "Underwriting."

(b) The Fund and the Plan Agent (as defined below) impose no fee for
participation in the Plan. However, a $_____ fee is imposed for any
cash withdrawal or termination of participation in the Plan. In
addition, each participant in the Plan will pay a pro rata share of
brokerage commissions incurred in connection with open-market purchases
of Fund shares under the Plan. See "Dividend Reinvestment Plan."

(c) See "Management of the Fund." "Other Expenses" have been estimated for
the current fiscal year and assume an offering of shares of
Common Stock.

EXAMPLE:

An investor would directly pay the following expenses on a $1,000
hypothetical investment in the Fund, assuming a 5% annual return and payment
by an investor of a sales load of %:

One Year Three Years Five Years Ten Years
$ $ $ $

This "Example" assumes that all dividends and other distributions are
reinvested at net asset value and that the percentage amounts listed under
Annual Expenses remain the same in the years shown except that organization
expense amortization is completed after five years. The above tables and the
assumption in the Example of a 5% annual return are required by regulations
of the U.S. Securities and Exchange Commission applicable to all investment
companies. THE ASSUMED 5% ANNUAL RETURN AND ANNUAL EXPENSES SHOULD NOT BE
CONSIDERED A REPRESENTATION OF ACTUAL OR EXPECTED FUND PERFORMANCE OR
EXPENSES, BOTH OF WHICH MAY VARY. For more complete descriptions of certain
of the Fund's costs and expenses, see "Management of the Fund."

11
<PAGE>
THE FUND

The Fund is a non-diversified, closed-end management investment company
registered under the 1940 Act. The Fund was incorporated under the laws of
the State of Maryland on November 13, 1995. The Fund's investment objective
is long-term capital appreciation. The Fund seeks to achieve its objective
by investing primarily in publicly traded equity securities of ROC companies
(as defined below). Under normal circumstances, the Fund will invest at
least 65% of its total assets in such securities. No assurance can be given
that the Fund's investment objective will be realized. The Investment
Manager has applied for an investment permit as a qualified foreign
institutional investor which will permit the Investment Manager to make
investments on behalf of the Fund in Taiwan. It is anticipated that the
approval for the investment permit will be granted by the ROC Securities and
Exchange Commission (the "ROC SEC") on or about December , 1995.

USE OF PROCEEDS

The net proceeds of this offering will be approximately $________ (or
approximately $____________ if the Underwriters' over-allotment options are
exercised in full), after payment of the sales load and organizational and
offering expenses.

The net proceeds of the offerings will be invested in accordance with
the Fund's investment objective and policies. The Fund will remit a
substantial portion of the net proceeds of the offerings into the ROC and
will attempt to invest at least 65% of its total assets in publicly traded
equity securities of ROC companies in accordance with its investment
objective within six months from the date of this Prospectus. However,
depending on market conditions, it may not be in the best interests of the
shareholders of the Fund for such investments to be made within the six-month
time period. It may be necessary to make such investments over a longer
period of time in order to minimize the Fund's impact on the prices and
trading of securities of ROC companies. Under such circumstances, the Fund
will attempt to invest at least 65% of its total assets in publicly traded
equity securities of ROC companies within a one-year time period. Pending
such investment, it is anticipated that the proceeds will be invested in
short-term fixed income securities, which may include the types of
investments contemplated for use by the Fund for temporary defensive purposes
as set forth under "Investment Objective and Policies--Temporary
Investments."

INVESTMENT OBJECTIVE AND POLICIES

The investment objective of the Fund is long-term capital appreciation.
The Fund seeks to achieve this objective by investing primarily in publicly
traded equity securities of ROC companies. Under normal circumstances, the
Fund will invest at least 65% of its total assets in such securities. The
Fund defines ROC companies to be entities (i) that are organized under the
laws of, or with a principal office in, the ROC, (ii) the equity or debt

securities of which are traded principally in the ROC or (iii) that alone or
on a consolidated basis derive 50% or more of their total revenues from
business in the ROC, or have at least 50% of their assets in the ROC. Equity
securities include common stocks, preferred stocks (including convertible
preferred stock), rights or warrants to purchase common stock or preferred
stock, debt securities convertible into common or preferred stock, equity
interests in trusts or partnerships and American, Global or other types of
Depositary Receipts.

The Fund's investment objective and policy of investing at least 65% of
its total assets in publicly traded equity securities of ROC companies is a
fundamental policy and cannot be changed without the approval of a majority
of the Fund's outstanding voting securities. As used herein, a "majority of
the Fund's outstanding
12
<PAGE>
voting securities" means the lesser of (i) 67% of the shares represented at a
meeting at which more than 50% of the outstanding shares are represented, and
(ii) more than 50% of the outstanding shares. There is no assurance that the
Fund will be able to achieve its investment objective.

The Investment Manager has applied for an investment permit as a
qualified foreign institutional investor, which will permit it to make
investments on behalf of the Fund in Taiwan. The approval of the investment
permit by the ROC SEC is anticipated on or about December , 1995. Pursuant
to the investment permit and subject to the terms and conditions of the
Investment Management Agreement, the Investment Manager will be permitted to
invest the assets of the Fund directly in the ROC securities market. Pursuant
to qualified foreign institutional investor authorization, the Investment
Manager, on behalf of the Fund, may invest up to (US$200) million in the ROC
securities market and is permitted to remit an amount up to (US$200) million
into the ROC within six months after December , 1995. An investor relying
on a qualified foreign institutional investor authorization is subject to
certain restrictions on its investments in the ROC and on repatriation of
capital. For a detailed discussion on the restrictions imposed on a qualified
foreign institutional investor, see "Foreign Investment and Exchange Controls
in the ROC."

The Fund intends to invest its assets over a broad spectrum of
industries within the ROC economy, including, but not limited to, as
conditions warrant from time to time, cement, chemicals and plastics,
construction, electrical and electronics, finance, banking, food, textiles,
glass, rubber, pulp and paper, metal products and machinery, retailing and
tourism. The initial focus of the Fund's investment strategy is expected to
include companies which are: (i) in the high technology and strategic
sectors including electronics, communications, environmental protection and
energy; (ii) likely to benefit from the ROC's National Development Plan
(e.g., infrastructure stocks); (iii) likely to benefit from the increasing
trade and investments between the PRC and ROC; or (iv) relatively smaller in
market capitalization but are expected to outperform the TSE index. In
selecting industries and companies for investment, the Investment Manager
will consider overall growth prospects, competitive positions in export
markets, technologies, research and development, productivity, labor costs,
raw material costs and sources, profit margins, returns on investment,
capital resources, government regulation, management and other factors. The
Fund will not invest more than (25%) of its total assets in any one industry.
For purposes of this restriction, banking, insurance and brokerage services
are considered to be separate industries. In addition, for these purposes,
investments in electronics may comprise several industries including
computers, household appliances, audio and video equipment, semiconductors
and related devices and telecommunications equipment.

To the extent that the Fund's assets are not invested in equity
securities of ROC issuers or companies that in the judgment of the Investment
Manager are expected to benefit from developments in Taiwan, the remainder of
its assets may be invested, if permitted under local investment restrictions,
in (i) debt securities of ROC issuers, (ii) debt securities issued or
guaranteed by the ROC government or a ROC governmental entity, and (iii)
short-term and medium-term debt securities of the type described below under
"Investment Objective and Policies--Temporary Investments." The Fund's assets
may be invested in debt securities when the Fund believes that, based upon
factors such as relative interest rate levels and foreign exchange rates,
such debt securities offer opportunities for long-term capital appreciation.
It is likely that many of the debt securities in which the Fund will invest
will be unrated (there currently is no debt rating system in the ROC) and,
whether or not rated, such securities may have speculative characteristics.
The Fund will not, however, invest in debt securities rated below investment
grade or, if unrated, considered by the Investment Manager to be of less than
investment grade quality. Currently, the market in debt securities of ROC
issuers, including governmental entities, is not significant. See
"Securities Market of the ROC--Debt Securities." In addition, for temporary
defensive purposes, the Fund may invest less than 65% of its total assets in
equity securities of ROC issuers, in which case the Fund may invest in other
equity securities or may invest in debt securities of the kind described in
the temporary investments below.

13
<PAGE>
The Fund may invest indirectly in securities of ROC issuers through
sponsored American Depositary Receipts ("ADRs"), Global Depositary Receipts
("GDRs"), European Depositary Receipts ("EDRs"), International Depositary
Receipts ("IDRs") and other types of depositary receipts (collectively
referred to as "Depositary Receipts".) ADRs are Depositary Receipts
typically issued by a U.S. bank or trust company which evidence ownership of
underlying securities issued by a foreign corporation, and GDRs, EDRs, IDRs
and other types of Depositary Receipts are typically issued by foreign banks
or trust companies, although they also may be issued by U.S. banks or trust
companies, and evidence ownership of underlying securities issued by either a
foreign or a U.S. corporation. Generally, Depositary Receipts in registered
form are designed for use in the U.S. securities markets and Depositary
Receipts in bearer form are designed for use in securities markets outside
the United States. Depositary Receipts may not necessarily be denominated in
the same currency as the underlying securities into which they may be
converted. In addition, the issuers of the stock underlying unsponsored
Depositary Receipts are not obligated to disclose material information in the
United States and, therefore, there may not be a correlation between such
information and the market value of the Depositary Receipts. For purposes of
the Fund's investment policies, the Fund's investments in ADRs, GDRs, EDRs,
IDRs and other types of Depositary Receipts will be deemed to be investments
in the underlying securities.

The Fund may invest up to 15% of its total assets in non-publicly traded
equity securities of ROC companies. As a result of the absence of a public
trading market for these securities, they may be less liquid than publicly
traded securities. Although these securities may be resold in privately
negotiated transactions, the prices realized from these sales could be less
than those originally paid by the Fund or less than what may be considered
the fair value of such securities. Further, issuers whose securities are not
publicly traded may not be subject to the disclosure and other investor
protection requirements which may be applicable if their securities were
publicly traded. If such securities are required to be registered under the
securities laws of one or more jurisdictions before being resold, the Fund
may be required to bear the expenses of registration.

For temporary defensive purposes, the Fund may vary its investment
policies during periods in which, in the Investment Manager's judgment,
conditions in the ROC securities markets or other economic or political
conditions in the ROC warrant. Under such circumstances, the Fund may reduce
its holdings in equity and other securities and invest in certain short-term
(not greater than twelve months to maturity) and medium-term (not greater
than seven years to maturity) debt securities or hold cash. The short-term
and medium-term debt securities in which the Fund may invest consist of (a)
obligations of the United States or the ROC government, their respective
agencies or instrumentalities; (b) bank deposits and bank obligations
(including certificates of deposit, time deposits and bankers' acceptances)
of U.S. or ROC banks denominated in any currency; (c) floating rate
securities and other instruments denominated in any currency issued by
international development agencies; (d) finance company and corporate
commercial paper and other short-term corporate debt obligations of U.S. and
ROC corporations; and (e) repurchase agreements with banks and broker-dealers
with respect to such securities. The Fund intends to invest for temporary
defensive purposes only in short-term and medium-term debt securities that
the Investment Manager believes to be of high quality, i.e., subject to
relatively low risk of loss of interest or principal (there is currently no
rating system for debt securities in the ROC).

Repurchase agreements with respect to the securities described in the
preceding paragraph are contracts under which a buyer of a security
simultaneously commits to resell the security to the seller at an agreed upon
price and date. Under a repurchase agreement, the seller is required to
maintain the value of the securities subject to the repurchase agreement at
not less than their repurchase price. The Investment Manager will monitor
the value of such securities daily to determine that the value equals or
exceeds the repurchase price including accrued interest. Repurchase
agreements may involve risks in the event of default or insolvency of the
seller, including possible delays or restrictions upon the Fund's ability to
dispose of the underlying securities.

The Fund intends to purchase and hold securities for long-term capital
appreciation and does not expect to trade for short-term gain. Accordingly,
it is anticipated that the annual portfolio turnover rate normally will
14
<PAGE>
not exceed ____%, although, in any particular year, market conditions could
result in portfolio activity at a greater or lesser rate than anticipated.
The portfolio turnover rate for a year is calculated by dividing the lesser
of sales or purchases of portfolio securities during that year by the average
monthly value of the Fund's portfolio securities, excluding money market
instruments. The rate of portfolio turnover will not be a limiting factor
when the Fund deems it appropriate to purchase or sell securities for the
Fund. However, the U.S. federal tax requirement that the Fund derive less
than 30% of its gross income from the sale or disposition of securities held
less than three months may limit the Fund's ability to dispose of its
securities. See "Taxation--U.S. Federal Income Taxes."

OTHER INVESTMENT POLICIES

The Fund has adopted certain other policies as set forth below:

Other Investment Companies. The Fund may invest in the securities of
other investment companies that invest a substantial portion of their assets
in the ROC to the extent permitted by the 1940 Act. Under the 1940 Act, the
Fund may invest up to 10% of its total assets in shares of other investment
companies and up to 5% of its total assets in any one investment company,
provided that the investment does not represent more than 3% of the voting
stock of the acquired investment company. By investing in an investment
company, the Fund's shareholders will bear a ratable share of the investment
company's expenses, as well as continuing to bear the Fund's management and
administrative fees with respect to the amount of the investment.

Short Sales. To the extent permitted by ROC laws and regulations and
the regulations of the Japan Securities Dealers Association, the Fund is
authorized to make short sales of securities or maintain a short position
only for the purpose of deferring realization of gain or loss for U.S.
Federal income tax purposes, provided that at all times when a short position
is open the Fund owns an equal amount of such securities of the same issue as
the securities sold short. In addition, the Fund may not make a short sale
if more than 10% of the Fund's net assets (taken at market value) is held as
collateral for short sales at any one time. See "Investment Restrictions."
The Fund is not currently permitted under ROC laws and regulations to engage
in short sales of ROC securities. In addition, the Fund is not permitted
under the regulations of the Japan Securities Dealers Association to engage
in short sales of securities.

Lending Portfolio Securities. In order to increase income, the Fund
may, if authorized by applicable law, lend portfolio securities from time to
time to brokers, dealers and financial institutions and receive collateral in
the form of cash or U.S. Government Securities. Under the Fund's procedures,
collateral for such loans must be maintained at all times in an amount equal
to at least 100% of the current market value of the loaned securities
(including interest accrued on the loaned securities). The interest accruing
on the loaned securities will be paid to the Fund, and the Fund will have the
right, on demand, to call back the loaned securities. The Fund may pay fees
to arrange the loans. The Fund will neither lend portfolio securities in
excess of 30% of the value of its total assets nor lend its portfolio
securities to any officer, director, employee or affiliate of the Fund, the
Investment Manager or the Investment Adviser. Lending portfolio securities
by the Fund is not currently permitted under ROC laws and regulations.

Foreign Currency Hedging Transactions, Options and Futures Contracts.
Certain investment practices in which the Fund is authorized to engage, such
as certain currency hedging techniques, the lending of portfolio securities,
forward commitments, standby commitment agreements and the purchase or sale
of put and call options, are not currently permitted under ROC laws or
regulations. The Fund may engage in these investment practices to the extent
the practices become available in the future or with respect to investments
outside the ROC. See "Appendix B--Description of Certain Foreign Currency
Hedges and Stock Options and Futures Contracts" hereto for a further
discussion of currency hedging techniques, including currency options and
futures, options on such futures and forward foreign currency transactions,
the purchase or sale of put and call options on securities and currencies,
forward commitments and standby commitment agreements.

15
<PAGE>
RISK FACTORS AND SPECIAL CONSIDERATIONS

Investors should realize that investing in equity securities of ROC
companies involves certain risks not typically associated with investing in
securities of U.S. companies, including those set forth below.

MARKET VOLATILITY

The ROC securities market has grown dramatically in recent years, both
in terms of market capitalization and trading volume, although in terms of
the number of listed companies the market is still relatively small, with
only 331 listed companies at October 30, 1995. The aggregate market value of
equity securities listed on the TSE was approximately NT$7,132.4 billion
(US$259.4 billion) at August 31, 1995, and the average daily trading value
during 1994 was approximately NT$65.8 billion (US$2.5 billion). The
comparable 1994 figure for the New York Stock Exchange was US$9.7 billion.
See "The Securities Market of the ROC--Background and Development" and "--The
Secondary Market."

The growth in the ROC securities market has been accompanied during
certain periods by a high degree of stock price volatility resulting in very
large short-term swings in the TSE Index. For example, between February and
October 1990, the TSE Index fell from a high of 12,495 to a low of 2,560 on
October 1, 1990, a decline of 79.5%. From October 1, 1990 to October 20,
1990, the TSE Index rose from 2,560 to 3,085, an increase of 20.5%. The TSE
Index, which stood at 835.12 at the beginning of 1986, increased to 9,624.18
by the end of 1989, decreased to 4,530.16, 4,600.67 and 3,377.06 at the end
of 1990, 1991 and 1992, respectively, and increased to 6,070.56 and 7,124.66
at the end of 1993 and 1994, respectively. On October 30, 1995, the TSE
Index closed at 4,817.04. Any stock price volatility could adversely affect
the net asset value of the Fund's shares.

The ROC securities market has been influenced by speculative trading of
significant blocks of securities. In addition, there have been reports of
market manipulation. The Investment Manager believes that market
manipulation has been, and expects it to continue to be, a factor in the high
volatility of the securities market although in the future the impact is
expected to decrease. See "The Securities Market and the Regulatory
Environment."

During periods when the market has declined rapidly, such as in 1990,
the combination of reduced demand and TSE rules confining daily movements in
individual company stock prices to fixed limits (currently 7%) around the
previous day's closing price has greatly diminished market liquidity. This
has made it extremely difficult during declining periods to protect and
retain previous capital gains. Trading in the ROC securities market is
dominated by individual investors and, during periods of market volatility,
speculative short-term trading has been pervasive among such investors.
Consequently, these conditions may in the future make it necessary for the
Fund to engage in short-term trading in order to preserve investment gains.
In addition, trading in the ROC securities market is often effected without
regard to fundamental investment analysis. As a result, the securities of
many ROC companies may trade at prices substantially above book value, at
high price/earnings ratios.

POLITICAL AND ECONOMIC FACTORS

Political Factors

The ROC has a unique international political status. The ROC maintains
formal diplomatic relations with only 29 countries and the Vatican, but has
active trade and financial relations with 236 countries and territories,
including most major economic powers. The ROC maintains trade missions in
105 countries. Although the United States severed formal diplomatic
relations with the ROC in 1979, the Taiwan Relations Act of 1979 affirmed the
United States' policies of preserving close commercial and cultural ties with
the ROC and of supplying military assistance to the ROC. Taiwan remains a
member of the Asian Development Bank, but is
16
<PAGE>
no longer a member of the United Nations and various other international
organizations. In 1991, the ROC applied to rejoin the General Agreement on
Tariffs and Trade ("GATT"), from which it withdrew in 1950. In September
1992, in accordance with a GATT resolution to establish a committee to
examine the ROC application for readmission, the ROC was permitted to become
a GATT observer during the examination. It is expected that Taiwan will seek
membership in the World Trade Organization later this year. There can,
however, be no assurance that at some future point the ROC's unique,
international position will not have an adverse effect on its conduct of
international trade, which is crucial to its export-driven economic growth.

In 1949, the ROC government moved to Taiwan from mainland China. Since
that time, it has maintained that it is the sole legitimate government of all
of China (i.e., Taiwan, certain other islands and all of mainland China).
The People's Republic of China (the "PRC") also asserts sovereignty over all
of China, including the ROC. Although the ROC and PRC have significant
cultural and economic ties, the PRC has repeatedly indicated that it would
resort to force to attempt to gain control over the ROC if the ROC should
take any concrete steps toward political independence, or if the political
and social situation in the ROC should become destabilized. Relations
between the ROC and the PRC have recently been strained as a result of the
PRC's objection to the private visit by ROC President Lee Teng-Hui to the
United States in June 1995, the PRC's conduct of military exercises in the
waters north of Taiwan and certain other matters. There can be no assurance
that relations will not deteriorate in ways that could adversely affect
Taiwan's economy. The ROC securities market is increasingly sensitive to
political and economic developments in the PRC, and such developments,
including, among other things, changes in political leadership, could have an
impact on the Fund. See "Appendix A: The Republic of China--General
Information."

The United States formally recognized the PRC on January 1, 1979 and
thereupon severed formal diplomatic relations with the ROC. In April 1979,
the U.S. Congress enacted the Taiwan Relations Act (the "Act") to govern the
future U.S. relationship with the ROC and an unofficial entity, the American
Institute in Taiwan, was established to handle U.S. interests in the ROC.
The Act affirmed as national policies the preservation and promotion of close
commercial and cultural ties with the ROC and the continuing supply to the
ROC of arms of a defensive character. Under the Act, all non-military
treaties then in effect between the United States and the ROC were affirmed.
In addition, the Act provided that, in spite of the absence of diplomatic
relations, U.S. laws with respect to the ROC would continue to be applied in
the same manner as such laws were applied prior to January 1, 1979. The Act
provided that the United States would make available such defense articles
and defense services in such quantity as necessary to enable the ROC to
maintain a sufficient self-defense capability. The quantity and quality of
arms sales is determined periodically by the U.S. President and the U.S.
Congress based on their judgment of the ROC's needs. Under the Act, the
President is also required to inform Congress of any threat to the ROC's
security or its social or economic system, and the U.S. President and U.S.
Congress are required to determine appropriate U.S. action in response to any
such threat.

Since the establishment of political and military control over Taiwan by
the ROC in the late 1940s, Taiwan has enjoyed relatively stable government
under a dominant political party. From before 1949 until 1987 Taiwan was
governed under martial law, but in recent years the political system has been
liberalized and opposition to the ruling party and the government (including
calls for Taiwan's independence) has become more vocal. There can be no
assurance that tension between the ruling Kuomintang party and the opposition
Democratic Progressive Party (the "DPP") and other opposition parties will
not produce instability that may adversely affect economic development in the
ROC or exacerbate relations with the PRC. See "Appendix A: The Republic of
China -- General Information."

In the mid-1980's the ROC began a process of domestic political
liberalization which led its principal opposition party, the Democratic
Progressive Party ("DPP"), to gain a more substantial voice in national,
provincial and local governing bodies. On December 21, 1991, the first full
elections in the ROC in over four decades were held for the National
Assembly. The Kuomintang (Nationalist Party) (the "KMT") prevailed in this
election, winning 71% of the popular vote, while the DPP received 24% of the
popular vote. Of the
17
<PAGE>
325 National Assembly candidates elected, 254 were members of the KMT, 66
were DPP, and five were independents. After these elections, the KMT
(including those independent candidates allied to do it) controlled 79% of
the votes in the Assembly. In the most recent parliamentary elections, held
in December 1992, DPP candidates made a particularly strong showing, winning
36% of the total votes cast. The DPP has, in the past, campaigned on a

platform of independence for the ROC. On November 27, 1993, nationwide
elections were held for county chiefs and city mayors. The elections
resulted in the KMT securing 15 seats, one more than it previously held, and
the DPP retaining six seats, one less than it previously held.

Economic Factors

Exports. The ROC's rapid economic growth in the 1980s (approximately
8.1% average annual increase in real gross domestic product from 1980 through
1989) was largely export-driven. From 1978 through 1988 over half of the
ROC's gross domestic product was derived from the export sector, and since
1978 the ROC has had trade surpluses with most of its major trading partners.
Growth in the export sector began to decrease in 1989, but the ROC economy
still remains heavily dependent on exports. As a result, the ROC economy is
affected by changes in the relative exchange rates of the NT Dollar and the
currencies of its main trading partners (primarily the United States, Japan
and European countries), by changes in the economies of those trading
partners and by protectionist actions taken by those countries. Taiwan's
export economy is also affected by competition from producers in other
countries with lower wage levels than those generally prevailing in Taiwan.
Skilled workers and technical personnel are still relatively inexpensive in
the ROC, but unskilled labor is in increasingly short supply. The average
manufacturing wage rose 11.0% in 1991, 10.2% in 1992, 6.9% in 1993 and 6.6%
in 1994. As a result, there has been significant relocation of manufacturing
from Taiwan to lower-cost economies in Asia. Taiwan has in the past shown an
ability to prosper in a competitive environment on the strength of product
quality, efficiency and responsiveness to market demand. It is expected that
this ability will continue to be tested in the future as competitive
pressures increase. See "Appendix A: The Republic of China -- Foreign Trade
and Balance of Payments."

The appreciation of the NT Dollar against the U.S. Dollar since 1985 has
slowed the growth of the ROC's exports to the United States and other
markets. Further appreciation of the NT Dollar or the adoption of
protectionist measures by any of the ROC's major trading partners, in
particular the United States, would be likely to have an adverse impact on
the growth of ROC exports.

Fair Trade. On February 4, 1992, the ROC Fair Trade Law ("FTL") became
effective. The FTL is designed to encourage fair trade and competition by,
among other things, regulating certain types of mergers, acquisitions and
joint ventures and prohibiting unfair practices by dominant companies within
an industry and concerted actions among companies in the same industry. The
FTL, violations of which may result in criminal or civil damages (including
treble damages), is administered by the Fair Trade Commission.

Imports. The island of Taiwan has limited natural resources, resulting
in dependence on foreign sources for certain raw materials and vulnerability
to global fluctuations of price and supply. This dependence is especially
pronounced in the energy sector. In recent years, over half of the ROC's
crude oil has been supplied by Kuwait and Saudi Arabia. A significant
increase in energy prices could have an adverse impact on the ROC's economy.
In addition, many Taiwan businesses rely heavily on Japanese machine tools.
Any increase in the cost or decrease in the availability of such tools could
also have an adverse impact on the ROC's economy.

Environment. The ROC's natural environment has suffered tremendous
damage due to growth policies that ignored the social cost of pollution.
With rising affluence, the public has become increasingly sensitive to the
problem and is demanding corrective action. Environmental concerns have
delayed or forced the cancellation of several major public-works projects,
including construction of a new nuclear power plant, and have produced
substantial delays in obtaining required approvals for a number of major new
industrial facilities. A cabinet-level Environment Protection Administration
was established in 1987 and has placed a high priority
18

<PAGE>
on the enforcement and strengthening of environmental laws. Environmental
concerns may become a significant impediment to industrial expansion.

Trade with the PRC. In the past four years, more than 4,000 ROC
companies have invested significant amounts of money in various locations
around the world, principally in Southeast Asia. In 1992, the PRC became the
biggest recipient of ROC investment, largely because of cheap labor (wages in
the PRC are one-seventh those in the ROC), common language, and huge domestic
markets. The ROC's trade with Hong Kong has increased consistently since
1986 and now represents approximately 22% of total exports, a substantial
portion of which represents indirect trade with the PRC. There is,
therefore, a risk that an economic downturn in the PRC could have a material
adverse impact on the ROC economy.

INVESTMENT AND REPATRIATION RESTRICTIONS

Generally, foreign portfolio investment in securities of ROC issuers is
permitted only through (i) investment in securities investment trust funds
established in the ROC and authorized by the ROC SEC, (ii) direct investment
by qualified foreign institutional investors approved by the ROC SEC, (iii)
purchasing the depositary receipts evidencing shares of ROC listed companies,
and (iv) purchasing overseas corporate bonds issued by ROC listed companies.
The Investment Manager has applied for an investment permit as a qualified
foreign institutional investor on behalf of the Fund. See "Foreign
Investment and Exchange Controls in the ROC."

Under current ROC exchange control regulations, the Fund will be able to
remit out of the ROC the proceeds of income distributions, capital gains and
stock distributions and other distributions of assets. However, if the Fund
were ever unable to receive and distribute to its shareholders 90% of its
taxable net investment income within applicable time periods, it would cease
to qualify for the special tax treatment available to regulated investment
companies for United States federal income tax purposes. See "Taxation--U.S.
Federal Income Taxes."

CURRENCY FLUCTUATIONS

The Fund's assets will be invested primarily in equity securities of ROC
issuers and substantially all income and capital gains will be received in NT
Dollars. However, the Fund will compute and distribute its income in U.S.
Dollars, and the computation of income will be made on the date of its
receipt by the Fund at the foreign exchange rate in effect on that date.
Therefore, if the value of the foreign currencies in which the Fund receives
its income falls relative to the U.S. Dollar between receipt of the income
and the making of Fund distributions, the Fund will be required to liquidate
securities in order to make distributions if the Fund has insufficient cash
in U.S. Dollars to meet distribution requirements. The liquidation of
investments, if required, may have an adverse impact on the Fund's
performance. In addition, if the liquidated investments include securities
that have been held less than three months, such sales may jeopardize the
Fund's status as a regulated investment company under the Code. See
"Taxation--U.S. Federal Income Taxes."

Since the Fund will invest in ROC securities denominated in NT Dollars,
changes in the exchange rate of the NT Dollar may affect the value of
securities in the Fund's portfolio and the unrealized appreciation or
depreciation of investments insofar as U.S. investors are concerned. In
addition, the Fund may incur costs in connection with conversions between
currencies. Changes in the exchange rate of the NT Dollar will affect the
Fund's net asset value regardless of the performance of the underlying
investments of the Fund.

From 1979 to 1989 the ROC had a floating exchange rate system that the
Central Bank of China (the "CBC") regulated by purchasing and selling foreign
exchange in the marketplace. During 1986, 1987 and 1988 the CBC policy was
to permit the NT Dollar to appreciate against the U.S. Dollar. During that
period the NT Dollar appreciated from NT$39.85 per US$1.00 at December 31,
1985 to NT$28.17 per US$1.00 at December 31, 1988. In 1989 a new exchange
rate system was adopted under which certain designated foreign
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<PAGE>
exchange banks set the daily exchange rate. This system was abolished in
July 1989 for transactions in amounts less than US$10,000 when the CBC
announced that, with respect to such transactions, each trading bank could
set its own rate. The NT Dollar rate appreciated further in 1989 to NT$26.16
per US$1.00 at year-end (with a high during the year of NT$25.30 per
US$1.00), declined to NT$27.50 per US$1.00 on May 15, 1990 and thereafter
appreciated through the end of 1992 when the exchange rate was NT$25.40 to
US$1.00. During most of 1993 the NT Dollar depreciated, but in December of
that year it began to appreciate and reached a high in 1994 of NT$26.02 per
US$1.00 on November 2. This appreciation trend continued into 1995, reaching
a high in the period from January through August of NT$25.14 per US$1.00 on
April 10. The NT Dollar then started to depreciate, reaching a low at the
end of August of NT$27.50 per US$1.00. On October 30, 1995, the exchange
rate was NT$26.99 per US$1.00. For NT Dollar - U.S. Dollar exchange rates
from 1985 through August 31, 1995, see "Appendix A: The Republic of China --
Foreign Exchange."

The competitiveness of ROC's exports is affected by changes in the
relative exchange rates of the NT Dollar and the currencies of its main
trading partners, primarily the United States and Japan. Changes in the
value of the NT Dollar against the U.S. Dollar, or changes in the value of
the NT Dollar against the currencies of its other trading partners, could
have an adverse impact on ROC's export economy and, in turn, on the market
value of export-oriented ROC companies. See "Appendix A: The Republic of
China--Recent Economic Developments."

CORPORATE DISCLOSURE STANDARDS

ROC accounting, auditing financial and other reporting standards are not
as comprehensive as standards applied in the United States. As a result,
certain disclosures required of publicly traded U.S.issuers may not be made
by, and the quality of information available from such issuers may not be
available from, publicly traded ROC issuers. The Investment Manager believes
that as the ROC market has become more internationalized, however, the
quality of available information has improved. The Investment Manager
expects that it will continue to improve in the future.

Although the Investment Manager conducts its own equity research, such
research is a developing practice in the ROC and tends not to be relied upon
by investors as much as in the United States. Because of the developing
nature of, and lack of investor demand for, equity research, less analytical
information is available with respect to ROC issuers and investments in
securities issued by them than with respect to U.S. issuers and securities
issued by them. In recent years, however, the availability of such research
information has increased in response to increasing international interest
and increased activity by the integrated securities firms in the ROC market.
See "The Securities Market of the ROC - Market Participants."

There is also less comprehensive regulation of the markets for ROC
securities and of the activities of investors in such markets and less
enforcement of regulatory provisions relating thereto than there is in the
United States. See "The Securities Market of the ROC - Regulatory
Environment."

INVESTMENTS IN ILLIQUID SECURITIES

The Fund, if permitted under local investment restrictions, may invest
up to 15% of its total assets in the aggregate in illiquid securities,
including equity securities purchased directly from issuers. These
investments may involve a high degree of business and financial risk that can
result in substantial losses. Because of the absence of active and regulated
trading markets for these investments, and because of the difficulties in
determining market values accurately, the Fund may take longer to liquidate
these positions than would be the case for publicly listed securities.
Although these securities may be resold in privately negotiated transactions,
the prices realized on these sales could be less than those originally paid
by the Fund. Further, companies whose securities are not publicly listed may
not be subject to public disclosure and other investor protection
requirements applicable to publicly traded securities.

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<PAGE>
NET ASSET VALUE DISCOUNT

The Fund is a newly organized company with no prior operating history.
Prior to this offering, there has been no public market for the Fund's
shares. Shares of closed-end investment companies frequently trade at a
discount from net asset value. This characteristic of shares of a closed-end
fund is a risk separate and distinct from the risk that a fund's net asset
value will decrease. The Fund cannot predict whether its own shares will
trade at, below or above net asset value. The risk of purchasing shares of a
closed-end investment company which might trade at a discount from net asset
value is more pronounced for investors who purchase shares in the initial
public offering and who wish to sell their shares in a relatively short
period of time.

NON-DIVERSIFICATION

The Fund is classified as a non-diversified investment company under the
1940 Act, which means that the Fund is not limited by the 1940 Act in the
proportion of its assets that may be invested in the obligations of a single
issuer. Thus, the Fund may invest a greater proportion of its assets in the
securities of a smaller number of issuers and, as a result, will be subject
to greater risk of loss with respect to its portfolio securities. The Fund,
however, intends to comply with the diversification requirements imposed by
the Code for qualification as a regulated investment company. See "Taxation-
- -U.S. Federal Income Taxes" and "Investment Restrictions."

TAX CONSIDERATIONS

The Fund may be subject to income or withholding taxes imposed by the
ROC or other foreign governments. In addition, the ROC government is
currently considering a proposal to reimpose a capital gains tax on
securities transactions and to simultaneously reduce the securities
transaction tax applicable to sales of shares from 0.3% to 0.2%. This
proposal is subject to legislative approval and it cannot be predicted when
or whether the legislature will grant such approval. Therefore, there can be
no assurance that the capital gains tax will not be reimposed in the future.

Investors should review carefully the information under "Taxation" and
should discuss with their tax advisers the specific consequences of investing
in the Fund.

EXPENSES

The operating expense ratio of the Fund can be expected to be higher
than that of a fund investing primarily in the securities of U.S. issuers
since the expenses of the Fund (such as custodial, currency exchange and
communication costs) are higher. Brokerage commissions and transaction costs
for transactions both on and off the TSE are generally higher than in the
United States. The Fund will incur additional expenses not typically
associated with an investment company registered in the U.S. and listed on
the New York Stock Exchange by maintaining the Fund's registration in both
the U.S. and Japan and its anticipated listing on the New York Stock Exchange
and the Osaka Securities Exchange.

ADDITIONAL CONSIDERATIONS

Certain considerations concerning the Fund's hedging transactions are
discussed below under "Investment Objective and Policies--Other Investment
Policies--Foreign Currency Hedging Transactions, Options and Futures
Contracts" and in Appendix B.

As described under "Underwriting," the public offering price of the
Shares will be reduced for purchases in single transactions of _____ or more
Shares. Purchasers who agree to purchase Shares at the reduced price will be
restricted from transferring such Shares for period of 90 days after the
closing of the Offerings. To the extent investors who are subject to the
transfer restriction sell their Shares once the transfer
21
<PAGE>
restriction is no longer applicable, the market price of the Fund's Common
Stock could be adversely affected. In addition, the transfer restriction
will reduce the number of Shares available for sale in the secondary market
during the 90-day restriction period.

The Fund's Articles of Incorporation contain certain anti-takeover
provisions that may have the effect of inhibiting the Fund's possible
conversion to open-end status and limiting the ability of other persons to
acquire control of the Fund. In certain circumstances, these provisions
might also inhibit the ability of shareholders to sell their shares at a
premium over prevailing market prices. See "Description of Common Stock--
Special Voting Provisions."

Certain considerations concerning the Fund's ability to enter into
repurchase agreements, purchase securities on a when-issued or delayed
delivery basis and lend portfolio securities are discussed under "Investment
Objective and Policies."

COMPETING INVESTMENT VEHICLES

Current ROC laws and regulations permit certain qualified foreign
institutional investors and the local branches of foreign insurance
companies, as well as securities investment trust enterprises, to purchase up
to 7.5% of the outstanding stock of any single ROC issuer and, in the
aggregate, up to 15% of the outstanding stock of any single ROC issuer. As a
result of an amendment to ROC regulations in September 1995, securities
investment trust enterprises, which had previously been exempt from these
limitations, became subject to them.

Effective September 1991 the ROC government authorized the establishment
of new securities investment trust enterprises in which eligible foreign
asset management companies and foreign banks are permitted to acquire,
subject to certain restrictions and the approval of the ROC SEC, up to 49% of
the total paid-in capital of such enterprises. An amendment to certain rules
governing securities investment trust enterprises permitting 100% foreign
ownership of securities investment trust enterprises is currently pending
before the Executive Yuan, or cabinet, of the ROC government. Since
September 1991, 11 new securities investment trust enterprises have been
established pursuant to such authorization, all of which have offered and
sold interests in securities investment trust funds domestically and two of
which have also offered and sold interests in such funds internationally.
Each of the securities investment trust enterprises that has only raised
funds domestically may apply to the ROC SEC and the CBC for approval to raise
funds internationally for investment in the domestic market.

Although other non-ROC investors are currently prohibited from investing
directly in stocks traded on the ROC securities markets, the ROC government
has announced plans to further internationalize the ROC capital markets to
permit direct investment by individual foreign investors in the future. This
next phase could be implemented as early as February 1996 although no
official timetable has been announced. Additionally, since 1989 the ROC
Ministry of Finance has permitted the issuance of convertible overseas bonds
of ROC companies listed on the TSE in offerings to non-ROC persons, and in
December 1994 this right was extended to those ROC companies whose securities
are traded on the over-the-counter market. In July 1995, the ROC SEC
approved a proposal to permit such overseas corporate convertible bonds of
ROC issuers to be converted (subject to the terms and conditions of the
bonds) into shares of ROC issuers (subject also to certain conditions). Also
in April 1992 the ROC SEC promulgated regulations permitting ROC companies
listed on the TSE, subject to approval by the ROC SEC, to sponsor the issue
and sale to foreigners of depositary receipts evidencing shares of such
companies, and in December 1994 this right was extended to those ROC
companies whose securities are traded on the over-the-counter market. As the
ROC capital markets continue to become more open to non-ROC investors, it is
likely that other alternatives to the Fund will develop as vehicles for
investment in ROC securities by investors outside the ROC, which may 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.
See "Foreign Investment and Exchange Controls in the ROC."

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<PAGE>

FOREIGN INVESTMENT AND EXCHANGE CONTROLS IN THE ROC

Historically, foreign investments in the securities markets of the ROC
have been limited. However, in 1983 the ROC government enacted legislation
and adopted regulations to make foreign investment in the securities market
of the ROC possible through authorized and regulated investment trust funds
established in Taiwan. In general, other forms of investment by non-
residents in the ROC securities market continue to require case-by-case
authorizations by ROC governmental authorities. As described below,
regulations and guidelines have been adopted which, in limited circumstances,
permit direct portfolio investment in ROC securities by certain qualified
foreign institutional investors.

The ROC government has adopted a general policy of liberalizing
restrictions on investment by non-ROC citizens in ROC securities and has
developed guidelines for such liberalization. In March 1989 and December
1990 the Executive Yuan, or cabinet, of the ROC government approved certain
amendments, discussed in more detail below, to the Regulations Governing
Securities Investment by Overseas Chinese and Foreign Investors and
Procedures for Remittance (the "Remittance Regulations") to allow the local
branches of foreign insurance companies and certain qualified foreign
institutional investors to make limited direct investments in securities
listed on the TSE. In addition, since 1989 the ROC SEC has approved the
issuance by ROC issuers to non-ROC persons of a series of corporate bonds the
terms of which permit conversion into capital stock of the issuers to the
extent permitted by ROC law; in July 1995, the ROC SEC approved the proposal
to permit such bonds to be converted into capital stock of ROC issuers
(subject to certain conditions). Further, in 1992 the ROC SEC promulgated
regulations permitting ROC companies listed on the TSE, subject to approval
by the ROC SEC, to sponsor the issue and sale to foreigners of depositary
receipts evidencing shares of such companies, and in December 1994 this right
was extended to those ROC companies whose securities are traded on the over-
the-counter market.

In December 1990, the Executive Yuan approved guidelines drafted by the
ROC SEC which allow direct investment in ROC securities by certain qualified
foreign institutional investors which have received prior ROC SEC approval.
The criteria in such guidelines, as amended in August 1995, define qualified
foreign institutional investors as:

(i) banks which rank among the top 1,000 banks in the non-communist
world having experience in international finance, securities or trust
business;

(ii) insurance companies that have existed for more than three
years and hold securities assets of at least US$300 million;

(iii) fund management institutions which have existed for more
than three years and manage assets of at least US$200 million;

(iv) general securities firms which have a net worth of at least
US$100 million and with experience in international securities
investments;

(v) offshore fund management companies more than 50% of whose
capital is owned by an ROC securities investment trust enterprise;
provided that the funds to be invested cannot come from sources in the
ROC or mainland China and cannot be owned by offshore fund management
companies;

(vi) offshore subsidiaries which are more than 50% owned by a ROC
securities firm or other securities firms which are 100% owned by such
offshore subsidiaries;

(vii) offshore subsidiaries which are 100% owned by a ROC
securities firm or other securities firms which are more than 51% owned
by such offshore subsidiaries;

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<PAGE>

(viii) foreign government-owned investment institutions;

(ix) pension funds that have existed for more than two years; and

(x) any other institutional investors specially approved by the ROC
SEC.

Qualified foreign institutional investors who wish to invest directly in
the ROC securities markets are required to apply for and receive an
investment permit from the ROC SEC. The application requires, among other
things, a statement of investment plan, appointment of and credentials for a
local agent, proof of eligibility and a copy of the contract appointing a
custodian to hold all ROC securities in Taiwan. The Investment Manager has
applied for an investment permit as a qualified foreign institutional
investor which will permit the Investment Manager to make investments on
behalf of the Fund in Taiwan. It is anticipated that the approval for the
investment permit will be granted by the ROC SEC on or about December ,
1995.

Qualified foreign institutional investors who receive a permit may
invest between a minimum of US$5 million and maximum of US$200 million and
are permitted to remit an amount up to the full amount into the ROC within
six months of receipt of the investment permit. Total foreign investment
made pursuant to such guidelines was limited to a maximum of US$7.5 billion
until June 1995 when the ROC government eliminated that restriction. In
addition, under recently amended guidelines, a single qualified foreign
institutional investor is limited to holding a maximum of 7.5% of a company's
stock and aggregate foreign holdings acquired through the stock market cannot
exceed 15% of the company's issued shares. Qualified foreign institutional
investors are also required to submit to the CBC and the ROC SEC every month
a report of trading activities and status of assets under custody. Capital
remitted into the ROC under these guidelines may not be remitted out of the
ROC for a period of three months from the date such capital is remitted into
the ROC. Capital which is remitted out of the ROC may be remitted back into
the ROC within three months after the outward remittance without obtaining
ROC SEC approval. Capital gains and income on investments may be remitted
out of the ROC only after the conclusion of the qualified foreign
institutional investor's fiscal year. The ROC SEC is currently considering
easing certain regulations governing the remittance of funds into Taiwan, the
remittance of capital gains and investment out of Taiwan and restrictions on
percentage ownership of the securities of a TSE listed company. Currently,
qualified foreign institutional investors are permitted to invest in certain
ROC securities including, among others, equities listed on
the TSE or traded on the OTC market, units of mutual funds listed on the TSE,
listed equities placed by underwriters in public offerings, equities sold in
the initial public offering before listing and other securities approved by
the ROC SEC.

The liberalization allowing direct investment by qualified foreign
institutional investors has led to the creation of a number of funds which
invest in the ROC securities market. As of October 31, 1995, 128 qualified
foreign institutional investors had been approved by the ROC SEC.

Apart from the forms of investment by non-residents of Taiwan in the ROC
securities market described above, other forms of such investment continue to
require case-by-case authorization by ROC governmental authorities. Such
authorization has not in the past been generally available (other than, from
time to time, in relation to direct equity investment (other than on a
portfolio basis) in ROC enterprises by foreign companies or individuals).
The conduct of all securities business in the ROC is regulated by the ROC SEC
pursuant to the ROC Securities and Exchange Law. See "The Securities Market
of the ROC -- Regulatory Environment."

The ROC government has indicated that the next phase of its
liberalization policy would be to allow direct investment by foreign
individual investors, but no details have been made officially available.
This next phase could be implemented as early as February 1996 although no
formal timetable has been announced. As other alternatives for investment in
ROC securities by U.S. and other non-resident investors develop, such
liberalization may 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. Such liberalization, however, may also
result in broadened investor interest in, and greater liquidity of, the ROC
securities market.
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<PAGE>

THE SECURITIES MARKET OF THE ROC

The ROC government has taken a number of steps designed to upgrade the
quality and importance of the ROC securities markets. These steps include
incentives to encourage listing of shares on the TSE, the establishment of an
over-the-counter securities market, improvement of financial reporting
requirements, pressure on government-owned enterprises to use the securities
market to raise capital and efforts to broaden the scope and raise the
quality of institutions operating in the market. In addition, since the mid-
1980s, the government has revised its laws and regulations in a way that is
intended to facilitate the internationalization of the ROC's markets.

BACKGROUND AND DEVELOPMENT

The market had its origins in 1953, when the government issued land
bonds and distributed shares of four major government-owned enterprises to
landowners in exchange for land appropriated for distribution to tenant
farmers. As there was no formal stock exchange, scattered markets developed
and the authorities encouraged the formation of brokerage companies to trade
in these securities. The acceleration of economic growth in the late 1950s
led to the emergence of a considerable middle class with savings available
for investment, prompting the authorities to explore the feasibility of a
formal securities market to channel private savings into productive use. The
initial step toward creation of a formal securities market was taken in 1959
with the formation of a "Securities Market Research Group," followed in 1960
by the establishment of the ROC SEC to supervise all aspects of the
securities market. A year later, the TSE was formed, and operations
commenced in 1962.

The TSE is a corporation owned by government-controlled and private
banks and enterprises. The TSE is independent of those transacting business
through it, who pay a user's fee. Subject to limited exceptions, all
transactions in listed securities by brokers, traders and integrated
securities firms (firms which are permitted to combine the activities of
brokerage, dealing and underwriting) must be made through the TSE.

During the 1960s the TSE grew at a slow pace, largely due to lack of
experience among issuers and investors coupled with an unwillingness on the
part of ROC businesses to offer their shares to the public. By the end of
1972 there were 49 companies listed on the TSE, and the TSE Index stood at
228.03 (base average 1966). As of October 30, 1995, there were 331 listed
companies on the TSE, and the TSE Index closed at 4817.04.

Although the securities market in the ROC has generally grown with the
ROC's economic development, it has also exhibited a high degree of volatility
in response to political and economic events in the ROC and abroad. For
example, from January 1, 1986 to February 10, 1990, despite an overall gain
in the TSE Index of 1,102.5%, the TSE Index experienced numerous declines
that exceeded 15% of the then-existing market value. Thereafter, between
February and October 1990 the TSE Index fell from a high of 12,495 to a low
of 2,560, a decline of approximately 80%. From October 1, 1990 to May 9,
1991 the TSE Index rose from 2,560 to 6,305, an increase of 146%. Between
May 9, 1991 and October 22, 1991 the TSE Index fell from 6,305 to 4,088, a
decline of 35%. During the next three months the TSE Index rose by 32%, from
4,088 to 5,391 on January 30, 1992, then fell back to 3,135 on January 7,
1993. During the period from April 7, 1993 to December 31, 1993, the TSE
Index fluctuated between a low of 3,765 and a high of 5,813. Since January
6, 1994, the TSE Index has moved in a range between 4,503 and 7,184.

The instruments traded on the TSE have primarily been limited to common
stocks and bonds, but since 1988 certain new instruments have been
introduced. In 1988 the ROC Ministry of Finance permitted the issuance of
the ROC's first exchangeable bonds (such bonds being exchangeable at the
option of the bondholders into shares of companies controlled by the issuer).
There have also been offerings of domestic convertible bonds, convertible
preferred shares and convertible Eurodollar bonds. In February 1993 the ROC
government
25
<PAGE>
permitted the offering of Taiwan Depository Receipts, which are receipts that
represent foreign securities that are sold to Taiwanese investors although
none have been issued to date.

REGULATORY ENVIRONMENT

Background

Since 1981, the authorities have attempted to broaden the scope of
securities markets by encouraging qualified companies to list their shares on
the TSE through the introduction of a series of measures including tax
incentives, among which were a 15% reduction of corporate income tax for
listed companies (which was rescinded effective January 1, 1990) and tax
exempt status for capital gains on sales of shares. The number of new
listings has been rather modest, with a total of 154 since year-end 1983, due
primarily to the family-run character of many ROC companies and the
reluctance to cede control of management and to report earnings to investors.
The authorities have also sought to encourage publicly-owned entities to
engage in bond offerings and equity offerings. Other initiatives taken by
the authorities have included the establishment of an over-the-counter market
(see "--Over-the-Counter Market") and the creation of a third category of
listed stocks to accommodate listings by high-technology companies.

Recent Regulatory Changes

In 1983, the authorities began to take steps to facilitate investment in
the ROC securities market by institutional investors, both foreign and
domestic. Approval was granted for four joint venture securities investment
trust companies to act as investment managers. In addition, the first fund
permitting foreigners to invest in ROC securities was approved in September
1983 and subsequently raised a total of US$81 million in 1983 and 1984. In
1986, approval was granted for three additional foreign funds, which raised a
total of approximately US$75 million. At March 31, 1993, there were also
twenty closed-end and twenty-nine open-end domestic funds in the ROC, four of
which are dedicated to investment outside the ROC. See "--Market
Participants--Investors."

In late 1988, the ROC SEC promulgated regulations allowing local
securities investment advisory firms to advise clients on foreign
securities-related matters. A major amendment (the "Amendment") of the
Securities and Exchange Law was enacted in January 1988 and resulted in
significant changes to practices in the securities industry. The Amendment
was part of a government effort to make securities supervision in the ROC
similar to that of advanced financial markets and to modernize the securities
markets to meet the growing needs of investors.

The Amendment was the first major revision of the Securities and
Exchange Law since its enactment in 1968. It provides, among other things,
for new regulations relating to public offerings, measures to strengthen the
capital structure of issuers, civil liability for material misstatements or
omissions made by issuers, more stringent regulation of the securities
activities of officers, directors, supervisors and major shareholders of
issuers, regulations regarding tender offers and significant expansion of the
prohibitions against insider trading, including the imposition of treble
civil damages and criminal sanctions.

The Amendment permits the expansion of the role of securities firms by
authorizing the establishment of "integrated" securities companies that may
engage in brokerage, trading and underwriting of securities. Prior to
enactment of the Amendment, brokerage and trading functions could not be
performed by the same entity, although brokers and traders could obtain
authorization to engage in underwriting. The Amendment also provides for the
establishment of securities depositories and other securities-related service
firms. In addition, there is a provision which permits simplified clearing
and settlement procedures.

The ROC SEC has proposed an amendment to the Securities and Exchange Law
that would include provisions with respect to: increased cooperation between
the ROC SEC and foreign government or international
26
<PAGE>

institutions to better implement the increased internationalization of the
ROC securities market; expansion of the ROC SEC's inspection authority;
improvement of the securities custody system; implementation of an index
futures, government bond futures, securities futures and options market; and
an increase in enforcement powers under the Securities and Exchange Law.

Improvement of financial reporting standards has received extensive
attention from the authorities in an effort to improve the quality of
financial information and accounting practices in the ROC. In 1981, the
category of "public companies" was expanded to include, with limited
exceptions, all companies with paid-in capital of NT$200 million or more,
whether listed or not, thus making such companies subject to the more
extensive financial reporting requirements for "public companies." See "--
Market Participants--Issuers." By forcing the ROC's traditionally family-run
companies to modernize their accounting practices, the authorities hoped to
increase the number of companies listed on the TSE.

In an attempt to limit market volatility, the Ministry of Finance, in
September 1988, reimposed a tax on capital gains from sales of listed stocks.
The tax became effective on January 1, 1989 and included progressive rates
for individuals ranging from 6% to 40%. Due to difficulties in implementing
the capital gains tax, however, the government suspended it effective January
1, 1990 and increased the then existing transaction tax on securities
transactions (for stocks, from 0.3% to 0.6%). The securities transactions
tax was lowered on February 1, 1993 and securities transactions are now taxed
at a rate of 0.3% for stocks and 0.1% for corporate bonds, debentures and
Listed Beneficiary Certificates ("LBCs") (as more fully described below).
The Ministry of Finance is considering a proposal to reimpose the capital
gains tax and simultaneously reduce the securities transaction tax to 0.2%
for stocks. The proposal, however, is subject to legislative approval and it
cannot be predicted when or whether the Legislature will grant such approval.

Pursuant to the ROC income tax laws, there is an exemption from income
tax for dividends and interest income limited to NT$270,000. Also, pursuant
to the ROC Statute for Upgrading Industries shareholders of a company limited
by shares may defer the payment of income tax on dividends resulting from the
capitalization of retained earnings in certain specified circumstances until
such investor disposes of the dividended stock.

Pursuant to the Amendment, enabling rules were promulgated to allow
foreign investment in local securities firms and to permit foreign securities
firms, subject to ROC SEC approval, to establish branch operations. In
addition, an interbank US Dollar call market began operations in Taipei in
August 1989. The capital flow limitation for individuals has been raised
from US$1 million to US$5 million per year, while the limit for businesses
has been raised to US$ 10 million per year. The total capital inflow ceiling
for foreign institutional investors has been raised as well. On December 28,
1990, the Executive Yuan of the ROC approved guidelines drafted by the ROC
SEC which allow direct investment in ROC securities by certain qualified
foreign institutional investors, subject to certain restrictions. See
"Foreign Investment and Exchange Controls in the ROC." Since enactment of
the Amendment, over 20 foreign firms have invested in local securities firms
which engage in brokering, dealing and underwriting of local securities and
two foreign securities firms have received approval to establish (and have
established) branch offices and engage in brokerage of foreign securities.
One of the two later closed its branch office due to lower-than-expected
revenue generation.

Since 1988 certain new instruments have been introduced on the TSE. In
1988 the Ministry of Finance permitted the issuance of exchangeable bonds
(such bonds being exchangeable at the option of the bondholders into shares
of companies controlled by the issuer). There have also been offerings of
domestic convertible bonds, convertible preferred shares, and convertible
Eurodollar bonds. In February 1993 the ROC government permitted the offering
of Taiwan Depository Receipts, which are receipts that represent foreign
securities that are sold to Taiwanese investors although none have been
issued to date.

In April 1992, the ROC SEC promulgated regulations and amended the same
later, permitting TSE-listed and OTC-traded companies, upon approval by the
ROC SEC, to sponsor the issue and sale to foreigners
27
<PAGE>

of depositary receipts evidencing shares of such companies. The approval by
the ROC SEC will be granted in respect of a fixed number of depositary
receipts which, except in connection with stock dividends and distributions,
the exercise of pre-emptive rights by existing depositary receipt holders in
the event of capital increases for cash and deposits of outstanding common
shares, may not be increased without separate ROC SEC approval. In February
1993, the ROC SEC agreed to permit the listing on the TSE of ROC depositary
receipts, which are receipts that represent shares of foreign issuers that
are sold to Taiwanese investors. In August 1995, the ROC SEC significantly
eased the restrictions on foreign institutional investors' qualification in
both the duration and asset requirements with respect to insurance companies,
investment and fund management companies, pension funds, foreign government
investment arms, and investment banks. See "--The Primary Market--Equity
Issues."

Securities and Exchange Commission

The ROC SEC has been under the jurisdiction of the ROC Ministry of
Finance since 1981. The ROC SEC has extensive regulatory authority over
companies listed on the TSE and unlisted public issuing companies generally,
including ROC companies whose capital exceeds the currently specified minimum
amount of NT$200 million. Such companies are generally required to obtain
approval from, or registration with, the ROC SEC for all securities
offerings. The ROC SEC has promulgated regulations requiring, unless
otherwise exempted, periodic reporting of financial and operating information
by all listed companies. In addition, the ROC SEC is responsible for the
establishment of standards for financial reporting and carries out licensing
and supervision with respect to the other participants in the ROC securities
market.

The ROC SEC has responsibility for implementation of the Securities and
Exchange Law and for overall administration of governmental policies in the
ROC securities market.

The Securities and Exchange Law prohibits market manipulation. It also
permits an issuer to recover certain short-term trading profits made through
purchases and sales within 6 months by directors, managerial personnel,
supervisors and 10% or above stockholders of the issuer. The Securities and
Exchange Law prohibits trading by "insiders" based on non-public information
that materially affects share price movement. Pursuant to the Securities and
Exchange Law, the term "insiders" includes directors, supervisors, managers
and 10% stockholders of the issuing company and their spouses, minor children
and nominees, any person who has learned such information due to an
occupational or controlling relationship with the issuing company and any
person who has learned such information from any of the foregoing. Sanctions
include prison terms. In addition, damages may be awarded to persons injured
by the transaction. Notwithstanding these regulatory requirements, there
have been recurring press reports on insider trading and manipulation of
stock prices in the ROC.

The Securities and Exchange Law also imposes criminal liability on
certain public accountants and lawyers who make false certifications in their
examination and audit of an issuer's contracts, reports and other evidentiary
documents that are related to securities transactions. ROC SEC regulations
require that financial reports of listed companies be audited by accounting
firms consisting of at least three certified public accountants and be signed
by at least two certified public accountants.

The Securities and Exchange Law was amended in January 1988 to provide
for, among other things, new regulations relating to public offerings of
securities; measures to strengthen the capital structure of issuers; civil
liability for material misstatements or omissions made by issuers; more
stringent regulation of the securities activities of officers, directors and
major stockholders of issuers; regulations regarding tender offers; and a
significant expansion of the prohibitions against insider trading, including
the imposition of treble civil damages and criminal sanctions.

The ROC SEC does not have criminal or civil enforcement powers under the
Securities and Exchange Law. Criminal actions may be pursued only by the
district prosecutors located in the district where the
28
<PAGE>

defendant is domiciled or where the violation occurred. Under ROC law, civil
actions may only be brought by plaintiffs who assert that they have suffered
damage. The ROC SEC is directly empowered to curb abuses and violations of
applicable laws and regulations only through administrative measures such as
issuance of warnings, imposition of administrative fines and revocation of
licenses.

In addition to providing a market for securities trading, the TSE has
primary responsibility for reviewing applications by ROC issuers to list on
the TSE. However, the ROC SEC also reviews all securities offerings by
listed companies. If issuers of listed securities violate relevant laws and
regulations or encounter significant difficulties, the TSE may, with the
approval of the ROC SEC, delist securities of such issuers.

The ROC SEC has a Chairman, two Vice-Chairmen and nine to eleven
commissioners among whom two to three serve full-time. The part-time
commissioners may be from the Ministry of Finance, the CBC, the Ministry of
Economic Affairs or other governmental agencies.

Financial Reporting

Over the years, the ROC SEC, which administers the financial reporting
system, and the TSE have taken steps to improve the quality of financial
reporting and of internal financial controls in ROC companies.

The Securities and Exchange Law imposes criminal liability on
accountants and lawyers who are knowingly involved in the preparation of
fraudulent financial reports and other related documents. The ROC SEC
promulgated regulations in July 1983 requiring that financial reports of
listed companies be audited by accounting firms consisting of at least three
certified public accountants and be signed by at least two certified public
accountants, and establishing standards for audit and budget systems of
listed companies. In addition, the ROC SEC has acted to strengthen
professional standards in the accounting profession.

The 1988 Amendment established a new financial reporting system for
corporate issuers. Under this system, issuers are subject to more extensive
disclosure requirements and are required to report more frequently than they
have been in the past. For example, companies listed on the TSE are required
to submit audited semiannual and annual financial reports and first and third
quarter financial reports that have been reviewed by their respective
independent auditors. All publicly-held issuers also must submit a monthly
operating statement before the tenth day of the following month. In
addition, events that may have a significant impact on the financial
condition of the issuer trigger financial reporting requirements. Public
disclosure and reporting requirements regarding share ownership have been
imposed on key officers, directors, supervisors and major shareholders of
issuers. Such disclosure is required by the fifteenth day of the following
month. Calculation of holdings includes shares held on behalf of another by
a person's spouse, children or nominees. Transfer of such shares is
partially restricted.

TAIWAN STOCK EXCHANGE

In addition to providing a market for securities trading, the TSE has
primary responsibility for reviewing applications by ROC issuers to list on
the TSE. The TSE also has primary responsibility for the delisting of
securities, a step which is taken on the basis of various adverse factors,
including financial deterioration of the issuer.

The TSE is a corporation with a capitalization of NT$2.9 billion at the
end of 1992, and is owned 61% by private banks and enterprises and 39% by
government-operated banks and enterprises. The TSE is managed by a board of
directors elected by and from among the shareholders. The Chairman,
President and other executive officers of the TSE direct day-to-day
operations through a number of operational departments. Selection of the
TSE's top management is influenced by the ROC SEC, which also monitors the
TSE's operations.
29
<PAGE>

Both equity and debt securities are traded on the TSE, which is the
ROC's only stock exchange. The exchange began operations in 1962 with 18
listed companies having an aggregate market value of NT$6.84 billion. There
were 331 listed companies at the end of August 1995. As of the end of August
1995, the total market value of shares listed on the TSE was NT$4,192
billion. At December 31, 1993, the aggregate market value of listed equity
securities was approximately NT$5,145.4 billion (US$193.3 billion) and for
the period from January 1 to December 31, 1993, the average daily trading
value was NT$31.2 billion (US$1.2 billion). The listed bond market remains
small in terms of trading volume: at December 31, 1993, aggregate market
value of listed debt securities was approximately NT$701.7 billion (US$26.4
billion) and for the period from January 1 to December 31, 1993, the average
daily trading value was approximately NT$8.9 million (US$0.3 million).

OVER-THE-COUNTER MARKET

An over-the-counter ("OTC") market was established in September 1982 on
the initiative of the ROC SEC. This market is limited to unlisted equity
securities, corporate bonds, bank debentures and government bonds. The value
of all bonds outstanding in the OTC market grew from NT$69.80 billion at the
end of 1983 to NT$809.07 billion at December 31, 1994 while the total trading
value of bonds on the OTC market grew from NT$112.04 million in 1983 to
NT$15,973 billion in 1994. According to the OTC, as of June 30, 1995 the
value of all bonds outstanding was NT$806.3 billion, and the total trading
value of bonds for the first six months of 1995 was NT$90.39 billion. In
early 1988, the ROC SEC promulgated regulations designed to encourage trading
of unlisted equity and debt securities of companies whose securities are not
qualified for listing on the TSE. To become a quotable security, the issuer
must meet certain requirements, including having a paid-in capital of at
least NT$50 million. In addition, the security must be recommended by two
members of the Taipei Securities Dealer Association, each of which must be
qualified as both an underwriter and a trader, who will serve as market
makers. As of June 30, 1995, only 20 companies had offered their equity
securities to be traded on the OTC market. It is expected that some small
and medium-size companies, which at present have limited funding channels and
are too small to list on the TSE, will utilize the OTC market as a source of
funds in the future.

FUTURES MARKET

In July 1992 the ROC government promulgated the Foreign Futures Trading
Law pursuant to which ROC investors will be able to trade certain futures
contracts on specified futures exchanges in the United States, Britain,
France and Singapore through licensed futures brokerages in Taiwan. As of
August 31, 1995, 34 brokers' licenses had been issued and one broker's
license that was applied for by a foreign applicant was still pending. The
ROC SEC has proposed to the Legislative Yuan an amendment to the Securities
and Exchange Law which provides for the formation of a domestic securities
futures market to trade options, indexed futures, government bond futures and
other securities futures. In addition, the ROC SEC has proposed to the
Ministry of Finance a draft of a Futures Trading Law, which would supersede
the Foreign Futures Trading Law and would provide for the formation of a
comprehensive futures market through a merger of the domestic and
international futures markets. It is expected that this amendment will be
submitted to the Legislative Yuan within the next year. There can be no
assurance that either the amendment to the Securities and Exchange Law or the
new Futures Trading Law will be implemented, nor can the impact of any
futures trading on the Fund or the ROC securities markets be predicted at
this time.

MARKET PARTICIPANTS

Prior to the 1988 Amendment brokerage and trading activities were
separated, but brokers and traders could obtain authorization to engage in
underwriting. Brokers execute transactions only for their customers, and not
for their own account; traders execute transactions only for their own
account; and underwriters engage in the underwriting, typically on a "firm
commitment," "standby commitment" or "best efforts" basis, of securities of
companies being listed on the TSE and, to a lesser extent, of rights
offerings of already listed companies.
30
<PAGE>
The 1988 Amendment allows the establishment of integrated securities
companies combining brokerage, trading and underwriting, which is similar to
the current practice in the United States. The purpose of this change was to
bring greater stability and sophistication to the securities markets by
creating a more effective underwriting capability.

Brokers and Traders

As of May 31, 1994 there were 249 licensed brokers, 18 of which were
banks holding brokerage licenses.

There were 68 companies licensed as traders as of May 31, 1994. The
volume of trading on the TSE in 1992 attributable to traders was
approximately 0.94%.

Underwriters

As of May 31, 1994, approximately 56 firms were licensed to act as
underwriters. Of these, 23 are financial institutions which have received
special dispensation to engage in underwriting activities. Ten of these 23
are government-owned.

Underwriting is accomplished either on a stand-by basis, whereby the
underwriter is obligated at the end of the underwriting period to buy any
unsold securities, on a best efforts basis, whereby the underwriter is
entitled to return unsold securities to the issuer at the end of the
underwriting period, or on a firm commitment basis, whereby the underwriter
pre-purchases all or a portion of an issue and resells the securities for its
own account or reserves the right to subscribe for a certain number of
securities pursuant to an underwriting agreement.

Margin Lenders (Securities Finance Institutions)

Prior to September 1990 legal margin lending was conducted solely by a
single securities finance institution, Fu Hwa Securities Financing Enterprise
("Fu Hwa"). However, as a result of amendments to the ROC's securities
regulations in September 1990 and June 1992, securities brokers meeting
certain criteria, which currently include a minimum paid-in-capital of NT$800
million, have been entitled to engage in the securities margin lending
business after obtaining approval from the ROC SEC. As of May 31, 1994, 47
securities firms had received permission from the ROC SEC to provide margin
lending.

Interest rates on margin loans are determined by Fu Hwa or each
permitted securities firm, and generally follow bank short-term rates. In
the past, the authorities have occasionally adjusted margin rates to
stimulate the market during downturns and to dampen an overactive market.

Margin lending has become increasingly popular over the past few years.
As a result, some brokers have disregarded the restrictions on margin lending
and engaged in unauthorized securities financing activities usually at much
higher rates of interest than those charged by the government-licensed
lenders. In December 1987, a leading stock speculator defaulted under one of
these financing arrangements. The event prompted an investigation of the
practice of unauthorized margin lending and also focused attention on market
rules and ethics. During 1990, two brokerage houses were suspended from
operation for engaging in illegal margin lending activities and two other
brokerage houses had their licenses revoked as a result of such activities.
In September 1992, another stock market speculator defaulted on trades
amounting to over NT$9 billion, the largest default ever to occur in the
ROC's stock market. The market fell by almost 10% over an eleven-day period
following this development. As a result, the government cracked down on the
underground financial network and indicted many financiers and speculators.
31
<PAGE>

Investors

Individual investors constitute the largest single group of shareholders
in listed companies on the TSE, and at year-end 1993, outstanding shares of
such listed companies were held 59% by individuals and 12% by the government
and its agencies. From 1966 to the end of 1993, government shareholding fell
from 43% to 12% of shares of listed companies. Corporations have gradually
become a more significant shareholder group, holding 16% of listed shares at
the end of 1993 as against approximately 9% at the end of 1966.

The authorities have acted in several ways to expand the role of
institutional investors. Approval has been granted for six foreign funds
whose combined net asset value totalled approximately NT$16.1 billion at
March 31, 1994. The formation of thirteen regulated open-end and twenty
closed-end domestic funds was approved by the ROC SEC, including eleven
closed-end funds launched in early 1993 by the eleven newly established
securities investment trust corporations. By March 31, 1994, there were
twenty closed-end domestic funds and twenty-nine open-end domestic funds in
the ROC. Four of the open-end funds are dedicated to investment outside the
ROC. The combined total assets of the 49 foreign and domestic funds that
were operational as of March 31, 1994 were approximately NT$109.9 billion.
The authorities have also promoted the establishment of a domestic securities
investment trust industry, with approval granted for many securities
investment trust companies at the end of December 1993. In addition, certain
qualified foreign institutional investors can directly invest in the ROC
securities market with the approval of the ROC SEC. See "Foreign Investment
and Exchange Controls in the ROC."

<TABLE> SHAREHOLDER CHARACTERISTICS OF LISTED COMPANIES
<CAPTION> 1989 1990 1991 1992 1993
<S> <C> <C> <C> <C> <C>
Government . . . . . . . . . . . . . . . . . 21.56% 18.01% 15.51% 11.90% 11.62%
Financial Institutions 4.74 4.68 4.08 4.54 4.28

Trust Funds . . . . . . . . . . . . . . . . 0.75 0.96 1.52 1.14 1.42
Corporations . . . . . . . . . . . . . . . . 13.09 14.06 14.61 16.34 15.95
Other Juridical Persons . . . . . . . . . . 3.52 2.68 2.85 2.70 2.51

Individuals . . . . . . . . . . . . . . . . 46.72 51.11 53.55 55.84 57.16
Foreigners:
Trust Funds . . . . . . . . . . . . . . . . 0.42 0.19 0.27 0.45 0.52
Financial Institutions . . . . . . . . . . . 0.06 0.05 0.05 0.02 0.02

Juridical Persons . . . . . . . . . . . . . 5.28 4.83 4.62 4.58 4.25
Individuals . . . . . . . . . . . . . . . . 3.86 3.43 2.94 2.49 2.27
Total . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0% 100.0%

___________
Source: Derived from data published in TSE Fact Book, 1994.
</TABLE>

32
<PAGE>

<TABLE> AMOUNTS INVESTED BY SHAREHOLDERS IN LISTED COMPANIES--1993
<CAPTION> Percentage Number of
Investment Value (NT$) of Total Shareholders
<S> <C> <C>
1 -- 9,999 . . . . . . . . . . . . . . . . . . . . . . . . 39.2% 2,946,891
10,000 -- 50,000 . . . . . . . . . . . . . . . . . . . . . . . 47.1 3,542,792
50,001 -- 100,000 . . . . . . . . . . . . . . . . . . . . . . . 7.6 570,686
100,001 -- 150,000 . . . . . . . . . . . . . . . . . . . . . . . 2.3 169,966
150,001 -- 200,000 . . . . . . . . . . . . . . . . . . . . . . . 1.2 90,381
Over 200,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.7 204,312
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% 7,525,028
____________
Source: Derived from data published in TSE Fact Book, 1994.
Totals do not add due to rounding.
</TABLE>

Issuers

Companies in the ROC have in the past made limited use of the securities
markets and have met their financing needs primarily through short-term
loans, which are obtained either through the official banking system or
through the unofficial "curb" market. In recent years, the authorities have
adopted extensive measures designed to encourage more companies to list their
securities on the TSE (see "--Background and Development" above).
Nevertheless, companies remain reluctant to list due to the owners' fear of
losing corporate control and reluctance to publicly disclose corporate
information.

Under present law, with limited exceptions, a ROC company becomes
subject to certain regulatory requirements once its paid-in capital equals or
exceeds NT$200 million. Irrespective of the number of shareholders, it must
become a "public company' under ROC regulations before it will be permitted
to increase its capital. As such, it must file financial reports with the
ROC SEC periodically, publish such reports in local newspapers and receive
ROC SEC approval or file a report with ROC SEC for all new issues of shares.

A specified percentage of the shares of a "public company" must also be
held by the company's directors and supervisors. The percentage required
depends on the amount of the company's paid-in-capital. For a "public
company" with a paid-in capital of less than NT$300 million, 15% of the
company's shares must be held by its directors and 1.5% by its supervisors.
If the company's paid-in capital is more than NT$300 million but less than
NT$1 billion, the company's directors must own 10% and its supervisors 1%.
As a company's paid-in capital increases, the percentage of shares required
to be held by the company's directors and supervisors decreases further.
(Under ROC law, supervisors are elected by shareholders of the company and
are responsible for overseeing the activities of the board of directors.) As
of December 31, 1994 the number of "public companies" was 1,244 of which 313
were listed on the TSE and 14 were admitted to trading in the OTC market.

In order to list its securities (stocks or bonds) on the TSE, an issuer
must meet specified listing criteria (see "The Secondary Market--Listing
Criteria") and receive approval from the ROC SEC and the TSE. Concurrently
with the listing, a specified percentage of the issuer's outstanding shares
(or newly issued shares in an equivalent amount) must be distributed by means
of an underwritten offering conducted in accordance with ROC SEC regulations,
with sales made pursuant to a prospectus. See "The Primary Market--Equity
Issues--Offerings in Conjunction with New Listings." Once a company's stock
has been listed, additional capital is generally raised through rights
offerings to existing shareholders.

33
<PAGE>

In addition to issuing shares to raise new money in the manner described
above, companies frequently make free share distributions to existing
shareholders. These distributions are capitalized out of legal reserves,
capital reserves or retained earnings and are the equivalent of stock
dividends in the United States. The Amendment gives the ROC SEC authority to
regulate these types of distributions. In recent years, the number of shares
issued in free share distributions has often been greater than the number of
shares issued in rights offerings. Because of the prevalence of free share
distributions, cash dividend payments by ROC companies are low in comparison
to U.S. companies.

A TSE-listed company is subject to more extensive continuing disclosure
requirements than unlisted companies. In addition to an annual financial
report, a TSE-listed company must publish and file with the ROC SEC and the
TSE semi-annual and quarterly financial reports and monthly statements of
gross revenues and contingent liabilities. It must also report any material
corporate event to the ROC SEC and the TSE.

THE PRIMARY MARKET

Until recently the number of new issues in Taiwan has been low. Public
offerings generally were made only in conjunction with new listings on the
TSE, which totalled 226 in the period from January 1, 1985 through August 31,
1995. There were 18 delistings during the same period.

Under the latest amendment (on May 2, 1995) to the rules issued by the
ROC SEC in April 1991, TSE-listed companies generally are no longer required
to obtain prior approval from the ROC SEC for capital increases for cash.
Instead, companies seeking a capital increase are required to file a
prospectus and other required documents with the ROC SEC and TSE and fulfill
a 15-day waiting period during which time additional information or
clarification may be requested. Formal ROC SEC approval continues to be
required, however, if the offering is the issuer's initial public offering or
if certain specified conditions exist that would warrant closer scrutiny by
the ROC SEC.

Distribution of shares by underwriters may be effected by (i) a public
offering, (ii) an auction and a public offering or (iii) a quotation and a
public offering, all of which are intended to ensure a broad distribution of
shares.

Equity Issues

Equity issues have generally been effected either by underwritten public
offerings made in conjunction with the issuer's listing on the TSE or as
rights offerings to existing shareholders of listed companies. The
prevalence of rights offerings is attributable to the fact that shareholders
are granted preemptive rights under the ROC Company Law. In addition, a
small number of equity issues have been effected since 1988 by underwritten
public offerings of securities to be traded on the OTC market. In addition
to issuing shares for cash, companies frequently make free share
distributions to existing shareholders, which are the equivalent of stock
dividends in the United States.

34
<PAGE>
The following table sets forth data for new issues of equities on the
TSE:

<TABLE>
<CAPTION> EQUITIES
(NT$ Million)
Rights
Offerings Total Raised
Initial by Listed from New Free Share
Year Offerings Companies Investment Distributions
<S> <C> <C> <C> <C>
1985 . . . . . . . . . . . . . . . 5,361.9 4,983.3 10,345.2 13,318.8
1986 . . . . . . . . . . . . . . . 4,114.5 9,301.2 13,415.7 12,333.8
1987 . . . . . . . . . . . . . . . 17,936.9 13,791.3 31,728.1 18,165.6
1988 . . . . . . . . . . . . . . . 22,397.2 9,156.9 31,554.1 31,340.2
1989 . . . . . . . . . . . . . . . 22,563.1 16,344.2 38,907.3 47,780.8
1990 . . . . . . . . . . . . . . . 19,047.2 12,757.9 31,805.1 64,316.6
1991 . . . . . . . . . . . . . . . 40,079.4 13,583.2 53,662.6 57,512.2
1992 . . . . . . . . . . . . . . . 34,958.4 14,927.0 49,885.4 69,548.9
1993 . . . . . . . . . . . . . . . 45,796.0 19,620.0 65,419.0 82,347.0
1994 . . . . . . . . . . . . . . . 51,531.0 31,656.0 83,199.0 111,063.0
__________
Source: ROC SEC, 1985 through 1994 SEC Statistics

</TABLE>

Offerings in Conjunction with New Listings. In conjunction with an
issuer's listing on the TSE, the issuer must, if it does not meet certain
shareholder diversification requirements, sell a specified percentage of its
outstanding shares by means of an underwritten public offering. The offering
is the final step in the listing process, which begins with written
application to the TSE and ROC SEC, followed by review by the TSE of the
company's financial reports and general condition, approval by the TSE and,
finally, approval by the ROC SEC. ROC SEC approval is contingent upon
arrangements having been made for the underwriting of the issue. See "--
Market Participants--Underwriters." The issue price is determined by
negotiation between the underwriter and the issuer, under the guidance of the
ROC SEC. The basis of price determination must be filed with the ROC SEC
prior to the public offering.

Distribution of shares by underwriters may be effected by (i) a public
offering, (ii) an auction and a public offering, or (iii) a quotation and a
public offering, all of which are intended to ensure a broad distribution of
shares. The underwriting commission for both stocks and bonds is subject to
a maximum of 5% in the case of underwriting on a firm or stand-by commitment
basis and 2% in the case of underwriting on a best efforts basis. In recent
years actual underwriting commissions have generally been approximately 0.5%
but, for large amounts, in the range of 0.1% to 0.2%.

A prospectus is required to be delivered to investors and must contain,
among other things, audited financial statements and an operational report
for the most recent three fiscal years, capital and share data, a description
of the issuer's general condition and business, and a statement of business
plans for the coming years and of the issuer's general prospects.

In order to reduce volatility in trading of newly listed shares, the TSE
may require an undertaking by each of the issuer's directors, supervisors and
10% shareholders to deliver half of such person's holdings to the central
depository to be held for a period of two years following the listing and not
to sell more than 20% of each such person's holdings within any six-month
period after that two-year period.

35
<PAGE>
Offerings in Conjunction with Pre-emptive Rights. As a general rule,
ROC Company Law grants pre-emptive rights to existing shareholders in new
offerings of shares. Prior to 1988, companies could sell shares in rights
offerings to existing shareholders only at par value, which was typically
less than the market price. Because of the attractive price, such offerings
were generally bought up in their entirety by existing shareholders, and
offered shares were rarely available for purchase on the market. In 1988
shareholders' statutory preemptive rights were limited by a requirement that
public companies (including companies listed on the TSE or traded in the OTC
market) that intend to make new share offerings for cash, except in certain
limited circumstances or when exempted by the ROC SEC, set aside a minimum of
10% of such new shares for issue at the offering price. The ROC Company Law
also requires that, subject to limited exceptions, 10% to 15% of new share
issuances be reserved for purchase by the issuer's employees. The intent of
the law is to allow broader participation in public companies.

New Securities Instruments. The instruments traded in the ROC
securities market have primarily been limited to common stock and bonds.
However, recent legislative revisions and the present attitude of the ROC SEC
regarding liberalization of the securities regulations have encouraged some
innovation. For example, in February 1988, a TSE listed company issued bonds
exchangeable into shares of another TSE-listed company in which it owned
common shares. This was the first offering of a convertible security by a
company listed on the TSE. The same company has made an offering of
preferred shares which are convertible into common shares, and, in December
1989, made an offering of Eurodollar bonds also convertible into common
shares (if the ROC law permits such conversion). As of November 19, 1993,
eight additional TSE-listed companies have issued similar convertible
Eurobonds. Twenty TSE-listed companies have issued domestic convertible
bonds and the government is now considering revising the relevant laws to
expedite the process for converting Eurodollar bonds into shares of the
issuer. Another example of innovation is the use of GDRs in raising capital.
In 1992, four listed companies, China Steel, Asia Cement, President
Enterprises and Chia Hsin Cement, offered their shares in the form of GDRs to
foreign investors. The ROC SEC has also agreed to permit the listing on the
TSE of the ROC depositary receipts which would represent shares of foreign
issuers. Continued development of additional types of instruments is
anticipated. In addition, the ROC SEC is considering the establishment of a
domestic futures market which may include, among other things, futures
contracts on the TSE Index. There can be no assurance that this will occur
and if so, what impact it will have on the Fund or the ROC securities market.

Listed Beneficiary Certificates and Other Instruments. LBCs are
certificates representing the shares of closed-end investment funds, which
may be listed on the TSE subject to ROC SEC and TSE approval. LBCs can be
issued only by closed-end funds established by the fifteen securities
investment trust companies in the ROC (one of which is the Investment
Adviser) for investment in equity securities listed on the TSE or in any debt
securities. LBCs are traded on the TSE in the same manner as other TSE-
listed securities. As of September 30, 1995 there were 18 closed-end
investment funds for which LBCs were traded. TSE-listed companies have
engaged in offerings of domestic convertible securities and preference
shares. Continued development of additional types of instruments, such as
Taiwanese Depositary Receipts, is anticipated. In particular the ROC SEC is
considering the establishment of a domestic futures market, which may
include, among other things, futures contracts on the TSE Index. There can
be no assurance that this will occur and, if so, what impact it will have on
the Fund or the ROC securities market. In recent years TSE-listed companies
have also engaged in offshore offerings of convertible securities and global
depositary receipts which are not listed on the TSE. See "Foreign Investment
and Exchange Controls in the ROC."

Debt Issues. Under the latest amendment (on May 2, 1995) to the rules
issued by the ROC SEC in April 1991, no prior ROC SEC approval is required
for the issue of fixed income bonds and convertible bonds in the domestic
market. An issuer of bonds is required to file a prospectus and other
required documents with the ROC SEC and fulfill a 15-day waiting period
during which additional information or clarification may be requested. Under
the Guidelines Governing Offerings and Issues of Securities by Issuers, only
TSE-listed and OTC-traded companies are permitted to issue convertible bonds
and at least 60% of convertible bond offerings must be sold in an
underwritten public offering. There is no such restriction on fixed income
bond offerings
36
<PAGE>
which may be sold entirely to prearranged investor groups. Government bonds
are issued through government-owned banks, which in turn can effect
distribution through sub-agent banks and the post office system. State
enterprises are subject to less stringent disclosure requirements in the
offering prospectus. The Ministry of Finance and the CBC have issued over
NT$560 billion in government bonds since 1991 with proceeds to be used to
fund a portion of the Six-Year Plan.

ROC companies have shown a strong preference for bank loans as a source
of debt funding, and until 1988 the government had not often turned to the
bond market. The scope of the listed bond market has been further limited by
the fact that bonds can be issued and traded outside the TSE, in particular
on the OTC, and that bonds issued by the ROC government have typically been
purchased by financial institutions that hold them to maturity to meet
reserve requirements. The ROC government, however, contributed to the
development of the bond market beginning in September 1988 by issuing bonds
to the public for the purpose of financing acquisitions of land needed for
certain major government development projects. In addition, in 1991 and 1992
the government issued bonds in an amount equal to NT$206.5 billion and NT$250
billion, respectively, in part to fund its Six-year National Development Plan
(the "Six-Year Plan"). In addition to the increased use of the bond market
by the ROC government, since 1990 there have been 22 domestic convertible
bond issues and 29 overseas convertible bond issues by ROC companies. See "-
- -Taiwan Stock Exchange" and "Foreign Investment and Exchange Controls in the
ROC".
37
<PAGE>
The following table sets forth information with respect to bond issues
from 1985 to 1994:

<TABLE>
<CAPTION> All Bonds// Government Bonds/(1)/ Corporate Bonds
Total Issued Issued Issued
Number Amount Number Amount Number Amount
of (NT$ of (NT$ of (NT$
YEAR Issues Million) Issues Million) Issues Million)
<S> <C> <C> <C> <C> <C> <C>
1985 . . . . . . 19 30,545 19 30,545 0 0
1986 . . . . . . 95 433,475 95 433,475 0 0
1987 . . . . . . 146 318,495 113 310,570 33 7,925
1988 . . . . . . 39 122,486 36 120,558 3 2,000
1989 . . . . . . 18 55,816 15 84,196 3 1,600
1990 . . . . . . 3 14,500 1 12,000 2 2,500
1991 . . . . . . 16 211,550 7 206,500 9 5,050
1992 . . . . . . 18 236,790 8 230,000 10 6,790
1993 . . . . . . 8 237,000 8 237,000 0 0
1994 . . . . . . 6 149,500 5 148,000 1 1,500
____________
Note: (1) Includes The Central Bank Savings Bonds and Interest Bearing Negotiable Certificates of
Deposit.

Source: TSE, Statistical Data 1993 and 1994

</TABLE>

THE SECONDARY MARKET

General

Many listed companies have a relatively small portion of their shares in
public hands, as families or small groups hold majority interests. Trading
in the secondary market is largely dominated by individual investors. In the
case of stocks, the turnover rate (shares transacted/shares listed) is
relatively high by world standards and the turnover rate reached 590% in
1989. Turnover rates were 161%, 252% and 366% in 1992, 1993 and 1994,
respectively. By comparison, the turnover rates on the New York Stock
Exchange for such years were 48%, 54% and 54%, respectively. The high
turnover rate on the TSE is a function of the short-term, speculative nature
of the market, and both illegal margin lending and manipulative practices
such as "wash sales" (the buying and selling of stocks on the same day solely
to generate activity) have contributed to this phenomenon. The turnover rate
is significantly lower for bonds, which represent a rather small portion of
total market capitalization. In 1992, 1993 and 1994 the turnover rates for
bonds (total value of bonds traded on TSE/total value of TSE-listed bonds)
were 0.72%, 0.42% and 0.98%, respectively.

The total trading value of stocks in 1987 was NT$2,668.6 billion and
grew to an all-time high of NT$25,408 billion in 1989. Total trading values
was NT$9,056.7 billion in 1993. The daily average trading value in 1993 was
NT$31 billion, versus daily average trading value of NT$68 billion, NT$34
billion and NT$21 billion in 1990, 1991 and 1992, respectively.

Listing Criteria

The TSE has established specific requirements for listing based on the
number and distribution of shareholders, the amount of capital, profitability
and capital structure.

38
<PAGE>
For a company to be listed as a First Category company, it must have
been established for at least five fiscal years and have paid-in capital of
at least NT$600 million for the latest two fiscal years. To ensure broad
distribution of shares, there must be at least 2,000 shareholders. At least
10 million shares (or 20% of total outstanding shares to be listed) must be
held by the public and there must be at least 1,000 smaller shareholders with
holdings of 1,000 to 50,000 shares each. In addition, the ratio of net worth
(before distribution of dividends) to total assets for the most recent fiscal
year (except for certain limited exceptions) must exceed 33% and each of the
company's pre-tax net income and operating income must be positive for the
past three fiscal years and have either (i) exceeded 10% of paid-in capital
for the past two years or (ii) been not less than NT$120 million and exceeded
6% of paid-in capital for the past two years or (iii) met the test in (i) in
one of the past two years and the test in (ii) in the other of the past two
years or (iv) must have exceeded 5% of the paid-in capital for the previous
five fiscal years.

Requirements for listing as a Second Category company are less
stringent. The Second Category company must have been established for at
least five fiscal years. The paid-in capital requirement is only NT$300
million. Although the requirement is the same with respect to the number of
publicly-held shares (10 million shares or 20% of total outstanding shares to
be listed), the number of shareholders can be less (1,000 instead of 2,000)
and only 500 smaller shareholders are required. There is no net worth/total
asset test for a Second Category company and the income tests require taxable
net income and operating income to be positive for the most recent fiscal
year and have either (i) exceeded 10% of paid-in capital for the past year or
(ii) been not less than 6% for each of the past two years or averaged not
less than 6% for the past two years, with the most recent year greater than
the previous year. At September 30, 1995 there were 210 First Category
companies, 112 Second Category companies and 8 "full delivery" companies (as
described below) listed on the TSE. The shares of full delivery companies
are subject to settlement and other restrictions.

In 1985 the TSE established a Third Category, which has less stringent
requirements especially designed to encourage the listing of "high-
technology" enterprises. For a "high-technology" enterprise (as defined by
the competent government agency) to be listed as a "Category C" company, its
products must be certified by the ROC government as having been successfully
developed and as having an available market. In addition, the Company must
have paid-in capital of at least NT$200 million, and the issue must be
underwritten on a firm commitment basis (with at least 50% of the shares
subscribed for by the underwriters). As of September 30, 1995 there were 210
First Category companies, 122 Second Category companies and one Third
Category company listed on the TSE.

If issuers of listed securities violate relevant laws and regulations or
encounter significant difficulties, the TSE may, with the approval of the ROC
SEC, delist securities of such issuers. Upon the expiration of the issuance
period or the termination of the listing contract, issuers may also, subject
to ROC SEC approval, apply for delisting of their securities.

To date only ROC companies have listed their securities on the TSE
although effective February 19, 1993 the ROC SEC approved regulations
permitting foreign issuers to list their securities on the TSE through the
use of depositary receipts that would be similar to the American Depositary
Receipts listed on the NYSE.

Mechanics of Trading on the TSE

Price and Volume Limits. In order to reduce market volatility, the TSE
has placed limits on large volume transactions and on the range of daily
price movements. Complex restrictions are imposed on transactions which
include 500 trading lots or more. These restrictions are not expected to
have a substantial impact on the Fund. Currently, fluctuations in price are
restricted to 7% above and below the previous day's closing price (or
reference price set by the TSE or OTC market if the previous day's closing
price is not available due to lack of trading activity) in the case of stocks
and 5% in the case of bonds. Over the last few years, the restriction on
stock price movements has fluctuated, moving from 5% to 3% following the 1987
market crash, then back to 5% and finally, in September 1989, from 5% to the
current level of 7%.
39
<PAGE>
Authorities have mentioned that the limits on stock price movements may be
further relaxed or abolished entirely.

Trading Units. All stock certificates have a par value of NT$10, and
board lot size is uniformly 1,000 shares. The minimum trading unit for bonds
is NT$1,000. There is no regulation for the denomination of bonds except for
convertible bonds, which are required to be in denominations of NT$100,000.

Execution of Orders. The TSE has effected the computerization of all
First, Second and Third Category stock transactions.

Settlement and Delivery. There are three types of settlement:

Regular (for stocks) -- settlement made in cash with share
certificate delivery through the TSE Clearing Department not later than
the second business day following the transaction day.

Cash (for bonds) -- settlement made by cash and certificate delivery
through the TSE Clearing Department on the same day of the transaction
or, if agreed by the parties, the next day.

Specified Day (for debt) -- settlement delayed until a specified day
in order to permit the collection of interest. This settlement method
is rarely used.

Delivery and settlement are handled primarily by a central depositary
system, operated by Taiwan Central Depositary Co., Ltd., and to a lesser
extent by the computerized TSE Clearing Department. Sales of stock by
brokers and traders are offset by purchases of the same issue on the same day
so that only net balances of stock are delivered and only net balances of
cash are computed and paid.

All settlements must be effected by electronic or wire transfer of
payment.

Full Delivery Shares. If designated by the ROC SEC as full delivery
shares, listed shares may be purchased only by advance payment of purchase
price and only upon advance delivery of share certificates. Full delivery
shares are non-marginable. Such designation by the ROC SEC is generally made
with respect to shares of financially troubled companies. On September 30,
1995, there were 8 full delivery stocks.

Commissions and Transaction Tax. On July 1, 1990, the brokerage
commission rate for stocks was reduced by 0.0075% to 0.1425%. An amendment
has been proposed to the Securities and Exchange Law that would provide for
the negotiability of commission rates within a specified range upon the
initiation of a customer. To date this amendment has not been adopted. The
TSE takes 5% of the commissions earned by brokerage firms on stock
transactions. Commissions on bond transactions remain at 0.125%. A
securities transaction tax of 0.3% of the transaction price for stocks and
0.1% for bonds, debentures and LBCs is levied on the seller. Such securities
transaction taxes are withheld at the time of the transaction giving rise to
such taxes. The ROC government has announced a proposal to reduce the
securities transaction tax applicable to sales of stock from 0.3% to 0.2% and
to reimpose the capital gains tax on the sale of securities. This proposal
is subject to legislative approval, and it cannot be predicted when or
whether or in what form the Legislature will grant such approval.

40
<PAGE>
Trading Value and Trading Volume

The following tables set forth yearly trading values and average daily
trading values for stocks and bonds traded on the TSE from 1985 to 1995.

<TABLE> TSE YEARLY TRADING VALUES
<CAPTION> Stocks Bonds Total
(NT$ (US$ (NT$ (US$ (NT$ (US$
Year Million) Million) Million Million) Million)(1) Million)
<S> <C> <C> <C> <C> <C> <C>
1985 . . . . . . . . . . . 195,228 4,899.2 1,078 27.1 196,306 4,926.2
1986 . . . . . . . . . . . 675,656 17,856.5 773 20.4 676,379 17,875.7
1987 . . . . . . . . . . .
2,668,633 83,800.7 663 20.8 2,669,296 83,821.5
1988 . . . . . . . . . . .
7,868,024 275,211.6 1,001 35.0 7,920,751 277,055.9
1989 . . . . . . . . . . .
25,407,963 962,167.7 912 34.5 25,673,676 972,229.9
1990 . . . . . . . . . . .
19,031,288 707,667.0 6,109 227.2 21,364,607 794,430.0
1991 . . . . . . . . . . .
9,682,738 361,042.9 6,366 237.4 10,328,387 361,280.3
1992 . . . . . . . . . . .
5,917,079 232,928.4 3,816 150.2 6,287,024 233,078.6
1993 . . . . . . . . . . .
9,056,717 343,226.5 2,946 111.6 9,301,435 352,500.3
1994 . . . . . . . . . . .
18,812,112 711,044.8 8,009 302.7 19,476,619 736,161.3
1995 (through
August 31, 1995) . . . .
7,132,430 260,783.5 1,528 55.9 7,133,958 260,839.4
__________
Notes: (1) From 1988 to 1995, includes LBCs.
Source: ROC SEC, 1994 SEC Statistics; TSE, Status of Securities Listed on the Taiwan Stock Exchange
(January through August 1995).

</TABLE>

<TABLE>
TSE AVERAGE DAILY TRADING VALUES
<CAPTION>
No. of Stocks Bonds Total
Trading (NT$ (US$ (NT$ (US$ (NT$ (US$
Year Days Million) Million) Million) Million) Million) Million)
<S> <C> <C> <C> <C> <C> <C> <C>
1985 . . . . . . . . . . . . . . 288 677.9 17.0 3.7 2.1 681.6 17.1
1986 . . . . . . . . . . . . . . 285 2,370.7 62.7 2.5 0.1 2,373.3 62.7
1987 . . . . . . . . . . . . . . 288 9,266.1 291.0 2.3 0.1 9,268.4 291.0
1988 . . . . . . . . . . . . . . 289 27,225.0 952.3 3.5 0.1 27,407.4 958.7
1989 . . . . . . . . . . . . . . 287 88,529.5 3,352.5 3.2 0.1 89,455.3 3,387.6
1990 . . . . . . . . . . . . . . 281 67,727.0 2,518.4 21.7 0.8 76,030.6 2,827.2
1991 . . . . . . . . . . . . . . 286 33,855.7 1,262.4 22.3 0.8 36,113.2 1,263.3
1992 . . . . . . . . . . . . . . 284 20,834.8 820.2 13.4 0.5 22,137.4 820.7
1993 . . . . . . . . . . . . . . 290 31,230 1,183.5 10.0 0.4 32,074 1,215.5
1994 . . . . . . . . . . . . . . 286 65,777 2,486.2 27.0 1.0 68,100 2,574.4
1995 (through
August 31, 1995) . . . . . . . 191 37,343 1,365.4 8.0 0.3 37,351 1,365.7
__________
Notes: (1) From 1988 to 1995, includes LBCs.
Source: ROC SEC, 1994 SEC Statistics; TSE, Status of Securities Listed on the Taiwan Stock Exchange
(January through August 1995).

</TABLE>
41
<PAGE>
Stocks. Of the 285 companies listed on the TSE as of December 31, 1993,
197 were in the First Category and 88 were in the Second Category. In 1993,
approximately 81.6% of the total listed company trading volume was in the
First Category and approximately 18.4% was in the Second Category.

The following table sets forth trading value and trading volume for
First Category and Second Category equities for 1993:

<TABLE>
<CAPTION> First Second
Category Category Total
<S> <C> <C> <C>
Number of Listed Companies . . . . . . . . . . . . . 197 88 285
Total Listed Shares (millions of shares) . . . . . . 78,410 10,692 89,102
Trading Volume (NT$ Million) . . . . . . . . . . . . 7,394,529 1,662,188 9,056,717
Trading Volume (millions of shares) . . . . . . . . . 166,996 37,682 204,678
____________
Source: Securities Transaction Data, January 1994.
</TABLE>

The following table sets forth the market value at December 31, 1993 and
trading value for the twelve-month period ended December 31, 1993 for listed
companies grouped by sector:

<TABLE>
<CAPTION> Trading % Market %
Value Total Value/(2)/ Total
(NT$ (US$ Trading (NT$ (US$ Market
Industry/(1)/ Million) Million) Value Million) Million) Value
<S> <C> <C> <C> <C> <C> <C>
Cement . . . . . . . . . . . . . . . . 223,266 8,457.05 2.47 247,641 9,380.34 4.81
Foods . . . . . . . . . . . . . . . . . 560,459 21,229.51 6.19 192,461 7,290.19 3.74
Plastics . . . . . . . . . . . . . . . 432,238 16,372.65 4.77 350,843 13,289.51 6.82
4
Textiles . . . . . . . . . . . . . . 1,395,376 52,855.15 15.41 439,038 16,630.23 8.53
Electric Machinery & 243,074 9,207.35 2.68 193,645 7,335.04 3.76
Machinery . . . . . . . . . . . . . .
Electric Products & 293,673 11,123.98 3.24 135,991 5,151.17 2.64
Cable/Wires . . . . . . . . . . . . .
Chemicals . . . . . . . . . . . . . . . 246,435 9,334.66 2.72 96,539 3,656.78 1.88
Glass . . . . . . . . . . . . . . . . . 128,526 4,868.41 1.42 57,017 2,159.73 1.11
Paper & Pulp . . . . . . . . . . . . . 231,297 8,761.25 2.55 102,380 3,878.03 1.99
Iron & Steel . . . . . . . . . . . . . 601,446 22,782.05 6.64 314,820 11,925.00 6.12
Rubber . . . . . . . . . . . . . . . . 306,230 11,599.62 3.38 80,688 3,056.36 1.57
Auto . . . . . . . . . . . . . . . . . 104,053 3,941.40 1.15 68,563 2,597.08 1.33
Electronic . . . . . . . . . . . . . . 718,342 27,209.92 7.93 281,196 10,651.36 5.46
Construction/Construction Materials . . 369,237 13,986.25 4.08 232,153 8,793.67 4.51
Transportation . . . . . . . . . . . . 352,225 13,341.86 3.89 242,653 9,191.40 4.72
Tourism . . . . . . . . . . . . . . . . 266,544 10,096.36 2.94 37,210 1,409.47 0.72
Banking & Insurance . . . . . . . . . .
2,063,665 78,169.13 22.79 1,831,193 69,363.37 35.59
Department Stores . . . . . . . . . . . 167,954 6,361.89 1.85 52,259 1,979.51 1.02
Others . . . . . . . . . . . . . . . .
352,679 13,359.05 3.89 189,122 7,163.71 3.68
Total . . . . . . . . . . . . . .
9,056,717 343,057.46 100.00 5,145,410 194,901.89 100.00
__________
Source: Derived from data published in 1993 SEC Statistics, ROC SEC.
</TABLE>

42
<PAGE>
/(1)/ First Category and Second Category stocks. Includes preferred
stock, stock dividends and full delivery stock.
/(2)/ Based on listed shares of December 31, 1993 and share price on
December 31,1993. Totals do not add due to rounding.

Bonds. Turnover in the listed bond market in ROC is small in terms of
trading volume. In 1993, bond trading represented about 0.03% of total
trading volume for stocks and bonds on the TSE. Private corporations have
shown a strong preference for bank loans as a source of debt funding, and
until recently, the ROC government has generally not been required to turn to
the bond market to finance deficits. In recent years, the ROC government has
frequently issued bonds to finance its deficits. The scope of the listed
bond market is further limited by the fact that bonds can be issued and
traded outside the TSE and bonds issued by the ROC government are typically
purchased by financial institutions which generally hold them to maturity to
meet reserve requirements.

In order to meet the funding needs of the Six-Year Plan, the Ministry of
Finance has expanded the number of institutions qualified to trade bonds and
is considering adopting measures for establishing a centralized bond
transaction and information system.

The following table sets forth the value of TSE-listed bonds and
corresponding trading value data:

<TABLE>
<CAPTION> Listed Total Total Total
Government Corporate Listed Trading
Bonds/(1)(2)/ Bonds/(2)(3)/ Bonds/(2)/ Value/(4)/
Year (NT$ Million) (NT$ Million) (NT$ Million) (NT$ Million)
<S> <C> <C> <C> <C>
1984 . . . . . . . . . . . 34,822 800 35,622 937
1985 . . . . . . . . . . . 54,750 150 54,900 1,078
1986 . . . . . . . . . . . 477,381 -- 477,381 773
1987 . . . . . . . . . . . 715,982 7,925 723,907 663
1988 . . . . . . . . . . . 566,995 7,675 574,670 1,001
1989 . . . . . . . . . . . 212,019 7,625 219,644 912
1990 . . . . . . . . . . . 169,063 8,676 177,739 6,109
1991 . . . . . . . . . . . 327,642 12,137 339,779 6,366
1992 . . . . . . . . . . . 513,597 16,655 530,252 3,816
1993 . . . . . . . . . . . 687,665 14,007 701,672 2,587
___________
Source: 1992 SEC Statistics; Status of Securities Listed on Taiwan Stock Exchange, December 1993.
(1) Bonds and other debentures issued by the ROC government.
(2) At December 31.
(3) Includes bonds issued by government-owned corporations.
(4) Twelve-month period ended December 31.

</TABLE>

Stock Exchange Indices

The TSE has a Weighted Stock Price Index which is comparable to the
Standard & Poor's Index in the United States and the Tokyo Stock Exchange
Price Index in Japan insofar as it takes a wide selection of listed shares
and weights them according to the number of shares outstanding. It is
compiled using the "Paasche Formula" by dividing the market value by the base
day's total market value for the index shares. In 1966, when the index was
first started, the number of listed shares included in the index was 28. The
number of
43
<PAGE>
companies included was subsequently increased to 41 in 1972, 108 in 1983 and
125 in 1986, 127 in 1988 and 142 in 1989. August 31, 1995, there were 320
companies included in the index. The index formula is:

where: P/t/ = Stock price for the
P/t/ X Q/t/ day
---------- Q/t/ = Number of shares
Index = (PO x Q/t/) issued
PO = Stock price of the base
day

The stock market experienced historical highs in 1973, 1978, 1983, 1984,
1986, 1987, 1988, 1989 and 1990 with the TSE Index reaching highs of 514.85
in 1973, 688.52 in 1978, 765.71 in 1983, 969.25 in 1984, 1,039.11 in 1986,
4,673.14 in 1987, 8,789.73 in 1988, 10,773.11 in 1989 and 12,495.34 in 1990.

<TABLE> TSE INDEX, 1985-1994
(1966 AVERAGE = 100)
<CAPTION> Number of Total
Companies Number of Trading
in Index Listed Value Index Index
(year- Companies (NT$ (US$ High Low
Year end) (year-end) Billion) Billion) Year-End
<S> <C> <C> <C> <C> <C> <C> <C>
1985 . . . . . . . . 125 127 195.23 4.90 840.57 636.02 835.12
1986 . . . . . . . . 125 130 675.66 17.86 1,039.11 839.73 1,039.11
1987 . . . . . . . . 127 141 2,668.63 83.78 4,673.14 1,063.13 2,339.86
1988 . . . . . . . . 127 163 7,868.02 275.21 8,789.73 2,341.06 5,119.11
1989 . . . . . . . . 142 181 25,407.96 962.17 10,773.11 4,873.18 9,624.18
1990 . . . . . . . . 174 199 19,031.29 707.67 12,495.34 2,560.47 4,530.16
1991 . . . . . . . . 201 221 9,682.74 361.04 6,305.22 3,316.26 4,600.67
1992 . . . . . . . . 240 256 5,917.08 232.73 5,391.63 3,327.67 3,377.06
1993 . . . . . . . . 267 285 9,056.72 340.15 6,070.56 3,135.56 6,070.56
1994 . . . . . . . . 298 313 18,812.11 716.92 7,183.75 5,194.75 7,124.66
1995 (through
August 31, 1995) . 320 331 7,132.43 259.38 7,051.49 4,503.37 4,890.93(1)
__________
Source: TSE Statistical; Data 1994; ROC SEC, 1994 SEC Statistics.
(1) Period end.

</TABLE>

44
<PAGE>

<TABLE> TSE SECTORAL INDICES
<CAPTION> Electric Pulp
Plastics/ Machinery/ and Bank &
Year Cement Foods Chemicals Textiles Products Paper Construction Insurance
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1984/(1)/ High 299.88 283.20 218.13 189.26 330.30 481.41 440.76 --
Low 246.40 213.20 175.49 124.30 240.37 331.13 366.49 --
1985/(1)/ High 274.08 227.41 222.24 157.00 263.93 444.36 389.15 --
Low 199.73 167.78 148.51 95.79 185.24 322.31 265.36 --
1986/(1)/ High 318.85 247.92 300.20 201.52 319.05 588.78 519.46 --
Low 260.25 202.06 224.06 145.89 255.37 400.77 383.23 --
1987/(2)/ High 333.49 270.53 322.60 319.73 367.08 351.04 416.42 808.96
Low 104.32 101.06 101.46 101.00 101.31 101.58 103.69 103.34
1988/(2)/ High 741.55 453.12 592.58 492.58 573.80 528.16 639.81 2,008.82
Low 201.15 152.42 164.37 154.82 196.15 195.20 205.10 391.01
1989/(2)/ High 947.68 1,089.12 549.62 735.93 954.06 926.97 943.10 2,134.21
Low 367.12 272.17 304.54 279.59 332.34 268.34 349.55 1,022.87
1990/(2)/ High 1,028.53 984.02 544.93 708.34 925.37 614.53 885.73 2,858.59
Low 265.28 221.68 136.66 152.63 198.93 138.44 160.47 504.03
1991/(2)/ High 515.71 509.44 300.69 412.76 504.87 326.39 484.21 1,383.81
Low 291.30 257.69 153.64 177.83 237.08 155.10 207.64 759.98
1992/(2)/ High 481.13 520.71 263.55 366.06 461.46 297.49 466.60 997.58
Low 340.18 334.53 174.02 208.94 302.05 164.82 290.19 530.96
1993/(2)/ High 497.19 498.08 306.64 315.50 608.72 291.02 376.43 1,356.62
Low 421.86 422.09 243.91 264.14 442.52 227.00 391.62 840.83

___________
Source: 1992 SEC Statistics; Securities Transaction Data, January 1994.
/(1)/ Base 1976 = 100.
/(2)/ Base 1986 = 100.

</TABLE>

Selected Information on Listed Companies

The tables on the following pages show certain reported financial and
other information for the year ended December 31, 1992 (unless otherwise
indicated) for the top 30 listed companies, in terms of total revenues
(excluding financial institutions).

45
<PAGE>

<TABLE>
<CAPTION> Year Ended December 31, 1992/(1)(2)/
Total Net Earnings Shareholders Total
Revenue After Tax Equity Assets
(US$ (US$ (US$ (US$
Company Million) Million) Million) Million)
<S> Cement <C> <C> <C> <C>

Taiwan Cement Corp. . . . . . . . . . . . . 648.648 111.086 658.397 897.019
Asia Cement Corp. . . . . . . . . . . . . . 487.321 135.613 734.790 1,199.008
China Rebar . . . . . . . . . . . . . . . . 332.185 30.891 427.412 724.412
Food
President Enterprises Corp. . . . . . . . . 832.876 78.145 492.813 882.258
Plastic
Formosa Plastics Corp. . . . . . . . . . . . 1,149.940 143.234 977.738 1,305.425
Nan Ya Plastics Corp. . . . . . . . . . . . 2,368.260 187.021 1,089.198 2,344.770
Textiles
Far Eastern Textile Ltd. . . . . . . . . . . 790.687 74.285 823.869 1,942.524
Hualon-Teijran Corp. . . . . . . . . . . . . 723.779 31.542 797.382 1,562.379
Chung Shing Textile Co. . . . . . . . . . . 387.681 1.137 350.267 710.071
Shin Kong Synthetic Fiber Co. . . . . . . . 430.505 13.301 339.739 663.277
Formosa Chemical & Fibre Co. . . . . . . . . 977.005 145.752 1,190.460 1,767.369
Formosa Taffeta Co. Ltd. . . . . . . . . . . 452.097 46.936 421.999 600.986
Electronics
Tatung Co. . . . . . . . . . . . . . . . . . 1,228.337 45.116 611.858 2,207.460
Teco Electric & Machinery Co., Ltd. . . . . 441.998 49.999 348.020 549.053
Pacific Electric Wire & Cable Co., Ltd. . . 456.420 71.890 483.622 970.606
Sampo Corp. . . . . . . . . . . . . . . . . 439.850 18.177 231.152 361.570
Walsin Lihwa Corporation . . . . . . . . . . 388.050 22.352 655.771 877.196
Paper
Cheng Loong Co., Ltd. . . . . . . . . . . . 359.875 1.791 230.069 513.713
Yuen Foong Yu Paper Manufacturing Co., Ltd. 607.419 19.617 453.386 936.590
Steel
China Steel* . . . . . . . . . . . . . . . . 2,136.303 199.930 3,816.662 5,946.084
Cyun Yuan Steel Industry Co., Ltd. . . . . . 325.237 12.469 140.229 289.549
Car
Yue Loong Motor Co., Ltd. . . . . . . . . . 924.817 34.201 485.888 857.281
China Motor Co., Ltd. . . . . . . . . . . . 854.651 97.528 310.771 511.235
Computer
Acer Inc. . . . . . . . . . . . . . . . . . 454.257 2.076 308.716 606.180
Construction
Tuntex Distinct Corp. . . . . . . . . . . . 519.343 90.089 505.200 1,323.807
Transportation
Evergreen Marine Corp. (Taiwan) Ltd. . . . . 1,119.086 100.444 775.107 1,489.488
Yang Ming Marine Transport Corp.* . . . . . 759.296 13.815 375.708 1,252.404
China Air Lines . . . . . . . . . . . . . . 1,540.535 135.594 976.340 2,486.724
Retail
Far Eastern Department Stores . . . . . . . 480.997 19.735 231.595 389.087
Mercuries & Associates, Ltd. . . . . . . . . 349.868 14.728 134.689 228.234
____________
Source: Derived from the annual reports of each of the indicated companies.
(1) ROC accounting, auditing and financial reporting standards are not equivalent to those in the
United States.
(2) Data converted using exchange rate of NT$26.95 equals US$1.00.

* Fiscal year ends June 30.
</TABLE> 46
<PAGE>

<TABLE>
<CAPTION> Year Ended December 31, 1992 Year Ended December 31, 1993
Market Price Market Price
(Unadjusted) (Unadjusted)(NT$)
(NT$) Trading Trading
Volume Volume
(Million) (Million)
Shares Shares
COMPANY High Low Closing High Low Closing
<S> Cement <C> <C> <C> <C> <C> <C> <C> <C>
Taiwan Cement Corp. . . . . .
77.50 45.00 50.50 468 75.00 48.50 73.50 1,266
Asia Cement Corp. . . . . . .
78.50 50.00 55.50 133 66.00 45.80 63.50 406
China Rebar . . . . . . . . .
37.00 20.30 20.70 996 27.20 17.60 23.70 1,370
Food
President Enterprises Corp. .
57.00 38.40 42.00 359 52.50 30.00 51.50 803
Plastic
Formosa Plastics Corp. . . . .
50.00 32.00 32.70 334 57.50 31.50 57.50 1,610
Nan Ya Plastics Corp. . . . .
51.00 34.80 35.80 308 67.00 34.50 67.00 1,276
Textiles
Far Eastern Textile Ltd. . . .
43.50 27.00 29.90 219 38.50 21.80 38.50 698
Hualon-Teijran Corp. . . . . .
45.50 20.60 21.40 2,387 36.60 16.80 28.80 6,346
Chung Shing Textile Co. . . .
24.30 10.70 10.85 1,545 17.40 9.80 15.90 3,418
Shin Kong Synthetic Fiber Co.
30.50 14.00 14.80 753 27.50 12.50 25.80 2,139
Formosa Chemical & Fibre Co. .
36.70 22.00 22.20 281 32.50 19.70 30.10 850
Formosa Taffeta Co. Ltd. . . .
43.20 24.00 24.60 177 39.20 22.20 36.10 497
Electronics
Tatung Co. . . . . . . . . . .
30.80 19.00 20.60 430 75.50 19.50 75.50 1,408
Teco Electric & Machinery Co., 77.00 47.00 55.00 255 80.00 46.50 79.50 349
Pacific Electric Wire & Cable 55.50 27.00 28.00 899 39.00 20.30 30.20 1,613
Sampo Corp. . . . . . . . . .
36.60 21.40 23.20 1,049 38.00 21.80 35.60 1,103
Walsin Lihwa Corporation . . .
48.70 23.50 23.90 728 34.50 19.00 31.30 1,461
Paper
Cheng Loong Co., Ltd. . . . .
31.00 15.50 15.70 667 33.50 13.95 31.90 1,783
Yuen Foong Yu Paper
Manufacturing Ltd., Inc. .
38.70 24.80 25.60 255 39.40 20.50 38.40 617
Steel
China Steel . . . . . . . . .
28.70 14.75 15.00 1,412 28.30 13.90 28.00 7,819
Cyun Yuan Steel Industry Co., 60.00 29.50 30.70 261 39.50 26.00 30.10 347
Car
Yue Loong Motor Co., Ltd. . .
46.40 23.60 25.20 1,151 32.40 17.60 24.50 1,209
China Motor Co., Ltd. . . . .
85.00 64.50 78.00 402 93.00 53.00 68.00 358
Computer
Acer Inc. . . . . . . . . . .
28.20 14.70 18.50 1,049 58.50 17. 58.50 2,403
Construction
Tuntex Distinct Corp. . . . .
44.40 23.80 24.50 567 35.50 19.10 28.90 799
Transportation
Evergreen Marine Corp. (Taiwan) 48.80 25.00 32.50 817 63.50 30.60 63.50 1,346
Yang Ming Marine Transport Corp.

26.50 14.25 14.90 342 37.80 13.60 37.80 1,138
China Air Lines* . . . . . . . NA NA NA NA 85.00 43.30 79.50 299
Retail
Far Eastern Department Stores
53.00 31.10 34.70 344 64.40 29.90 45.70 308
Mercuries & Associates, Ltd. .
108.50 50.50 52.00 295 67.50 45.00 62.00 372
____________
Source: Status of Securities Listed on Taiwan Stock Exchange, December 1992 and June 1993; TSE
Statistical Data of January and July 1993; Industry of Free China, May 1994.
* Listed on February 26, 1993.

</TABLE> 47
<PAGE>

<TABLE>
<CAPTION> 1992 1993
Current P/E** Current P/E**
Company Yield* Ratio Yield* Ratio
Cement <S> <C> <C> <C> <C>
Taiwan Cement Corp. . . . . . . . . 3.54% 17.38 2.80 20.78
Asia Cement Corp. . . . . . . . . . 3.81 14.42 4.92 20.75
China Rebar . . . . . . . . . . . . 0.00 22.96 4.95 33.13
Food
President Enterprises Corp. . . . . 0.00 15.30 3.56 20.78
Plastic
Formosa Plastics Corp. . . . . . . . 2.46 16.75 3.52 24.32
Nan Ya Plastics Corp. . . . . . . . 2.74 14.20 3.49 21.50
Textiles
Far Eastern Textile Ltd. . . . . . . 3.94 16.82 3.61 200.00
Hualon-Teijran Corp. . . . . . . . . 0.00 29.12 1.79 --
Chung Shing Textile Co. . . . . . . 0.00 304.87 0.00 --
Shin Kong Synthetic Fiber Co. . . . 3.44 30.31 2.18 --
Formosa Chemical & Fibre Co. . . . . 3.10 10.71 4.33 18.40
Formosa Taffeta Co. Ltd. . . . . . . 4.05 16.36 4.11 25.17
Electronics
Tatung Co. . . . . . . . . . . . . . 1.45 25.00 1.83 27.52
Teco Electric & Machinery Co., Ltd.
2.04 17.53 2.27 23.08
Pacific Electric Wire & Cable Co., 0.00 12.77 0.00 16.65
Sampo Corp. . . . . . . . . . . . . 0.00 24.36 2.54 28.55
Walsin Lihwa Corporation . . . . . . 2.09 37.22 1.59 392.50
Paper
Cheng Loong Co., Ltd. . . . . . . . 0.00 164.94 0.00 70.22
Yuen Foong Yu Paper Manufacturing 0.00 30.07 0.54 42.41
Steel
China Steel . . . . . . . . . . . . 5.71 16.66 2.48 21.80
Cyun Yuan Steel Industry Co., Ltd. . 0.00 23.95 3.42 94.19
Car
Yue Loong Motor Co., Ltd. . . . . . 0.00 24.67 2.62 --
China Motor Co., Ltd. . . . . . . . 4.55 9.26 6.02 11.61
Computer
Acer Inc. . . . . . . . . . . . . . 0.00 207.50 0.00 32.35
Construction
Tuntex Distinct Corp. . . . . . . . 0.00 8.03 3.53 14.89
Transportation
Evergreen Marine Corp. (Taiwan) Ltd.
2.35 15.68 3.36 24.59
Yang Ming Marine Transport Corp. . . N/A 64.41 1.13 122.07
China Air Lines . . . . . . . . . . 2.48 13.24 3.75 30.77
Retail
Far Eastern Department Stores . . . 2.90 23.96 2.64 30.68
Mercuries & Associates, Ltd. . . . . 1.96 22.95 3.20 25.00
____________
Source: Status of Securities Listed in Taiwan Stock Exchange, December 1992 and June 1993; TSE
Statistical Data of January and July 1993; Securities Transaction Data, January 1994.
* Cash dividends per share earned in 1992 and 1993, respectively, adjusted for stock dividends and
rights offerings, divided by closing price at June 30, 1993 and May 31, 1994, respectively.
** P/E ratio = closing price on June 30, 1993 and May 31, 1994, respectively, divided by earnings
per share for the year ended December 31, 1992 and 1993, respectively, adjusted for stock
dividends and rights issues.

</TABLE>

48
<PAGE>
INVESTMENT IN FOREIGN SECURITIES

Since September 1987 the ROC SEC has taken the position that all matters
relating to the sale and distribution of foreign securities in the ROC are
subject to the Securities and Exchange Law and regulations promulgated
thereunder. In November of that year securities investment consulting firms,
which had been authorized since 1983 to advise Taiwan residents on domestic
securities, were given additional authority to advise on certain approved
foreign securities. As of December 31, 1994 the ROC SEC had chartered 95
securities investment consulting firms. These firms cannot effect any
investment transactions within the ROC for their customers. Since November
1989 the ROC SEC has permitted foreign securities firms approved by the ROC
SEC to open branches in Taiwan. Since January 1991 foreign securities firms,
upon approval of the ROC SEC, have been permitted to establish liaison
representative offices. Since July 1993, upon approval of the ROC SEC any
foreign securities firm that has had a liaison office in the ROC for at least
two years (this two-year requirement was abolished in June 1995) and which
meets certain other specified requirements is permitted to establish a branch
office. Such branch offices can conduct the same types of securities
business as a local securities firm can conduct, and in addition, can trade
foreign securities listed on the NYSE, the London Stock Exchange or the Tokyo
Stock Exchange.

In January 1989 the ROC SEC registered the first foreign mutual fund for
sale to Taiwan residents. Some of these funds are marketed through the
retail branches of domestic banks. Since December 1985 the formation of
foreign exchange trust funds operated by the trust departments of local banks
or investment trust companies has been permitted with the approval of the
Ministry of Finance. Those funds may invest on behalf of an investor in
certain offshore securities, including certain bonds and mutual funds, which
have been specified by the investor and agreed to by the financial
institution, and which meet the CBC's approval. In addition, in February
1993 the ROC government permitted the listing of foreign securities on the
TSE in the form of depositary receipts. The availability of foreign
investment alternatives to ROC investors may result in lower levels of
interest in domestic securities among such investors.

INVESTMENT RESTRICTIONS

The Fund has adopted a number of restrictions and policies relating to
the investment of its assets and its activities which are fundamental
policies and may not be changed without the approval of the holders of a
majority of the Fund's outstanding voting securities (which for this purpose
and under the Investment Company Act means the lesser of (i) 67% of the
Fund's shares present at a meeting at which more than 50% of the outstanding
shares of the Fund are represented or (ii) more than 50% of the Fund's
outstanding shares). The Fund may not:

1. Invest more than 25% of its assets, taken at market value, in
the securities of issuers in any particular industry (excluding the U.S.
Government and its agencies and instrumentalities).

2. Invest more than 25% of the total value of its assets in the
securities of any one issuer, except securities issued or guaranteed by
the United States government or any of its agencies or
instrumentalities, or acquire securities of any one issuer which, at the
time of investment, represent more than 25% of the voting securities of
such issuer.

3. Make investments for the purpose of exercising control or
management.

4. Purchase or sell real estate, except that, to the extent
permitted by applicable law, the Fund may invest in securities directly
or indirectly secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein.

49
<PAGE>
5. Make loans to other persons, except that the acquisition of
bonds, debentures or other corporate debt securities and investment in
government obligations, commercial paper, pass-through instruments,
certificates of deposit, bankers' acceptances, repurchase agreements or
any similar instruments shall not be deemed to be the making of a loan,
and except further that the Fund may lend its portfolio securities,
provided that the lending of portfolio securities may be made only in
accordance with applicable law.

6. Borrow money or issue senior securities except as permitted by
the Investment Company Act.

7. Underwrite securities of other issuers except insofar as the
Fund technically may be deemed an underwriter under the Securities Act
of 1933, as amended (the "Securities Act") in selling portfolio
securities.

8. Purchase or sell commodities or contracts on commodities, except
to the extent that the Fund may do so in accordance with applicable law
and without registering as a commodity pool operator under the Commodity
Exchange Act.

In addition to the fundamental policies, the Fund has adopted the
following non-fundamental policies, which may be changed by the Board of
Directors, without obtaining the approval of shareholders. The Fund may not:

a. Purchase securities of other investment companies, except to the
extent such purchases are permitted by applicable law.

b. Make short sales of securities or maintain a short position,
except to the extent permitted by applicable law. The Fund currently
does not intend to engage in short sales, except short sales "against
the box."

c. Purchase or retain the securities of any issuer, if those
individual officers and directors of the Fund, the officers and
directors of the Investment Manager or the Investment Adviser, or the
officers and directors of any subsidiary thereof each owning
beneficially more than one-half of one percent of the securities of such
issuer own in the aggregate more than 5% of the securities of such
issuer.

d. Invest in real estate limited partnership interests or interests
in oil, gas or other mineral leases, or exploration or development
programs, except that the Fund may invest in securities issued by
companies that engage in oil, gas or other mineral exploration or
development activities.
_____________________

In addition to the foregoing investment limitations, investments by the
Fund are subject to the limitations imposed by the 1940 Act, including
certain more restrictive limitations on transactions between the Fund and its
affiliates. Also, investments by the Fund are subject to applicable ROC law
and regulations. See "Foreign Investment and Exchange Controls in the ROC"
and "the Securities Market of the ROC."

In addition to the foregoing restrictions, the Fund may be subject to
investment limitations and other restrictions imposed by the ROC. See
"Foreign Investment and Exchange Controls in the ROC."

50
<PAGE>
MANAGEMENT OF THE FUND

DIRECTORS AND OFFICERS OF THE FUND

The Board of Directors of the Fund is responsible for the overall
supervision of the operations of the Fund and performs the various duties
imposed on the directors of investment companies by the 1940 Act. The
Directors and executive officers of the Fund are listed below together with
their respective positions and a brief statement of their principal
occupations during the past five years and, in the case of Directors, their
positions with certain international organizations and publicly held
companies.

PRINCIPAL OCCUPATION
NAME AND AGE POSITION WITH DURING PAST FIVE YEARS
ADDRESS FUND
Director and
Chairman
Director and
President
Director
Director
Director
Vice President
Secretary
Treasurer

- ----------------
* Interested person of the Fund (as defined in the 1940 Act).

As of the date of this Prospectus, none of the Directors or officers of
the Fund own any shares of Common Stock of the Fund.

The Fund pays to each of its Directors who is not an officer or employee
of the Investment Manager or its affiliates, in addition to certain
out-of-pocket expenses, an annual fee of $______ plus $_____ for each meeting
of the Board of Directors or a committee of the Board attended in person or
by telephone.

The Fund's Board of Directors has an audit committee that is responsible
for reviewing financial and accounting matters. The members of the audit
committee are Messrs. ________________________________.

While the Fund is a Maryland corporation, Messrs.
_______________________ are not residents of the United States, and
substantially all of their respective assets may be located outside of the
United States. As a result, it may be difficult for investors to effect
service upon _______________________ within the United States, or to enforce
judgments of courts of the United States predicated upon civil liabilities
under the federal securities laws of the United States. The Fund has been
advised that there is substantial doubt as to the enforceability in the ROC
of such civil remedies and criminal penalties as are afforded by the federal
securities laws of the United States.

51
<PAGE>
THE INVESTMENT MANAGER

Kwang Hua Securities Investment & Trust (H.K.) Co., Limited (the
"Investment Manager"), serves as the investment manager to the Fund pursuant
to the Management Agreement, the terms of which are described below. The
Investment Manager's principal address is 1608, Jardine House, One Connaught
Place, Central, Hong Kong.

The Investment Manager is a wholly-owned subsidiary of Kwang Hua
Securities Investment & Trust Co., Ltd. (the "Investment Adviser"). The
Investment Adviser is the largest and second oldest fund manager in the ROC.
The Investment Adviser commenced operations in 1985, and as of October 31,
1995, had approximately NT$34 billion in assets under management. The
Investment Adviser has acted as the investment manager of 12 other funds,
including The Formosa Fund, a unit trust listed on the London Stock
Exchange, and established in 1986.

The Fund's portfolio will be managed on a day-to-day basis by Adelaine
Lee, Manager of the Investment Manager.

INVESTMENT ADVISER

The Fund and the Investment Manager have entered into an Investment
Advisory Agreement (the "Advisory Agreement") with the Investment Adviser to
advise the Fund and the Investment Manager. The Investment Adviser will not
be responsible for the actual portfolio decisions of the Fund nor have
authority to effect transactions on behalf of the Fund. The Investment
Adviser's principal address is 11th Floor, No. 76, Tun Hwa S. Road, Sec. 2,
106, Taipei, Taiwan, R.O.C.

TERMS OF THE AGREEMENTS

As compensation for its services to the Fund, the Investment Manager
will receive a monthly fee (the "Management Fee") at the annual rate of
% of the value of the Fund's average weekly net assets. For services
provided under the Advisory Agreement, the Investment Adviser will receive no
separate compensation from the Fund. The Management Fee is greater than that
paid by most management investment companies, but the Fund believes that it
is comparable to fees paid by many U.S. investment companies that invest
primarily in the securities of issuers located in a single foreign country.
For purposes of these calculations, average weekly net assets are determined
at the end of each month on the basis of the average net assets of the Fund
for each week during the month. The assets for each weekly period are
determined by averaging the net assets at the last business day of a week
with the net assets at the last business day of the prior week.

The Management Agreement obligates the Investment Manager to provide, or
arrange for the provision of, investment advisory services and to pay all
compensation of and furnish office space for officers and employees of the
Fund, as well as the fees of all Directors of the Fund who are affiliated
persons of the Investment Manager or any of its affiliates. The Fund pays
all other expenses incurred in its operation, including, among other things,
taxes; expenses for legal, tax and auditing services; costs of printing
proxies, stock certificates, shareholder reports, and prospectuses; listing
fees; charges of the custodian, sub-custodians and the transfer agent; U.S.
Securities and Exchange Commission fees; expenses of registering the shares
under Federal, state or foreign laws; fees and expenses of unaffiliated
Directors; accounting and pricing costs (including the weekly calculation of
net asset value); insurance; interest; brokerage costs; litigation and other
extraordinary or non-recurring expenses; and other expenses properly payable
by the Fund.

Unless earlier terminated as described below, the Management Agreement
and the Advisory Agreement will remain in effect until , 1997 and
from year to year thereafter if approved annually (a) by the Board of
Directors of the Fund or by a majority of the outstanding shares of the Fund
and (b) by a majority of the Directors who are not parties to such contracts
or interested persons (as defined in the 1940 Act) of any
52
<PAGE>
such party. Such contracts are not assignable and may be terminated without
penalty on 60 days' written notice at the option of either party thereto or
by the vote of the shareholders of the Fund.

The Fund has been advised that there is doubt as to the enforceability
in the courts of the ROC and Hong Kong of judgments against the Investment
Manager or the Investment Adviser predicated upon the civil liability
provisions of the Federal securities laws of the United States. The
Investment Manager and the Investment Adviser are advised by U.S. counsel
with respect to the Federal securities laws of the United States.

THE ADMINISTRATOR

Under an Administration Agreement dated as of the date hereof (the
"Administration Agreement"), _______________________ ("___") or the
"Administrator") acts as the Fund's administrator. The services provided by
the Administrator under the Administration Agreement are subject to the
supervision of the directors and officers of the Fund. The Administrator's
address is ____________________________________
____________________________________________________.

Under the terms of the Administration Agreement, (___________) is
responsible for the Fund's relationships with its shareholders, including
shareholder inquiries relating to the Fund; is responsible for, arranges and
monitors compliance with regulatory requirements and New York Stock Exchange
listing requirements; and oversees and monitors the performance of
third-party service providers, including, but not limited to, custodians,
transfer agents, auditors and printers. The Administrator provides office
facilities, equipment and personnel necessary for the proper operation of the
Fund, together with clerical and bookkeeping services which are not being
furnished by the Fund's Investment Manager, custodians or transfer and
dividend-paying agent. The Administrator also arranges for the calculation
and publication of the Fund's net asset value in accordance with the Fund's
policy as adopted from time to time by the Board of Directors; establishes
the Fund's operating expense budgets and processes the payment of actual
operating expenses incurred; calculates the amount of dividends and
distributions to be declared by the Board of Directors and paid to the Fund's
shareholders; provides the Board of Directors with financial analyses and
reports necessary for the Board to fulfill its fiduciary responsibilities;
maintains and keeps possession of the books and records of the Fund required
under the 1940 Act (other than those being maintained by the Fund's
Investment Manager, custodians and transfer and dividend-paying agent, as to
which ____ oversees such maintenance); arranges for the preparation of the
Fund's U.S. federal, state and local income tax returns, as well as financial
information for the Fund's proxy statements and semiannual and annual reports
to shareholders; and prepares the Fund's reports to the Commission.

The Fund pays a fee to the Administrator computed weekly and payable
monthly, at the annual rate of ____% of the Fund's average weekly net assets.

The Administrator and the Fund will enter into a Japanese Shareholder
Servicing and Administration Agreement with Nomura Investment Trust
Management Co., Ltd. ("NITCO") under which NITCO will perform, or arrange for
affiliates to perform, subject to the Administrator's supervision, certain
administrative functions in Japan, including responding to inquiries from
shareholders of the Fund in Japan, supervising and coordinating the
translation and filing of reports with the Osaka Securities Exchange and the
Ministry of Finance of Japan, supervising and coordinating the translation
and distribution of periodic shareholder reports or other information to be
disseminated to shareholders in Japan, interacting and coordinating with the
Fund's service providers in Japan, including Japanese counsel, and
supervision and coordination of proxy solicitation in Japan. For its
services and facilities the Administrator will pay NITCO a monthly fee,
payable in arrears in U.S. dollars, at an annual rate of % of the Fund's
average weekly net assets.

53
<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE

The Investment Manager will place orders for securities to be purchased
by the Fund. The primary objective of the Investment Manager in choosing
brokers for the purchase and sale of securities for the Fund's portfolio will
be to obtain the most favorable net results taking into account such factors
as price, commission, size of order, difficulty of execution, and the degree
of skill required of the broker-dealer. The capability and financial
condition of the broker may also be criteria for the choice of that broker.
The placing and execution of orders for the Fund also will be subject to
restrictions under U.S. securities laws, including certain prohibitions
against trading among the Fund and its affiliates (including the Investment
Manager, the Investment Adviser or their affiliates). The Fund may utilize
affiliates of the Investment Manager and/or the Investment Adviser in
connection with the purchase or sale of securities in accordance with rules
or exemptive orders adopted by the Commission when the Investment Manager
believes that the charge for the transaction does not exceed usual and
customary levels. In addition, the Fund may purchase securities in a
placement for which affiliates of the Investment Manager or the Investment
Adviser have acted as agent to or for issuers, consistent with applicable
rules adopted by the Commission or regulatory authorization, if necessary.
The Fund will not purchase securities from or sell securities to any
affiliate of the Investment Manager or the Investment Adviser acting as
principal.

The Investment Manager on behalf of the Fund may place brokerage
transactions through brokers, including affiliates of the Investment Manager,
who provide it with investment research services, including market and
statistical information and quotations for the Fund's portfolio valuation
purposes. The terms "investment research" and "market and statistical
information and quotations" include advice as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities and potential buyers or sellers of securities, as
well as the furnishing of analyses and reports concerning issuers,
industries, securities, economic factors and trends, and portfolio strategy,
each and all as consistent with those services mentioned in Section 28(e) of
the Securities Exchange Act of 1934.

Research provided to the Investment Manager in advising the Fund will be
in addition to and not in lieu of the services required to be performed by
such Investment Manager itself, and the Investment Manager's fees will not be
reduced as a result of the receipt of such supplemental information. It is
the opinion of the management of the Fund that such information is only
supplementary to the Investment Manager's own research efforts, since the
information must still be analyzed, weighed and reviewed by the Investment
Manager's staff. Such information may be useful to the Investment Manager in
providing services to clients other than the Fund, and not all such
information is necessarily used by the Investment Manager in connection with
the Fund. Conversely, information provided to the Investment Manager by
brokers and dealers through whom other clients of the Investment Manager
effect securities transactions may prove useful to the Investment Manager in
providing services to the Fund.

The Fund's Board of Directors will review at least annually the
commissions allocated by the Investment Manager on behalf of the Fund to
determine if such allocations were reasonable in relation to the benefits
inuring to the Fund.

DIVIDENDS AND DISTRIBUTIONS

The Fund intends to distribute, at least annually, all its net
investment income and its net realized capital gains, if any. See "Dividend
Reinvestment Plan" for information concerning the manner in which dividends
and distributions to shareholders will be reinvested in Shares of the Fund,
if a holder of Shares so elects. Dividends and distributions will be taxable
to shareholders under certain circumstances as discussed below, whether they
are reinvested in Shares of the Fund or received in cash. Since the
investment objective of the Fund is to seek long-term capital appreciation
through investment primarily in publicly traded equity securities of ROC
companies, current income will not be a primary investment objective of the
Fund.

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DIVIDEND REINVESTMENT PLAN

Pursuant to the Fund's Dividend Reinvestment Plan (the "Plan"), if a
holder of Shares so elects, all dividend and capital gains distributions will
be reinvested by (_________________), as agent for shareholders in
administering the Plan (the "Plan Agent"), in additional Shares. Holders of
Shares who do not elect to participate in the Plan will receive all
distributions in cash paid by check mailed directly to the shareholder of
record (or, if the Shares are held in street or other nominee name, then to
such nominee) by (_________________), as dividend disbursing agent. Such
shareholders may elect to participate in the Plan by sending written
instructions to (_________________), as dividend disbursing agent, at the
address set forth below under "Transfer Agent, Dividend Disbursing Agent and
Registrar." Participation in the Plan is completely voluntary and may be
terminated or resumed at any time without penalty by written notice if
received by the Plan Agent not less than 10 days prior to any dividend record
date; otherwise, such termination will be effective with respect to any
subsequently declared dividends and distributions. Shareholders who intend
to hold their Shares through a broker or nominee should contact such broker
or nominee to confirm that they may elect to participate in the Plan.

Whenever the Fund declares an income dividend or a capital gains
distribution (collectively referred to as "dividends") payable either in
Shares or in cash, non-participants in the Plan will receive cash and
participants in the Plan will receive the equivalent in Shares. The Shares
will be acquired by the Plan Agent for the participant's account, depending
upon the circumstances described below, either (i) through receipt of
additional unissued but authorized Shares from the Fund ("newly issued
Shares") or (ii) by purchase of outstanding Shares on the open market ("open-
market purchases") on the New York Stock Exchange or elsewhere. If on the
payment date for the dividend, the net asset value per Share is equal to or
less than the market price per Share plus estimated brokerage commissions
(such condition being referred to herein as "market premium"), the Plan Agent
will invest the dividend amount in newly issued Shares on behalf of the
participant. The number of newly issued Shares to be credited to the
participant's account will be determined by dividing the dollar amount of the
dividend by the net asset value per Share on the date the Shares are issued;
provided, that the maximum discount from the then current market price per
Share on the date of issuance may not exceed 5%. If on the dividend payment
date, the net asset value per Share is greater than the market value (such
condition being referred to herein as "market discount"), the Plan Agent will
invest the dividend amount in Shares acquired on behalf of the participant in
open-market purchases.

In the event of a market discount on the dividend payment date, the Plan
Agent will have until the last business day before the next date on which the
Shares trade on an "ex-dividend" basis or in no event more than 30 days after
the dividend payment date (the "last purchase date") to invest the dividend
amount in Shares acquired in open-market purchases. If, before the Plan
Agent has completed its open-market purchases, the market price of a Share
exceeds the net asset value per Share, the average per Share purchase price
paid by the Plan Agent may exceed the net asset value of the Shares,
resulting in the acquisition of fewer Shares than if the dividend has been
paid in newly issued Shares on the dividend payment date. Because of the
foregoing difficulty with respect to open-market purchases, the Plan provides
that if the Plan Agent is unable to invest the full dividend amount in open-
market purchases during the purchase period or if the market discount shifts
to a market premium during the purchase period, the Plan Agent will cease
making open-market purchases and will invest the uninvested portion of the
dividend amount in newly issued Shares at the close of business on the last
purchase date.

The Plan Agent maintains all shareholders' accounts in the Plan and
furnishes written confirmation of all transactions in the account, including
information needed by shareholders for tax records. Shares in the account of
each Plan participant will be held by the Plan Agent in non-certificated form
in the name of the participant, and each shareholder's proxy will include
those Shares purchased or received pursuant to the Plan. The Plan Agent will
forward all proxy solicitation material to participants and vote proxies for
Shares held pursuant to the Plan in accordance with the instructions of the
participants.
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In the case of shareholders such as banks, brokers or nominees which
hold Shares for others who are the beneficial owners, the Plan Agent will
administer the Plan on the basis of the number of Shares certified from time
to time by the record shareholders as representing the total amount
registered in the record shareholder's name and held for the account of
beneficial owners who are to participate in the Plan.

There will be no brokerage charges with respect to Shares issued
directly by the Fund as a result of dividends or capital gains distributions
payable either in Shares or in cash. However, each participant will be
charged a pro rata share of brokerage commissions incurred with respect to
the Plan Agent's open market purchases in connection with the reinvestment of
dividends.

The reinvestment of dividends and distributions will not relieve
participants of any federal income tax that may be payable (or required to be
withheld) on such dividends. See "Taxation".

Shareholders participating in the Plan may receive benefits not
available to shareholders not participating in the Plan. If the market price
of the Shares plus commissions is above their net asset value, participants
in the Plan will receive Shares at a lower price than they could otherwise
purchase them and will have Shares with a cash value greater than the value
of any cash distribution they would have received on their Shares. If the
market price plus commissions is below net asset value, participants will
receive distributions in Shares with a net asset value greater than the value
of any cash distribution they would have received on their Shares. However,
there may be insufficient Shares available in the market to make
distributions in Shares at prices below the net asset value. Also, since the
Fund does not redeem its Shares, the price obtained on resale may be more or
less than the net asset value. See "Taxation" for a discussion of the
taxation of dividends.

Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan.
There is no direct service charge to participants in the Plan; however, the
Fund reserves the right to amend the Plan to include a service charge payable
by the participants.

All correspondence concerning the Plan should be directed to the Plan
Agent at (_________________).

NET ASSET VALUE

(________________) will determine the net asset value per share of the
Fund no less frequently than the close of business on the Thursday of each
week by dividing the value of the net assets of the Fund (the value of its
assets less its liabilities) by the total number of shares of Common Stock
outstanding. If a Thursday is not a business day, then the net asset value
will be determined as of the immediately preceding business day. In valuing
the Fund's assets, all listed equity securities for which market quotations
are readily available will, regardless of purchase price, be valued at the
last sales price on the exchange on which the securities are traded, as of
the close of business on the day the securities are being valued. Listed
securities with no such sales price and unlisted equity securities are valued
at the mean between the current bid and asked prices, if any. Short-term
investments having a maturity of 60 days or less are valued at cost with
accrued interest or discount earned included in interest receivable. Other
securities as to which market quotations are readily available will be valued
at their market values. All other securities and assets will be taken at
fair value as determined in good faith by the Board of Directors although the
actual calculation may be done by others. In instances where price cannot be
determined in accordance with the above procedures, or in instances in which
the Board of Directors determines it is impractical or inappropriate to
determine price in accordance with the above procedures, the price will be at
fair value as determined in good faith in a manner as the Board of Directors
may prescribe. All of the Fund's assets or liabilities not denominated in
U.S. dollars will be initially valued in the currency in which they are
denominated and then will be translated into U.S. dollars at the prevailing
foreign exchange rate as of the net asset value determination date. The
Fund's obligation to pay any local tax on remittances from ROC will become a
liability on the date the Fund recognizes income or marks-to-market its
assets and will have the effect of reducing the Fund's net asset value.
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TAXATION

ROC INCOME TAXES

The following discussion of ROC tax laws is based on the advice of Lee
and Li, ROC legal counsel to the Fund.

Under the Income Tax Law of the ROC, dividend and interest income
received by the Fund from sources within the ROC will be subject to income
withholding tax. The rate of withholding tax applicable to interest payments
to a non-ROC resident recipient is 20%. The rates of withholding tax
applicable to dividend payments to a non-ROC individual and a non-ROC
corporate entity are 35% and 25%, respectively. However, the rate of
withholding tax applicable to dividend payments to a qualified foreign
institutional investor approved by the ROC SEC or a non-resident investor
approved by the Investment Commission of the Ministry of Economic Affairs is
20%. Stock dividends are subject to an income tax which is payable on
receipt or, in certain cases, on disposal of the stock dividends. Securities
received as stock dividends will be treated for the purposes of the capital
gains income tax described below in the same way as other securities held.
Transactions in securities are not currently subject to any capital gains
tax.

In September 1988, the ROC government announced that, beginning on
January 1, 1989, a capital gains tax on gains derived from stock transactions
would be reimposed. On January 1, 1990, this capital gains tax was again
suspended. The ROC government is currently considering the reimposition of
the capital gains tax on securities transactions. This reimposition would be
subject to legislative approval, and it cannot be predicted when or whether
the legislature will grant such approval. Therefore, there can be no
assurance that the capital gains tax will not be reimposed in the future or
that the Fund will continue to be exempt from such tax.

The Fund will not be subject to an entity-level tax on its net income by
the ROC.

Profits on sales of Fund shares effected by non-resident foreigners
wholly outside the ROC will not be subject to ROC income tax.

Securities Transaction Tax. In general, on any sale of bonds, stocks,
debentures and certain other securities, a securities transaction tax is
payable by the seller at the rate of 0.3% of the transaction price for stocks
and 0.1% of the transaction price for bonds and LBCs. Sales of securities
effected outside the ROC will not be subject to the securities transaction
tax.

UNITED STATES INCOME TAXES

General. The Fund intends to qualify for and to elect the tax treatment
afforded regulated investment companies ("RICs") under the Internal Revenue
Code of 1986, as amended (the "Code"). Generally, to so qualify, at least
90% of the Fund's gross income must consist of income and gain from passive
investments, less than 30% of its gross income can be derived from the
disposition of investment assets held for less than three months, and the
Fund's assets must meet certain diversification requirements.

More specifically, the Fund must, among other things: (a) derive at
least 90% of its gross income in each taxable year from dividends, interest,
payments with respect to securities loans and gains from the sale or other
disposition of stock, securities, or foreign currencies, or other income
(including, but not limited to gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities, or currencies; (b) derive less than 30% of its gross income in
each taxable year from the sale or other disposition of any of the following
which was held for less than three months: (i) stock or securities,
(ii) options, futures or forward contracts (other than options, futures or
forward contracts on foreign
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currencies), and (iii) foreign currencies (or options, futures or forward
contracts on foreign currencies) but only if such currencies (or options,
futures or forward contracts) are not directly related to the Fund's
principal business of investing in stock or securities (or options and
futures with respect to stock or securities); and (c) diversify its holdings
so that, at the end of each quarter of the Fund's taxable year, the following
two conditions are met: (i) at least 50% of the market value of the Fund's
total assets is represented by cash, U.S. Government securities, securities
of other regulated investment companies and other securities, with such other
securities limited, in respect of any one issuer, to an amount not greater
than 5% of the Fund's assets and not greater than 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of
its assets is invested in the securities of any one issuer (other than U.S.
Government securities or securities of other regulated investment companies)
or of two or more issuers controlled by the Fund and engaged in similar or
related businesses. The Treasury Department is authorized to issue
regulations to provide that foreign currency gains that are not directly
related to the Fund's principal business of investing in stock or securities
may be excluded from the income that qualifies for purposes of the 90% of
gross income requirement described above.

As a RIC, the Fund will not be subject to U.S. federal income tax on the
portion of its income and gains that it distributes to its shareholders in
any taxable year in which it distributes at least 90% of its investment
company taxable income (which includes the Fund's investment income, other
than net capital gains). The Fund intends to distribute at least annually to
its shareholders all of its investment company taxable income and net capital
gains. However, the Fund is permitted under the Code to retain for
investment its net capital gains (which consist of the excess of net long-
term capital gains over net short-term capital losses), but will be subject
to tax, currently at 35%, on the amount retained. In this event, the Fund
expects to designate the retained amount as undistributed capital gains in a
notice to its shareholders who, (a) if subject to U.S. federal income tax on
long-term capital gains, will be required to include in income for U.S.
federal income tax purposes, as long-term capital gain, their shares of such
undistributed amount, and (b) will be entitled to credit their proportionate
shares of the tax paid by the Fund on the undistributed amount against their
U.S. federal income tax liabilities, if any, and to claim refunds to the
extent that their credits exceed their liabilities. Foreign shareholders (as
defined below) who are not subject to U.S. federal income tax on net capital
gains can obtain a refund of their proportionate shares of the tax paid by
the Fund by filing a U.S. federal income tax return. For U.S. federal income
tax purposes, the tax basis of shares owned by a shareholder of the Fund will
be increased by an amount equal to a portion, currently 65%, of the amount of
undistributed capital gains included in the shareholder's gross income.

The Code requires a RIC to pay a nondeductible 4% excise tax if the RIC
does not distribute, during each calendar year, at least 98% of its ordinary
income, determined on a calendar year basis, and 98% of its capital gains,
determined, in general, on an October 31 year end, plus certain undistributed
amounts from previous years. For these purposes, any income or gain on which
the RIC has paid a corporate level income tax is treated as having been
distributed during the year with respect to which the tax was paid. While
the Fund intends to distribute its income and capital gains in the manner
necessary to avoid imposition of the 4% excise tax, there can be no assurance
that sufficient amounts of the Fund's taxable income and capital gains will
be distributed to avoid entirely the imposition of the tax. In such event,
the Fund will be liable for the tax only on the amount by which it does not
meet the foregoing distribution requirements.

Foreign Currencies, Forward Contracts, Options and Futures Contracts.
Transactions in foreign currencies, forward contracts, options and futures
contracts (including options and futures contracts on foreign currencies) are
subject to special provisions of the Code that, among other things, may
affect the character of gains and losses realized by the Fund (i.e., may
affect whether gains or losses are ordinary or capital, and whether capital
gains and losses are long-term or short-term capital gains and losses),
accelerate recognition of income to the Fund and defer Fund losses. Gains or
losses attributable to fluctuations in exchange rates between the time the
Fund accrues income or other receivables (including dividends) or accrues
expenses or other liabilities denominated in a foreign currency and the time
the Fund actually collects such receivables or pays such liabilities, or
between the date of acquisition of certain securities denominated in a
foreign currency
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and the date of disposition are treated as gains or losses from transactions
in foreign currencies for these purposes. In the event the Fund engages in
transactions of these types, these rules could affect the character, amount
and timing of distributions to shareholders. These provisions also (a)
require the Fund to mark to market at prescribed intervals certain positions
in its portfolio (i.e., treat them as if they had been sold at fair market
value), and (b) may cause the Fund to recognize income without receiving cash
with which to pay dividends or make distributions in amounts necessary to
satisfy the distribution requirements for avoiding income and excise taxes.
The Fund will monitor its transactions, will make such tax elections as Fund
management deems appropriate, and will make the appropriate entries in its
books and records when it acquires any foreign currency, forward contract,
option, futures contract or hedged investment in order to mitigate the effect
of these rules and to prevent the Fund from failing to satisfy the
requirements for treatment as a RIC.

Taxation of Investments in Passive Foreign Investment Companies. The
Fund may invest up to 10% of its total assets in securities of investment
companies. If the Fund purchases shares of an investment company (or similar
investment entity) organized under foreign law, the Fund will be treated as
owning shares in a passive foreign investment company ("PFIC") for U.S.
federal income tax purposes. The Fund may be subject to U.S. federal income
tax at ordinary income rates, and to an additional tax in the nature of
interest (the "interest charge"), on a portion of the distributions from such
a company and on gain from the disposition of the shares of such company
(collectively referred to as "excess distributions"), even if such excess
distributions are paid by the Fund as a dividend to its shareholders.
Distributions by a PFIC that would be included in the Fund's excess
distributions are the distributions paid to the Fund during any taxable year
that exceed 125% of the average amount received by the Fund in respect of the
PFIC shares during the three preceding taxable years (or during the period
the Fund held the shares, if shorter). The Fund would not be able to pass
through to its shareholders any credit or deduction for such a tax. The Fund
may be eligible to make an election with respect to certain PFICs in which it
owns shares that will allow it to avoid the taxes on excess distributions.
However, such election may cause the Fund to recognize income in a particular
year in excess of the distributions received from such PFICs. Alternatively,
under proposed regulations which, when finalized, are expected to apply
retroactively, the Fund may elect to "mark to market" at the end of each
taxable year all shares that it holds in PFICs. If it makes this election,
the Fund will recognize as ordinary income any increase in the value of such
shares. Unrealized losses, however, will not be recognized. By making the
mark-to-market election, the Fund can avoid imposition of the interest charge
with respect to its distributions from PFICs, but in any particular year may
be required to recognize income in excess of the distributions it receives
from PFICs and its proceeds from dispositions of PFIC stock.

Foreign Withholding Taxes. As indicated under "ROC Income Taxes" above,
the Fund will be subject to ROC withholding taxes on interest and dividends
paid by an ROC corporation. If more than 50% in value of the Fund's total
assets at the close of its taxable year consists of securities of ROC and
other foreign corporations, the Fund will be eligible, and intends, to file
an election with the IRS pursuant to which the shareholders of the Fund will
be required to include their proportionate shares of such withholding taxes
in their United States federal income tax returns as gross income, treat such
proportionate shares as taxes paid by them, and deduct such proportionate
shares in computing their taxable incomes or, alternatively, use them as
foreign tax credits against their United States federal income taxes. The
amount of foreign withholding taxes for which a shareholder can claim a
United States foreign tax credit in any year is subject to limitations set
forth in the Code. A foreign shareholder (as defined below) may be subject
to the U.S. withholding tax on the income resulting from the election
described in this paragraph, but may not be able to claim a credit or
deduction against any U.S. tax for the foreign taxes treated as having been
paid by such shareholder. The Fund will report annually to its shareholders
the amount per share of such withholding taxes.

Distributions. Dividends paid by the Fund from its ordinary income and
distributions of the Fund's net realized short-term capital gains (together
referred to hereafter as "ordinary income dividends") are taxable to
shareholders as ordinary income. Distributions made from the Fund's net
realized long-term capital gains, including long-term gains from certain
transactions in futures or options ("capital gain dividends") are taxable to
shareholders as long-term capital gains, regardless of the length of time the
shareholder has owned Fund shares.
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Any loss on a sale or exchange of Fund shares that have been held for six
months or less will be treated as long-term capital loss to the extent of any
capital gain dividends received by the shareholder with respect to such
shares.

Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Fund. Shareholders participating in the Dividend
Reinvestment Plan will be treated by the Fund for tax reporting purposes as
receiving a distribution equal to the cash distribution they could have
received instead of shares. Not later than 60 days after the close of its
taxable year, the Fund will provide its shareholders with a written notice
designating the amounts of any ordinary income dividends or capital gain
dividends made during the preceding fiscal year. Distributions by the Fund,
whether from ordinary income or capital gains, in most instances, will not be
eligible for the dividends received deduction allowed to corporations under
the Code. If the Fund pays a dividend in January which was declared in the
previous October, November or December to shareholders of record on a
specified date in one of such months, then such dividend will be treated for
tax purposes as being paid by the RIC and received by its shareholders on
December 31 of the year in which it was declared. Distributions in excess of
the Fund's investment company taxable income and net capital gains will
reduce each shareholder's basis in his or her shares. If the basis of a
shareholder who holds shares as capital assets is reduced to zero, additional
distributions will constitute capital gains to such shareholder.

Investors considering purchasing shares just prior to a dividend payment
date should be aware that, although the price of shares purchased at that
time may reflect the amount of the forthcoming distribution (so that the
distribution will, in effect, represent a return of the purchase price),
those who purchase just prior to the record date for the distribution may
receive a dividend which will be taxable to them.

Sales of Shares. Any gain or loss realized upon the sale or exchange of
shares of the Fund by a shareholder who holds the shares as capital assets
will be treated as long-term capital gain or loss if the shares have been
held for more than one year, and otherwise as short-term capital gain or
loss. Any loss realized by a shareholder upon a sale of shares in the Fund
that have been held by the shareholder for six months or less will be treated
as a long-term capital loss, however, to the extent of any capital gain
dividends received by the shareholder with respect to such shares.
Additionally, any loss realized on the sale or exchange of shares of the Fund
will be disallowed to the extent the shares disposed of are replaced within a
period of 61 days beginning 30 days before and ending 30 days after the
shares are sold or exchanged. For this purpose, acquisitions pursuant to the
Dividend Reinvestment Plan will constitute a replacement if made within the
period. If disallowed, the loss will be reflected in an adjustment to the
basis of the acquired shares.

Backup Withholding. Under certain provisions of the Code, some
shareholders may be subject to a 31% withholding tax on "reportable"
payments, generally including redemption or sale proceeds received through a
broker, ordinary income dividends and capital gain dividends ("backup
withholding"). Generally, shareholders subject to backup withholding will be
those for whom no taxpayer identification number is on file with the Fund or
who, to the Fund's knowledge, have furnished an incorrect number. When
establishing an account, an investor must certify under penalty of perjury
that such number is correct and that the investor is not otherwise subject to
backup withholding. Corporate shareholders and certain other shareholders
are exempt from such backup withholding. Any amounts withheld under the
backup withholding provisions may be credited against a shareholder's U.S.
federal income tax liability.

Taxation of Foreign Shareholders. Dividends of investment company
taxable income to a shareholder who, as to the United States, is a
nonresident alien individual, fiduciary of a foreign trust or estate, foreign
corporation or foreign partnership (a "foreign shareholder") will be subject
to U.S. withholding tax at a rate of 30% (or lower rate provided by an
applicable tax treaty) unless the dividends are effectively connected with a
U.S. trade or business of the shareholder, in which case the dividends will
be subject to tax on a net income basis at the graduated rates applicable to
U.S. individuals or domestic corporations. Foreign shareholders may also be
subject to U.S. withholding at a rate of 30% (or a lower treaty rate) on
income resulting from the Fund's election to treat any foreign income taxes
paid by it as paid by its shareholders, but may not be able to
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claim a credit or deduction with respect to such taxes. Capital gain
dividends to a foreign shareholder and gain realized by a foreign shareholder
upon a sale or redemption of shares of the Fund generally will not be subject
to U.S. tax unless the dividends or gains, as the case may be, are
effectively connected with the shareholder's trade or business in the United
States, or in the case of a shareholder who is a nonresident alien
individual, the shareholder is present in the United States for 183 days or
more during the taxable year and certain other conditions are met. (With
limited exceptions, individuals present in the United States for 183 days or
more will be taxed as residents of the United States, rather than as foreign
shareholders.) A determination by the Fund not to distribute long-term
capital gains may reduce a foreign shareholder's overall return from an
investment in the Fund, since the Fund will incur a United States federal tax
liability with respect to retained long-term capital gains, thereby reducing
the amount of cash held by the Fund that is available for distribution.
However, if the Fund designates the retained amounts as undistributed capital
gains, as discussed above in "United States Income Taxes--General," foreign
shareholders who are not subject to U.S. federal income tax on net capital
gains can obtain a refund of their proportionate shares of the tax paid by
the Fund by filing a U.S. federal income tax return. In the case of a
foreign shareholder who is a nonresident alien individual, the Fund may be
required to withhold U.S. federal income tax at the rate of 31% unless
Internal Revenue Service ("IRS") Form W-8 is provided. See "Backup
Withholding" above. Transfer by gift of shares of the Fund by a foreign
shareholder who is a nonresident alien individual will not be subject to U.S.
federal gift tax, but the value of shares of the Fund held by such a
shareholder at his death will be includible in his gross estate for U.S.
federal estate tax purposes.

The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described in
this section. Shareholders may be required to provide appropriate
documentation to establish their entitlement to the benefits of such a
treaty. Foreign shareholders are advised to consult their own tax advisers
with respect to the particular tax consequences to them of an investment in
the Fund.

Federal, State and Local Taxes. The foregoing is a general and
abbreviated summary of the applicable provisions of the Code and Treasury
regulations presently in effect. For the complete provisions, reference
should be made to the pertinent Code sections and the Treasury regulations
promulgated thereunder. The Code and the Treasury regulations are subject to
change by legislative, judicial or administrative action either prospectively
or retroactively.

Ordinary income and capital gain dividends may also be subject to state
and local taxes.

THE U.S. FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS A SUMMARY
INCLUDED FOR GENERAL INFORMATION PURPOSES ONLY. IN VIEW OF THE INDIVIDUAL
NATURE OF TAX CONSEQUENCES, EACH SHAREHOLDER IS ADVISED TO CONSULT HIS OWN
TAX ADVISER WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES TO HIM OF
PARTICIPATION IN THE FUND, INCLUDING THE EFFECT AND APPLICABILITY OF STATE,
LOCAL, FOREIGN, AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN
FEDERAL OR OTHER TAX LAWS.

DESCRIPTION OF COMMON STOCK

The Fund is authorized to issue 100,000,000 shares of capital stock, par
value $0.10 per share, all of which shares have been classified as Common
Stock.

Shares, when issued and outstanding, will be fully paid and non-
assessable. Shareholders are entitled to share pro rata in the nets assets
of the Fund available for distribution to shareholders upon liquidation of
the Fund. Shareholders are entitled to one vote for each Share held.

The Fund will send reports at least semi-annually to all of its
shareholders. The reports will include financial statements and, at least
annually, a report of the independent accountants of the Fund.

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<PAGE>
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION

The Fund's Articles of Incorporation include provisions that could have
the effect of limiting the ability of other entities or persons to acquire
control of the Fund or to change the composition of its Board of Directors
and could have the effect of depriving shareholders of an opportunity to sell
their Shares at a premium over prevailing market prices by discouraging a
third party from seeking to obtain control of the Fund. A Director may be
removed from office (with or without cause) by vote of the holders of at
least 662/3% of the Shares entitled to be voted in an election to fill that
directorship.

As permitted by the Maryland General Corporation Law ("MGCL"), the Fund
has elected to be subject to the provisions of Section 3-602 of the MGCL
which deals with certain "business combinations" with "interested
stockholders." An "interested stockholder" is defined, in essence, as any
person owning beneficially, directly or indirectly, 10% or more of the
outstanding voting stock of a Maryland corporation. A "business combination"
is defined to include, among other things, any merger or similar transaction
subject to a statutory vote and additional transactions involving transfers
of assets or securities in specified amounts to interested stockholders or
their affiliates. Unless an exemption to Section 3-602 applies, the Fund may
not engage in any business combination with an interested stockholder for a
period of five years after the interested stockholder became an interested
stockholder, and thereafter may not engage in a business combination unless
it is recommended by the Board of Directors and approved by the affirmative
vote of at least (i) 80% of the votes entitled to be cast by the holders of
all outstanding voting stock of the Fund, and (ii) 662/3% of the votes
entitled to be case by all holders of outstanding shares of voting stock
other than voting stock held by the interested stockholder.

In addition, the Articles of Incorporation require the favorable vote of
the holders of at least 662/3% of the outstanding Shares, then entitled to be
voted, to approve, adopt or authorize the following:

(i) a merger or consolidation or statutory share exchange of the
Fund with any other corporation,

(ii) a sale of all or substantially all of the Fund's assets
(other than in the regular course of the Fund's investment activities),

(iii) a liquidation or dissolution of the Fund, or

(iv) conversion of the Fund from a closed-end to an open-end
investment company,

unless such action has been approved, adopted or authorized by the
affirmative vote of two-thirds of the total number of Directors fixed in
accordance with the by-laws, in which case the affirmative vote of a majority
of the outstanding Shares is required.

The affirmative vote of 662/3% or more of the outstanding Shares then
entitled to vote is required to amend any or all of the foregoing provisions
and certain other provisions contained in the Articles of Incorporation.

The Board of Directors has determined that the super-majority voting
requirements described above, which are greater than the minimum requirement
under Maryland law or the 1940 Act, are generally in the best interests of
shareholders. Reference should be made to the Articles of Incorporation on
file with the U.S. Securities and Exchange Commission as an exhibit to the
Registration Statement of which this Prospectus forms a part for the full
text of these provisions.

The provisions of the Articles of Incorporation described above and the
Fund's right to repurchase Shares could have the effect of depriving
shareholders of the opportunity to sell their Shares at a premium over
62
<PAGE>
prevailing market prices, by discouraging a third party from seeking to
obtain control of the Fund in a tender offer or similar transaction. The
overall effect of these provisions is to render more difficult the
accomplishment of a merger or the assumption of control by another entity or
person.

REPURCHASE OF SHARES

Shares of closed-end investment companies frequently trade at a discount
from net asset value. In recognition of the possibility that the Fund's
shares of Common Stock may trade at a discount, the Fund may, from time to
time, take action to attempt to reduce or eliminate a market value discount
from net asset value, either by repurchasing Fund shares in the open market
when it can do so at prices below the current net asset value per share, or
by making a tender offer for shares of the Fund. There is no assurance that
the Directors of the Fund will approve such repurchases and/or tender offers.

There can be no assurance that repurchasing or tendering for shares of
the Fund will result in the shares trading at a price equal to their net
asset value. The Fund anticipates that the market price of its shares will
vary from net asset value from time to time. The market price of the Fund's
shares will, among other things, be determined by the relative demand for and
supply of such shares in the market, the Fund's investment performance, the
Fund's dividends and yield, and investor perception of the Fund's overall
attractiveness as an investment as compared with other investment
alternatives.

UNDERWRITING

The U.S. Underwriters named below (the "U.S. Underwriters"), acting
through Nomura Securities International, Inc. as their representative (the
"U.S. Representative"), have severally agreed, subject to the terms and
conditions of an underwriting agreement (the "U.S. Underwriting Agreement"),
to purchase from the Fund the number of U.S. Shares set forth below opposite
their respective names. The U.S. Underwriters are committed to purchase all
of such U.S. Shares if any are purchased.

Number of
U.S. Underwriters U.S. Shares
Nomura Securities International, Inc. . . . . . . . . . . . .

_________
Total . . . . . . . . . . . . . . . . . . . . . . . . .
==========

The Fund, the Investment Manager and the Investment Adviser have also
entered into an underwriting agreement (the "International Underwriting
Agreement") for the purchase of the International Shares by the International
Underwriters. The International Underwriters named below (the "International
Underwriters") have severally agreed, subject to the terms and conditions of
the International Underwriting Agreement, to purchase from the Fund the
number of International Shares set forth below opposite their respective
names. The International Underwriters are committed to purchase all of such
International Shares if any are purchased.

Number of
International
International Underwriters Shares
Nomura International (Hong Kong) Ltd. . . . . . . . . . . . .
_________
Total . . . . . . . . . . . . . . . . . . . . . . . . .
==========

The Fund, the Investment Manager and the Investment Adviser have also
entered into an underwriting agreement (the "Japanese Underwriting
Agreement", and together with the U.S. Underwriting Agreement and the
International Underwriting Agreement, the "Underwriting Agreements") for the
purchase of the Japanese
63
<PAGE>
Shares by the Japanese Underwriters (the "Japanese Underwriters"). The
Japanese Underwriters, acting through The Nomura Securities Co., Ltd. as
their representative (the "Japanese Representative"), have jointly and
severally agreed, subject to the terms and conditions set forth in the
Japanese Underwriting Agreement, to purchase an aggregate of
Japanese Shares. The Japanese Underwriters are committed to purchase all of
such Japanese Shares if any are purchased.

The U.S. Underwriters, the Japanese Underwriters and the International
Underwriters have entered into an agreement (the "Intersyndicate Agreement")
providing for the coordination of their activities under the direction of
Nomura Securities International, Inc., acting on behalf of the U.S.
Underwriters, the Japanese Underwriters and the International Underwriters.
Pursuant to the Intersyndicate Agreement, the U.S. Underwriters and the
International Underwriters will not offer to sell or sell U.S. Shares or
International Shares in Japan, the Japanese Underwriters will not offer to
sell or sell Japanese Shares to anyone outside of Japan, and the
International Underwriters will sell International Shares outside the United
States, Canada and Japan. The foregoing limitations do not apply to
stabilization transactions or to certain other transactions specified in the
Intersyndicate Agreement. Pursuant to the Intersyndicate Agreement, sales
may be made among any of the International Underwriters, the Japanese
Underwriters and the U.S. Underwriters of such number of Shares as may be
mutually agreed. The per Share price of any Shares so sold shall be the
initial public offering price less an amount not greater than the per Share
amount of the concession to dealers.

The U.S. Representative, the Japanese Underwriters and the International
Underwriters have advised the Fund that the U.S. Underwriters, the Japanese
Underwriters and the International Underwriters propose initially to offer
Shares to the public at the public offering price set forth on the cover page
of this Prospectus, except that the price will be reduced to $_____ per Share
for purchases in single transactions (as defined below) of between _____ and
_____ Shares and to $_____ per Share for purchases in single transactions of
_____ or more Shares. In addition, the U.S. Representative and the
International Underwriters have advised the Fund that the U.S. Underwriters
and the International Underwriters propose to offer Shares to certain dealers
at such price less a concession not in excess of $ per Share ($_____
per Share for purchases in single transactions of between _____ and _____
Shares and $_____ for purchases in single transactions of _____ or more
Shares), and that such Underwriters may allow, and such dealers may reallow,
concessions not in excess of $ per Share to certain other dealers.
The maximum sales load is equal to % of the initial public offering
price. After the initial public offering, the public offering price,
concession and reallowance may be changed. Purchasers who agree to purchase
Shares at a reduced public offering price will be restricted from selling,
assigning or otherwise transferring or contracting to transfer these Shares
for a period of 90 days after the closing of the Offerings. The certificates
evidencing Shares purchased at a reduced price will contain a legend stating
the transfer restriction. Investors purchasing Shares from the U.S.
Underwriters in the initial public offering must pay for such Shares on or
before , 1996. The Investment Manager also has agreed to
pay Nomura Securities International, Inc., The Nomura Securities Co., Ltd.
and Nomura International (Hong Kong) Limited a fee for acting as lead
managing underwriters of the United States, Japan and International
Offerings, respectively, in an amount equal to .25% of the value of the
Shares sold by such firms.

The term "single transaction," as used in this Prospectus, refers to a
single purchase by an individual or to concurrent purchases, which in the
aggregate are at least equal to the prescribed amounts, by an individual, his
parents, spouse, siblings and children purchasing Shares for his or their own
account and to single transactions by a trustee, money manager, or other
fiduciary purchasing Shares for one or more trust estates, one or more
fiduciary accounts and/or his own account. The term "single transaction"
also includes purchases by any "company," as that term is defined in the 1940
Act, its directors, senior executive officers and controlling shareholders;
provided, however, that it does not include purchases by any such company
which has not been in existence for at least six months or which has no
purpose other than the purchase of Shares or shares of other registered
investment companies at a discount; and provided further, that it does not
include purchases by any group of individuals whose sole organizational nexus
is that the participants therein are credit cardholders of a company,
policyholders of an insurance company or non-investment advisory customers of
a bank.

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<PAGE>
Prior to the offering, there has been no public market for the Shares of
Common Stock. The Fund will apply to list its Shares on the New York Stock
Exchange and the Osaka Securities Exchange. In order to meet one of the
requirements for listing of the Shares on the New York Stock Exchange, the
U.S. Underwriters will undertake to sell lots of 100 or more Shares to a
minimum of 2,000 beneficial owners. In order to meet one of the requirements
for listing of the Shares on the Osaka Securities Exchange, the Japanese
Underwriter will undertake to sell Shares to a minimum of 600 investors in
Japan.

The U.S. Underwriters and the International Underwriters have been
granted options, expiring 45 days from the date of this Prospectus, by the
Fund to purchase up to an aggregate of 50,000 additional Shares at the same
price per Share as the initial Shares to be purchased by the
Underwriters, solely to cover over-allotments. In the event the U.S.
Underwriters and the International Underwriters exercise their options, each
U.S. Underwriter and International Underwriter will have a firm commitment,
subject to certain conditions, to purchase the number of additional Shares
proportionate to its initial commitment.

The U.S. Underwriters and the International Underwriters may take
certain actions to discourage short-term trading of Shares during a period of
time following the initial offering date. Included in these actions is the
withholding of the concession to dealers in connection with Shares which were
sold by such dealers and which are repurchased for the account of the U.S.
Underwriters or International Underwriters during such period. In addition,
physical delivery of certificates representing Shares is required for a
certain period to transfer ownership of Shares.

The Fund, the Investment Manager and the Investment Adviser have agreed
to indemnify the U.S. Underwriters, the Japanese Underwriters and the
International Underwriters against, or contribute to, losses arising out of
certain liabilities, including liabilities under the U.S. Securities Act of
1933, as amended. The Fund has agreed to pay $ in the
aggregate to the U.S. Underwriters, the Japanese Underwriters and the
International Underwriters in partial reimbursements of certain of their
costs and expenses.

The International Underwriters have agreed that (i) they have not
offered or sold, and prior to the date six months after the date of issue of
the Shares they will not offer or sell, directly or indirectly, any Shares
offered hereby to persons in the United Kingdom except to persons whose
ordinary activities involve them in acquiring, holding, managing or disposing
of investments (as principal or agent) for the purposes of their businesses
or otherwise in circumstances which have not resulted and will not result in
an offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regualtions 1995, (ii) they have complied and will
comply with all applicable provisions of the Financial Services Act of 1986
with respect to anything done by them in relation to the Shares in, from, or
otherwise involving the United Kingdom, and (iii) they have only issued and
passed on and will only issue or pass on to any person in the United Kingdom
any document received by them in connection with the issuance of Shares if
that person falls within Article 11(3) of the Financial Services Act of 1986
(Investment Advertisements) (Exemptions) Order 1995 or is a person to whom
such document may otherwise lawfully be issued or passed on.

Each International Underwriter has represented and agreed that (i) it
has not offered or sold and will not offer or sell in Hong Kong, by means of
any document, any Common Stock other than to persons whose ordinary business
it is to buy or sell shares, whether as principal or agent, or in
circumstances which do not constitute an offer to the public within the
meaning of the Companies Ordinance (Cap. 32) of Hong Kong, and (ii) it has
not issued and will not issue any invitation or advertisement relating to the
Common Stock in Hong Kong (except if permitted to do so under the Securities
laws of Hong Kong) other than with respect to Common Stock intended to be
disposed of to persons outside Hong Kong or to be disposed of in Hong Kong
only to persons whose business involves the acquisition, disposal, or
holding, of securities, whether as principal or as agent.

65
<PAGE>
Purchasers of the Shares offered hereby may be required to pay stamp
taxes and other charges in accordance with the laws and practices of the
country of purchase, in addition to the offering price set forth on the cover
page hereof.

The Fund anticipates that certain of the U.S. Underwriters, the Japanese
Underwriters or the International Underwriters may from time to time act as
brokers or dealers in connection with the execution of the Fund's portfolio
transactions after they have ceased to be Underwriters and, subject to
certain restrictions, may act as brokers while they are Underwriters.

TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR

_______________________________________________________ (the "Transfer
Agent") will act as the Fund's transfer paying agent, dividend disbursing
agent and the registrar for the Fund's Common Stock. The principal business
address of the Transfer Agent is
___________________________________________________.

CUSTODIAN

_______________________________ (the "Custodian"), has been retained to
act as Custodian of the Fund's assets. The Custodian may employ sub-
custodians outside of the United States approved by the Board of Directors in
accordance with regulations under the 1940 Act.

EXPERTS

The statement of assets and liabilities of the Fund has been included in
this Prospectus in reliance upon the report of ____________________,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.

LEGAL MATTERS

The validity of the Shares offered hereby will be passed on for the Fund
by Brown & Wood, New York, New York and by its special Maryland counsel,
____________________________________. Certain legal matters will be passed
upon for the Underwriters by Fulbright & Jaworski L.L.P., New York, New York.
Certain matters concerning ROC law will be passed upon for the Fund by Lee
and Li, Taipei, Taiwan, ROC. Certain Japanese legal matters will be passed
upon for the Fund by Shimazaki International Law Office, Tokyo, Japan, and
for the Japanese Underwriter by Tomotsune Kimura & Mitomi, Tokyo, Japan.

It is likely that foreign persons, such as the Investment Manager, the
Investment Adviser and sub-custodians of the Fund, will not have assets in
the United States that could be attached in connection with any U.S. action,
suit or proceeding.

The books and records of the Fund required under U.S. law will be
maintained at the Fund's principal office in the United States and will be
subject to inspection by the Commission.

OFFICIAL DOCUMENTS

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<PAGE>

All of the documents, except ROC company annual reports, referred to
herein as the source of statistical information are public official documents
of the ROC, its ministries, the Central Bank or the TSE.

ADDITIONAL INFORMATION

The Fund has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement under the Securities Act of
1933, as amended, with respect to the Shares offered hereby. Further
information concerning the Shares and the Fund may be found in the
Registration Statement, of which this Prospectus constitutes a part. The
Registration Statement may be inspected without charge at the Commission's
office in Washington, D.C., and copies of all or any part thereof may be
obtained from such office after payment of the fees prescribed by the
Commission.

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REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholder and Board of Directors of
The New Formosa Fund, Inc.

In our opinion, the accompanying statement of assets and liabilities
presents fairly, in all material respects, the financial position of The New
Formosa Fund, Inc. (the "Fund") at _____________, 1996, in conformity with
generally accepted accounting principles. This financial statement is the
responsibility of the Fund's management; our responsibility is to express an
opinion on this financial statement based on our audit. We conducted our
audit of this financial statement in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.

________________________
New York, New York
______________, 1996

68
<PAGE>
THE NEW FORMOSA FUND, INC.

STATEMENT OF ASSETS AND LIABILITIES
___________________, 1996

ASSETS

Assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Deferred organizational expenses (Note 1) . . . . . . . . .
-----

Total Assets . . . . . . . . . . . . . . . . . . . . . . $
=====

LIABILITIES AND STOCKHOLDER'S EQUITY

Liabilities:
Organizational expenses payable . . . . . . . . . . . . . . $
------

Total Liabilities . . . . . . . . . . . . . . . . . . . $
------

Commitments and Contingencies (Notes 1 and 2) . . . . . . . . .
-------

Net Assets:
Common Stock, $.01 par value, authorized 100,000,000 shares;
shares issued and outstanding . . . . . . . . . . .
Paid-in Surplus . . . . . . . . . . . . . . . . . . . . .
-------

Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . $
=======
Net Asset Value per share . . . . . . . . . . . . . . . . . . . $
=======
NOTE 1. ORGANIZATION:

The New Formosa Fund, Inc. (the "Fund") was organized in Maryland on
November 13, 1995. The Fund is registered under the Investment Company Act
of 1940 as a closed-end investment company. The Fund has had no operations
other than the issuance of _____ shares of its common stock on
______________, 1996 to ____________________________. Organizational costs

estimated at $____________ will be deferred and amortized on a straight-line
basis over a 5 year period from the date the Fund commences operations.
Offering costs estimated at $_________ will be paid from the proceeds of the
offering and will be charged to capital upon the receipt of such proceeds by
the Fund.

NOTE 2. AGREEMENTS WITH AFFILIATES:

Pursuant to the Management Agreement, Kwang Hua Securities Investment &
Trust Co. (H.K.), Ltd. will receive a fee, computed weekly and payable
monthly, at an annual rate of ____% of the Fund's average weekly net assets.
For its services under the Advisory Agreement, the Investment Adviser will
receive no separate compensation from the Fund.

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APPENDIX A

THE REPUBLIC OF CHINA

THE INFORMATION SET FORTH IN THIS APPENDIX HAS BEEN EXTRACTED FROM
VARIOUS GOVERNMENTAL AND PRIVATE PUBLICATIONS. THE FUND AND ITS BOARD OF
DIRECTORS MAKE NO REPRESENTATION AS TO THE ACCURACY OF THE INFORMATION, NOR
HAS THE FUND OR ITS BOARD OF DIRECTORS ATTEMPTED TO VERIFY IT.

GENERAL INFORMATION

LOCATION, AREA AND POPULATION

Taiwan is located approximately 90 miles east of the Chinese mainland,
650 miles south of Japan, 340 miles northeast of Hong Kong and 200 miles
north of the Philippines. Owing to its geographical position, Taiwan plays a
significant role in trade, transportation and tourism in East Asia.

The island is 240 miles in length and 80 miles in width. In addition to
the island of Taiwan, there are over 77 offshore islands currently under the
effective control of the Republic of China (the "ROC"). The total area of
the ROC is approximately 13,900 square miles, which is approximately the same
as that of the Netherlands.

Taiwan's total population as of March 31, 1995 was estimated at 21
million. The literacy rate is approximately 94%. The bulk of the population
is composed of Chinese descendants from early migrants from the mainland and
mainland Chinese who migrated from the mainland in 1949 and their
descendants. Chinese persons make up approximately 98% of the population,
with the remaining 2% of the population consisting primarily of aboriginal
natives of the island. Population density is among the highest in the world
with an average of approximately 1,498 people per square mile. The largest
cities are Taipei, in the north, with over 2.7 million people, and Kaohsiung,
in the south, with over 1.4 million people. Mandarin is the official
language, while Fukien and Hakka dialects are also widely spoken. The adult
literacy rate is estimated at over 90%.

POLITICAL HISTORY

The ROC was established in 1912 by Dr. Sun Yat-Sen and his Kuomintang
(Nationalist Party) (the "KMT") on mainland China after the overthrow of the
Ching Dynasty in 1911. The ROC government remained on the mainland until
December 1949 when General Chiang Kai-Shek, who was elected president of the
Republic by the National Assembly in 1948, moved the seat to Taipei. Since
that time, the ROC has continued to maintain that it is the sole legitimate
government of all of China (i.e., Taiwan and all of mainland China and
Mongolia). The People's Republic of China (the "PRC") also asserts
sovereignty over all of China, including Taiwan.

Upon President Chiang Kai-Shek's death in 1975, his son, then Premier
Chiang Ching-Kuo, assumed leadership and was subsequently elected President
in 1978 by the National Assembly. President Chiang Ching-Kuo died on January
13, 1988 at the age of 79, during his second six-year term of office. The
then Vice President, Lee Teng-Hui, age 65, was sworn in as President on the
same day. President Lee was subsequently elected Chairman of the KMT in July
1988. He is the first native-born Taiwanese to hold either the office of
President or Chairman of the KMT. President Lee was reelected in March 1990
for a six-year term of office. A national election of president will be held
by the end of March 1996 for a term of four years.

The ruling KMT has been increasing the pace of political liberalization
in the ROC, in accordance with a ten-year political liberalization program
introduced by the late president in 1986. The program provides, among other
things, for the gradual increase in the number of generally elected
parliamentary seats and the recognition of opposition political parties.

A-1
<PAGE>

On December 2, 1989, in the first parliamentary election held since the
lifting of martial law in 1987, the three-year-old opposition Democratic
Progressive Party ("DPP") won 31% of the popular vote, increasing the number
of its seats in the Legislative Yuan from 12 to 21. The increase in the
number of seats controlled by the DPP after the 1989 election is significant
because, although the number represented only about 13% of the total seats in
the Legislative Yuan, it marked the first time since 1949 that an opposition
party held the minimum number of seats required to introduce legislation.

In April of 1991, the National Assembly approved a series of
constitutional reforms establishing a legal basis for general parliamentary
elections; providing the president with emergency powers to deal with crises;
and establishing "sunset clauses" requiring the dissolution of the National
Security Council, National Security Bureau, and Central Personnel
Administration, which have since been dissolved.

On December 21, 1991, elections were held for the National Assembly.
These were the first full elections in the ROC in over four decades. The KMT
prevailed in this election, winning 71 % of the popular vote, while the DPP
garnered 24% of the popular vote. Of the 325 National Assembly candidates
elected, 254 were members of the KMT, 66 were DPP, and five were independent.
After these elections, the KMT (including those independent candidates allied
to it) controlled 79% of the votes in the assembly.

In the most recent parliamentary elections, held on December 19, 1992,
the DPP made significant gains. DPP candidates received more than 31% of
total votes cast. The DPP's larger presence in the legislature has resulted
in the party's wielding a greater influence in formulating government
policies.

On November 27, 1993, nationwide elections were held for county chiefs
and city mayors. The elections resulted in the KMT securing 15 seats, one
more than it previously held, and the DPP retaining six seats, one less than
it previously held.

FOREIGN RELATIONS

The ROC maintains formal diplomatic relations with 29 countries and the
Vatican. In addition, it has active trade and financial relations with most
major economic powers and maintains trade missions in locations around the
world. Taiwan remains a member of the Asian Development Bank, but is not a
member of the United Nations and various other international organizations.
The ROC government has applied to rejoin the General Agreement on Tariffs and
Trade ("GATT"), from which it withdrew in 1950. In September 1992, in
accordance with a GATT resolution to establish a committee to examine the
ROC's application for readmission, the ROC was permitted to become a GATT
observer during the examination. It is expected that Taiwan will seek
membership in the World Trade Organization later this year. The ROC joined
the Asia-Pacific Economic Cooperation group ("APEC") in November 1991,
together with Hong Kong and the PRC.

Although the U.S. government terminated diplomatic relations with the
ROC at the close of 1978, the U.S. Congress passed the Taiwan Relations Act
in 1979 to establish a new framework for U.S./ROC relations. The Act
declared it to be U.S. policy to preserve and promote close commercial,
cultural and other relations between the people of the United States and the
people of the ROC. In addition, the Act established the American Institute
in the ROC to assume most of the functions previously performed by the
embassy and consulates. The Institute established an office in Taipei and a
branch office in Kaohsiung. Its counterpart organization on the ROC side,
the Taipei Economic and Cultural Office (formerly the Coordination Council
for North American Affairs), was established in February 1979, with offices
in Washington, D.C. and other major U.S. cities.

The Act also provided that the United States would make available
defense articles and defense services in such quantity as necessary to enable
the ROC to maintain a sufficient self-defense capability. Although the
Mutual Defense Treaty with the United States was terminated in January 1980
and American military personnel were
A-2
<PAGE>
withdrawn, U.S. sales of military equipment to the ROC continue. For
example, in October of 1992, the United States agreed to sell to the ROC 150
F-16A/B fighter jets. The Act requires the President and Congress
periodically to determine the nature and quantity of defense articles and
services based on their judgment of the needs of the ROC. Under the Act, the
President is also required to inform Congress of any threat to the ROC's
security or its social or economic system, and the President and Congress are
required to determine appropriate U.S. action in response to any such threat.

The Act approved the continuation of all non-military treaties and
international agreements in effect on December 31, 1978 between the United
States and the ROC. Specifically, the Act provides that, in spite of the
absence of diplomatic relations, U.S. laws with respect to the ROC will
continue to be applied in the same manner that such laws were applied prior
to January 1, 1979; that the ROC should continue to be treated as a foreign
state or government for the purposes of U.S. law; and that contractual and
property rights acquired by, or with respect to, the ROC should not be
affected by withdrawal of formal diplomatic recognition.

Trade relations between the United States and the ROC have not been
adversely impacted by the change in diplomatic status. The United States
remains one of the ROC's largest trading partners and the U.S. and the ROC
continue to conduct periodic talks on trade relations.

RELATIONS WITH THE P.R.C.

Relations between the P.R.C. and the ROC over the past several years
have been characterized by a gradual relaxation of barriers to business
relations, trade and investment. The announced policy of the P.R.C. towards
Taiwan is one of peaceful reunification of China, but only under the aegis of
the P.R.C. Mainland Chinese authorities have consistently refused to renounce
the possibility that they may at some point use force to seek control over
Taiwan, particularly if Taiwan should take any concrete steps towards
political independence or if the political and social situation in Taiwan
should become destabilized. P.R.C. authorities have also consistently
expressed grave concern about the possibility of Taiwan's declaration of
independence from China as a whole or its development of nuclear weapons, and
have indicated that neither action would be tolerated. The ROC government
has repeatedly stated that is policy is not to seek independence or develop
nuclear weapons. Relations between the ROC and the P.R.C. have recently been
strained as a result of the P.R.C.'s objection to the private visit by ROC
President Lee Teng-Hui to the United States in June 1995, the P.R.C.'s
conduct of military exercise in the waters north of Taiwan and certain other
matters.

GOVERNMENT ORGANIZATION

The ROC government is characterized by a strong executive branch which
is broadly involved in the formulation and implementation of economic policy.
The government is organized into five branches or "Yuans:" the Executive
Yuan, the Legislative Yuan, the Judicial Yuan, the Examination Yuan and the
Control Yuan. In addition, there is an elected body known as the National
Assembly whose functions are limited in practice to the election and removal
of the President and Vice President, the determination of the sphere of state
territory and the amendment of the constitution. Statutory procedures do
exist, however, by which the National Assembly could share legislative power
by stipulating legislative directions or principles, or by abrogating
existing enactments, but these procedures have never been exercised.

The executive branch is headed by the President, who is also
commander-in-chief of the armed forces and is partially entrusted with the
exercise of emergency powers, and by the Premier, who heads the Executive
Yuan, or cabinet. The President and Vice President are elected by the
National Assembly to six-year terms. Beginning in 1996, the President and
Vice President will be elected by the populace rather than by the National
Assembly, for a four-year term. The President, in turn, appoints the Premier
with the consent of the majority of the Legislative Yuan (the sitting
legislative body) and also appoints the Deputy Premier and cabinet ministers
on the
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<PAGE>
recommendation of the Premier. While the Executive Yuan is by constitutional
provision responsible to the Legislative Yuan, legislation is generally
initiated by the executive branch. In certain circumstances, the Executive
Yuan may, with the President's approval, send a bill back to the Legislative
Yuan for reconsideration and revision, in which case the bill may be
reaffirmed only by the two-thirds vote of the Legislative Yuan. Laws become
effective only when promulgated by the President with the endorsement of the
Premier and, in certain circumstances, that of a cabinet minister.

Under the National Mobilization Law of 1942, the government may exercise
extensive emergency powers, including the power to assume administration of
financial institutions and financial resources. The National Security Law,
which was promulgated in 1987, replaced the state of martial law which had
been in effect since 1934. In May 1991 the President of the ROC declared an
end to certain emergency measures with regard to the PRC which had been
instituted by the ROC government prior to the government's removal to Taiwan.
The termination of these measures reflects the ROC's desire to ease political
tensions with the PRC and improve the bilateral relationship.

The Executive Yuan is composed of eight ministries--finance, economic
affairs, interior, national defense, foreign affairs, education, justice and
communications and several related councils. Responsibility for economic
affairs and development is shared among the Ministry of Finance, the Ministry
of Economic Affairs and the Council for Economic Planning and Development.
In 1987, a committee was formed to consider the reorganization of the
Executive Yuan. Subsequently, the Executive Yuan was restructured to include
commissions for health and welfare, labor, culture and agriculture.

The Legislative Yuan is the ROC's sitting legislative body and is
responsible for the enactment of all national laws. The judicial system is
administered by the Judicial Yuan, with judicial review powers vested in the
Council of Grand Justices. The Control Yuan is responsible for auditing of
government accounts and investigating and impeaching government officials.
The Examination Yuan is empowered to examine and select governmental
officials and establish pay scales and other terms of employment for the
civil service.

In 1991, approximately 50% of Legislative Yuan seats and 88% of National
Assembly seats were held by persons who were elected in mainland China before
the ROC government's removal to Taiwan (or by those persons' replacements).
The remaining seats were filled by direct elections held every three years in
the case of the Legislative Yuan and every six years in the case of the
National Assembly. One of President Lee's first achievements was to launch a
reform to retire legislators who were elected on the mainland. In connection
therewith, the Legislative Yuan enacted a statute in January 1989 that
provides for the retirement of such members with a government pension.

On December 21, 1991 elections for the ROC's National Assembly were held
for the first time in over 40 years. The elections were designed, in part,
to replace aging members of the National Assembly elected on mainland China.
Under the ROC's constitution, the National Assembly elects the President and
has the power to amend the constitution. The KMT prevailed in this election,
winning 71% of the popular vote, while the DPP garnered 24% of the popular
vote. Of the 325 National Assembly candidates elected, 254 were members of
the KMT, 66 were DPP, and five were independent. After these elections, the
KMT (including those independent candidates allied to it) controlled 79% of
the votes in the assembly.

In addition to the ROC central government, a separate provincial
government exercises strictly local government functions. The Taiwan
Provincial Government Council, the highest policymaking body, consists of 22
members selected by the Executive Yuan and appointed by order of the
President. The Taiwan Provincial Government Council is chaired ex officio by
the Provincial Governor, who is appointed by the President. The Provincial
Government also includes a Provincial Assembly, the provincial legislative
body. All members of the Provincial Assembly, city and county magistrates,
mayors (except the mayors of Taipei and Kaohsiung), chiefs of
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urban districts, rural townships and villages are elected by direct popular
vote. On December 3, 1994, the first gubernatorial election and Taipei and
Kaohsiung mayoral elections were held.

POLITICAL PARTIES

The KMT is the dominant political party and as of March 31, 1995
controlled approximately 77% of the 314 seats in the National Assembly and
approximately 59% of the 153 seats in the Legislative Yuan.

Prior to 1989, the KMT and two other political parties formed before
1940 were the only legally recognized political parties. During the 1980s,
however, political independents emerged and began to field candidates for
election to national, provincial and local bodies. In September 1986 a
number of independents came together and formed a new party, the DPP. The
DPP advocates, among other things, a more open, democratic political system
whereby the Chinese would achieve proportionate representation in government,
and self-determination with respect to the ROC's future relationship with
China. The government tolerated the activities of the DPP, though it was
technically an illegal organization under a state of martial law, which
existed from 1949 to 1987. The DPP subsequently gained legal recognition in
January 1989 under a new law which legalized opposition political parties
whose platforms accorded with the ROC constitution.

In August of 1993, a group of disaffected members of the KMT formed a
political party called the Chinese New Party. According to party members,
the Chinese New Party seeks to have direct talks with the PRC, to return
Taiwan to full membership in the international community, and to cooperate
with the PRC and overseas Chinese communities to build a "Greater Chinese
Economic Bloc" based on mutual economic interests.

Opposition to the government, which, since 1949 has been relatively
muted, has, since the lifting of martial law, become more active. For
instance, peaceful public demonstrations, formerly rare, have become more
common.

RECENT ECONOMIC DEVELOPMENTS

Although the ROC's exports continue to grow (increasing 9.36% in 1993 to
US$93 billion) and the country continues to enjoy a cumulative trade surplus
(US$7.7 billion in 1993), domestic demand has become an increasingly
important force in driving growth in the ROC's economy. During 1993, the ROC
gross national product ("GNP") grew at a real rate of approximately 6.32%.
This growth was sustained during 1993 and 1994 when GNP grew at rates of 5.9%
and 6.5%, respectively. During the first quarter of 1995, the ROC GNP grew
at an annualized rate of 6.86%.

The ROC's foreign exchange reserves increased by 10.6% during 1994, and
stood at US$97.9 billion on March 31, 1995. On December 31, 1994, external
debt stood at US$563.3 million, a drop of 5.83% from 1993. External debt
service payments represented approximately 0.1% of exports of goods and
services in 1994.

Since 1984, the ROC's favorable trade balance and the build-up in
foreign exchange reserves have caused appreciation of the NT Dollar and
heightened protectionist sentiments in the ROC's major export markets. In
1987, the NT Dollar appreciated approximately 19.6% against the U.S. Dollar.
The NT Dollar further appreciated by 3.7% between December 31, 1987 and March
31, 1995 but substantially returned these gains during the summer of 1995.
In April of 1993, the ROC was placed on the United States' "priority watch
list" for possible trade sanctions under Section 301 of the Omnibus Trade
Act. Nations placed on this "Special 301 priority watch list" do not have
intellectual property rights ("IPR") protection standards meeting those
stipulated by U.S. trade representatives. After being placed on this
"priority watch list," the ROC quickly passed a series of legislation
revising its copyright laws. However, the ROC was not taken off the
"priority watch list," and the United States
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retained its right to impose trade sanctions if the ROC does not take further
measures to protect intellectual property rights. The United States will
decide whether or not to remove the ROC from its "priority watch list" in
March 1994, following a comprehensive review of the ROC's progress in IPR
protection.

Despite the appreciation of the NT Dollar against the U.S. Dollar in
recent years (except for 1990 and the first ten months of 1993, when there
was some depreciation), and increasing protectionist pressures in the United
States, the ROC's exports to the United States continued at high levels
during the past few years. This was attributable, in part, to the fact that
over the past several years the NT Dollar has appreciated less against the
U.S. Dollar than have certain other currencies, particularly the Japanese
yen. As a result, the ROC's products continued to enjoy relative
competitiveness in the U.S. market. Despite this fact, it is unlikely that
the NT Dollar will appreciate significantly against the U.S. Dollar from
these levels. U.S. trade representatives stated in meetings with their ROC
counterparts in October 1989 that the NT Dollar had appreciated enough for
the time being and that addressing issues other than currency will be a more
constructive way to balance trade in the coming years.

The consumer price index rose 4.10% in 1994, although this does not
fully reflect widely divergent rates in certain sectors. The wholesale price
index increased by 2.14% in 1994.

Unemployment in the ROC remained low in 1994, with an average rate of
approximately 1.56% during 1994. Wages have increased at a faster rate than
inflation but these wage increases have for the most part been matched by a
corresponding increase in productivity.

The decline of fixed capital formation as a percentage of GNP is a
perennial concern of government officials, but this percentage has increased
consistently over the past several years. Investment increased to 23.24%,
23.68% and 23.26% of GNP in 1992, 1993 and 1994, respectively.

Since 1989, the government continued its policy of economic
liberalization. Selected foreign insurance companies were allowed to begin
directly purchasing ROC securities. In addition, the mid-rate system
employed by the Central Bank of China (the "Central Bank") to establish the
value of the NT Dollar vis-a-vis other currencies was abolished, thereby
lessening the influence of the Central Bank in managing currency rates. An
amendment to the Banking Law also was passed to allow for, among other
things, the establishment of new privately-owned banks and the Ministry of
Finance allowed foreign securities firms to apply to establish wholly-owned
branch offices. Foreign exchange controls have been further relaxed to allow
for inward and outward remittances of US$5 million per person for individuals
and US$10 million per corporate entity, per year. In December 1990, the
Executive Yuan approved guidelines drafted by the ROC Securities and Exchange
Commission (the "ROC SEC") which allow direct investment in ROC securities by
certain qualified institutional investors. In addition, in September 1991
new rules were approved which allow eligible foreign fund management
companies and banks to invest in new securities investment trust enterprises,
subject to ROC SEC approval. Currently, qualified foreign institutional
investors are permitted to make direct investment in the ROC securities
market.

Although the ROC government has maintained a policy of no official
contact with the PRC, indirect trade has increased significantly, especially
in the past three years. Between 1983 and 1994, trade with Hong Kong, much
of which represents indirect trade between the ROC and PRC, increased over
fivefold, to US$22.8 billion in 1994, an increase of 12.87% from 1993.
Companies in the ROC have invested significant amounts in PRC businesses
through subsidiaries or investment vehicles located in third countries. In
1991, the ROC government has established a procedure whereby ROC investors
may register proposed investments in the mainland with the Ministry of
Economic Affairs. If an investment is approved, the ROC investor may legally
make an investment in the mainland.

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<PAGE>
DOMESTIC ECONOMY

HISTORY PRIOR TO 1952

During the Japanese occupation (1894-1945), Taiwan was used as a
military base and as a source of food and raw materials for Japan. When
Chinese sovereignty over Taiwan was restored, a basic infrastructure was in
place which facilitated subsequent economic development.

At the end of World War II, the island's economy experienced serious
shortages and inflation. In 1949, the ROC government moved to Taiwan and a
reconstruction effort was undertaken with substantial aid from the U.S.
Between 1950 and 1965, U.S commodity aid accounted for as much as 40% of
total commodity imports, while U.S. loans and grants accounted for about 40%
of total domestic capital formation. In addition, effective land-reform
measures laid the foundation for a strong agricultural sector and a more
equitable distribution of wealth. By 1953, agricultural and industrial
output had surpassed pre-war levels.

ECONOMIC PLANNING

Economic planning has been an important part of the ROC's economic
success. Beginning in 1953, the ROC government has instituted a series of
economic plans which have provided a framework for government policies and
have helped to adapt the ROC's economy to changes in the domestic and
international economic environment.

The first Four-Year Plan, instituted in 1953, emphasized the development
of agriculture and labor intensive light industries producing non-durable
consumer goods. In addition, the early plans instituted an import
substitution policy which included a multiple exchange rate system and strict
import controls. These policies were altered through reforms in 1959-1961
which emphasized the development of labor-intensive export industries. These
new policies were extremely successful, and the ROC's growing export
industries created a great demand for industrial inputs, most of which had to
be imported. As a result, in the 1970s the economic plans included policies
designed to promote the development of key heavy industries such as steel and
petrochemicals in order to increase self-sufficiency. In addition, in the
1970s planners began to use large-scale public construction programs as a way
to expand government enterprise, develop infrastructure and increase domestic
capital formation (see "Government Construction Projects").

The current Four-Year Plan, which is the eleventh such plan, covers the
period from 1993 to 1997. In 1993 and 1994 economic growth averaged 6.42% in
real terms, with inflation (as measured by the consumer price index)
averaging 3.52%. Within these same two years, the service sector grew faster
than the manufacturing sector, and accounted for 59.08% of GDP in 1994. One
intent of the Plan is to make domestic demand the primary engine of growth in
the ROC's economy.

On January 31, 1991 the government announced its intention to launch a
Six-Year National Development Plan which covers a wide range of
infrastructure development projects. See "Government Construction Projects."

GROSS NATIONAL PRODUCT

GNP Growth. The ROC's GNP growth has averaged 8.5% in real terms from
1956 to 1993. Although growth has varied from a low of 1.2% in 1974 to a
high of 14.0% in 1978, it has never been negative.

During the 1950s real GNP growth fell from 9.3% in 1953 and 1954 to 6.6%
and 7.8% in 1958 and 1959, respectively. The original import substitution
policy was replaced with an export expansion strategy, and textiles,
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<PAGE>
plastics and electrical appliances gradually replaced traditional
agricultural exports (mainly sugar and rice) as Taiwan's leading export
products. As a result of this new strategy and favorable world trade
conditions, real GNP growth rose steadily from 6.4% in 1960 to 12.3% in 1964.
During the rest of the 1960s annual GNP growth was in excess of 8%.

In the 1970s, capital accumulation increased and technological advances
were made in Taiwan's light industries. These factors, combined with a
growing demand for basic raw materials, components and capital goods,
produced a new round of import substitution in which locally produced
consumer durables and capital goods replaced imports. From 1970 to 1973
average annual real GNP growth was above 11%. Heavy industry (e.g., steel)
and the petrochemical sector grew the fastest and, as local demand was
satisfied, these industries began to sell into foreign markets.

After the major oil price rise in 1973, the ROC experienced a surge of
inflation, a heavy trade deficit, and sluggish growth. As a result, GNP
growth slumped to 1.2% and 4.4%, respectively, in 1974 and 1975. The
government reacted by lifting price controls to curb demand; and in order to
sustain investment expenditures, ten major development projects were
launched. These measures, coupled with the recovery of the world economy,
resulted in an economic recovery with 13.7% GNP growth in 1976, 10.3% in 1977
and 14.0% in 1978.

After 1978, the ROC's economic growth began to slow again as a result of
higher oil prices following the second oil crisis, increased competition from
other developing countries and rising protectionism from, and economic
recession in, the ROC's major trading partners. Real GNP growth fell from a
high of 14.0% in 1978 to 8.5% in 1979, 7.1% in 1980, 5.8% in 1981 and 4.1% in
1982. The stabilization of oil prices and worldwide economic recovery
prompted a rebound by the ROC economy in 1983 and 1984, with GNP growth
increasing to 8.7% and 11.6%, respectively. The real GNP growth rate for
1985 dropped to 5.6% due primarily to reduced external demand and a fall in
fixed capital formation.

GNP grew by 12.6% and 12.3% in real terms in 1986 and 1987,
respectively, due largely to a strengthening of the ROC's export markets and
slower growth in imports. GNP growth subsequently slowed to 8.3% in 1988,
8.0% in 1989 and 5.5% in 1990. In 1991 and 1992, GNP growth was at 7.6% and
6.2%, respectively. Slower growth in the world economy, a slowing in the
growth of exports and an increase in imports have all contributed to this
slowdown, as have a shortage of unskilled labor, particularly in the
construction and manufacturing areas, and concerns over the environment. GNP
grew by 6.1% in real terms in 1994.

The following table gives the ROC's GNP since 1985 with the annual
percentage changes of GNP in current price terms and real terms:

<TABLE>
<CAPTION> 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
(NT$ Billion)
<S> Gross National
Product at Current <C> <C> <C> <C> <C> <C> <C> <C> <C>
<C>

Market Prices . . . 2,515 2,926 3,303 3,612 4,029 4,412 4,928 5,441 5,971 6,459
Private Consumption . . . 1,262 1,366 1,542 1,781 2,104 2,359 2,635 2,989 3,346 3,761
Government Consumption . 399 423 466 530 616 740 837 908 940 959
Fixed Capital Formation . 466 517 623 734 870 966 1,067 1,240 1,391 1,484
Increase in Inventory . . 5 (17) 44 100 54 29 54 89 87 53
Exports of Goods and
Services . . . . . . . 1,341 1,659 1,855 1,914 1,953 2,014 2,281 2,316 2,599 2,827
Less: Imports of Goods
and Services . . . . . (1,000) (1,094) (1,294) (1,537) (1,658) (1,799) (2,062) (2,204) (2,488) (2,704)
Expenditures on Gross
Domestic Product . . . 2,474 2,855 3,237 3,523 3,939 4,307 4,811 5,338 5,875 6,380
90
Net Factor Income from
Abroad . . . . . . . . 41 71 66 88 A-8 105 117 103 96 78

<PAGE>
Percentage Increase of GNP
over Previous Year at
Current Prices . . . . 6.2% 16.3% 12.9% 9.3% 11.6% 9.5% 11.7% 10.4% 9.7% 8.2%
Real GNP Growth Rate . . 5.6% 12.6% 12.3% 8.3% 8.0% 5.5% 7.6% 6.2% 6.0% 6.1%

- ----------
Source: Derived from data published in Council for Economic Planning and Development, Industry of
Free China, Vol. LXXX, III, No. 6, June 1995.

</TABLE>

Composition of GNP. The major components of GNP are private consumption
and exports. The decline in fixed capital formation as a percentage of GNP
in the mid-1980s was a point of concern with the ROC government which
attempted to offset this decline with public sector capital expenditures.
These measures, combined with increased foreign investment in the ROC and
increased domestic investment stimulated by export demand have reversed the
declining trend, with fixed capital formation increasing to 22.8%, 23.3% and
23.0% of GNP in 1992, 1993 and 1994, respectively. Although the gap between
exports and imports as percentages of GNP narrowed in recent years to only
1.91% of GNP in 1994, the historic gap has led to large trade surpluses,
particularly with the United States.

These trends and the composition of GNP are shown in the following
table:

<TABLE> COMPOSITION OF GROSS NATIONAL PRODUCT, 1985-1994
(PERCENTAGE SHARES AT CURRENT PRICES)
<CAPTION> 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<C>

Private Consumption . . 50.17 46.70 46.69 49.33 52.21 53.46 53.48 54.93 56.04 58.24
Government Consumption 15.87 14.46 14.12 14.67 15.30 16.77 16.98 16.69 15.74 14.84
Fixed Capital Formation 18.54 17.69 18.85 20.31 21.58 21.88 21.64 22.79 23.29 22.96
Increase (Decrease) in 0.82
Inventory . . . . . . 0.20 (0.57) 1.34 2.77 1.34 0.65 1.09 1.64 1.46 8
Exports . . . . . . . . 53.33 56.69 55.17 53.01 48.47 45.64 46.23 42.56 43.53 43.77
(39.75) (37.38) (39.17) (42.54) (41.15) (40.78) (41.85) (40.51) (41.67) (41.86)
Imports . . . . . . . .
Net Factor Income (Loss)
from Abroad . . . . . 1.64 2.41 2.00 2.45 2.25 2.38 2.38 1.90 1.51 1.21
Exports Less Imports . 13.58 19.31 17.00 10.47 7.32 4.86 4.43 2.05 1.86 1.91

Source: Council for Economic Planning and Development, Industry of Free China, Vol. LXXXIII,---------
- No. 6, June 1995.

</TABLE>

Origins of Gross Domestic Product. The major sources of Gross Domestic
Product ("GDP") in 1993 were manufacturing, commerce, finance, insurance,
real estate and business services and government services, which together
accounted for roughly 79.1 % of GDP. During the past decade, the most
significant trends in the composition of GDP have been (1) the decline in the
agricultural and construction sectors as percentages of the total economy,
(2) the growth until 1989 in the relative importance of manufacturing and (3)
the growth through 1993 in the relative importance of services.

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The following table shows the origins of the ROC's GDP at factor cost in
percentage terms:

<TABLE> GROSS DOMESTIC PRODUCT PERCENTAGE SHARES
<CAPTION> (Percentage Shares)
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993
MAIN SECTORS:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>

Agriculture . . . . 6.33% 5.78% 5.54% 5.31% 5.02% 4.89% 4.13% 3.70% 3.52% 3.46%
Industry 46.17% 46.28% 47.64% 47.43% 45.69% 43.60% 42.53% 42.47% 41.43% 40.63%
47.50% 47.94% 46.82% 47.26% 49.29% 51.51% 53.34% 53.83% 55.05% 55.91%
Services . . . . .
100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
SUB-SECTORS . . . .
Manufacturing . . . 37.56% 37.59% 39.70% 39.48% 37.80% 35.59% 34.35% 34.41% 32.85% 31.63%
Electricity, Gas &
Water . . . . . . 3.74% 4.00% 3.60% 3.57% 3.17% 3.00% 2.88% 2.80% 2.86% 2.84%
Construction . . . 4.27% 4.12% 3.85% 3.91% 4.25% 4.56% 4.87% 4.87% 5.19% 5.55%
Transport, Storage,
and Communications
6.26% 6.42% 6.19% 6.12% 6.23% 6.20% 6.14% 6.16% 6.29% 6.39%
Commerce . . . . . 13.50% 13.77% 14.10% 14.04% 14.32% 14.62% 15.38% 15.79% 16.31% 16.46%
Finance, Insurance
& Business
Services . . . . 13.31% 13.79% 13.07% 13.96% 15.69% 17.90% 18.90% 18.84% 19.22% 19.86%
Government Services
10.21% 10.28% 9.42% 9.06% 9.55% 9.91% 10.93% 11.37% 11.36% 11.18%
- -------
Source: Statistical Abstract of National Income Taiwan Area. Republic of China. 1951-1993. February
1994.

</TABLE>

PRICES AND WAGES

The ROC has had very low inflation since 1979-1981, when prices rose
sharply in the wake of the second oil price shock. From 1982 to 1994,
inflation as measured by the consumer price index and the wholesale price
index averaged 2.33% and (1.11)%, respectively. In 1992, 1993 and 1994, the
consumer price index increased by 4.5%, 2.9% and 4.1%, respectively. In 1988
the consumer price index increased by only 1.3%. However, in 1989 and 1990,
the consumer price index increased by 4.4% and 4.1%, respectively, even
though the wholesale price index declined by 0.4% in 1989 and 0.6% in 1990.
The wholesale price index increased by 0.2% in 1991, decreased by 3.1 % in
1992 and increased by 2.5% in 1993. See "Banking System--Monetary Policy
Monetary Policy."

Average monthly employee earnings in the manufacturing sector have
generally outpaced inflation. Between 1977 and 1994, the average monthly
employee earnings index in manufacturing grew faster than the consumer price
index. In 1994, manufacturing wage levels increased by approximately 6.6% as
productivity during the same period increased by approximately 4%. The rapid
growth in wages reflects high demand for labor as evidenced by the low
unemployment rates in the ROC.

The table that follows shows the movement in the indices for wholesale
prices, consumer prices and average monthly employee earnings in
manufacturing for the 1985-1994 period:

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<TABLE> YEAR AVERAGE INDEX NUMBERS OF WHOLESALE PRICES,
CONSUMER PRICES AND
EMPLOYEE EARNINGS IN MANUFACTURING, 1985-1994
<CAPTION>
Manufacturing
Wholesale Prices(1) Consumer Prices(1) Employee
Earnings(1)

Index % Change Index % Change Index %
Change
<S> <C> <C> <C> <C> <C> <C>

1985 . . . . . . . . . . . . . . . . . . . . . 109.53 (2.6) 86.58 (0.2) 51.89 4.3
1986 . . . . . . . . . . . . . . . . . . . . . 105.87 (3.3) 87.19 0.7 57.15 10.1
1987 . . . . . . . . . . . . . . . . . . . . . 102.42 (3.3) 87.64 0.5 62.76 9.8
1988 . . . . . . . . . . . . . . . . . . . . . 100.82 (1.6) 88.77 1.3 69.52 10.8
1989 . . . . . . . . . . . . . . . . . . . . . 100.45 (0.4) 92.68 4.4 79.53 14.4
1990 . . . . . . . . . . . . . . . . . . . . . 99.84 (0.6) 96.51 4.1 90.11 13.3
1991 . . . . . . . . . . . . . . . . . . . . . 100.00 0.2 100.00 3.6 100.00 11.0
1992 . . . . . . . . . . . . . . . . . . . . . 96.33 (3.7) 100.47 4.5 110.23 10.2
1993 . . . . . . . . . . . . . . . . . . . . . 98.75 2.5 107.54 2.9 117.82 6.9
1994 . . . . . . . . . . . . . . . . . . . . . 100.86 2.1 111.94 4.1 125.58 6.6
- -------
Notes: (1) 1991=100
Source: Council for Economic Planning and Development, Industry of Free China, Vol. LXXXIII, No. 6,
June 1995. CBC, Economic Research Dept., Financial Statistics Monthly, Taiwan District,
B.O.C. July 1995.

</TABLE>

EMPLOYMENT AND LABOR FORCE

The ROC's labor force has been an important factor in the country's
economic success. It is young, well educated and highly productive.
Statistics from 1994 indicate that 83.8% of the labor force is under 50 years
of age, 52.6% of the total labor force had at least a junior high education,
and a high school or vocational school education and 19.7% had received
junior college, college or graduate school education. Labor productivity in
the manufacturing sector increased 3.2% in 1993 and 3.7% in 1994.

Wage levels for the ROC's workers have been increasing in recent years
as living standards and skill levels rise. In August 1995, the minimum
monthly wage, guaranteed by law, was raised to NST$14,880; however, the
average monthly wage for most industrial workers is approximately twice this
amount. The Labor Standards Law, enacted in 1984, offers improved overtime,
severance and retirement pay to a substantial portion of the total labor
force. The resultant overall increase in labor costs increases the
differential between the ROC and its lower-cost competitors among the
less-developed nations of Asia. In response to an ever more competitive
Asian economy, the ROC government is seeking to develop Taiwan into a
regional hub for high-end manufacturing, sea and air transportation, finance,
telecommunications and media. Taiwan is positioning itself to develop
further as a service-oriented economy rather than a labor-intensive
manufacturing-oriented one.

On August 1, 1987, the government established the Labor Commission, the
highest government authority in the ROC dealing with labor affairs. The
Commission oversees matters of labor insurance, welfare, sanitation and
safety and proposes legislation on the rights and obligations of foreign
workers in the ROC. As a result of the lifting of martial law, strikes are
no longer prohibited and during 1988, 1989 and 1990 there were several
instances of labor actions, although these have occurred less frequently in
the recent past. Under pressure from both employers and employee groups, the
ROC government has amended the Labor Standards Law in several respects. The
most significant change was the relaxation of standards relating to pension
benefits and the establishment of alternative pension plans for employees.

A-11
<PAGE>

Although the importation of foreign labor was not generally allowed in
the ROC before 1991, the government now allows private enterprises to import
labor, subject to certain regulations.

In 1994, union membership in the ROC reached approximately 3.3 million,
representing about 35.6% of the total labor force. The ROC has experienced
relatively little labor unrest.

INDUSTRIAL STRUCTURE AND INDUSTRIAL PRODUCTION

The overwhelming majority of the 975,549 businesses registered in the
ROC in 1994 were classified as "small and medium enterprises." Businesses
are classified as such by the Ministry of Economic Affairs if their paid-in
capital or annual business revenue is less than NT $40 million (and, in the
case of manufacturing and construction enterprises, if their total assets are
less than NT $120 million). Several of the ROC's key industrial sectors have
been dominated by small, family-owned companies. For example, the ROC's
electronic and machinery-building industries have been characterized by
small-scale assembly operations, with a high percentage of machinery
factories employing less than 10 persons; and the footwear and textile
sectors have traditionally had a high percentage of small companies, with
small family-owned enterprises constituting more than two thirds of all
footwear manufacturers. These characteristics have provided the ROC's
manufacturing sector with great flexibility and enabled it to respond quickly
to changes in the world economic environment. However, increased labor costs
and the resulting emphasis on high technology and skill-intensive industries
may seriously impair the ability of the ROC's small- and medium-sized firms
to compete with large corporate conglomerates such as South Korea's chaebol.
Over the last several years a large number of small and medium-sized labor
intensive businesses have shifted their operations to lower wage areas such
as the PRC and Southeast Asian countries. As a policy response to this
potential structural deficiency, ROC planners have tried to foster links
between large enterprises that produce intermediate or component products and
smaller manufacturers of downstream products. This concept has been used in
a number of areas, including the plastic, textile, automotive and machinery
industries.

In June 1993, President Lee Teng-Hui ordered the immediate
implementation of an economic stimulus package designed to achieve an annual
economic growth rate of six to ten percent and a yearly increase of ten to 15
percent in domestic investments by private sectors over the next three years.
Pursuant to the economic stimulus package, the government will take five
major steps to stimulate interest in domestic investment. First, the
government will help local industries obtain low-cost land to support their
manufacturing operations. The government will also allow a five-year tax
exemption for firms engaged in the development of high-tech products, and a
fund of up to NT$20 billion will be offered to finance high-tech investments.
Second, the Central Bank will offer NT$40 billion in postal savings deposits
to local banks as relendings to small and medium manufacturing and service
enterprises, in order to finance production and investment projects. Third,
the Central Bank and the Ministry of Finance will set up a panel to
streamline and to liberalize financial rules and regulations. This panel
will also focus on establishing Taipei as a regional financial center.
Fourth, the government will allow the expanded imports of semi-finished
products from the PRC, to reinforce the competitiveness of ROC-made products
in international trade arenas. Fifth, and finally, the government will
promote scientific and technological exchanges with the PRC.

In order to promote broadly based industrial growth, the government
promulgated the Statute for Upgrading Industries on December 29, 1990. This
legislation, which replaced the Statute for Encouragement of Investment,
contains a number of provisions for accelerated depreciation and other
business tax deductions. The government enacted the Statute for Development
of Small and Medium Enterprises on February 4, 1991, under which the
government will coordinate with financial institutions to make credit more
widely available to such enterprises, which may also be granted certain tax
benefits.

12
<PAGE>
The table that follows shows the indices of industrial production (by
sectors) in the ROC for the period from 1984 through 1993, and 1992 and 1993
production output in NT Dollars:

<TABLE> INDICES OF INDUSTRIAL PRODUCTION
<CAPTION> 1992 1993
Total; Total
Production Production
Value Value
(NT$ (NT$
1984 1985 1986* 1987 1988 1989 1990 1991 1992 1993 Billion) Billion)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>

Mining . . . . . 173.08 159.00 148.62 143.92 140.84 125.30 109.96 100 95.86 94.94 100.90 99.35
Public 56.18 59.84 66.60 73.73 80.14 85.38 91.35 100 106.34 116.11 242.23 267.59
Utilities . . .
Building 86.35 86.66 78.51 76.13 90.24 96.00 96.60 100 117.13 150.31 162.07 228.33
Construction . .
Manufacturing . . 66.45 68.14 78.56 87.27 90.42 93.71 93.02 100 104.08 106.49 4,826.01 4,964.29
Food . . . . . . 80.65 87.02 87.63 92.35 94.03 90.74 95.98 100 106.91 108.18 477.99 488.58
Tobacco . . . . . 104.94 100.82 104.01 91.69 92.94 97.60 94.89 100 97.39 92.86 31.71 30.46
Textiles . . . . 89.98 89.50 97.09 101.67 91.33 94.80 92.59 100 100.01 94.55 369.78 332.77
Clothing . . . . 123.94 133.41 142.78 146.53 121.69 121.71 102.10 100 85.00 76.38 72.63 67.67
Leather and
Fur 86.09 97.77 120.80 121.86 115.78 112.78 102.80 100 79.39 68.85 59.33 55.83
Products . . . .
Furniture . . . . 71.45 77.47 93.14 110.53 107.36 112.60 94.12 100 99.53 89.10 64.78 60.60
Paper and 56.97 61.64 74.63 80.37 84.29 88.38 93.11 100 105.12 102.21 113.54 108.51
Printing . . . .
Chemical 57.71 62.68 74.60 76.06 79.26 81.81 88.69 100 114.02 121.83 346.43 352.06
Materials . . .
Chemical 51.82 56.94 66.19 75.99 83.16 87.39 93.33 100 108.45 115.58 128.26 130.90
Products . . . .
Petroleum and
Coal 80.67 80.31 79.29 94.22 102.14 110.85 98.71 100 102.01 120.07 159.26 182.36
Products . . . .
Rubber 64.87 69.52 76.39 82.23 86.36 90.78 96.18 100 103.23 93.38 64.69 60.37
Products . . . .
Plastic 71.88 75.64 91.75 103.83 109.09 106.71 98.09 100 96.01 90.82 316.16 303.35
Products . . . .
Non-Metallic
Mineral 67.55 70.84 74.71 79.19 82.28 89.64 92.48 100 105.14 113.08
Products . . . .
Base Metals . . . 57.66 59.25 68.48 73.59 82.40 88.81 91.78 100 111.02 122.84 336.97 438.89
Metal 58.41 62.29 70.60 76.78 83.52 87.52 88.87 100 104.85 100.24 279.69 272.32
Products . . . .
Machinery . . . . 50.47 51.98 62.07 73.12 83.06 85.05 90.16 100 105.26 108.21 222.87 234.97
Electric
Machinery/ 50.77 48.61 62.25 77.21 84.31 87.65 90.17 100 105.25 116.13 874.90 966.92
Appliances . . .
Transport 55.94 53.23 64.00 78.59 80.12 92.06 89.88 100 108.51 107.31 398.59 415.02
Equipment . . .
Precision 63.61 59.77 69.24 79.57 91.14 97.41 95.95 100 102.06 93.34 50.37 45.32
Instruments . .
Miscellaneous
Industries . . . 78.98 75.16 95.91 106.47 111.67 104.05 98.85 100 97.48 85.86 119.46 108.50
General Index of
Industrial
Production . . . 66.58 68.35 77.93 86.20 89.88 93.27 93.06 100 104.60 108.44 5,240.40 5,470.15
- -----------
* Base 1991 = 100
Source: Derived from data published in Industrial Production Statistics Monthly, Taiwan Area, ROC.
</TABLE>

From January 1, 1990 to December 31, 1994 the industrial production
index rose at an average annual rate of approximately 4.4% while
manufacturing, the largest component of industrial production as measured by
output, increased at an average annual rate of approximately 3.8%.

MANUFACTURING

The manufacturing sector remains the largest sector of the economy,
accounting for 31.6% of GDP in 1993 and employing 28.4% of the labor force.
The major industries within the manufacturing sector are electronics
(including electric machinery and appliances), textiles, petroleum and coal
products, chemical materials and products, plastics, and transport equipment.
The fastest growing sectors have been electric machinery/appliances,
transportation equipment and precision instruments. Electronics, textiles,
chemicals and plastics are the ROC's major export industries.

A-13
<PAGE>
Electronics. The electronics industry accounted for 19.5% of the ROC's
total manufacturing output as of December 31, 1993. Traditionally, this
sector has been dominated by smaller, labor intensive assembly operations
producing consumer electronic items. The government's current policies are
designed to encourage upgrading of products and larger scale manufacturing.
A policy implemented in 1986 to open up the ROC market to foreign competition
is forcing domestic manufacturers to move into higher technology electronics.

Textiles. The textile industry accounted for 6.7% of the ROC's total
manufacturing output in 1993. Exports of these products have grown more
slowly in recent years and have declined as components of total exports from
15.7% in 1989 to 14.2% in 1993. Reasons for this decline include NT Dollar
appreciation, severe worldwide price competition and growth limitations
imposed by foreign import quotas. Several large textile manufacturers have
recently set up manufacturing facilities in lower wage countries in Southeast
Asia in order to benefit from reduced labor costs and export privileges to
the U.S. The ROC has stated its intention to expand aggressively textile
exports to Japan to reduce its trade deficit with that country. However,
such efforts have not met with much success as the ROC's trade deficit with
Japan continues to increase.

Chemicals and Plastics. The chemical and plastic industry accounted for
10.0% of the ROC's total manufacturing output as of December 31, 1993. This
sector, supported by the state-owned petrochemical industry, produces a broad
range of items, including fertilizers, specialty chemicals, plastics,
pharmaceuticals, toiletries and other products for industrial and consumer
use.

PROMOTION OF HIGH TECHNOLOGY SECTOR

In recent years, the ROC has experienced growing competition from
lower-wage countries, particularly in Asia. In an effort to decrease
reliance on labor-intensive industries, the government is promoting
high-technology, energy-efficient industries. The same push was embodied in
the 1980-1989 Ten-Year Plan, which called for these sectors to grow from 24%
of total manufacturing in 1980 to 35% by 1989 (these targets have been
broadly achieved). The Statute for Encouragement of Investment, extended in
1980 for another ten years and expired in 1990, offered special incentives in
high-technology and capital-intensive industries. These incentives included
five-year tax exemptions, business tax deductions for research and
development expenses, lower tax rates and accelerated depreciation. As part
of these efforts, the government encouraged research and development by ROC
companies with the goal of raising research and development expenditures to
2% of gross revenues by 1990 from a level of approximately 0.6% in 1987.
This initiative has met with a large measure of success. In another effort
to boost growth in the high technology sector, the government coordinated the
development of the Hsinchu Science and Industrial Park, which features
special tax incentives, duty-free imports, free production facilities and
government capital to support joint ventures. The Hsinchu Science Park,
which was designed to attract sophisticated industries from abroad, has
successfully attracted over 90 "high-tech" companies. On December 29, 1990,
the ROC government enacted the Statute for Upgrading Industries, replacing
the Statute for Encouragement of Investment. Similar to its predecessor,
this statute contains incentives which include accelerated depreciation and
business tax deductions.

CONSTRUCTION INDUSTRY

During the 1970s, the construction industry grew at an average annual
rate of 20.4%. Since 1980, growth has slowed dramatically and averaged 2.8%
per annum from 1980 to 1989 with substantial negative growth in 1982 and less
substantial negative growth in 1983, 1986 and 1987. The main reasons for the
slowdown were an oversupply of commercial and residential property and
shortages of skilled manpower. The industry recovered strongly in 1988,
growing by 32.2% over 1987, largely as a result of work done on the
government's 14 Key Development Projects. Growth slowed to an average annual
rate of 3.9% from 1989 to 1991. Because of the
A-14
<PAGE>
Six-Year Plan, however, the construction industry picked up significantly in
1992 and 1993, growing at annual rates of 25.8% and 40.4%, respectively.

MINING

The main activities of the mining sector involve coal, marble and
natural gas. In recent years, coal mining has experienced a steady decline
in production due to poor quality, inaccessible deposits, mine accidents,
stricter safety requirements, concerns over the environment and foreign
competition. The industry produced 0.33 million metric tons of coal in 1992,
compared to 2.2 million metric tons produced in 1983.

SERVICES

In the years form 1989 to 1994, the ROC emerging service sector grew by
12.3%, 9.2%,8.5%, 9.3%, 7.9%, and 7.8%, respectively. In 1994, the services
sector accounted for 59.2% of the GNP and employed 49.8% of the workforce.

The ROC government supports the modernization of the ROC's service
industry as a means to support higher levels of agricultural and industrial
production as well as to enhance the quality of life and make the ROC's
economy less vulnerable to international economic fluctuations. Strategic
service industries include banking and other financial services, information
and software, management and computerization consulting, engineering design,
research and development and product and packaging design.

AGRICULTURE, FORESTRY AND FISHING

In 1993, the agricultural sector contributed 3.5% of GDP. In recent
years, there has been a marked decline in the output of forest products and a
modest decline in overall production of agricultural crops, while livestock
and fishery-product output has increased. Trends in agricultural, forestry,
livestock and fishery production are shown in the following table:

<TABLE> INDEX NUMBERS OF AGRICULTURAL PRODUCTS
<CAPTION> 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Agriculture Products
102.0 102.8 97.5 101.6 102.9 102.4 97.6 100.0 96.4 102.8
Forest Products . . 282.8 254.6 282.0 261.4 169.5 119.8 102.4 100.0 60.4 62.7
Livestock Products 67.0 71.6 74.0 80.6 81.4 85.3 91.7 100.0 102.4 106.9
Fishery Products . 82.3 85.8 91.0 103.4 107.6 102.2 108.6 100.0 94.4 102.5
- --------
* Base 1991 = 100
Sources: Industry of Free China, June 1993 and May 1994, CEPD,
ROC Agricultural Commission.

</TABLE>

ENERGY

The ROC is largely dependent on imports for the growing energy
requirements of its industrialized economy. In 1993 and 1994, imported crude
oil petroleum, coal and uranium provided over 90% of the ROC's energy
requirements. The remainder was satisfied by domestic supplies of coal,
natural gas, crude oil and hydroelectric power.

The OPEC price increases of the 1970s prompted the ROC Government to
implement a three-point program designed to reduce the country's
vulnerability in the energy sector. This program provided for energy
conservation, expansion of the economy into less energy-intensive industries
(i.e. the high-technology sector) an diversification
A-15
<PAGE>
of energy sources toward coal and nuclear energy. In particular, the ROC
Government's energy diversification program, initiated in 1979, has achieved
success in reducing the reliance on oil, evidenced by the drop in the share
of total energy consumption represented by oil from 71% in 1980 to less than
52% in 1994. However, efforts to develop alternate energy sources have
suffered frustrating setbacks. Development of the local coal industry into a
major energy source was stalled in the wake of the high costs of coal
production under increasingly difficult mining conditions and competition
from imported coal. Natural gas production has declined in recent years due
to the gradual depletion of inland wells. Although plans for the
development of nuclear power capacity have led to the construction of three
nuclear power plants, construction of a fourth plant has been delayed by
environmental concerns. In July 1994 the ROC government released funds for
the fourth nuclear power plant, which is currently expected to commence
operation in 2000.

The ROC government controls most of Taiwan's energy supply. Electrical
power in the ROC is provided to residential and industrial users exclusively
by Taiwan Power Company, a government-controlled utility company. In
addition, Chinese Petroleum Corporation, a government-owned company, is the
only entity in Taiwan authorized to explore, produce, import and refine
petroleum and natural gas in Taiwan.

The ROC depends to a significant degree on imported sources of energy.
In 1992, approximately 94.9% of total energy needs were met by imports
(petroleum, coal and uranium) and only 5.1% were met by domestic sources
(coal, natural gas and hydro-power).

Oil supplanted coal as the ROC's primary energy source in 1967, and by
1980 constituted 71% of total energy consumption. The OPEC price increases
of the 1970s had an adverse effect on the ROC and prompted the government to
advance a three-point program designed to reduce the ROC's vulnerability in
the energy sector. The program envisaged energy conservation, expansion of
the economy into less energy-intensive industries in the high-technology
sector and diversification of energy-sources away from oil and into coal and
nuclear energy.

The government's diversification program, begun in 1979, has achieved
success in reducing reliance on oil, as evidenced by the drop in oil's share
of total energy consumption from 71% in 1980 to 52.5 % as of December 31,
1993. However, efforts to develop alternative energy sources have met with
some frustration. The authorities have dropped initial efforts to develop
the local coal industry into a major energy source in the wake of serious
mining accidents in 1984 and in recognition of the poor quality and
inaccessibility of deposits. Natural gas production declined in 1985 due to
gradual depletion of inland wells. Plans for development of nuclear power
capacity led to the construction of three nuclear power plants between 1976
and 1989.

The sources of primary commercial energy in 1993, are set forth in the
following table:

A-16
<PAGE>

<TABLE> SOURCES OF PRIMARY COMMERCIAL ENERGY
<CAPTION> 1,000
Kiloleters Percentage
of Oil Share
(Equivalent)
<S> <C> <C>
Domestic
Coal . . . . . . . . . . . . . . 225.9 0.33%
Hydro-Electric . . . . . . . . . 1,668.8 2.47
Natural Gas . . . . . . . . . . 818.5 1.21
Crude Oil . . . . . . . . . . . 65.5 0.10
Total Domestic Production . . . 2,778.7 4.12
Imports
Crude Oil and Petroleum Products
35,388.0 52.48
Coal and Coal Products . . . . . 18,175.4 26.95
Liquified Natural Gas . . . . . 2,555.4 3.79
Nuclear . . . . . . . . . . . . 8,533.6 12.66
Total Imports . . . . . . . . . 64,652.4 95.88
Grand Total . . . . . . . . . . . . . 67,431.1 100.00%
- --------
Source: Derived from data published in Taiwan Statistical Data Book CEPD, 1994.
Totals do not add due to rounding.

</TABLE>

The installed capacity and system average load of the ROC's power system
is shown below:

<TABLE> INSTALLED CAPACITY AND SYSTEM AVERAGE LOAD
<CAPTION> 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993
(1,000 KILOWATTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<C>

INSTALLED CAPACITY:
Hydro . . . . . . . . . . . 1,480 2,489 2,564 2,558 2,558 2,562 2,562 2,562 2,577 2,576
Thermal . . . . . . . . . . 7,287 8,337 8,887 8,887 8,887 8,887 9,177 10,677 11,526 11,635
Nuclear . . . . . . . . . . 4,193 5,144 5,144 5,144 5,144 5,144 5,144 5,144 5,144 5,144
Total . . . . . . . . . . . 12,960 15,970 16,595 16,589 16,589 16,593 16,883 18,383 19,247 19,355
System Average Load . . . . 5,611 6,000 6,739 7,479 8,156 8,760 9,400 10,233 10,688 N/A
System Peak Load . . . . . 8,517 8,716 9,900 11,113 12,331 13,420 14,510 15,321 16,704 N/A

- ----------
N/A: Not available
Source: Taiwan Statistical Data Book CEPD, 1994.

</TABLE>

GOVERNMENT PARTICIPATION IN THE ECONOMY

The economic activities of the ROC government have been a significant
factor in the growth of the economy. The government provides traditional
government services including national defense, postal service, education,
infrastructure for transportation and communications and public housing. In
addition, the government influences the level of economic activity through
the Four Year Plan, control of a number of key industrial enterprises and
commercial banks and sponsorship of major construction projects, like the
Six-Year National Development Plan (the "Six-Year Plan"), which contribute to
overall capital investment. There have been no cases of nationalization of
private enterprise in the ROC since 1949 although the government has on
occasion become involved in the operation, and has taken over ownership of
certain troubled enterprises.

In 1994, the government controlled 100% of utility production, 49.4% of
mining production, and 10.0% of all manufacturing production. The current
Four-Year Plan calls for a continued reduction in public sector
A-17
<PAGE>
industrial ownership in order to eliminate inefficient government
enterprises. Although no specific timetable has been announced, the ROC
government has stated its intention to sell shares in more than 20
government-owned enterprises to the public. However, this privatization plan
has repeatedly been delayed. The government sold a portion of its shares in
China Steel Corporation to the public in 1989 and 1991 and sold 360 million
shares in the form of GDRs for US$330 million in 1992. In September 1993,
the government announced its intention to resume privatizing China Steel
Corporation by selling 22% of the company in the year ending June 1994. The
government has also announced its intention to sell to investors a portion of
its holdings in four of the 13 government-owned commercial banks with the
intention of reducing the government's total shareholding position in these
banks to below 51 %.

<TABLE> PUBLIC OWNERSHIP/(1)/
<CAPTION> 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mining . . . . . . . 38.6 37.3 36.7 40.0 44.5 49.9 55.1 51.3 48.1 48.0
Manufacturing . . . . 12.6 12.3 11.0 10.8 11.4 11.3 10.6 9.7 9.9 10.5
Utilities . . . . . . 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Total Public Ownership
17.7 17.7 16.5 16.3 17.1 17.1 16.8 16.0 16.2 16.9
- ----------
Source: Taiwan Statistical Data Book CEPD, 1994.
(1) Based on value added at 1991 prices.

</TABLE>

GOVERNMENT ENTERPRISES

Government-controlled enterprises include public utilities and other key
enterprises which the private sector is unable or unwilling to undertake.
The enterprises operate under the supervision of the Ministry of Economic
Affairs with pooled capital partially provided by the private sector.

A-18
<PAGE>
The following table sets forth information concerning the principal
enterprises in which the government has a controlling interest:

<TABLE> PRINCIPAL GOVERNMENT ENTERPRISES
<CAPTION> Profit (Losses) Before Tax
1993 1993
Total Total FY FY FY FY FY FY FY
Company Assets Assets 1987 1988 1989 1990 1991 1992 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Taiwan Power Company . . . . . 674.4 200.3 34.7 36.0 33.8 29.4 31.1 33.7 30.6
China Petroleum Corporation
(CPC) . . . . . . . . . . . . 313.7 261.3 52.2 60.0 64.9 33.8 22.5 23.4 10.8
China Petrochemical Development 26.4 7.9 2.0 2.4 1.6 0.3 0.7 (0.2) 0.2
Corp. (Subsidiary of CPC) . .
Taiwan Sugar Corporation . . . 65.8 25.3 1.8 1.7 3.0 2.6 2.9 3.4 1.8
Taiwan Fertilizer Corporation . 12.6 7.0 0.5 0.6 0.5 0.2 0.3 0.3 0.0
China Shipbuilding Corp. . . . 40.8 22.3 (2.5) (1.8) (2.1) (1.9) (3.2) 0.5 0.8
Taiwan Machinery Manufacturing 18.5 5.0 0.4 0.2 (0.8) (1.2) (1.6) (2.5) (1.9)
Corporation . . . . . . . . .
China Steel Corporation . . . . 158.9 62.8 7.8 12.9 19.1 15.3 14.6 11.6 7.8

- ----------
Source: Yearbook of Financial Statistics of the Republic of China, 1993. Department of Statistics,
Ministry of Finance.

</TABLE>

GOVERNMENT-OWNED BANKS

In addition to its ownership of certain industrial enterprises, 13 of
the country's 33 banks were government-owned. These banks attract a
substantial percentage of the nation's deposits and play a major role in
lending to both the public and the private sectors. See "Banking System and
Monetary Policy."

GOVERNMENT CONSTRUCTION PROJECTS

Government sponsorship of major construction projects has contributed to
economic development in the ROC by providing basic infrastructure for
industry and commerce and by expanding key industries under government
control. In 1984, the ROC Government announced that it would invest in 14
new infrastructure projects totalling approximately NT$800 billion. These
projects include modernization of telecommunications, expansion of railroads
and highways and development of a rapid transport system in Taipei. The ROC
Government experienced delays in many of these projects, largely due to
shortages of construction labor and difficulty in acquiring needed tracts of
land. Because of various difficulties with this plan, the ROC government has
been forced into a spending deficit. Following the midterm review in 1994,
the ROC Government announced a revised Six-Year National Development Plan
contemplating a budget of NT$600 billion for 632 projects. These projects
included large public works and infrastructure projects in the ROC in 13 main
areas including transportation and communication, public housing, resource
development, and cultural and educational programs. This revised Six-Year
National Development Plan eliminated approximately 20% of the total projects
in the original plan and reduced the budget from NT$800 billion to NT$600
billion.

Government construction projects have contributed to economic
development by providing the basic infrastructure for industry and commerce
and by expanding key industries under government control. In the early 1970s
Taiwan's economy was growing at annual rates in excess of 10% but
infrastructure development lagged behind. In addition, the ROC's dependency
on key imports was growing in such areas as petrochemicals and steel. To
deal with these problems, the government instituted 10 major development
projects aimed at improving the transportation infrastructure (roads,
railways, airports and harbors) and expanding the steel and petrochemical
industries. In 1979 the government instituted 12 new projects which not only
continued industrial and infrastructure
A-19
<PAGE>
development but also involved agricultural, social, and cultural projects.
The total budget for the 12 projects was NT$228 billion. In 1984 the
government announced that it would invest approximately NT$750 billion in 14
new projects scheduled to be completed by 1990. These projects included
modernization of telecommunications, expansion of railroads and highways, a
rapid transport system in Taipei, expansion of China Steel Corporation and
several projects to improve environmental quality and upgrade overall living
standards. The government has been experiencing delays in most of these
projects (the 1990 target date was not met), largely due to severe shortages
of construction labor and difficulty in acquiring needed tracts of land. In
spite of these setbacks, in January 1991 the government announced its
intention to launch the Six-Year Plan. The Six-Year Plan, as amended,
encompasses numerous projects in 13 main areas including transportation and
communication, public housing, resource development and cultural and
educational programs and will cost approximately NT$6,000 billion
(approximately US$223.21 billion).

The amended Six-Year Plan scales down the original plan, and a number of
projects in the original plan have been delayed or cancelled. Along with
this announcement, Premier Lien Chan stated that the Six-Year Plan and an
economic stimulus program should be implemented together in order to improve
the country's investment environment. The ROC government, which
traditionally had budget surpluses, experienced deficits in 1991, 1992 and
1993 and over the next several years may experience deficits in connection
with the Six-Year Plan. See "Domestic Economy--Industrial Structure and
Industrial Production."

FOREIGN INVESTMENT

Foreign investment in Taiwan has played an important role in the
development of the nation's economy and has received extensive legal
protection and encouragement by the government, especially in the export and
technology transfer sectors. During the mid-1980s the ROC economy was
increasingly opened to foreign investment, and such investment was prohibited
only in areas controlled by government monopolies, public utilities and
certain strategic industries such as steel and petroleum refining. In May
1988 the Executive Yuan announced a list of business categories ineligible
for investment by foreign nationals and overseas Chinese or in which such
investment is subject to restrictions. This list was last amended on
September 6, 1995.

Aggregate foreign investment from 1952 through December 1994 totalled
US$19.34 billion, with US$16.62 billion invested by non-Chinese foreign
nationals and US$2.72 billion invested by overseas Chinese, principally Hong
Kong residents. Among non-Chinese foreign nationals, Japan and the U.S. are
the leading investors in the ROC, with U.S.$5.2 billion and U.S.$4.5 billion,
respectively, of the total investment approvals over the period from January
1952 through December 1994. This money was largely invested in the
electronic and electric product industry (23.54%), chemicals (14.59%) and the
services industry (exclusive of banking and insurance) (11.45%). In 1994,
foreign investment in the ROC totalled US$1.63 billion, an increase of 34.38%
from 1993. Of this amount, approximately 93% came from non-Chinese foreign
investors with the remainder coming from overseas Chinese, principally in
Hong Kong.

In the past, inadequate protection of intellectual property rights has
acted as a disincentive to foreign investment, but progress has been made in
recent years in improving the legal framework and strengthening enforcement.
Changes include the promulgation in 1985 of a new copyright law, which offers
copyright protection for software and strengthens penalties for infringement,
and a revised trademark law, with tougher enforcement provisions. In April
1993, in response to the United States placing Taiwan on its "priority watch
list" for intellectual property rights violators, the government passed a
series of copyright law revisions governing the distribution of U.S.
copyrighted products in Taiwan. Thereafter, following a comprehensive review
of Taiwan's progress in intellectual property rights protection, the United
States upgraded Taiwan from its "priority watch list" to its general "watch
list." The general "watch list" includes nations that warrant special
attention because they maintain intellectual property practices or barriers
to market access that are of particular concern to U.S. interests.
A-20
<PAGE>
In addition, amendments have been proposed to the patent law which would
extend protection to chemicals and pharmaceuticals.

In October 1993, the Central Bank announced that, under certain
circumstances, ROC companies would be allowed to repatriate up to $3 billion
raised abroad from issues of GDRs and overseas corporate bonds. In addition,
qualified foreign institutional investors will be allowed to invest up to
$200 million in Taiwan. Also the ROCSEC approved a preliminary proposal to
lift the limits on foreign investments in individual stocks. Under current
regulations, a single foreign investor is limited to holding a maximum of
7.5% of a company's stock, and foreign holdings acquired through the stock
market cannot exceed 15% of the company's issued shares.

ENVIRONMENT

Taiwan's natural environment has suffered significant damage due to
growth policies that ignored the social cost of pollution. In recent years,
the public has become increasingly sensitive to the problem and is demanding
corrective action. Environmental concerns have delayed or forced the
cancellation of several major public-works projects, including construction
of a new nuclear power plant, and have produced substantial delays in
obtaining required approvals for a number of major new industrial facilities.
A cabinet-level Environment Protection Administration was established in 1987
and has placed a high priority on the enforcement and strengthening of
environmental laws. Environmental concerns may become a significant
impediment to industrial expansion.

FOREIGN TRADE AND BALANCE OF PAYMENTS

FOREIGN TRADE

Foreign trade accounts for a major percentage of the ROC's economic
activity, and the ROC is one of the world's largest trading nations, with
trade totalling U.S.$178.4 billion in 1994. The ROC's growth has, to a
significant degree, been export driven and in recent years, nearly 50% of the
country's GNP has been derived from the export sector. Imports are also
critical for Taiwan as it is dependent on foreign sources for over 90% of its
energy needs and key raw materials and capital equipment used in its export
industries. In addition, heightened domestic demand for consumer items has
contributed to an increase in imports as a percentage of GDP. In recent
years, the ROC's trade balance has been consistently positive; the highest
surplus of US$18.7 billion was recorded in 1987. In 1993 and 1994, the trade
surplus was US$8.03 billion and US$7.70 billion, respectively. As a result
of high overall balance of payments surpluses, the ROC has experienced a
dramatic increase in foreign exchange reserves. Starting in 1991, however,
this trend slowed down largely because of capital outflow and a decreasing
trade surplus. See "Balance of Payments" and "Foreign Exchange."

- ----------

/(2)/ All statistics used in this Prospectus relating to the ROC's
external trade are based on data compiled by the ROC authorities.
Statistics on U.S./ROC trade compiled by the U.S. Department of
Commerce differ from those compiled by ROC agencies due, in part, to
the fact that the U.S. statistics calculate U.S. imports from Taiwan
on a customs valuation basis while the ROC statistics calculate them
on an FOB basis.
A-21
<PAGE>
The following table shows the basic trends in the ROC's overall foreign
trade based on foreign exchange settlements between 1984 and 1993:

<TABLE> THE ROC'S EXPORTS AND IMPORTS
<CAPTION> Balance
Exports Imports of Trade Exports as
(US$ (US$ (US$ % of
Million) % Change Million) (% Change) Million) Imports
<S> <C> <C> <C> <C> <C> <C>
1984 . . . . . . . . 30,456.4 21.2 21,959.1 8.2 8,497.3 138.7
1985 . . . . . . . . 30,725.7 0.9 20,102.0 8.5 10,623.6 152.8
1986 . . . . . . . . 39,861.5 29.7 24,181.5 20.3 15,680.0 164.8
1987 . . . . . . . . 53,678.7 34.7 34,983.4 44.7 18,695.4 153.4
1988 . . . . . . . . 60,667.4 13.0 49,672.8 42.0 10,994.6 122.1
1989 . . . . . . . . 66,304.0 9.3 52,65.3 5.2 14,038.6 126.9
1990 . . . . . . . . 67,214.4 1.4 54,716.0 4.7 12,498.4 122.8
1991 . . . . . . . . 76,178.3 13.3 62,860.6 14.9 13,317.8 121.2
1992 . . . . . . . . 81,470.3 7.0 72,006.8 14.5 9,463.5 113.1
1993 . . . . . . . . 84,916.6 4.2 77,061.2 7.0 7,855.4 110.2
- ---------
Source: Monthly Statistics of Exports & Imports, Ministry of Finance.

</TABLE>

The United States is the largest export market with a 26.2% share of the
ROC's total exports in 1994. Hong Kong and Japan are the next largest
markets with shares of 22.9% and 11.0%, respectively. Exports to all
European countries represented approximately 14% of total exports that year.
From 1990 to 1994, Taiwan's total exports to Hong Kong increased by 148.5%.
Taiwan's increasing dependence on Hong Kong reflects the growing importance
of the PRC markets to the ROC.

The ROC's main imports are machinery, minerals (including crude oil),
basic metal products and chemicals. The ROC's main import sources are Japan
(29.04% in 1994) and the United States (21.14% in 1994).

The intensification of protectionist sentiments in the United States and
other of the ROC's major trading partners in recent years has highlighted the
island's dependency on key export markets and has led to efforts by the ROC
government to diversify the ROC's trading partners away from the U.S. To
this end, in early 1988 the ROC government approved legislation allowing
direct trade between the ROC and all communist bloc countries with the
exception of the PRC. Accordingly, the percentage share of the ROC exports
delivered to the U.S. has declined steadily in recent years from
approximately 48% in 1986 to 26% in 1994. During several months of 1995,
Hong Kong became Taiwan's largest trading partner.

A-22
<PAGE>

<TABLE> EXPORTS BY MAJOR COMMODITY GROUPS
(US $ MILLIONS)
<CAPTION> PERCENTAGE OFTOTAL EXPORTS
1989 1990 1991 1992 1993 1989 1990 1991 1992 1993

Animals & Animal $ 1,793.4 $ 1,652.5 $ 1,994.9 $ 2,001.2 $ 2,043.1 2.7% 2.5% 2.6% 2.5% 2.4%
Products . . . . . .
Vegetable Products . . 575.1 524.0 590.7 528.6 514.9 0.9% 0.8% 0.8% 0.6% 0.6%
Prepared Foodstuffs . 613.1 733.4 870.2 871.5 870.1 0.9% 1.1% 1.1% 1.1% 1.0%
Chemicals . . . . . . 1,058.3 1,282.1 1,569.8 1,769.3 1,936.1 1.6% 1.9% 2.1% 2.2% 2.3%
Plastic & Rubber . . . 4,335.9 4,429.7 5,171.2 5,454.9 5,692.8 6.5% 6.6% 6.8% 6.7% 6.7%
Leather & Articles . . 1,493.8 1,315.9 1,262.7 1,173.0 1,053.0 2.3% 2.0% 1.7% 1.4% 1.2%
Wood, Articles of Wood 1,162.0 962.0 921.5 856.1 785.2 1.8% 1.4% 1.2% 1.1% 0.9%
Textile Products . . . 10,355.6 10,284.2 11,997.2 11,841.9 12,046.0 15.6% 15.3% 15.7% 14.5% 14.2%
Footwear, Headgear,
Umbrellas . . . . . 4,483.7 4,116.2 4,423.7 4,326.6 3,335.5 6.8% 6.1% 5.8% 5.3% 3.9%
Stone, Plaster Cement,
Ceramic, Glass . . . 1,142.5 1,103.8 1,162.0 1,208.5 1,083.9 1.7% 1.6% 1.5% 1.5% 1.3%
Basic Metals . . . . . 5,192.2 5,215.2 5,805.9 6,464.5 7,132.9 7.8% 7.8% 7.6% 7.9% 8.4%
Machinery and
Electrical 21,859.3 23,131.0 26,298.9 29,690.3 33,311.0 33.0% 34.4% 34.5% 36.4% 39.2%
Equipment . . . . .
Vehicles, Vessels . . 3,020.2 3,449.2 3,929.3 4,199.9 4,676.9 4.6% 5.1% 5.2% 5.2% 5.5%
Precision Instruments 1,681.2 1,720.6 2,034.7 2,202.1 2,160.9 2.5% 2.6% 2.7% 2.7% 2.5%
Toys, Games & Sports . 3,037.7 2,906.2 3,044.3 3,318.8 2,815.9 4.6% 4.3% 4.0% 4.1% 3.3%
Others . . . . . . . . 4,500.0 4,388.3 5,101.3 5,563.5 5,468.4 6.8% 6.5% 6.7% 6.8% 6.4%
$66,304.0 $67,214.3 $76,178.3 $81,470.7 $84,916.6 100.0% 100.0% 100.0% 100.0% 100.0%

</TABLE>

<TABLE> IMPORTS BY MAJOR COMMODITY GROUPS
(US $ MILLIONS)
<CAPTION> PERCENTAGE
OF
TOTAL
EXPORTS

PRODUCT & GROUP 1989 1990 1991 1992 1993 1989 1990 1991 1992 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>

Vegetable Products . .
$ 1,885.9 $ 1,994.2 $ 2,006.4 $ 2,135.3 $ 2,122.5 3.6% 3.6% 3.2% 3.0% 2.8%
Prepared Foodstuffs . 1,066.4 1,100.2 1,239.0 1,507.5 1,650.5 2.0% 2.0% 2.0% 2.1% 2.1%
Minerals . . . . . . . 5,094.6 6,575.0 6,545.3 6,413.8 6,674.1 9.7% 12.0% 10.4% 8.9% 8.7%
Chemicals . . . . . . 5,800.4 5,837.8 7,127.9 7,149.0 7,564.4 11.1% 10.7% 11.3% 9.9% 9.8%
Plastic & Rubber . . . 1,261.6 1,383.9 1,751.9 1,876.7 2,008.2 2.4% 2.5% 2.8% 2.6% 2.6%
Wood, Articles of Wood 1,209.5 1,106.8 1,345.0 1,684.8 1,939.0 2.3% 2.0% 2.1% 2.3% 2.5%
Pulp, Paper & Printing 1,116.2 1,209.3 1,426.4 1,578.0 1,638.9 2.1% 2.2% 2.3% 2.2% 2.1%
Textile Products . . . 1,954.2 1,923.6 2,601.8 2,731.1 2,761.4 3.7% 3.5% 4.1% 3.8% 3.6%
Pearls, Precious Stones 2,081.2 1,427.8 1,454.2 2,238.9 1,760.3 4.0% 2.6% 2.3% 3.1% 2.3%
. . . . . . . . . . . .
Basic Metals . . . . . 6,776.3 5,997.8 8,078.4 8,358.1 9,858.0 13.0% 11.0% 12.9%11.6% 12.8%
Machinery . . . . . . 14,949.3 16,400.9 18,568.8 22,324.2 24,120.3 28.6% 30.0% 29.5%31.0% 31.3%
Vehicles, Vessels . . 3,956.2 3,882.7 3,963.9 6,077.6 6,315.7 7.6% 7.1% 6.3% 8.4% 8.2%
Precision Instruments 1,526.7 1,618.9 2,016.1 2,306.6 2,636.6 2.9% 3.0% 3.2% 3.2% 3.4%
Others . . . . . . . .
3,586.8 4,256.9 4,735.5 5,625.1 6,011.3 6.9% 7.8% 7.5%
7.8% 7.8%
$52,265.3 $54,715.8 $62,860.6 $72,006.7 $77,061.2 100.0% 100.0%100.0%
100.0%100.0%
- ----------
Source: Derived from data published in Monthly Statistics of Exports and Imports, Ministry of
Finance.
Totals do not add due to rounding.

</TABLE>

A-23
<PAGE>

<TABLE> TRADE WITH MAJOR TRADING PARTNERS
(US$ MILLION)
<CAPTION> 1989 1990 1991
Partner Exports Imports Balance Exports Imports Balance Exports Imports Balance
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. . . $24,036 $12,033 $12,033 $21,746 $12,612 $ 9,134 $22,321 $14,114 $ 8,207
Japan . . 9,065 16,031 (6,966) 8,338 15,998 (7,661) 9,189 18,858 (9,669)
Hong
Kong . 7,042 2,205 4,837 8,556 1,446 7,110 12,431 1,947 10,484
Saudi
Arabia . 557 1,375 (818) 459 1,539 (1,080) 615 1,679 (1,064)
F.R.
Germany 2,578 2,660 (82) 3,198 2,716 482 3,868 3,013 855
Australia 1,538 1,631 (93) 1,279 1,660 (380) 1,354 2,018 (664)
Canada . 1,759 996 763 1,559 839 720 1,624 1,040 584
Singapore 1,976 889 1,086 2,204 1,406 798 2,403 1,446 958
United
Kingdom 2,102 927 1,175 1,979 1,154 826 2,071 1,124 948
Kuwait . 139 434 (296) 89 369 (280) 32 36 (4)
Indonesia 934 706 228 1,246 922 324 1,207 1,234 (27)
Others . 14,578 12,408 2,172 16,561 14,055 2,505 19,067 16,352 2,710
Total . . $66,304 $52,265 $14,009 $67,214 $54,716 $12,498 $76,180 $62,861 $13,318

(table continued)
1992 1993
Partner Exports Imports Balance Exports Imports Balance
<S> <C> <C> <C> <C> <C> <C>
U.S. . . $23,572 $15,771 $ 7,801 $23,484 $16,722 $ 6,762
Japan . . 8,894 21,767 (12,873) 8,964 23,186 (14,222)
Hong
Kong . 15,415 1,781 13,634 18,444 1,729 16,715
Saudi
Arabia . 563 1,465 (902) 533 1,502 (969)
F.R.
Germany 3,599 3,919 (320) 3,503 4,220 (717)
Australia 1,428 2,056 (627) 1,447 2,097 (650)
Canada . 1,643 1,178 465 1,536 1,119 417
Singapore 2,505 1,695 810 2,876 1,866 1,010
United
Kingdom 2,205 1,358 847 2,166 1,192 974
Kuwait . 96 224 (128) 86 274 (188)
Indonesia 1,214 1,407 (192) 1,285 1,624 (340)
Others . 20,336 19,386 948 20,593 21,530 (937)
Total . . $81,470 $72,007 $ 9,463 $84,917 $77,061 $7,855

</TABLE>

<TABLE> PERCENTAGE OF TOTAL EXPORTS & IMPORTS
<CAPTION> 1989 1990 1991 1992 1993
Partner Exports Imports Exports Imports Exports Imports Exports Imports Exports Imports
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>

U.S. . . . . 36.3% 23.0% 32.4% 23.0% 29.3% 22.5% 28.9% 21.9% 27.7% 21.7%
Japan . . . . 13.7 30.7 12.4 29.2 12.1 30.0 10.9 30.2 10.6 30.1
Hong Kong . . 10.6 4.2 12.7 2.6 16.3 3.1 18.9 2.5 21.7 2.2
Saudi Arabia 0.8 2.6 0.7 2.8 0.8 2.7 0.7 2.0 0.6 2.0
F.R. Germany 3.9 5.1 4.8 5.0 5.1 4.8 4.4 5.4 4.1 5.5
Australia . . 2.3 3.1 1.9 3.0 1.8 3.2 1.8 2.9 1.7 2.7
Canada . . . 2.7 1.9 2.3 1.5 2.1 1.7 2.0 1.6 1.8 1.5
Singapore . . 3.0 1.7 3.3 2.6 3.2 2.3 3.1 2.4 3.4 2.4
United Kingdom
3.2 1.8 2.9 2.1 2.7 1.8 2.7 1.9 2.6 1.5
Kuwait . . . 0.2 0.8 0.1 0.7 0.0 0.1 0.1 0.3 0.1 0.4
Indonesia . . 1.4 1.4 1.9 1.7 1.6 2.0 1.5 2.0 1.5 2.1
Others . . . 22.0 23.7 24.6 25.7 25.0 26.0 25.0 26.9 24.2 27.9
Total . . . . 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
- ----------
Source: Derived from data published in Monthly Statistics of Exports and Imports, Ministry of Finance.
Totals do not add due to rounding.

</TABLE>

UNITED STATE-ROC TRADE RELATIONS

Until this year, the United States had been the ROC's largest trading
partner in every year since 1961. The ROC has had a trade surplus with the
United States in every year since 1968. In 1987, the U.S./ROC trade gap
reached a record high of US$16.0 billion, the United States' second largest
bilateral trade deficit behind Japan. The surplus shrank to US$10.5 billion
in 1988 as a result of a strong increase in imports, increased to US$12.0
billion in 1989 and subsequently decreased to US$9.1 billion in 1990. In
1994, ROC exports to the United States
A-24
<PAGE>
totalled US$24.3 billion while imports from the United States stood at
US$.18.0 billion, a surplus in favor of the ROC of US$6.3 billion.

The persistent trade surplus with the United States has been a major
problem affecting U.S./ROC relations. The U.S. government has held a series
of consultations with the ROC government on trade matters and has taken a
number of concrete steps designed to deal with specific trade issues. During
the past decade the United States Trade Representative ("USTR") initiated
investigations of a number of ROC trade practices under Sections 301 and 307
of the Trade Act of 1974, including subsidized rice exports (1983), customs
valuation practices (1986), limits on beer, wine and tobacco imports (1986),
automotive export requirements (1986) and limits on imports of distilled
spirits (1990). In each instance the investigation was terminated on the
basis of undertakings by the ROC to modify the challenged practices. The
United States has also sought significant reductions in the ROC tariffs,
relaxation of non-tariff barriers, increased access to the ROC market for
U.S. service industries, better protection of intellectual property rights
and, until recently, an appreciation of the NT Dollar against the U.S.
Dollar.

In February 1989 the ROC announced its "Trade Action Plan" in order to
reduce the bilateral trade imbalance with the United States and improve
foreign access to the ROC's market. The plan included a 3-year schedule of
tariff reductions that was intended to lower the ROC's average nominal tariff
rate to less than 9 percent. There have been subsequent tariff reductions
that have lowered the average nominal tariff rate to 8.64% and the average
real tariff rate to 4.5%.

In 1989, the ROC, together with South Korea, Hong Kong and Singapore,
was dropped from the Generalized System of Preferences ("GSP"). The GSP
gives developing countries duty-free access to the U.S. market and, on
average, provides a 5% tariff reduction on the products covered. The ROC had
been the largest beneficiary of GSP with US$3.42 billion of goods qualifying
in 1988.

Since 1988 the U.S. Treasury Department has conducted semiannual reviews
of the exchange rate policies of the ROC In late 1992 the United States
asserted that ROC authorities unfairly manipulated the exchange rate for the
NT Dollar through a variety of means to impede the competitiveness of foreign
goods. The CBC responded by asserting that the depreciation of the NT Dollar
reflects market forces, not a manipulation of the exchange rate. In light of
the depreciation of the NT Dollar during 1993, the U.S. Treasury Department
has announced that it is now satisfied that the CBC is not manipulating the
market.

The ROC government has attempted to ease trade tensions with the United
States both by promoting the purchase of U.S. goods through a "Buy American"
campaign and in efforts to create more open markets. The ROC has liberalized
the importation of U.S. wine, tobacco and beer and restricted textile machine
tool exports to the U.S. In addition, the government has liberalized access
for foreign firms in the securities, insurance, banking and motion picture
distribution sectors, agreed to eliminate export performance requirements for
foreign companies producing automobiles in Taiwan, and opened its markets to
U.S. soda ash exports. The ROC government has also eliminated the
discrimination in its harbor tax, thereby reducing the burden on imports and
changed its customs valuation system to conform with the GATT Customs
Valuation Code, thereby eliminating artificial price lists which increased
tariffs on certain imported products. In recent years the customs tariffs
schedule has been repeatedly revised and the degree and scope of tariff
reductions have continuously been increased. The most recent tariff
reduction that took effect on January 1, 1992 covered more than 2,000
categories of products. As a result, the average real duty rate is currently
4.5%, which is less than half the average real duty rate in 1979. In 1989,
the ROC Government further reduced the commodity tax, which affects imports
as well as domestically produced items.

On January 1, 1990 the ROC applied for membership in the GATT under the
name "Taiwan, Penghu, Kinmen, and Matsu customs territory." In November 1992
the ROC convened its first GATT accession working party. While the United
States has taken a generally favorable view of the ROC's accession to the
GATT, the
A-25
<PAGE>
United States asked the ROC on November 24, 1993 to reduce tariffs on a list
of 2,800 specific items and agree to reduce tariffs on other products over
time in connection with its accession to GATT.

The U.S. government has recently threatened the ROC government with
trade sanctions if there is no enforcement of copyright protections of U.S.
products and enforcement of international laws relating to the protection of
endangered species.

BALANCE OF PAYMENTS

As a result of the increase in world oil prices in 1978-1979, the ROC
incurred a current account deficit of US$913 million in 1980, and an overall
balance of payments deficit for that year of US$319 million. Since that
time, the ROC has recorded substantial surpluses in the current account and
overall balance of payments in each year except 1992. Record high surpluses
were recorded in 1987 for the trade balance (US$20.3 billion), the current
account balance (US$18.0 billion) and the overall balance (US$19.3 billion).
In 1991, the trade balance stood at US$15.8 billion; the current account
balance was US$12 billion; and the overall balance was US$7.2 billion. In
1992, the trade balance stood at US$12.6 billion; the current account balance
was US$7.9 billion; and the overall balance was a deficit of US$6.42 million,
respectively. In 1993, the trade balance stood at US$11.4 billion; the
current account balance was US$5.8 billion; and the overall balance was
US$1.4 billion.

The ROC traditionally has had a positive balance of trade which is
reduced by a deficit on invisible transactions (e.g., shipping and other
transportation, travel and investment income). The impact of the capital
account has varied in recent years as it made a positive contribution to the
overall balance in 1980-1983 but was a negative factor from 1984 through 1989
when there were substantial deficits in the long-term capital account due
primarily to drawings on long-term loans and substantial repayments and
prepayments of principal. This trend continued through 1992.

<TABLE> BALANCE OF PAYMENTS 1985-1994(1)
(US$ MILLION)
<CAPTION> 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>

Current Account Balance . . 9,198 16,277 17,999 10,177 11,385 10,769 12,015 8,154 6,714 6,018
Trade Balance . . . . . . . 11,173 16,917 20,286 13,834 16,203 14,925 15,754 12,767 11,587 11,984
Exports, f.o.b. . . . . . 30,469 39,552 53,298 60,319 65,875 66,823 75,535 80,723 84,329 92,242
Imports, f.o.b. . . . . . (19,296)(22,635) (33,012) (46,485) (49,672) (51,895) (59,781)(67,956) (72,742)(80,258)
Invisible Trade Balance . . (1,726) (343) (1,591) (1,733) (2,693) (3,424) (3,488) (4,406) (3,891) (4,609)
Transfers . . . . . . . . . (249) (297) (696) (1,924) (2,125) (735) (251) (207) (982) (1,357)
Long Term Capital . . . . . (777) (1,408) (2,386) (6,031) (7,432) (6,402) (2,647) (3,844) (2,456) (1,083)
Direct Investment . . . . 250 261 11 (3,161) (5,347) (3,913) (583) (990) (1,534) (1,085)
Other Long Term Capital . (1,037) (1,689) (2,397) (2,870) (2,085) (2,489) (2,064) (2,854) (922) 2
Basic Balance . . . . . . . 8,421 14,869 15,613 4,146 3,953 4,367 9,368 4,310 4,258 4,935
Short-Term Capital . . . . 284 1,421 4,013 (1,481) (817) (4,150) (2,064) (4,880) (2,295) (233)
Net Errors and Omissions . 491 108 (305) (114) (35) 463 (129) (72) (511) (2)
Overall Balance . . . . . . 9,196 16,398 19,321 2,551 3,101 680 7,155 (642) 1,452 4,700
Counterpart Items . . . . . 156 223 992 2,629 18 -- -- 3 6 8
Change in Net Foreign Assets
of the Banking System(2) (9,352)(16,621) (20,313) (5,180) (3,119) (680) (7,155) 639 (1,458) (4,706)

- ----------
Notes: (1) The data include transactions between OBUs and non-residents.
(2) Excluding valuation changes. Minus denotes an increase in assets.
Source: CBC, Economic Research Department, Financial Statistics Monthly, Taiwan District, ROC

</TABLE>

There was a current account surplus of US$6.0 billion in 1994, compared
with a current account surplus of US$6.7 billion in 1993.

A-26
<PAGE>
FOREIGN EXCHANGE

CURRENCY

Prior to 1979, the ROC utilized a fixed exchange rate with the NT Dollar
pegged to the U.S. Dollar. Foreign exchange earners were required to
surrender the foreign exchange they received to the Central Bank at a fixed
rate through the appointed foreign exchange banks and banks were not allowed
to hold foreign exchange. This "Foreign Exchange Concentration System,"
coupled with the ROC's growing trade surpluses, resulted in an increase in
the money supply and inflationary pressure. Under that system, changes in
the exchange rates, when they did come, tended to be in relatively large
increments.

In February 1979, the government instituted a liberalization of the
exchange rate system in an effort to lessen inflationary pressures. A
managed flexible exchange rate was adopted. Appointed foreign exchange banks
settled transactions among themselves through the market instead of settling
all foreign exchange with the Central Bank. In addition, foreign exchange
owners were allowed to hold foreign exchange in special deposit accounts and
were not required to convert their foreign exchange into NT Dollars.

The Central Bank has in the past attempted to maintain stability in the
market by intervening to purchase or sell foreign exchange so as to avoid
large and sudden fluctuations and to maintain an exchange rate which it deems
compatible with the ROC's economic policy. It is now less active in managing
currency levels, partly due to requests from U.S. trade negotiators made in
1989. Most of the foreign exchange dealings are spot transactions (delivery
within the next business day). Over 90% of the dealings are in U.S. Dollars,
although dealing also takes place in other currencies. See "Banking System
and Monetary Policy--Monetary Policy."

During the 1950s the ROC employed a system of multi-tiered exchange
rates. That system was replaced at the beginning of the 1960s with a fixed-
rate system, whereby the NT Dollar was pegged to the U.S. Dollar.

In February 1979 the ROC liberalized its exchange rate system. A
managed floating exchange rate was adopted, whereby the designated foreign
exchange banks settled transactions among themselves through the interbank
market instead of surrendering all foreign exchange to the CBC. In addition,
domestic earners of foreign exchange were permitted to hold foreign exchange
in special deposit accounts.

At the beginning of April 1989 the CBC announced further changes to the
ROC's exchange rate system. Under the new regime, NT Dollar exchange rates
applicable to transactions between banks and their customers in amounts of
less than US$30,000 were set daily by a group of nine banks selected by the
CBC, five of which were permanent members and four of which were rotating
members. Under this regime the initial exchange rate was set at 10:00 a.m.
on each banking day and could be revised by the group of banks during the
course of the day. Exchange rates for transactions in amounts in excess of
US$30,000 were to be negotiated between the trading banks and their customers
in such transactions. The exchange rates applicable to interbank
transactions were freely negotiable between the trading banks.

In July 1989 the CBC further deregulated the system so that the exchange
rates applicable between banks and their customers for transactions in
amounts less than US$10,000 are now set daily by the individual banks.
Exchange rates for transactions in excess of US$10,000 are still negotiated
between the trading bank and its customers. In practice, despite the rule
change, local banks still coordinate in setting foreign exchange rates for
dealings of not more than US$10,000. The exchange rate applicable to
interbank transactions remain freely negotiable.

A-27
<PAGE>

<TABLE> EXCHANGE RATE: NT DOLLAR PER U.S. DOLLAR, 1985-1994
<CAPTION> End-Period/(1)/ Period
Avg./(1)/
<S> <C> <C>

1985 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39.850 39.849
1986 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35.500 37.838
1987 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.550 31.845
1988 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.170 28.589
1989 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26.160 26.407
1990 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27.108 26.893
1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25.748 26.815
1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25.403 25.164
1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26.626 26.387
1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26.240 26.457
1995 (through August 31, 1995) . . . . . . . . . . . . . . . . 27.500 N/A
______________
Note: /(1)/ Midpoint market rate through March 1989; interbank closing rates thereafter.
Sources: CBC, Financial Statistics, Taiwan District, ROC (compiled in accordance with
International Financial Statistics format published by the International Monetary Fund),
January 1991, and July 1995; CBC, Economic Research Department, Financial Statistics
Monthly, February 1989; International Monetary Fund, International Financial Statistics,
Yearbook 1979.

</TABLE>

On June 16, 1995 the spot buying rate was NT$25.78 per US$1.00, and the
spot selling rate was NT$25.79 per US$1.00.

Most foreign exchange dealings are spot transactions requiring delivery
within the next business day although forward transactions have become
increasingly important as the NT Dollar has appreciated in value. The CBC
has also taken an active role in the forward foreign currency markets.
Partly in an effort to shield exporters from the full effects of the
appreciation of the NT Dollar, in 1985 the CBC undertook to purchase from
banks 90% of all forward foreign exchange contracts. In June 1987 the CBC
reduced the proportion of contracts it undertook to purchase to 40% of those
outstanding. That proportion proved to be temporary, and the CBC reduced its
commitment regarding forward contracts still further late in the year,
leaving private parties to set the market price. On October 30, 1991 the CBC
announced the re-opening after a four-year shutdown of the forward foreign
exchange market to import/export traders and designated foreign exchange
banks. As a result, banks could sell to or repurchase foreign exchange
contracts from other banks in order to minimize exchange risk.

The large majority of foreign exchange transactions in the ROC involve
U.S. Dollars although dealing also takes place between the NT Dollar and
certain other currencies, notably Hong Kong and Singapore Dollars, Sterling,
French Francs, Japanese Yen and Deutsche Marks. In addition the trading in
third currencies, such as the Japanese Yen or Deutsche Mark, against the U.S.
Dollar through Hong Kong-based money brokers is also allowed.

EXCHANGE CONTROLS

Until August 1993 the ROC's Foreign Exchange Control Statute and
regulations thereunder provided that all foreign exchange transactions must
be executed by banks designated to handle such business by the Ministry of
Finance and by the CBC. Currently 37 banks organized under the laws of the
ROC and 39 foreign banks have been designated as foreign exchange banks. In
August 1993 the CBC promulgated regulations concerning the establishment of
Foreign Exchange Brokerage firms that can engage in brokering the purchase
and sale of foreign
A-28
<PAGE>
exchange, foreign currency call loans, swap transactions and other foreign
exchange business approved by the CBC. Such a firm must have a minimum paid
in capital of NT$100 million.

On October 30, 1991 new regulations were announced whereby limitations
on trade-related foreign exchange transactions were removed entirely. Under
such regulations foreign exchange controls were lifted with respect to
foreign currency earned from exports of merchandise and services, which may
now be retained and used freely by exporters. Similarly, all foreign
currency needed for the importation of merchandise and services may be
purchased freely from the CBC or from the designated foreign exchange banks.

The government has liberalized exchange control by, among other things:

(i) permitting ROC companies and resident individuals to remit, without
exchange approval, outside and into the ROC up to US$10 million (or its
equivalent in specified foreign currency) and US$5 million (or its
equivalent in specified foreign currency), respectively, each calendar
year;

(ii) permitting individuals and institutions to convert their NT Dollar
funds into foreign currency and invest them in certain foreign
securities;

(iii) permitting individuals and institutions to open, with appointed
banks, foreign exchange demand deposit accounts and time deposit
accounts evidenced by non-negotiable certificates;

(iv) requiring ROC persons (importers and exporters included) only to
file reports with respect to any foreign exchange with CBC instead
of obtaining prior approval; and

(v) subject to certain restrictions, permitting non-ROC companies and
individuals to open NT dollar bank accounts.

The current regulations also require all private enterprises to register
all medium- and long-term foreign debt with designated authorities. The
regulations also prohibit the conversion of foreign investment loans into NT
Dollars, with few exceptions.

In addition, foreign persons may, subject to certain requirements, but
without foreign exchange approval of the CBC, remit outside and into the ROC
foreign currencies of up to US$100,000 (or its equivalent) for each
remittance. Foreign financial instituitons may not, however, make inward
remittances or convert their foreign currency to NT Dollars without the
approval of the CBC. The above limit applies to remittances involving a
conversion between NT Dollars and US Dolalrs or other foreign currencies.

RESERVES

The ROC has the world's second strongest reserve position. Since 1987,
the ROC has maintained foreign exchange reserves in excess of US$70 billion.
At December 31, 1994, foreign exchange reserves exceeded US$92.4 billion.

A-29
<PAGE>

<TABLE>
<CAPTION> Total
Foreign Gold
Exchange (thousands
Reserves Change fine troy Change
(US$ Million) (%) ounces) (%)
<S> <C> <C> <C> <C>
(1984 . . . . . . . . . . . . 15,664 32.1 4,464 8.5
1985 . . . . . . . . . . . . 22,556 44.0 5,012 12.3
1986 . . . . . . . . . . . . 46,310 105.3 5,574 11.2
1987 . . . . . . . . . . . . 76,748 65.7 7,667 37.5
1988 . . . . . . . . . . . . 73,897 (3.7 13,487 75.9
1989 . . . . . . . . . . . . 73,224 (0.9) 13,537 0.4
1990 . . . . . . . . . . . . 72,441 (1.1) 13,537 --
1991 . . . . . . . . . . . . 82,405 13.8 13,537 --
1992 . . . . . . . . . . . . 82,306 (0.1) 13,544 0.1
1993 . . . . . . . . . . . . 83,573 1.5 13,558 0.1
- ----------
Source: Financial Statistics Monthly, Taiwan District, ROC, January 1991, September 1993 and April
1994, Economic Research Department, Central Bank.

</TABLE>

BANKING SYSTEM AND MONETARY POLICY

In 1993, the ROC had a national savings rate of 28.0%, down from 30.8%
in 1989. Despite their relatively high savings rate, the ROC's banking and
financial system remains underdeveloped relative to its economy.
Government-owned banks play a major role in the banking sector. However, 16
new private banks have been established since government deregulation. Bank
financing has been traditionally short-term in nature and longer-term
financing has been hindered by the lack of a well developed capital market
and strict government regulation of capital issues. In addition, many
companies--especially smaller companies with limited direct access to the
banking system--have relied on an informal unorganized money market outside
the banking system as a source of finance even though rates tend to be higher
than those charged by the banks.

The government is currently reforming the financial system and has
implemented some of the recommendations of the Economic Reform Committee
relating to the banking industry. These recommendations call for general
loosening of the tight government control over the financial markets by
deregulating interest rates, minimizing state interference with the
day-to-day operation of the state-owned banks, permitting an expansion of
foreign branch bank business, improving the interbank market and facilitating
the merger of financial institutions. Measures instituted to date include:
efforts to develop a formal, short-term money market; deregulation of
interest rates; increased freedom for ROC nationals to place some of their
savings in foreign portfolio investments, liberalization of foreign exchange
controls and the passage of an amendment to the banking law which has enabled
both foreign and domestic banks to engage in a wider range of activities.

CENTRAL BANK OF CHINA

The Central Bank was established in 1935 pursuant to the Central Bank of
China Act. The Central Bank is responsible for formulating and implementing
monetary policy and supervising all financial institutions in the country.
It also holds the nation's foreign exchange reserves, issues the national
currency and acts as fiscal agent of the government and custodian of
government funds.

The ROC has a conservative banking and financial system. Interest rates
have been strongly influenced by the government since the early 1950s.
Government policy toward the financial sector is implemented both through
regulation and by means of direct and indirect ownership of domestic banks
and financial institutions.

A-30
<PAGE>
Bank financing in the ROC has traditionally been short-term in nature
and extended on conservative terms. Development of longer-term financing and
alternatives to bank financing has been hindered by the lack of a developed
capital market and restrictions under the Securities and Exchange Law.

During the 1980s, however, the ROC government responded to calls for a
general loosening of control over the financial markets and began to take
specific steps towards deregulation of interest rates, reduction in
government interference with the day-to-day operation of the government-owned
banks, issuance of new banking licenses, expansion of foreign branch bank
business, increased freedom for ROC nationals to place their savings in
foreign portfolio investments, improvement of the interbank and short-term
money markets and liberalization of foreign exchange controls. In 1985 the
ROC financial system suffered severe strains in the wake of the collapse of
the Tenth Credit Cooperative, and the government was required to appoint
several government-owned banks to assume the management of collapsing
financial institutions. In the same year a sequence of business failures
among ROC companies caused banks to adopt stricter lending policies.
Confidence subsequently returned to the banking system, and in an attempt to
try to address certain inadequacies revealed by these 1985 incidents, the
Banking Law was amended in 1989 to increase capitalization requirements and
strengthen the regulations concerning shareholders and directors of banks.

On July 11, 1989 the Legislative Yuan passed another amendment to the
Banking Law which permits the establishment of privately owned banking
institutions and permits banks to set their own interest rates. The
statutory amendment defined for the first time the actions that are deemed to
constitute the acceptance of deposits. In April 1990 the ROC Ministry of
Finance began accepting applications for the establishment of new privately
owned commercial banks. Each new commercial bank is required to have a
minimum paid-in capital of NT$10 billion. Twenty new private banks have been
chartered as of August 1995. Foreign banks are now allowed to set up more
than one branch office in the ROC, and local banks can set up five branches
every year. The establishment of privately owned commercial banks, by
increasing the alternatives available to customers, have made interest rates,
especially savings rates, much more competitive.

The ROC government in 1990 issued regulations permitting trust companies
that meet certain requirements to apply to become banks. China Trust
Corporation filed such an application, which was approved on July 2, 1992.
Chinfon Commercial Bank (formerly known as Cathay Investment and Trust
Company) also filed an application and was approved on October 11, 1994.

Central Bank of China

The CBC was established on the Chinese mainland and was moved to Taiwan
in 1949 along with other agencies of the ROC government. The CBC delegated
its central banking functions to the provincial Bank of Taiwan from 1949
until resuming operations as the central bank in 1961. Since then the Bank
of Taiwan has continued to issue the NT Dollar and to carry out certain other
activities on behalf of the CBC. Together with the Ministry of Finance, the
CBC is responsible for formulating and implementing monetary policy and for
supervising all financial institutions in the country. It also sets reserve
requirements and administers the nation's foreign exchange reserves and
system of exchange controls. The major methods the CBC uses to implement
policy include engaging in open market operations, setting the rediscount
rate, acting as lender of last resort, and adjusting bank holdings of foreign
currency to influence their reserve positions.

BANKING AND FINANCIAL INSTITUTIONS

A wide variety of financial organizations operate in the ROC under the
supervision of the Central Bank and Ministry of Finance, including domestic
and foreign banks, credit cooperative associations, trust investment
companies, post offices and postal agencies, life insurance companies,
property and casualty insurance companies, bills finance companies and
securities finance institutions.

A-31
<PAGE>

Number of
Type Institutions
Full service domestic banks . . . . . . . . . . . . . . . 33
Local branches of foreign banks . . . . . . . . . . . . . 37
"Medium business" domestic banks . . . . . . . . . . . . 8
Credit co-operative associations . . . . . . . . . . . . 74
Credit departments of farmers' and fishermen's 312
associations . . . . . . . . . . . . . . . . . . . . . .
Investment and trust companies 7
Post offices . . . . . . . . . . . . . . . . . . . . . . 1,248
Postal agencies . . . . . . . . . . . . . . . . . . . . . 342
Life insurance companies . . . . . . . . . . . . . . . . 27
Property and casualty insurance companies . . . . . . . . 23
Bills finance companies . . . . . . . . . . . . . . . . . 3
Securities finance institutions . . . . . . . . . . . . . 1

- ----------
Source: Financial Statistics Monthly, Taiwan District, ROC, May 1994,
Economic Research Department, Central Bank.

Both local and foreign banks are chartered under the provisions of the
Banking Law, as amended. With the exception of a few specialized banks, all
banks engage in a full range of operations and are members of the Clearing
House supervised by the Central Bank.

Under the Banking Law, banks are granted wide latitude to engage in a
range of business including securities investment, underwriting, trading in
securities for their own account, or for their customers, managing bond and
debenture issues and discounting bills and notes, in addition to other normal
banking business. The Banking Law also provides for various types of
specialized banking institutions such as commercial banks, savings banks,
export-import banks, banks which extend credit to medium- and small-sized
enterprises and citizens or district banks.

The postal savings system (post offices and postal agencies) has been
the fastest growing segment of the banking industry. From 1961 through 1994
deposits in the system grew from 3% to about 9.3% of the total. Credit
co-operative associations are also significant, although their growth rate
has not been as fast as the postal savings system. At December 31, 1994,
deposits in credit cooperative associations constituted approximately 13.8%
of all deposits.

The International Commercial Bank of China ("ICBC") is the ROC's leading
foreign exchange bank. It maintains 42 offices in the ROC and a number of
foreign branches and representative offices. See "Custodians."

The Export-Import Bank of China Act of 1979 established the
government-owned Export-Import Bank of the ROC and transformed the
government-owned Chiaotung Bank into a development bank. The Export-Import
Bank of the ROC specializes in trade banking with the main objective of
promoting the ROC's exports, while the Chiaotung Bank concentrates on
financing investment in manufacturing, mining and transportation industries.
It has close working relationships with the CEPD, the Industrial Development
Bureau of the Ministry of Economic Affairs and other government bodies.

In 1974, the government established the Medium and Small Business Credit
Guarantee Fund to provide medium and small business credit guarantees for
bank loans. In 1975, the government established eight medium-sized banks
throughout the country to assist in financing medium and small businesses.
As of the end of 1994, about 9.3% of all financial institutions' deposits
were held by these banks.

A-32
<PAGE>

The Banking Law authorizes the activities of trust and investment
companies to manage trust funds and trust properties or, as an investment
broker, to invest in capital markets and to undertake underwriting and
trading of securities for their own account or for customers. The government
first allowed trust and investment companies to open in 1971, with the
primary purpose of permitting overseas Chinese financial groups to develop
long-term loan and capital markets in the ROC. As of the end of 1994, there
were six trust and investment companies operating in the ROC.

On July 11, 1989, the Legislative Yuan passed an amendment to the
Banking Law which permits the establishment of privately-owned banking
institutions and permits banks to set their own interest rates. The related
regulations have been formulated by the Executive Yuan. The amendment stated
for the first time which actions will be deemed as acceptance of deposits and
by limiting such actions, thereby made the country's numerous underground
investment companies illegal. Following the enactment of this amendment, 15
new private banks were approved in 1991. Two additional new commercial banks
were approved, one in 1992 and the second in 1994.

At present, there are 37 foreign banks operating in the ROC from the
United States, the Netherlands, Thailand, Japan, the United Kingdom, Germany,
Singapore, France, Spain, Australia and Canada. While there has been some
recent liberalization of the treatment of foreign banks in the ROC, their
activities are still strictly limited by law and they operate at a
competitive disadvantage relative to the ROC's domestic banks. In early
January 1987, a restriction limiting foreign banks to taking time deposits of
a maturity of six months or less was eliminated. In addition, a regulation
permitting qualified foreign banks to conduct trust business in the ROC was
adopted in April 1990.

Bills finance companies in the ROC authenticate or guarantee short-term
(up to one year) negotiable instruments, deal in debt securities with
remaining maturities of no more than one year and such other types of short-
term indebtedness as may be approved by the Ministry of Finance. Bills
finance companies also engage in securities repurchase transactions. At July
31, 1995 the combined assets of bills finance companies in Taiwan was
NT$68.054 billion.

At September 30, 1995 there were 31 domestic insurance companies and 23
local branches of foreign insurance companies licensed to do business in the
ROC The business of such insurance companies in the ROC includes the making
of loans, subject to the approval of the ROC Ministry of Finance, and the
investment of a specified percentage of their assets in securities.

MONETARY POLICY

The Central Bank is responsible for developing and implementing monetary
policy and controlling the money supply. The major methods it uses to
implement policy include: adjusting deposit reserve ratios; engaging in open
market operations; setting the rediscount rate; acting as lender of last
resort and adjusting bank holdings of foreign currency to influence their
reserve positions.

From the early 1950s until July 1989 the CBC regulated interest rates in
order to promote stability in the local banking industry. Under this system,
banks were allowed to alter their deposit and loan rates only within the
ranges approved by the CBC. In July 1989 bank rates were deregulated, and
since that time banks have been permitted to determine their own rates, which
must be posted.

The ROC's large foreign exchange reserves coupled with relatively low
demand for credit have caused total deposits to expand at a rate that is more
than triple the rate of expansion of new bank loans. As a result, the
banking system became very liquid after 1985. At that time total deposits
exceeded loans and investments by NT$641.1 billion. At the end of December
1994 total deposits in excess of loans and investments stood at NT$1,052
billion.

A-33
<PAGE>

The CBC has taken a number of steps in recent years to absorb this
excess liquidity, including during the years 1987 and 1988 (which experienced
growth rates in M1-B of 37.8% and 24.4%, respectively). During those years
the CBC also intervened actively in the foreign exchange markets to slow the
appreciation in the value of the NT Dollar and also took other strong
measures, including restricting capital inflows, prohibiting conversion of
foreign loan investments into local currency, freezing foreign borrowings by
domestic and foreign banks, freeing itself from commitments to buy from ROC
banks 90% of their foreign currency forward contracts and doubling issues of
treasury bills to an amount equal to some 40% of the annual government budget
for 1988. Those measures, coupled with a decline of speculative interest in
the appreciating NT Dollar, seem to have had some success in slowing M1-B
growth.

Between February 1988 and February 1989 M1-B grew at 26.1%. In order to
reach the Executive Yuan's announced target of annual M1-B growth of less
than 20%, the CBC in April 1989 implemented a package of additional measures,
including a 1% increase in the re-discount rate to 5.5%, increases in deposit
interest rates and increased reserve requirements for the various forms of
bank deposits. As a result of such policy, the money supply grew by only
6.1% in 1989 and declined by 6.6% in 1990. In 1991 the ROC government
loosened certain of its restrictions on capital outflows and decreased the
re-discount rate and the deposit required reserve rate in an attempt to
stimulate monetary growth. In the second half of 1991 the Executive Yuan
announced that as a result of increased savings rates (due to increased
interest rates), M2 (which includes deposits) should be the standard by which
monetary growth is determined. M2 increased by 19.3% in 1991 over the same
period in 1990 and 16.6%, 15.1% and 13.0% in 1992, 1993 and 1994,
respectively.

The rate of growth of the money supply as measured by M1B declined from
52% in 1986 to 38% in 1987, 24% in 1988, 6% in 1989 and actually fell by 6%
in 1990. This trend was reversed in 1991 and 1992, when the annual growth
rate of M1B was approximately 12% for both years. The sharp increases in M1B
through 1992 resulted from large-scale injection of reserves which the
Central Bank effected through its constant purchases of U.S. Dollars on the
local foreign exchange market in order to control the appreciation of the NT
Dollar against the U.S. Dollar. The Central Bank relies on these purchases
to absorb excess foreign currency generated by the mounting trade surplus and
speculative currency inflows. At the same time, the Central Bank attempts to
reduce the excess liquidity in the domestic money supply caused by these
purchases by issuing treasury bills, time deposit certificates and savings
notes. The money supply as measured by M1B grew by 15% in 1993.

<TABLE>
<CAPTION> As of December 31,
ANNUAL GROWTH RATE 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993
OF M1B (NT$ Billion)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net currency issued 168 183 231 285 321 348 355 388 436 470
Demand deposits(1) 501 569 907 1,283 1,630 1,720 1,577 1,778 1,998 2,336
Quasi-money(2) . . 1,465 1,882 2,161 2,607 2,970 3,603 4,299 5,267 6,430 7,759
Money supply
M1B(3) . . . . . 670 751 1,138 1,568 1,950 2,069 1,932 2,165 2,434 2,806
M2(4) . . . . . . 2,134 2,633 3,299 4,175 4,921 5,672 6,231 7,432 8,865 10,565
Annual Growth Rate
of M2 . . . . . . 20% 23% 25% 27% 18% 15% 10% 19% 19% 19%
Annual Growth Rate
of M1B . . . . . 9% 12% 52% 38% 24% 6% (6)% 12% 12% 15%

- ----------
Source: Financial Statistics, Monthly Taiwan District, ROC, September 1993 and April 1994, Economic
Research Department, Central Bank.
(1) Composed of checking account balances, passbook deposits and passbook savings deposits.
(2) Composed of postal savings deposits, time deposits, time savings deposits, foreign currency
deposits, foreign exchange proceeds deposits, foreign exchange trust funds, certificates of deposit,
currency held by businesses and individuals, and bank debentures and savings bonds issued by CBC and
held by the public.
(3) M1B consists of net currency issued, checking account balances, passbook deposits, and passbook
savings deposits.
(4) M2 consists of M1B and Quasi-money.

</TABLE>
A-34
<PAGE>

PUBLIC FINANCE AND TAXATION

REVENUES AND EXPENDITURES

The government policy on fiscal matters has traditionally been
conservative. However, the ROC government has experienced deficits in recent
years and for the next several years may experience deficits in connection
with the Six-Year Plan. In 1993 and 1994, the ROC government ran a surplus
of NT$24.1 billion and a deficit of NT$74.7 billion, respectively (NT$827.1
billion of revenue versus NT$801.1 billion of expenditures in 1993, and
NT$809.2 billion of revenue versus NT$882.6 billion of expenditures in 1994).
It is estimated that this Plan, which covers economic as well as social and
cultural programs, will cost approximately NT$6,000 billion. The government
intends that a large portion of the funds needed for the Six-Year Plan be
raised by privatizing state-owned enterprises and issuing bonds.

The major sources of 1994 revenue were taxes (55%), surpluses from
public enterprises and utilities (10%) and receipts from loans for economic
construction (12%).

The primary areas of expenditure in 1994 were economic development
(25%), education, science and culture (20%), social welfare and pension
(14%), national defense and foreign affairs (17%) and general administration
(13%).

<TABLE> GOVERNMENT NET REVENUE AND EXPENDITURES
1985-1994
(NT$ BILLION)
<CAPTION>
Fiscal Year Revenues Expenditures Balance
<S> <C> <C> <C>
1985 . . . . . . 542.6 546.3 (3.7)
1986 . . . . . . 584.8 616.7 (31.9)
1987 . . . . . . 650.2 641.9 8.3
1988 . . . . . . 766.6 726.5 40.1
1989 . . . . . . 921.6 1,207.4 (285.8)
1990 . . . . . . 1,092.4 1,097.5 (5.1)
1991 . . . . . . 1,049.9 1,275.6 (225.7)
1992 . . . . . . 1,257.6 1,561.9 (304.3)
1993 . . . . . . 1,416.3 1,756.3 (340.0)
1994 . . . . . . 1,502.8 1,826.4 (323.6)
- ----------
Source: Yearbook of Financial Statistics of the ROC, 1994, Department of Statistics, Ministry of
Finance.

</TABLE>

A-35
<PAGE>

<TABLE> NET REVENUE OF ALL GOVERNMENT LEVELS
<CAPTION> (PERCENTAGE SHARE)
REVENUE 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993
(NT$ Billion)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Taxes . . . . . . . . . . . . 64.3% 61.3% 56.1% 58.7% 60.0% 45.6% 66.0% 52.0% 53.1% 51.9%
Profits from Tobacco & Wine
Monopolies . . . . . . . . . 7.5 7.2 7.0 6.5 5.4 3.4 4.4 4.2 3.4 3.3
Surplus of Public Enterprises
and Utilities . . . . . . . 11.8 13.3 15.7 14.5 13.1 9.3 10.1 6.6 8.3 8.8
Proceeds from Issues of
Public Debts . . . . . . . . 1.8 4.2 4.5 6.8 9.0 8.5 1.3 10.1 18.3 18.0
Receipts from Loans of
Economic Construction . . . 1.1 1.2 1.2 1.2 1.1 22.6 6.1 9.5 5.2 5.2
Other . . . . . . . . . . . . 13.5 12.8 15.5 12.3 11.4 10.6 12.1 17.6 11.7 12.8

Total . . . . . . . . . 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

</TABLE>

<TABLE>
<CAPTION> NET REVENUE OF ALL GOVERNMENT LEVELS
(PERCENTAGE SHARE)
EXPENDITURE 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993
(NT$ Billion)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
General Administration
10.3% 11.0% 11.1% 10.9% 10.7% 7.8% 10.8% 10.8% 11.7% 11.2%
National Defense . . 23.8 24.0 24.2 22.5 21.3 15.2 18.1 16.0 14.1 13.6
Education, Science & 19.0 19.8 20.5 20.3 19.7 16.7 19.5 20.4 19.1 18.9
Culture . . . . . . .
Economic Development 26.7 24.5 24.4 25.9 25.5 43.7 25.9 22.8 27.3 29.4
Social Security and 15.8 15.7 15.6 15.5 17.5 12.2 17.4 16.8 17.3 17.2
Pensions . . . . . .
Obligations . . . . . 3.6 4.2 3.4 4.1 4.5 3.5 7.4 12.3 9.9 9.0
Miscellaneous . . . . 0.8 0.8 0.8 0.9 0.8 0.9 0.9 0.9 0.6 0.7

Total . . . . . 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

- ----------
Source: Yearbook of Financial Statistics of the ROC, 1993. Department of Statistics, Ministry of
Finance.
Totals do not add due to rounding.

</TABLE>

TAXATION

Taxation. The ROC tax system includes, among other things, corporate
and personal income taxes, commodity and value-added taxes, customs duties,
harbor taxes, deed and land taxes and stamp and securities transaction taxes.
In recent years the government has been attempting to control tax evasion.

Generally ROC resident corporations are taxed on their worldwide net
income at rates ranging to a maximum of 25%. Branches of foreign
corporations and nonresident companies doing business in the ROC are taxed on
all ROC-source income either at the applicable rates for resident
corporations or at prescribed withholding rates. A 20% withholding tax is
imposed upon the receipt by non-residents of any interest, royalties or
certain fees for services performed in the ROC, except in certain specified
circumstances.

Individuals are taxed on all income derived from sources within Taiwan.
Residents are taxed at progressive rates ranging from 6% to 40%. Corporate
profits are taxed again when paid as dividends at the individual taxpayer
level. Except for certain specified circumstances, non-residents are taxed
at a flat rate of 20% of ROC-source income.

In April 1986 the government instituted a 5% value-added tax that
replaced a three-tiered tax system that involved separate commodity, invoice
and business taxes.

A-36
<PAGE>
Securities transactions are taxed at the rate of 0.3% for equity
transactions and 0.1% for corporate bond and LBC transactions. There is no
tax on government bond transactions. Capital gains derived from the sale of
securities of listed companies and from the sale of bonds of unlisted
companies have not been taxed since January 1, 1990. The ROC government has
announced a proposal to reduce the securities transaction tax applicable to
sales of shares from 0.3% to 0.2% and to reimpose a capital gains tax on the
sale of securities. Gains from the transfer of land within the ROC are
subject to a land value increment tax. Deed taxes are levied on the transfer
of buildings within the ROC.

Estate tax is payable at rates ranging from 2% to 50%. Gift tax is
payable at rates ranging from 4% to 50%.

The tax system in the ROC includes corporate and personal income taxes,
business taxes, customs duties, and harbor taxes, commodity taxes, land taxes
and stamp and securities transfer taxes. In the spring of 1986, the
government introduced a value-added tax which replaced, in part, the previous
commodity and business tax. See "Value-Added Tax" below.

Corporate Income Tax. ROC resident corporations are taxed on worldwide
net income at a maximum rate of 25%. Certain approved deductions are
allowed.

Non-resident companies doing business in the ROC are taxed on all ROC
source income either at the applicable rates for resident corporations or at
prescribed withholding rates. Interest, royalties, and certain service fees
paid to non-residents are subject to a 20% withholding tax.

Personal Income Tax. Residents and non-residents are taxed on all
income derived from sources within the ROC. Residents are taxed at a
progressive rate ranging from 6% to 40%. Non-residents are taxed at a flat
rate of 20% for income other than (i) gains realized from the sale of
property which are taxed at the rate of 35% for foreign individuals and 25%
for foreign corporations and (ii) stock or cash dividends which are taxed at
the rate of 35% for individuals and 25% for foreign corporations (or 20% if
certain governmental approval relating to foreign investment is obtained).
Residents may take deductions for insurance payments, medical expenses,
property taxes and charitable donations, or apply a standard deduction in
lieu of the itemized deductions. Non-resident taxpayers are ineligible for
deductions.

Value-Added Tax. Under the value-added tax ("VAT") system, a 5% tax is
levied on the value added to many types of goods and services at each stage
of production and distribution. The sale of a number of types of goods and
services are "zero rated" which means that the final seller can recover all
the VAT he paid on his purchase of goods and services and that the price paid
by the final consumer will not reflect any VAT incurred on prior stages.
Zero rated goods and services include exports and services relating to
exports.

Estate and Gift Tax. Estate and gift tax is payable on, inter alia, any
estate within the ROC or of a deceased non-resident ROC national regularly
domiciled outside the ROC or of a foreign national and on any donated
property within the ROC donated by any such person, and is accordingly a tax
payable by reference to individuals. Estate tax is payable at rates ranging
from 2% of the first NT$600,000 after deducting the amounts permissible to be
exempted to 50% of amounts over NT$100 million. Gift tax is payable at rates
ranging from 4% of the first NT$600,000 after deducting the amounts
permissible to be exempted to 50% of amounts over NT$45 million.

Capital Gains Tax. During certain periods in the past, capital gains
derived from stock transactions have been subject to tax in the ROC. The
latest imposition of this tax was for the one-year period ended December 31,
1989. Since January 1, 1990, the capital gains tax has been suspended. The
ROC government is currently
A-37
<PAGE>
considering the reimposition of the capital gains tax on securities
transactions. This reimposition would be subject to legislative approval,
and it cannot be predicted when or whether the legislature will grant such
approval.

EXTERNAL DEBT

Since 1985, the ROC's outstanding external debt has been reduced from
US$5.2 billion to US$563 million in 1994. The following table gives total
and disbursed external public debt outstanding between 1985 and 1994:

<TABLE> EXTERNAL PUBLIC DEBT OUTSTANDING
<CAPTION> Total Change Disbursed Only Change
(US$ million) (%) (US$ million) (%)
<S> <C> <C> <C> <C>
1985 . . . 5,196.5 (16.2) 4,764.5 (13.9)
1986 . . . 3,654.5 (29.7) 3,236.2 (32.1)
1987 . . . 2,301.4 (37.0) 1,889.6 (41.6)
1988 . . . 1,885.8 (18.1) 1,528.8 (19.1)
1989 . . . 1,487.6 (21.1) 1,145.5 (25.1)
1990 . . . 1,208.7 (18.7) 898.1 (21.6)
1991 . . . 998.7 (17.4) 713.5 (20.6)
1992 . . . 688.0 (31.1) 455.4 (36.2)
1993 . . . 598.7 (13.0) 395.4 (13.2)
1994 . . . 563.3 (5.9) 360.4 (8.9)
- ----------
Source: Balance of Payments, March 1995, Central Bank.
</TABLE>

The ROC's debt service requirements are low compared with other
countries in the region. Since 1974, the external debt ratio has not risen
higher than 4.7%. Prepayments of external public debt account for the higher
figure in 1986. External debt service ratios for the ROC during the last ten
years are shown in the following table:

<TABLE> SERVICE PAYMENTS ON EXTERNAL PUBLIC
DEBT AS PERCENTAGE OF EXPORTS OF
GOODS AND SERVICES
<CAPTION>
<S> <C>
1984 . . . . 4.7
1985 . . . . 4.1
1986 . . . . 4.6
1987 . . . . 3.1
1988 . . . . 0.6
1989 . . . . 0.7
1990 . . . . 0.5
1991 . . . . 0.3
1992 . . . . 0.3
1993 . . . . 0.1
- ----------
Source: Balance of Payments, June 1994, Central Bank.

</TABLE>
A-38
<PAGE>

APPENDIX B

DESCRIPTION OF CERTAIN FOREIGN CURRENCY HEDGES
AND STOCK OPTIONS AND FUTURES CONTRACTS

FOREIGN CURRENCY HEDGING TRANSACTIONS

Foreign Currency Forward Contract. A foreign currency forward contract
involves an obligation to purchase or sell a specific currency at a future
date, which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract.
These contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks).

Foreign Currency Futures Contract. A foreign currency futures contract
is a standardized contract for the future delivery of a specified amount of a
foreign currency at a future date at a price set at the time of the contract.
Foreign currency futures contracts traded in the United States are traded on
regulated exchanges. Parties to a futures contract must make initial
"margin" deposits to secure performance of the contract, which generally
range from 2% to 5% of the contract price. There also are requirements to
make "variation" margin deposits as the value of the futures contract
fluctuates. The Fund may not enter into foreign currency futures contracts
if the aggregate amount of initial margin deposits on the Fund's futures
positions, including stock index futures contracts (which are discussed
below), would exceed 5% of the value of the Fund's total assets. The Fund
also will be required to segregate assets to cover its futures contracts
obligations.

At the maturity of a forward or futures contract, the Fund may either
accept or make delivery of the currency specified in the contract or, prior
to maturity, enter into a closing purchase transaction involving the purchase
or sale of an offsetting contract. Closing purchase transactions with
respect to forward contracts are usually effected with the currency trader
who is a party to the original forward contract. Closing purchase
transactions with respect to futures contracts are effected on an exchange.
The Fund will only enter into such a forward or futures contract if it is
expected that there will be a liquid market in which to close out such
contract. There can, however, be no assurance that such a liquid market will
exist in which to close a forward or futures contract, in which case the Fund
may suffer a loss.

Currency Hedging Strategies. The Fund may enter into forward foreign
currency exchange contracts and foreign currency futures contracts in several
circumstances. For example, when the Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, or when the
Fund anticipates the receipt in a foreign currency of dividends or interest
payments on such a security which it holds, the Fund may desire to "lock in"
the dollar price of the security or the dollar equivalent of such dividend or
interest payment, as the case may be. In addition, when the Investment
Manager believes that the currency of a particular foreign country may suffer
a substantial decline against the dollar, it may enter into a forward or
futures contract to sell, for a fixed amount of dollars, the amount of
foreign currency approximating the value of some or all of the Fund's
portfolio securities denominated in such foreign currency.

The Fund does not intend to enter into such forward or futures contracts
to protect the value of its portfolio securities on a regular basis, and will
not do so if, as a result, the Fund will have more than 20% of the value of
its total assets committed to the performance of such contracts. The Fund
also will not enter into such forward or futures contracts or maintain a net
exposure to such contracts where the performance of the contracts would
obligate the Fund to deliver an amount of foreign currency in excess of the
value of the Fund's portfolio securities or other assets denominated in that
currency. Further, the Fund generally will not enter into a forward or
futures contract with a term of greater than one year.

B-1
<PAGE>
The Fund may attempt to accomplish objectives similar to those described
above with respect to forward and futures contracts for currency by means of
purchasing put or call options on foreign currencies on exchanges. A put
option gives the Fund the right to sell a currency at the exercise price
until the expiration of the option. A call option gives the Fund the right
to purchase a currency at the exercise price until the expiration of the
option.

While the Fund may enter into forward, futures and options contracts to
reduce currency exchange rate risks, changes in currency prices may result in
a poorer overall performance for the Fund than if it had not engaged in any
such transaction. Moreover, there may be an imperfect correlation between
the Fund's portfolio holdings of securities denominated in a particular
currency and forward, futures or options contracts entered into by the Fund.
Such imperfect correlation may prevent the Fund from achieving the intended
hedge or expose the Fund to risk of foreign exchange loss.

Certain provisions of the Code may limit the extent to which the Fund
may enter into forward or futures contracts or engage in options
transactions. These transactions may also affect the character and timing of
income and the amount of gain or loss recognized by the Fund and its
shareholders for U.S. federal income tax purposes. See "Taxation--U.S.
Federal Income Taxes."

OPTIONS AND INDEX FUTURES CONTRACTS

Options on Securities. The Fund may write (i.e., sell) covered call
options which give the purchaser the right to buy the underlying security
covered by the option from the Fund at the stated exercise price. A
"covered" call option means that so long as the Fund is obligated as the
writer of the option, it will own (i) the underlying securities subject to
the option, or (ii) securities convertible or exchangeable without the
payment of any consideration into the securities subject to the option. As a
matter of operating policy, the value of the underlying securities on which
options will be written at any one time will not exceed 5% of the total
assets of the Fund. In addition, as a matter of operating policy, the Fund
will neither purchase or write put options on securities nor purchase call
options on securities (except in connection with closing purchase
transactions).

The Fund will receive a premium from writing call options, which
increases the Fund's return on the underlying security in the event the
option expires unexercised or is closed out at a profit. By writing a call,
the Fund will limit its opportunity to profit from an increase in the market
value of the underlying security above the exercise price of the option for
as long as the Fund's obligation as writer of the option continues. Thus, in
some periods the Fund will receive less total return and in other periods
greater total return from writing covered call options than it would have
received from its underlying securities had it not written call options.

Index Futures. The Fund may purchase and sell indexed financial futures
contracts. An index futures contract is an agreement to take or make
delivery of an amount of cash equal to the difference between the value of
the index at the beginning and at the end of the contract period. Successful
use of index futures will be subject to the Investment Manager's ability to
predict correctly movements in the direction of the relevant debt market. No
assurance can be given that the Investment Manager's judgment in this respect
will be correct.

The Fund may sell indexed financial futures contracts in anticipation of
or during a market decline to attempt to offset the decrease in market value
of equity securities in its portfolio that might otherwise result. When the
Fund is not fully invested in common stocks and anticipates a significant
market advance, it may purchase index futures in order to gain rapid market
exposure that may in part or entirely offset increases in the cost of common
stocks that it intends to purchase. In a substantial majority of these
transactions, the Fund will purchase such securities upon termination of the
futures position but, under unusual market conditions, a futures position may
be terminated without the corresponding purchase of debt securities.

B-2
<PAGE>

No dealer, salesperson or other individual has been
authorized to give any information or to make any
representations other than those contained in this Prospectus
in connection with the offering covered by this Prospectus. If
given or made, such information or representations must not be
relied upon as having been authorized by the Fund, the
Investment Manager, the Investment Adviser or by any
Underwriter. This Prospectus does not constitute an offer to
sell, or a solicitation of an offer to buy, the Shares in any
jurisdiction where, or to any person to whom, it is unlawful to
make any such offer or solicitation. Neither the delivery of 333,334
SHARES
this Prospectus nor any sale made hereunder shall, under any
circumstances, create an implication that there has not been THE
NEW
FORMOSA
any change in the facts set forth in this Prospectus or in the FUND,
INC.
affairs of the Fund, the Investment Manager or the Investment
Adviser since the date hereof. COMMON
STOCK
_________________
TABLE OF CONTENTS
Page
<S> <C>
Prospectus Summary . . . . . . . . . . . . . . . . . . . .
Fund Expenses . . . . . . . . . . . . . . . . . . . . . . .
The Fund . . . . . . . . . . . . . . . . . . . . . . . . .
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . .
Investment Objective and Policies . . . . . . . . . . . . .
Risk Factors and Special Considerations . . . . . . . . . . ____________
Foreign Investment and Exchange
Controls in the ROC . . . . . . . . . . . . . . . . . . . PROSPECTUS
The Securities Market of the ROC . . . . . . . . . . . . . ____________
Investment Restrictions . . . . . . . . . . . . . . . . . .
Management of the Fund . . . . . . . . . . . . . . . . . .
Portfolio Transactions and Brokerage . . . . . . . . . . .
Dividends and Distributions . . . . . . . . . . . . . . . .
Dividend Reinvestment Plan . . . . . . . . . . . . . . . .
Net Asset Value . . . . . . . . . . . . . . . . . . . . . .
Taxation . . . . . . . . . . . . . . . . . . . . . . . . .
Description of Common Stock . . . . . . . . . . . . . . . .
Underwriting . . . . . . . . . . . . . . . . . . . . . . .
Transfer Agent, Dividend Disbursing Agent
and Registrar . . . . . . . . . . . . . . . . . . . . . .
Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . .
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . NOMURA
SECURITIES
INTERNATIONAL,
INC.
Legal Matters . . . . . . . . . . . . . . . . . . . . . . .
Official Documents . . . . . . . . . . . . . . . . . . . .
Additional Information . . . . . . . . . . . . . . . . . .
Report of Independent Accountants . . . . . . . . . . . . .
Statement of Assets and Liabilities . . . . . . . . . . . .
Appendix A--The Republic of China _____________
Appendix B--Description of Certain
Foreign Currency Hedges and Stock
Options and Futures Contracts . . . . . . . . . . . . . . . .

UNTIL _____________, 1996 (25 DAYS AFTER THE COMMENCEMENT OF
UNTIL _____________, 1996 (25 DAYS AFTER THE COMMENCEMENT OF
THE OFFERING), ALL DEALERS EFFECTING TRANSACTIONS IN THE
THE OFFERING), ALL DEALERS EFFECTING TRANSACTIONS IN THE
SHARES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY ____________,
1996
SHARES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY
BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT
BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

</TABLE>

(ALTERNATE FRONT COVER PAGE FOR INTERNATIONAL OFFERING)

PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION, DATED NOVEMBER 17, 1995
PROSPECTUS
333,334 SHARES
THE NEW FORMOSA FUND, INC.
Common Stock

The New Formosa Fund, Inc. (the "Fund") is a newly organized, non-
diversified closed-end management investment company. The Fund's investment
objective is long-term capital appreciation, which it seeks to achieve
through investment primarily in publicly traded equity securities of Republic
of China ("ROC") companies. Under normal circumstances, the Fund will invest
at least 65% of its total assets in such securities. The Fund may also
invest up to 35% of its total assets in publicly traded equity securities of
companies that do not qualify as ROC companies, but in the judgment of the
Fund's investment manager, are expected to benefit from developments in the
economy of Taiwan. In addition, to the extent permitted by applicable law,
the Fund may invest up to 15% of its total assets in non-publicly traded
equity securities of ROC companies. There can be no assurance that the
Fund's investment objective will be achieved. See "Investment Objective and
Policies." The address of the Fund is __________________________________
(telephone number) _______________________.

INVESTMENT IN THE FUND INVOLVES CERTAIN SPECIAL CONSIDERATIONS AND RISKS
NOT TYPICALLY ASSOCIATED WITH INVESTMENTS IN SECURITIES OF UNITED STATES
COMPANIES, SUCH AS A HIGH DEGREE OF PRICE VOLATILITY IN THE ROC SECURITIES
MARKETS, POLITICAL AND ECONOMIC RISKS, SIGNIFICANT RESTRICTIONS ON FOREIGN
INVESTMENTS AND REPATRIATION OF CAPITAL INVESTED IN THE ROC, FLUCTUATIONS OF
CURRENCY EXCHANGE RATES, AND DIFFERENT CORPORATE DISCLOSURE STANDARDS.
CONSEQUENTLY, AN INVESTMENT IN THE FUND SHOULD BE CONSIDERED SPECULATIVE.
SEE "RISK FACTORS AND SPECIAL CONSIDERATIONS" ON PAGE .
Kwang Hua Securities Investment & Trust Co. (H.K.), Limited, Hong Kong
(the "Investment Manager") will act as the investment manager for the Fund.
Kwang Hua Securities Investment & Trust Co., Ltd., Taipei, Taiwan (the
"Investment Adviser") will act as the investment adviser for the Fund.

Of the 333,334 shares of Common Stock offered (the "Shares"), __________
are being offered by the U.S. Underwriters in the United States and Canada
(the "U.S. Offering"), ____________ are being offered by a Japanese
Underwriter in Japan (the "Japanese Offering") and ________ Shares are being
offered by International Underwriters outside the United States, Canada and
Japan (the "International Offering"), subject to transfer among the U.S.
Underwriters, the Japanese Underwriter and the International Underwriters
(collectively, the "Underwriters"). The initial public offering price and
sales load per Share are the same for the U.S. Offering, the Japanese
Offering and the International Offering.
PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE SHARES.
Shares of closed-end investment companies that invest primarily in securities
of issuers in foreign countries have in the past frequently traded at
discounts from their net asset values and initial offering prices. The risks
associated with this characteristic of closed-end investment companies may be
greater for investors expecting to sell shares of a closed-end investment
company soon after the completion of an initial public offering of the
company's shares. Application will be made to list the Shares on the New
York Stock Exchange and the Osaka Securities Exchange.
This Prospectus sets forth concisely information about the Fund that a
prospective investor ought to know before investing. Investors are advised
to read this Prospectus and retain it for future reference.

<TABLE>
<CAPTION> Price to Public(1) Sales Load(1)(2) Proceeds to the
Fund(3)
<S> <C> <C> <C>
Per Share . . . . . . . . . . . . . $15.00 $ $
Total(4) . . . . . . . . . . . . . $ $ $

</TABLE>
<TABLE>
<S> <C>
(1) The "Maximum Price to Public" and "Maximum Sales Load" per Share will be
reduced to $_____ and $_____, respectively, for purchases in single
transactions (as defined herein under "Underwriting") of between _____
and _____ Shares and to $_____ and $_____, respectively, for purchases
in single transactions of _____ or more Shares. See "Underwriting."
(2) The Fund, the Investment Manager and the Investment Adviser have agreed
to indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(3) Before deducting organizational and offering expenses payable by the
Fund, estimated at $______, including an aggregate of $______ to be paid
to the Underwriters in partial reimbursement of their expenses.
(4) The Fund has granted to the U.S. Underwriters and the International
Underwriters options, exercisable for 45 days from the date of this
Prospectus, to purchase up to an aggregate of _______ additional shares
of Common Stock, solely to cover over-allotments. If such options are
exercised in full, the total Maximum Price to Public will be $________,
the Maximum Sales Load will be $________ and the Proceeds to the Fund
will be $__________. See "Underwriting."

The Shares are offered by the International Underwriters subject to
prior sale when, as and if delivered to and accepted by them and subject to
certain other conditions. The International Underwriters reserve the right
to reject orders in whole or in part. It is expected that delivery of the
Shares will be made in New York, New York, on or about ______________, 1996.

NOMURA INTERNATIONAL (HONG KONG) LTD.

The date of this Prospectus is ____________, 1996.

<PAGE>

(ALTERNATE BACK COVER PAGE FOR INTERNATIONAL OFFERING)

</TABLE>
<TABLE>
<CAPTION>
<S> <C>
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL
HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFERING COVERED BY THIS PROSPECTUS. IF
GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE FUND, THE INVESTMENT
MANAGER, THE INVESTMENT ADVISER OR BY ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, THE SHARES IN ANY JURISDICTION WHERE, OR
TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE ANY
SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY 333,334 SHARES
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
THE NEW FORMOSA
IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN
FUND, INC.
THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE
AFFAIRS OF THE FUND, THE INVESTMENT MANAGER OR
THE INVESTMENT ADVISER SINCE THE DATE HEREOF.
COMMON STOCK

_________________
TABLE OF CONTENTS Page
Prospectus Summary . . . . . . . . . . . . .
Fund Expenses . . . . . . . . . . . . . . . .
The Fund . . . . . . . . . . . . . . . . . .

Use of Proceeds . . . . . . . . . . . . . . .
Investment Objective and Policies . . . . . .
Risk Factors and Special Considerations . . . ____________
Foreign Investment and Exchange

Controls in the ROC . . . . . . . . . . . . PROSPECTUS
The Securities Market of the ROC . . . . . . ____________
Investment Restrictions . . . . . . . . . . .

Management of the Fund . . . . . . . . . . .
Portfolio Transactions and Brokerage . . . .
Dividends and Distributions . . . . . . . . .

Dividend Reinvestment Plan . . . . . . . . .
Net Asset Value . . . . . . . . . . . . . . .
Taxation . . . . . . . . . . . . . . . . . .
Description of Common Stock . . . . . . . . .

Underwriting . . . . . . . . . . . . . . . .
Transfer Agent, Dividend Disbursing Agent
and Registrar . . . . . . . . . . . . . . .

Custodian . . . . . . . . . . . . . . . . . . . .
Experts . . . . . . . . . . . . . . . . . . . NOMURA INTERNATIONAL (HONG KONG)
Legal Matters . . . . . . . . . . . . . . . . LTD.

Official Documents . . . . . . . . . . . . .
Additional Information . . . . . . . . . . .
Report of Independent Accountants . . . . . .
Statement of Assets and Liabilities . . . . .

Appendix A--The Republic of China
Appendix B--Description of Certain _____________
Foreign Currency Hedges and Stock

Options and Futures Contracts . . . . . . . . .

UNTIL _____________, 1996 (25 DAYS AFTER THE
COMMENCEMENT OF THE OFFERING), ALL DEALERS
EFFECTING TRANSACTIONS IN THE SHARES, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
____________, 1996
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.

</TABLE>
</PAGE>

<PAGE>

PART C--OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS

(1) Financial Statements
--Report of Independent Accountants
--Statement of Assets and Liabilities dated ____________, 1996
(2) Exhibits

(a) --Articles of Incorporation*
(b) --By-Laws, as amended*

(f) --Not applicable
(g)(1) --Form of Investment Management Agreement**
(2) --Form of Investment Advisory Agreement**
(h)(1) --Form of U.S. Underwriting Agreement**

(2) --Form of International Underwriting Agreement**
(3) --Form of Japanese Underwriting Agreement (English
translation)**
(4) --Form of Intersyndicate Agreement**

(i) --Not applicable
(j) --Form of Custody Agreement**
(k)(1) --Form of Transfer Agency, Dividend Disbursing Agency
and Registrar**

(2) --Form of Administration Agreement**
(3) --Form of Service Agreement for Japanese Shareholders
(English translation)**
(l)(1) --Opinion and Consent of Brown & Wood**
(m) --Not applicable
(n)(1) --Opinion and Consent of Lee and Li**
(2) --Consent of Independent Accountants**
(o) --Not applicable

(p) --Form of Investment Letter**
(q) --Not applicable

___________
* Filed herewith.
** To be filed by amendment.

C-1
<PAGE>

ITEM 25. MARKETING ARRANGEMENTS

See Exhibit (h)(1) through (h)(3) to this Registration Statement.

ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the estimated expenses to be incurred in
connection with the offering described in this Registration Statement.

U.S Securities and Exchange Commission

Registration fees . . . . . . . . . . . . . . . . . . . . . $
New York Stock Exchange listing fee . . . . . . . . . . . . . .
Osaka Securities Exchange listing fee . . . . . . . . . . . . .

Printing (other than stock certificates) . . . . . . . . . . . .
Engraving and printing stock certificates . . . . . . . . . . .
Fees and expenses of qualification under
state securities laws (including
fees of counsel) . . . . . . . . . . . . . . . . . . . . . . . .
Auditing and accounting fees . . . . . . . . . . . . . . . . . .
Legal fees and expenses . . . . . . . . . . . . . . . . . . . .
Underwriters' expense allowance . . . . . . . . . . . . . . . .
NASD fee . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . .

----
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $ *
____________
* To be completed by amendment.

ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

Not applicable

ITEM 28. NUMBER OF HOLDERS OF SECURITIES

As of the effective date of the Registration Statement:

NUMBER OF

TITLE OF CLASS RECORD HOLDERS
Common Stock, $.10 par value
One

C-2
<PAGE>

ITEM 29. INDEMNIFICATION

Section 2-418 of the General Corporation Law of the State of Maryland,
Article VI of the Fund's Articles of Incorporation, Article VI of the Fund's
By-laws, the Management Agreement, the Advisory Agreement, the Underwriting
Agreements, the Administration Agreement and the Custody Agreement provide
for indemnification.

Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act"), may be permitted to directors, officers
and controlling persons of the Fund, pursuant to the foregoing provisions or
otherwise, the Fund has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Fund of expenses incurred or paid by a director, officer or controlling
person of the Fund in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Fund will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.

ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT MANAGEMENT AND
INVESTMENT ADVISOR

Information as to the directors and officers of the Investment Manager
and the Investment Adviser, together with information as to any other
business, profession, vocation or employment of a substantial nature engaged
in by the directors and officers of the Investment Manager in the last two
years, will be included in their respective applications for registration as
investment advisers on Form ADV (File Nos. 801- and 801- ,
respectively) filed under the Investment Advisers Act of 1940 (the "Advisers
Act") and incorporated herein by reference thereto.

ITEM 31. LOCATION OF ACCOUNTS AND RECORDS

(to be provided by amendment)

ITEM 32. MANAGEMENT SERVICES

Not applicable

ITEM 33. UNDERTAKINGS

(a) The Fund undertakes to suspend offering its shares until it amends
its prospectus contained herein if (i) subsequent to the effective date of
its Registration Statement, the net asset value per share declines more than
10 percent from its net asset value per share as of the effective date of
this Registration Statement or (ii) the net asset value increases to an
amount greater than its net proceeds as stated in the Prospectus.

(b) The Fund hereby undertakes that:

C-3
<PAGE>

(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Fund under Rule 497(h) under the Act
shall be deemed to be part of this registration statement as of the time
it was declared effective.

(2) For the purpose of determining any liability under the Act,
each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.

C-4
<PAGE>
SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
AND THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF TAIPEI, THE REPUBLIC
OF CHINA, ON NOVEMBER 16, 1995.

THE NEW FORMOSA FUND, INC.

By /s/ ANDY CHENG
-----------------------------

ANDY CHENG, President

Each person whose signature appears below hereby authorizes John A.
MacKinnon or Andy Cheng, or either of them, as attorney-in-fact, to sign on
his or her behalf, individually and in each capacity stated below, any
amendments to this Registration Statement (including post-effective
amendments) and to file the same, with all exhibits thereto, with the
Securities and Exchange Commission.

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.

SIGNATURE TITLE DATE

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

/s/ ANDY CHENG Director and President November 16, 1995
- ------------------------

ANDY CHENG (Principal Executive

Officer)

/s/ FRANK HSU Director, Vice President November 16, 1995
- -------------------------

FRANK HSU and Treasurer
(Principal Financial and
Accounting Officer)

/s/ JESSE LIU Director, Vice President November 16, 1995
- -------------------------

JESSE LIU and Secretary

C-5

<PAGE>
ARTICLES OF INCORPORATION
OF
THE NEW FORMOSA FUND, INC.

* * * * *

ARTICLE I

THE UNDERSIGNED, John A. MacKinnon, whose post office address is c/o
Brown & Wood, One World Trade Center, New York, New York 10048-0557, being
at least eighteen (18) years of age, does hereby act as an incorporator,
under and by virtue of the General Laws of the State of Maryland authorizing
the formation of corporations and with the intention of forming a
corporation.

ARTICLE II
NAME
----
The name of the Corporation is The New Formosa Fund, Inc. (the
"Corporation").

ARTICLE III
PURPOSES AND POWERS
-------------------
The purpose or purposes for which the Corporation is formed is to act
as a closed-end, management investment company under the Investment Company
Act of 1940, as amended, and to exercise and enjoy all of the powers, rights
and privileges granted to, or conferred upon, corporations by the General
Laws of the State of Maryland now or hereafter in force.

1
<PAGE>
ARTICLE IV
PRINCIPAL OFFICE AND RESIDENT AGENT
-----------------------------------
The post office address of the principal office of the Corporation in
the State of Maryland is c/o The Corporation Trust Incorporated, 32 South
Street, Baltimore, Maryland 21202. The name of the resident agent of the
Corporation in this State is The Corporation Trust Incorporated, a
corporation of this State, and the post office address of the resident agent
is 32 South Street, Baltimore, Maryland 21202.

ARTICLE V
CAPITAL STOCK
-------------
(1) The total number of shares of capital stock which the Corporation
shall have authority to issue is One Hundred Million (100,000,000) shares,
all of one class called Common Stock, of the par value of Ten Cents ($0.10)
per share and of the aggregate par value of Ten Million Dollars
($10,000,000).
(2) The Board of Directors may classify and reclassify any unissued
shares of capital stock into one or more additional or other classes or
series as may be established from time to time by setting or changing in any
one or more respects the designations, preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications or terms or conditions of redemption of such shares of stock
and pursuant to such classification or reclassification to increase
2
<PAGE>
or decrease the number of authorized shares of any existing class or series.
(3) Unless otherwise expressly provided in the charter of the
Corporation, including any Articles Supplementary creating any class or
series of capital stock, the holders of each class or series of capital stock
shall be entitled to dividends and distributions in such amounts and at such
times as may be determined by the Board of Directors, and the dividends and
distributions paid with respect to the various classes or series of capital
stock may vary among such classes and series.
(4) Unless otherwise expressly provided in the charter of the
Corporation, including any Articles Supplementary creating any class or
series of capital stock, on each matter submitted to a vote of stockholders,
each holder of a share of capital stock of the Corporation shall be entitled
to one vote for each share standing in such holder's name on the books of the
Corporation, irrespective of the class or series thereof, and all shares of
all classes and series shall vote together as a single class; provided,
however, that as to any matter with respect to which a separate vote of any
class or series is required by the Investment Company Act of 1940, as
amended, and in effect from time to time, or any rules, regulations or orders
issued thereunder, or the Maryland General Corporation Law, such requirement
as to a separate vote by that class or series shall
3
<PAGE>
apply in addition to a general vote of all classes and series as described
above.
(5) Notwithstanding any provision of the Maryland General Corporation
Law requiring a greater proportion than a majority of the votes of all
classes or series of capital stock of the Corporation (or of any class or
series entitled to vote thereon as a separate class or series) to take or
authorize any action, the Corporation is hereby authorized (subject to the
requirements of the Investment Company Act of 1940, as amended, and in effect
from time to time, and any rules, regulations and orders issued thereunder)
to take such action upon the concurrence of a majority of the aggregate
number of shares of capital stock of the Corporation entitled to vote thereon
(or a majority of the aggregate number of shares of a class or series
entitled to vote thereon as a separate class or series).
(6) Unless otherwise expressly provided in the charter of the
Corporation, including any Articles Supplementary creating any class or
series of capital stock, in the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, the holders
of all classes and series of capital stock of the Corporation shall be
entitled, after payment or provision for payment of the debts and other
liabilities of the Corporation, to share ratably in the remaining net assets
of the Corporation.

4
<PAGE>
(7) Any fractional shares shall carry proportionately all the rights
of a whole share, excepting any right to receive a certificate evidencing
such fractional share, but including, without limitation, the right to vote
and the right to receive dividends.
(8) All persons who shall acquire stock in the Corporation shall
acquire the same subject to the provisions of the charter and By-Laws of the
Corporation. As used in the charter of the Corporation, the terms "charter"
and "Articles of Incorporation" shall mean and include the Articles of
Incorporation of the Corporation as amended, supplemented and restated from
time to time by Articles of Amendment, Articles Supplementary, Articles of
Restatement or otherwise.
ARTICLE VI
PROVISIONS FOR DEFINING, LIMITING
AND REGULATING CERTAIN POWERS OF
THE CORPORATION AND OF THE DIRECTORS
AND STOCKHOLDERS
------------------------------------

(1) The number of directors of the Corporation shall be three (3),
which number may be increased pursuant to the By-Laws of the Corporation but
shall never be less than three (3). The names of the directors who shall
act until the first annual meeting or until their successors are duly elected
and qualify are:
Andy Cheng
Frank Hsu
Jesse Liu

5
<PAGE>
(2) The Board of Directors of the Corporation is hereby empowered to
authorize the issuance from time to time of shares of capital stock, whether
now or hereafter authorized, for such consideration as the Board of Directors
may deem advisable, subject to such limitations as may be set forth in these
Articles of Incorporation or in the By-Laws of the Corporation or in the
General Laws of the State of Maryland.
(3) Each director and each officer of the Corporation shall be
indemnified by the Corporation to the full extent permitted by the General
Laws of the State of Maryland, subject to the requirements of the Investment
Company Act of 1940, as amended. No amendment of these Articles of
Incorporation or repeal of any provision hereof shall limit or eliminate the
benefits provided to directors and officers under this provision in
connection with any act or omission that occurred prior to such amendment or
repeal.
(4) To the fullest extent permitted by the General Laws of the State
of Maryland, subject to the requirements of the Investment Company Act of
1940, as amended, no director or officer of the Corporation shall be
personally liable to the Corporation or its security holders for money
damages. No amendment of these Articles of Incorporation or repeal of any
provision hereof shall limit or eliminate the benefits provided to directors
and officers under this provision in connection with
6
<PAGE>
any act or omission that occurred prior to such amendment or repeal.
(5) The Board of Directors of the Corporation may make, alter or repeal
from time to time any of the By-Laws of the Corporation except any particular
By-Law which is specified as not subject to alteration or repeal by the Board
of Directors, subject to the requirements of the Investment Company Act of
1940, as amended.
(6) A director elected by the holders of capital stock may be removed
(with or without cause), but only by action taken by the holders of at least
sixty-six and two-thirds percent (662/3%) of the shares of capital stock then
entitled to vote in an election to fill that directorship.

ARTICLE VII
DENIAL OF PREEMPTIVE RIGHTS
---------------------------
No shareholder of the Corporation shall by reason of his holding shares
of capital stock have any preemptive or preferential right to purchase or
subscribe to any shares of capital stock of the Corporation, now or hereafter
to be authorized, or any notes, debentures, bonds or other securities
convertible into shares of capital stock, now or hereafter to be authorized,
whether or not the issuance of any such shares, or notes, debentures, bonds
or other securities would adversely affect the dividend or voting rights of
such shareholder; and the Board of
7
<PAGE>
Directors may issue shares of any class of the Corporation, or any notes,
debentures, bonds, other securities convertible into shares of any class,
either whole or in part, to the existing shareholders.

ARTICLE VIII
DETERMINATION BINDING
---------------------
Any determination made in good faith, so far as accounting matters are
involved, in accordance with accepted accounting practice by or pursuant to
the direction of the Board of Directors, as to the amount of assets,
obligations or liabilities of the Corporation, as to the amount of net income
of the Corporation from dividends and interest for any period or amounts at
any time legally available for the payment of dividends, as to the amount of
any reserves or charges set up and the propriety thereof, as to the time of
or purpose for creating reserves or as to the use, alteration or cancellation
of any reserves or charges (whether or not any obligation or liability for
which such reserves or charges shall have been created, shall have been paid
or discharged or shall be then or thereafter required to be paid or
discharged), as to the price of any security owned by the Corporation or as
to any other matters relating to the issuance, sale, redemption or other
acquisition or disposition of securities or shares of capital stock of the
Corporation, and any reasonable determination made in good faith by the Board
of
8
<PAGE>
Directors as to whether any transaction constitutes a purchase of securities
on "margin", a sale of securities "short", or an underwriting of the sale of,
or a participation in any underwriting or selling group in connection with
the public distribution of, any securities, shall be final and conclusive,
and shall be binding upon the Corporation and all holders of its capital
stock, past, present and future, and shares of the capital stock of the
Corporation are issued and sold on the condition and understanding, evidenced
by the purchase of shares of capital stock or acceptance of share
certificates, that any and all such determinations shall be binding as
aforesaid. No provision of these Articles of Incorporation shall be
effective to (a) require a waiver of compliance with any provision of the
Securities Act of 1933, as amended, or the Investment Company Act of 1940,
as amended, or of any valid rule, regulation or order of the Securities and
Exchange Commission thereunder or (b) protect or purport to protect any
director or officer of the Corporation against any liability to the
Corporation or its security holders to which he would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office.

9
<PAGE>
ARTICLE IX
ELECTION BY INVESTMENT COMPANY
------------------------------
Pursuant to Section 3-603(e)(1) of the Maryland General Corporation Law,
the Corporation hereby elects to have the provisions of Section 3-602 of the
Maryland General Corporation Law apply to "business combinations" of the
Corporation with "interested stockholders" of the Corporation, as such terms
are defined in Section 3-601 of the Maryland General Corporation Law.

ARTICLE X
PRIVATE PROPERTY OF STOCKHOLDERS
--------------------------------
The private property of stockholders shall not be subject to the payment
of corporate debts to any extent whatsoever.

ARTICLE XI
PERPETUAL EXISTENCE
-------------------
The duration of the Corporation shall be perpetual.

ARTICLE XII
CONVERSION TO OPEN-END COMPANY
------------------------------
Notwithstanding any other provisions of these Articles of Incorporation
or the By-Laws of the Corporation, a favorable vote of the holders of at
least sixty-six and two-thirds percent (662/3%) of the outstanding shares of
capital stock of the Corporation entitled to be voted on the matter shall be
required
10
<PAGE>
to approve, adopt or authorize an amendment to these Articles of
Incorporation of the Corporation that makes the Common Stock a "redeemable
security" (as that term is defined in Section 2(a)(32) the Investment Company
Act of 1940, as amended), unless such action has previously been approved,
adopted or authorized by the affirmative vote of at least two-thirds of the
total number of directors fixed in accordance with the By-Laws of the
Corporation, in which case the affirmative vote of the holders of a majority
of the outstanding shares of capital stock of the Corporation entitled to
vote thereon shall be required.

ARTICLE XIII
MERGER, SALE OF ASSETS, LIQUIDATION
-----------------------------------
Notwithstanding any other provisions of these Articles of Incorporation
or the By-Laws of the Corporation, a favorable vote of the holders of at
least sixty-six and two-thirds percent (662/3%) of the outstanding shares of
capital stock of the Corporation entitled to be voted on the matter shall be
required to approve, adopt or authorize (i) a merger or consolidation or
statutory share exchange of the Corporation with any other corporation, (ii)
a sale of all or substantially all of the assets of the Corporation (other
than in the regular course of its investment activities), or (iii) a
liquidation or dissolution of the Corporation, unless such action has
previously been approved, adopted or authorized by the affirmative vote of
at
11
<PAGE>
least two-thirds of the total number of directors fixed in accordance with
the By-Laws of the Corporation, in which case the affirmative vote of the
holders of a majority of the outstanding shares of capital stock of the
Corporation entitled to vote thereon shall be required.

ARTICLE XIV
CONSENT OF STOCKHOLDERS
-----------------------
Notwithstanding any other provisions of these Articles of Incorporation
or the By-Laws of the Corporation, any action taken by the written consent
of the holders of the outstanding shares of the capital stock of the
Corporation must be taken by unanimous written consent of the holders of the
outstanding shares of capital stock of the Corporation entitled to be voted
on the matter.

ARTICLE XV
AMENDMENT
---------
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in these Articles of Incorporation, in the manner now or
hereafter prescribed by statute, including any amendment which alters the
contract rights, as expressly set forth in the charter, of any outstanding
stock and substantially adversely affects the stockholders' rights, and all
rights conferred upon stockholders herein are granted subject to
12
<PAGE>
this reservation. Notwithstanding any other provisions of these Articles
of Incorporation or the By-Laws of the Corporation (and notwithstanding the
fact that a lesser percentage may be specified by law, these Articles of
Incorporation or the By-Laws of the Corporation), the amendment or repeal of
Section (5) of Article V, Section (1), Section (3), Section (4), Section (5)
and Section (6) of Article VI, Article IX, Article X, Article XI, Article
XII, Article XIII, Article XIV or this Article XV, of these Articles of
Incorporation shall require the affirmative vote of the holders of at least
sixty-six and two-thirds percent (662/3%) of the outstanding shares of
capital stock of the Corporation entitled to be voted on the matter.
IN WITNESS WHEREOF, the undersigned incorporator of The New Formosa
Fund, Inc. hereby executes the foregoing Articles of Incorporation and
acknowledges the same to be his act and further acknowledges that, to the
best of his knowledge, the matters and facts set forth therein are true in
all material respects under the penalties of perjury.
Dated the 10th day of November, 1995.

-----------------------------
John A. MacKinnon

<PAGE>

BY-LAWS

THE NEW FORMOSA FUND, INC.

ARTICLE I

Offices
-------

Section 1. Principal Office. The principal office of the
----------------
Corporation shall be in the City of Baltimore, State of Maryland.
Section 2. Principal Executive Office. The principal executive
--------------------------
office of the Corporation shall be at _________________
________________________________________________.
Section 3. Other Offices. The Corporation may have such other
-------------
offices in such places as the Board of Directors may from time to time
determine.

ARTICLE II
Meetings of Stockholders
------------------------
Section 1. Annual Meeting. The annual meeting of the stockholders
--------------
of the Corporation for the election of directors and for the transaction
of such other business as may properly be brought before the meeting shall
be held on such day in (May) of each year as shall be designated annually
by the Board of Directors.
Section 2. Special Meetings. Special meetings of the stockholders,
----------------
unless otherwise provided by law or by the Charter, may be called for any
purpose or purposes by a majority of the
1
<PAGE>
Board of Directors, the President, or on the written request of the
holders of the outstanding shares of capital stock of the Corporation
entitled to vote at such meeting to the extent permitted by Maryland law.
Section 3. Place of Meetings. The annual meeting and any special
-----------------
meeting of the stockholders shall be held at such place within the United
States as the Board of Directors may from time to time determine.
Section 4. Notice of Meetings; Waiver of Notice. Notice of the
------------------------------------
place, date and time of the holding of each annual and special meeting of
the stockholders and the purpose or purposes of each special meeting shall
be given personally or by mail, not less than ten nor more than ninety
days before the date of such meeting, to each stockholder entitled to vote
at such meeting and to each other stockholder entitled to notice of the
meeting. Notice by mail shall be deemed to be duly given when deposited
in the United States mail addressed to the stockholder at his address as
it appears on the records of the Corporation, with postage thereon
prepaid.
Notice of any meeting of stockholders shall be deemed waived by any
stockholder who shall attend such meeting in person or by proxy, or who
shall, either before or after the meeting, submit a signed waiver of
notice which is filed with the records of the meeting. When a meeting is
adjourned to another time and place, unless the Board of Directors, after
the adjournment, shall fix a
2
<PAGE>
new record date for an adjourned meeting, or the adjournment is for more
than one hundred and twenty days after the original record date, notice of
such adjourned meeting need not be given if the time and place to which
the meeting shall be adjourned were announced at the meeting at which the
adjournment is taken. Meetings may be adjourned with respect to one or
more of the items included on the agenda for such meetings.
Section 5. Quorum. At all meetings of the stockholders, the holders
------
of a majority of the shares of stock of the Corporation entitled to vote
at the meeting, present in person or by proxy, shall constitute a quorum
for the transaction of any business, except as otherwise provided by
statute or by the Charter. In the absence of a quorum no business may be
transacted, except that the holders of a majority of the shares of stock
present in person or by proxy and entitled to vote may adjourn the meeting
from time to time, without notice other than announcement thereat except
as otherwise required by these ByLaws, until the holders of the requisite
amount of shares of stock shall be so present. At any such adjourned
meeting at which a quorum may be present any business may be transacted
which might have been transacted at the meeting as originally called.
The absence from any meeting, in person or by proxy, of holders of the
number of shares of stock of the Corporation in excess of a majority
thereof which may be required by the laws of the State of Maryland, the
Investment Company Act of 1940, as
3
<PAGE>
amended, or other applicable statute, the Charter, or these By-Laws, for
action upon any given matter shall not prevent action at such meeting upon
any other matter or matters which may properly come before the meeting, if
there shall be present thereat, in person or by proxy, holders of the
number of shares of stock of the Corporation required for action in
respect of such other matter or matters.
Section 6. Organization. At each meeting of the stockholders, the
------------
Chairman of the Board (if one has been designated by the Board), or in his
absence or inability to act, the President, or in the absence or inability
to act of the Chairman of the Board and the President, a Vice President,
shall act as chairman of the meeting. The Secretary, or in his absence or
inability to act, any person appointed by the chairman of the meeting,
shall act as secretary of the meeting and keep the minutes thereof.
Section 7. Order of Business. The order of business at all meetings
-----------------
of the stockholders shall be as determined by the chairman of the meeting.
Section 8. Voting. Except as otherwise provided by statute or the
------
Charter, each holder of record of shares of stock of the Corporation
having voting power shall be entitled at each meeting of the stockholders
to one vote for every share of such stock standing in his name on the
record of stockholders of the Corporation as of the record date determined
pursuant to Section 9 of this Article or if such record date shall not
have been so
4
<PAGE>
fixed, then at the later of (i) the close of business on the day on which
notice of the meeting is mailed or (ii) the thirtieth day before the
meeting.
Each stockholder entitled to vote at any meeting of stockholders may
authorize another person or persons to act for him by a proxy signed by
such stockholder or his attorney-in-fact. No proxy shall be valid after
the expiration of eleven months from the date thereof, unless otherwise
provided in the proxy. Every proxy shall be revocable at the pleasure of
the stockholder executing it, except in those cases where such proxy
states that it is irrevocable and where an irrevocable proxy is permitted
by law. Except as otherwise provided by statute, the Charter or these
By-Laws, any corporate action to be taken by vote of the stockholders
(other than the election of directors, which shall be by a plurality of
votes cast) shall be authorized by a majority of the total votes cast at a
meeting of stockholders by the holders of shares present in person or
represented by proxy and entitled to vote on such action.
If a vote shall be taken on any question other than the election of
directors, which shall be by written ballot, then unless required by
statute or these By-Laws, or determined by the chairman of the meeting to
be advisable, any such vote need not be by ballot. On a vote by ballot,
each ballot shall be signed by the stockholder voting, or by his proxy, if
there be such proxy, and shall state the number of shares voted.

5
<PAGE>
Section 9. Fixing of Record Date. The Board of Directors may set a
---------------------
record date for the purpose of determining stockholders entitled to vote
at any meeting of the stockholders. The record date, which may not be
prior to the close of business on the day the record date is fixed, shall
be not more than ninety nor less than ten days before the date of the
meeting of the stockholders. All persons who were holders of record of
shares at such time, and not others, shall be entitled to vote at such
meeting and any adjournment thereof.
Section 10. Inspectors. The Board may, in advance of any meeting of
----------
stockholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If the inspectors shall not be so appointed or if
any of them shall fail to appear or act, the chairman of the meeting may,
and on the request of any stockholder entitled to vote thereat shall,
appoint inspectors. Each inspector, before entering upon the discharge of
his duties, shall take and sign an oath to execute faithfully the duties
of inspector at such meeting with strict impartiality and according to the
best of his ability. The inspectors shall determine the number of shares
outstanding and the voting powers of each, the number of shares
represented at the meeting, the existence of a quorum, the validity and
effect of proxies, and shall receive votes, ballots or consents, hear and
determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents,
determine the result,
6
<PAGE>
and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the chairman of the meeting
or any stockholder entitled to vote thereat, the inspectors shall make a
report in writing of any challenge, request or matter determined by them
and shall execute a certificate of any fact found by them. No director or
candidate for the office of director shall act as inspector of an election
of directors. Inspectors need not be stockholders.
Section 11. Consent of Stockholders in Lieu of Meeting.
------------------------------------------
Except as otherwise provided by statute or the Charter, any action
required to be taken at any annual or special meeting of stockholders, or
any action which may be taken at any annual or special meeting of such
stockholders, may be taken without a meeting, without prior notice and
without a vote, if the following are filed with the records of
stockholders meetings: (i) a unanimous written consent which sets forth
the action and is signed by each stockholder entitled to vote on the
matter and (ii) a written waiver of any right to dissent signed by each
stockholder entitled to notice of the meeting but not entitled to vote
thereat.

ARTICLE III
Board of Directors
------------------
Section 1. General Powers. Except as otherwise provided in the
--------------
Charter, the business and affairs of the Corporation shall be
7
<PAGE>
managed under the direction of the Board of Directors. All powers of the
Corporation may be exercised by or under authority of the Board of
Directors except as conferred on or reserved to the stockholders by law or
by the Charter or these By-Laws.
Section 2. Number of Directors. The number of directors shall be
-------------------
fixed from time to time by resolution of the Board of Directors adopted by
a majority of the Directors then in office;
provided, however, that the number of directors shall in no event be less
than three nor more than fifteen. Any vacancy created by an increase in
Directors may be filled in accordance with Section 6 of this Article III.
No reduction in the number of directors shall have the effect of removing
any director from office prior to the expiration of his term unless such
director is specifically removed pursuant to Section 5 of this Article III
at the time of such decrease. Directors need not be stockholders. As
long as any preferred stock of the Corporation is outstanding, the number
of Directors shall be not less than five.
Section 3. Election and Term of Directors. Directors shall be
------------------------------
elected annually, by written ballot at the annual meeting of stockholders,
or a special meeting held for that purpose. The term of office of each
director shall be from the time of his election and qualification until
the annual election of directors next succeeding his election and until
his successor shall have been elected and shall have qualified, or until
his death, or until he shall have resigned, or have been removed as
hereinafter
8
<PAGE>
provided in these By-Laws, or as otherwise provided by statute or the
Charter.
Section 4. Resignation. A director of the Corporation may resign at
-----------
any time by giving written notice of his resignation to the Board or the
Chairman of the Board or the President or the Secretary. Any such
resignation shall take effect at the time specified therein or, if the
time when it shall become effective shall not be specified therein,
immediately upon its receipt;
and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 5. Removal of Directors. Any director of the Corporation
--------------------
may be removed (with or without cause) by the stockholders by a vote of
sixty-six and two-thirds percent (662/3%) of the outstanding shares of
capital stock then entitled to vote in the election of such director.
Section 6. Vacancies. Subject to the provisions of the Investment
---------
Company Act of 1940, as amended, any vacancies in the Board, whether
arising from death, resignation, removal, an increase in the number of
directors or any other cause, shall be filled by a vote of a majority of
the Board of Directors then in office, regardless of whether they
constitute a quorum.
Section 7. Place of Meetings. Meetings of the Board may be held at
-----------------
such place as the Board may from time to time determine or as shall be
specified in the notice of such meeting.

9
<PAGE>
Section 8. Regular Meeting. Regular meetings of the Board may be
---------------
held without notice at such time and place as may be determined by the
Board of Directors.
Section 9. Special Meetings. Special meetings of the Board may be
----------------
called by two or more directors of the Corporation or by the Chairman of
the Board or the President.
Section 10. Telephone Meetings. Members of the Board of Directors
------------------
or of any committee thereof may participate in a meeting by means of a
conference telephone or similar communications equipment if all persons
participating in the meeting can hear each other at the same time.
Subject to the provisions of the Investment Company Act of 1940, as
amended, participation in a meeting by these means constitutes presence in
person at the meeting.
Section 11. Notice of Special Meetings. Notice of each special
--------------------------
meeting of the Board shall be given by the Secretary as hereinafter
provided, in which notice shall be stated the time and place of the
meeting. Notice of each such meeting shall be delivered to each director,
either personally or by telephone or any standard form of
telecommunication, at least twenty-four hours before the time at which
such meeting is to be held, or by first-class mail, postage prepaid,
addressed to him at his residence or usual place of business, at least
three days before the day on which such meeting is to be held.

10
<PAGE>
Section 12. Waiver of Notice of Meetings. Notice of any special
----------------------------
meeting need not be given to any director who shall, either before or
after the meeting, sign a written waiver of notice which is filed with the
records of the meeting or who shall attend such meeting. Except as
otherwise specifically required by these By-Laws, a notice or waiver or
notice of any meeting need not state the purposes of such meeting.
Section 13. Quorum and Voting. One-third, but not less than two, of
-----------------
the members of the entire Board shall be present in person at any meeting
of the Board in order to constitute a quorum for the transaction of
business at such meeting, and except as otherwise expressly required by
statute, the Charter, these By-Laws, the Investment Company Act of 1940,
as amended, or other applicable statute, the act of a majority of the
directors present at any meeting at which a quorum is present shall be the
act of the Board. In the absence of a quorum at any meeting of the Board,
a majority of the directors present thereat may adjourn such meeting to
another time and place until a quorum shall be present thereat. Notice of
the time and place of any such adjourned meeting shall be given to the
directors who were not present at the time of the adjournment and, unless
such time and place were announced at the meeting at which the adjournment
was taken, to the other directors. At any adjourned meeting at which a
quorum is present, any business may be transacted which might have been
transacted at the meeting as originally called.

11
<PAGE>
Section 14. Organization. The Board may, by resolution adopted by a
------------
majority of the entire Board, designate a Chairman of the Board, who shall
preside at each meeting of the Board. In the absence or inability of the
Chairman of the Board to preside at a meeting, the President or, in his
absence or inability to act, another director chosen by a majority of the
directors present, shall act as chairman of the meeting and preside thereat.
The Secretary (or, in his absence or inability to act, any person
appointed by the Chairman) shall act as secretary of the meeting and keep
the minutes thereof.
Section 15. Written Consent of Directors in Lieu of a Meeting.
----------------------------------------- -------
Subject to the provisions of the Investment Company Act of 1940, as
amended, any action required or permitted to be taken at any meeting of
the Board of Directors or of any committee thereof may be taken without a
meeting if all members of the Board or committee, as the case may be,
consent thereto in writing, and the writings or writing are filed with the
minutes of the proceedings of the Board or committee.
Section 16. Compensation. Directors may receive compensation for
------------
services to the Corporation in their capacities as directors or otherwise
in such manner and in such amounts as may be fixed from time to time by
the Board.
Section 17. Investment Policies. It shall be the duty of the Board
-------------------
of Directors to direct that the purchase, sale, retention and disposal of
portfolio securities and the other
12
<PAGE>
investment practices of the Corporation are at all times consistent with
the investment policies and restrictions with respect to securities
investments and otherwise of the Corporation, as recited in the Prospectus
of the Corporation included in the registration statement of the
Corporation relating to the initial public offering of its capital stock,
as filed with the Securities and Exchange Commission (or as such
investment policies and restrictions may be modified by the Board of
Directors, or, if required, by majority vote of the stockholders of the
Corporation in accordance with the Investment Company Act of 1940, as
amended) and as required by the Investment Company Act of 1940, as
amended. The Board however, may delegate the duty of management of the
assets and the administration of its day to day operations to an
individual or corporate management company and/or investment adviser
pursuant to a written contract or contracts which have obtained the
requisite approvals, including the requisite approvals of renewals
thereof, of the Board of Directors and/or the stockholders of the
Corporation in accordance with the provisions of the Investment Company
Act of 1940, as amended.

ARTICLE IV
Committees
----------
Section 1. Executive Committee. The Board may, by resolution
-------------------
adopted by a majority of the entire board, designate an
13
<PAGE>
Executive Committee consisting of two or more of the directors of the
Corporation, which committee shall have and may exercise all the powers
and authority of the Board with respect to all matters other than:
(a) the submission to stockholders of any action requiring
authorization of stockholders pursuant to statute or the Charter;
(b) the filling of vacancies on the Board of Directors;
(c) the fixing of compensation of the directors for serving on the
Board or on any committee of the Board, including the Executive Committee;
(d) the approval or termination of any contract with an investment
adviser or principal underwriter, as such terms are defined in the
Investment Company Act of 1940, as amended, or the taking of any other
action required to be taken by the Board of Directors by the Investment
Company Act of 1940, as amended;
(e) the amendment or repeal of these By-Laws or the adoption of new
By-Laws;
(f) the amendment or repeal of any resolution of the Board which by
its terms may be amended or repealed only by the Board;
(g) the declaration of dividends and, except to the extent permitted
by law, the issuance of capital stock of the Corporation; and
(h) the approval of any merger or share exchange which does not
require stockholder approval.

14
<PAGE>
The Executive Committee shall keep written minutes of its proceedings
and shall report such minutes to the Board. All such proceedings shall be
subject to revision or alteration by the Board; provided, however, that
third parties shall not be prejudiced by such revision or alteration.
Section 2. Other Committees of the Board. The Board of Directors
-----------------------------
may from time to time, by resolution adopted by a majority of the whole
Board, designate one or more other committees of the Board, each such
committee to consist of two or more directors and to have such powers and
duties as the Board of Directors may, by resolution, prescribe.
Section 3. General. One-third, but not less than two, of the
-------
members of any committee shall be present in person at any meeting of such
committee in order to constitute a quorum for the transaction of business
at such meeting, and the act of a majority present shall be the act of
such committee. The Board may designate a chairman of any committee and
such chairman or any two members of any committee may fix the time and
place of its meetings unless the Board shall otherwise provide. In the
absence or disqualification of any member of any committee, the member or
members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the
place of any such absent or disqualified member. The Board shall have the
power at any
15
<PAGE>
time to change the membership of any committee, to fill all vacancies, to
designate alternate members to replace any absent or disqualified member,
or to dissolve any such committee. Nothing herein shall be deemed to
prevent the Board from appointing one or more committees consisting in
whole or in part of persons who are not directors of the Corporation;
provided, however, that no such committee shall have or may exercise any
authority or power of the Board in the management of the business or
affairs of the Corporation.

ARTICLE V

Officers, Agents and Employees
------------------------------
Section 1. Number of Qualifications. The officers of the
------------------------
Corporation shall be a President, who shall be a director of the
Corporation, a Secretary and a Treasurer, each of whom shall be elected by
the Board of Directors. The Board of Directors may elect or appoint one
or more Vice Presidents and may also appoint such other officers, agents
and employees as it may deem necessary or proper. Any two or more offices
may be held by the same person, except the offices of President and Vice
President, but no officer shall execute, acknowledge or verify any
instrument in more than one capacity. Such officers shall be elected by
the Board of Directors each year at its first meeting held after the
annual meeting of stockholders, each to hold office until the next meeting
of the stockholders and until his successor shall
16
<PAGE>
have been duly elected and shall have qualified, or until his death, or
until he shall have resigned, or have been removed, as hereinafter
provided in these By-Laws. The Board may from time to time elect, or
delegate to the President the power to appoint, such officers (including
one or more Assistant Vice Presidents, one or more Assistant Treasurers
and one or more Assistant Secretaries) and such agents, as may be
necessary or desirable for the business of the Corporation. Such officers
and agents shall have such duties and shall hold their offices for such
terms as may be prescribed by the Board or by the appointing authority.
Section 2. Resignations. Any officer of the Corporation may resign
------------
at any time by giving written notice of resignation to the Board, the
Chairman of the Board, President or the Secretary. Any such resignation
shall take effect at the time specified therein or, if the time when it
shall become effective shall not be specified therein, immediately upon
its receipt; and, unless otherwise specified therein, the acceptance of
such resignation shall be necessary to make it effective.
Section 3. Removal of Officer, Agent or Employee. Any officer,
-------------------------------------
agent or employee of the Corporation may be removed by the Board of
Directors with or without cause at any time, and the Board may delegate
such power of removal as to agents and employees not elected or appointed
by the Board of Directors. Such removal shall be without prejudice to
such person's contract rights, if any, but the appointment of any person
as an officer,
17
<PAGE>
agent or employee of the Corporation shall not of itself create contract
rights.
Section 4. Vacancies. A vacancy in any office, whether arising from
---------
death, resignation, removal or any other cause, may be filled for the
unexpired portion of the term of the office which shall be vacant, in the
manner prescribed in these By-Laws for the regular election or appointment
to such office.
Section 5. Compensation. The compensation of the officers of the
------------
Corporation shall be fixed by the Board of Directors, but this power may
be delegated to any officer in respect of other officers under his
control.
Section 6. Bonds or Other Security. If required by the Board, any
-----------------------
officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his duties, in such amount and
with such surety or sureties as the Board may require.
Section 7. President. The President shall be the chief executive
---------
officer of the Corporation. In the absence of the Chairman of the Board
(or if there be none), he shall preside at all meetings of the
stockholders and of the Board of Directors. He shall have, subject to the
control of the Board of Directors, general charge of the business and
affairs of the Corporation. He may employ and discharge employees and
agents of the Corporation, except such as shall be appointed by the Board,
and he may delegate these powers.

18
<PAGE>
Section 8. Vice President. Each Vice President shall have such
--------------
powers and perform such duties as the Board of Directors or the President
may from time to time prescribe.
Section 9. Treasurer. The Treasurer shall:
---------
(a) have charge and custody of, and be responsible for, all the
funds and securities of the Corporation, except those which the Corporation
has placed in the custody of a bank or trust company or member of
a national securities exchange (as that term is defined in the Securities
Exchange Act of 1934, as amended) pursuant to a written agreement
designating such bank or trust company or member of a national securities
exchange as custodian of the property of the Corporation;
(b) keep full and accurate accounts of receipts and disbursements in
books belonging to the Corporation;
(c) cause all moneys and other valuables to be deposited to the
credit of the Corporation;
(d) receive, and give receipts for, moneys due and payable, to the
Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the
investment of its funds as ordered or authorized by the Board, taking
proper vouchers therefor; and
(f) in general, perform all the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to
him by the Board or the President.

19
<PAGE>
Section 10. Secretary. The Secretary shall:
---------
(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board, the committees of the
Board and the stockholders;
(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation and
affix and attest the seal to all stock certificates of the Corporation
(unless the seal of the Corporation on such certificates shall be a
facsimile, as hereinafter provided) and affix and attest the seal to all
other documents to be executed on behalf of the Corporation under its
seal;
(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly
kept and filed; and
(e) in general, perform all the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to
him by the Board or the President.
Section 11. Delegation of Duties. In case of the absence of any
--------------------
officer of the Corporation, or for any other reason that the Board may
deem sufficient, the Board may confer for the time being the powers or
duties, or any of them, of such officer upon any other officer or upon any
director.

20
<PAGE>
ARTICLE VI
Indemnification
---------------
Each officer and director of the Corporation shall be indemnified by
the Corporation to the full extent permitted under the General Laws of the
State of Maryland, except that such indemnity shall not protect any such
person against any liability to the Corporation or any stockholder thereof
to which such person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office. Absent a court
determination that an officer or director seeking indemnification was not
liable on the merits or guilty of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of
his office, the decision by the Corporation to indemnify such person must
be based upon the reasonable determination of independent counsel or
non-party independent directors, after review of the facts, that such
officer or director is not guilty of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of
his office.
Each officer and director of the Corporation claiming indemnification
within the scope of this Article VI shall be entitled to advances from the
Corporation for payment of the reasonable expenses incurred by him in
connection with proceedings to which he is a party in the manner and to
the full
21
<PAGE>
extent permitted under the General Laws of the State of Maryland;
provided, however, that the person seeking indemnification shall provide
to the Corporation a written affirmation of his good faith belief that the
standard of conduct necessary for indemnification by the Corporation has
been met and a written undertaking to repay any such advance, if it should
ultimately be determined that the standard of conduct has not been met,
and provided further that at least one of the following additional
conditions is met: (a) the person seeking indemnification shall provide a
security in form and amount acceptable to the Corporation for his
undertaking; (b) the Corporation is insured against losses arising by
reason of the advance; (c) a majority of a quorum of non-party independent
directors, or independent legal counsel in a written opinion, shall
determine, based on a review of facts readily available to the Corporation
at the time the advance is proposed to be made, that there is reason to
believe that the person seeking indemnification will ultimately be found
to be entitled to indemnification.
The Corporation may purchase insurance on behalf of an officer or
director protecting such person to the full extent permitted under the
General Laws of the State of Maryland, from liability arising from his
activities as officer or director of the Corporation. The Corporation,
however, may not purchase insurance on behalf of any officer or director
of the Corporation that protects or purports to protect such person from
liability
22
<PAGE>
to the Corporation or to its stockholders to which such officer or
director would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved in
the conduct of his office.
The Corporation may indemnify or purchase insurance to the extent
provided in this Article VI on behalf of an employee or agent who is not
an officer or director of the Corporation.

ARTICLE VII
Capital Stock
-------------
Section 1. Stock Certificates. Each holder of stock of the
------------------
Corporation shall be entitled upon request to have a certificate or
certificates, in such form as shall be approved by the Board, representing
the number of shares of stock of the Corporation owned by him, provided,
however, that certificates for fractional shares will not be delivered in
any case. The certificates representing shares of stock shall be signed
by or in the name of the Corporation by the President or a Vice President
and by the Secretary or an Assistant Secretary or the Treasurer or an
Assistant Treasurer and sealed with the seal of the Corporation. Any or
all of the signatures or the seal on the certificate may be a facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate
shall be issued, it
23
<PAGE>
may be issued by the Corporation with the same effect as if such officer,
transfer agent or registrar were still in office at the date of issue.
Section 2. Books of Account and Record of Stockholders. There shall
-------------------------------------------
be kept at the principal executive office of the Corporation correct and
complete books and records of account of all the business and transactions
of the Corporation. There shall be made available upon request of any
stockholder, in accordance with Maryland law, a record containing the
number of shares of stock issued during a specified period not to exceed
twelve months and the consideration received by the Corporation for each
such share.
Section 3. Transfers of Shares. Transfers of shares of stock of the
-------------------
Corporation shall be made on the stock records of the Corporation only by
the registered holder thereof, or by his attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary or with a
transfer agent or transfer clerk, and on surrender of the certificate or
certificates, if issued, for such shares properly endorsed or accompanied
by a duly executed stock transfer power and the payment of all taxes
thereon. Except as otherwise provided by law, the Corporation shall be
entitled to recognize the exclusive right of a person in whose name any
share or shares stand on the record of stockholders as the owner of such
share or shares for all purposes, including, without limitation, the
rights to receive
24
<PAGE>
dividends or other distributions, and to vote as such owner, and the
Corporation shall not be bound to recognize any equitable or legal claim
to or interest in any such share or shares on the part of any other
person.
Section 4. Regulations. The Board may make such additional rules
-----------
and regulations, not inconsistent with these By-Laws, as it may deem
expedient concerning the issue, transfer and registration of certificates
for shares of stock of the Corporation. It may appoint, or authorize any
officer or officers to appoint, one or more transfer agents or one or more
transfer clerks and one or more registrars and may require all
certificates for shares of stock to bear the signature or signatures of
any of them.
Section 5. Lost, Destroyed or Mutilated Certificates. The holder of
-----------------------------------------
any certificates representing shares of stock of the Corporation shall
immediately notify the Corporation of any loss, destruction or mutilation
of such certificate, and the Corporation may issue a new certificate of
stock in the place of any certificate theretofore issued by it which the
owner thereof shall allege to have been lost or destroyed or which shall
have been mutilated, and the Board may, in its discretion, require such
owner or his legal representatives to give to the Corporation a bond in
such sum, limited or unlimited, and in such form and with such surety or
sureties, as the Board in its absolute discretion shall determine, to
indemnify the Corporation
25
<PAGE>
against any claim that may be made against it on account of the alleged
loss or destruction of any such certificate, or issuance of a new
certificate. Anything herein to the contrary notwithstanding, the Board,
in its absolute discretion, may refuse to issue any such new certificate,
except pursuant to legal proceedings under the laws of the State of
Maryland.
Section 6. Fixing of a Record Date for Dividends and Distributions.
----------------------------------------- -------------
The Board may fix, in advance, a date not more than ninety days preceding
the date fixed for the payment of any dividend or the making of any
distribution or the allotment of rights to subscribe for securities of the
Corporation, or for the delivery of evidences of rights or evidences of
interests arising out of any change, conversion or exchange of common
stock or other securities, as the record date for the determination of the
stockholders entitled to receive any such dividend, distribution,
allotment, rights or interests, and in such case only the stockholders of
record at the time so fixed shall be entitled to receive such dividend,
distribution, allotment, rights or interests.
Section 7. Information to Stockholders and Others. Any stockholder
--------------------------------------
of the Corporation or his agent may inspect and copy during usual business
hours the Corporation's By-Laws, minutes of the proceedings of its
stockholders, annual statements of its affairs, and voting trust
agreements on file at its principal office.

26
<PAGE>
ARTICLE VIII
Seal
----
The seal of the Corporation shall be circular in form and shall bear,
in addition to any other emblem or device approved by the Board of
Directors, the name of the Corporation, the year of its incorporation and
the words "Corporate Seal" and "Maryland". Said seal may be used by
causing it or a facsimile thereof to be impressed or affixed or in any
other manner reproduced.

ARTICLE IX
Fiscal Year
-----------
Unless otherwise determined by the Board, the fiscal year of the
Corporation shall end on the (31st day of October).

ARTICLE X
Depositories and Custodians
---------------------------
Section 1. Depositories. The funds of the Corporation shall be
------------
deposited with such banks or other depositories as the Board of Directors
of the Corporation may from time to time determine.
Section 2. Custodians. All securities and other investments shall
----------
be deposited in the safekeeping of such banks or other companies as the
Board of Directors of the Corporation may from time to time determine.
Every arrangement entered into with any bank or other company for the
safekeeping of the securities
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and investments of the Corporation shall contain provisions complying with
the Investment Company Act of 1940, as amended, and the general rules and
regulations thereunder.

ARTICLE XI
Execution of Instruments
------------------------
Section 1. Checks, Notes, Drafts, etc. Checks, notes, drafts,
--------------------------
acceptances, bills of exchange and other orders or obligations for the
payment of money shall be signed by such officer or officers or person or
persons as the Board of Directors by resolution shall from time to time
designate.
Section 2. Sale or Transfer of Securities. Stock certificates,
------------------------------
bonds or other securities at any time owned by the Corporation may be held
on behalf of the Corporation or sold, transferred or otherwise disposed of
subject to any limits imposed by these By-Laws and pursuant to
authorization by the Board and, when so authorized to be held on behalf of
the Corporation or sold, transferred or otherwise disposed of, may be
transferred from the name of the Corporation by the signature of the
President or a Vice President or the Treasurer or pursuant to any
procedure approved by the Board of Directors, subject to applicable law.

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ARTICLE XII
Independent Public Accountants
------------------------------
The firm of independent public accountants which shall sign or
certify the financial statements of the Corporation which are filed with
the Securities and Exchange Commission shall be selected annually by the
Board of Directors and ratified by the stockholders in accordance with the
provisions of the Investment Company Act of 1940, as amended.

ARTICLE XIII
Annual Statement
----------------
The books of account of the Corporation shall be examined by an
independent firm of public accountants at the close of each annual period
of the Corporation and at such other times as may be directed by the
Board. A report to the stockholders based upon each such examination
shall be mailed to each stockholder of record of the Corporation on such
date with respect to each report as may be determined by the Board, at his
address as the same appears on the books of the Corporation. Such annual
statement shall also be available at the annual meeting of stockholders
and be placed on file at the Corporation's principal office in the State
of Maryland. Each such report shall show the assets and liabilities of
the Corporation as of the close of the annual or quarterly period covered
by the report and the securities in which the funds of the Corporation
were then
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invested. Such report shall also show the Corporation's income and
expenses for the period from the end of the Corporation's preceding fiscal
year to the close of the annual or quarterly period covered by the report
and any other information required by the Investment Company Act of 1940,
as amended, and shall set forth such other matters as the Board or such
firm of independent public accountants shall determine.

ARTICLE XIV
Amendments
----------
These By-Laws or any of them may be amended, altered or repealed at
any regular meeting of the stockholders or at any special meeting of the
stockholders by a favorable vote of the holders of at least sixty-six and
two-thirds percent (662/3%) of the outstanding shares of capital stock of
the Corporation entitled to be voted on the matter, provided that notice
of the proposed amendment, alteration or repeal be contained in the notice
of such special meeting. These By-Laws may also be amended, altered or
repealed by the affirmative vote of a majority of the Board of Directors
at any regular or special meeting of the Board of Directors, except any
particular By-Law which is specified as not subject to alteration or
repeal by the Board of Directors, subject to the requirements of the
Investment Company Act of 1940, as amended.