FIDELITY ADVISOR CHINA FUND INC, N-2, 1994-10-03

FIDELITY ADVISOR CHINA FUND INC
N-2, 1994-10-03

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<PAGE> 1

AS FILED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 3, 1994

SECURITIES ACT FILE NO. 33-
INVESTMENT COMPANY ACT FILE NO. 811-

- -----------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM N-2
(CHECK APPROPRIATE BOX OR BOXES)
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. / /
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
AMENDMENT NO. / /

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

FIDELITY ADVISOR CHINA FUND, INC.
(Exact Name of Registrant as Specified in Charter)
82 DEVONSHIRE STREET
BOSTON, MASSACHUSETTS 02109
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (800) 426-5523

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

ARTHUR S. LORING, SECRETARY
FIDELITY ADVISOR CHINA FUND, INC.
82 DEVONSHIRE STREET
BOSTON, MASSACHUSETTS 02109
(Name and Address of Agent for Service)

------------------------
With copies to:

LAURENCE E. CRANCH, ESQ. FRANK P. BRUNO, ESQ.
LEONARD B. MACKEY, JR., ESQ. BROWN & WOOD
ROGERS & WELLS ONE WORLD TRADE CENTER
200 PARK AVENUE NEW YORK, NEW YORK 10048
NEW YORK, NEW YORK 10166 (212) 839-5300
(212) 878-8000

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

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. / /

CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM
PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE OFFERING REGISTRATION
BEING REGISTERED REGISTERED PER SHARE (2) PRICE (2) FEE (3)
------------------- ------------ --------------- --------- -------------

<S> <C> <C> <C> <C>
Common Stock, $.001 Par Value . . . . . 21,500 Shares(1) $15.00 $322,500 $1,112

</TABLE>
(1) Includes 2,804 shares subject to the Underwriters' over-allotment option
and shares that are expected to be offered outside the United States but
may be reallocated for sale in the United States or may be resold from
time to time in the United States.
(2) Estimated solely for purposes of calculating the registration fee.
(3) Includes $1,000 registration fee under the Investment Company Act of
1940.

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

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
<PAGE> 2
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES
AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.

2
<PAGE> 3

CROSS REFERENCE SHEET

PARTS A AND B OF PROSPECTUS*

ITEMS IN PARTS A AND B OF FORM N-2 LOCATION IN PROSPECTUS
---------------------------------- ----------------------
<S> <C> <C>
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; Summary of
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 Objective and
Policies; Investment Restrictions;
Risk Factors and Special
Considerations; Description of
Capital Stock
9. Management . . . . . . . . . . . . . Management of the Fund; Portfolio
Transactions; Description of
Capital Stock; Custodians,
Transfer Agent, Dividend Paying
Agent and Registrar
10. Capital Stock, Long-Term Debt and
Other Securities . . . . . . . . . Prospectus Summary; Dividends and
Distributions; Dividend
Reinvestment and Cash Purchase
Plan; Taxation; Description of
Capital Stock; Underwriting
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 Policies;
Investment Restrictions
18. Management . . . . . . . . . . . . . Management of the Fund
19. Control Persons and Principal
Holders of Securities . . . . . . . Not Applicable
20. Investment Advisory and Other
Services . . . . . . . . . . . . . . Management of the Fund; Custodian, Transfer Agent,
Dividend Paying Agent and Registrar; Experts
21. Brokerage Allocation and Other
Practices . . . . . . . . . . . . . Portfolio Transactions
22. Tax Status . . . . . . . . . . . . . Taxation
23. Financial Statements . . . . . . . . Report of Independent Accountants;
Statement of Assets and
Liabilities
</TABLE>

- ------------
* Pursuant to the 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.
<PAGE> 4

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. THSES 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 BE 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.

SUBJECT TO COMPLETION, DATED OCTOBER 3, 1994
PROSPECTUS

Shares
FIDELITY ADVISOR
CHINA FUND, INC.
[LOGO] COMMON STOCK

Fidelity Advisor China 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. Under normal market
conditions, the Fund seeks to achieve its objective by investing at least 65%
of its total assets in securities of China Issuers (as defined in this
Prospectus). The Fund's investment adviser currently anticipates that, once
fully invested, at least 80% of the Fund's net assets will be invested in
equity securities of China Issuers. It is a non-fundamental policy of the
Fund that, under normal market conditions, no more than 35% of the Fund's
total assets will be invested in debt securities. Up to 35% of the Fund's
total assets may be invested in securities of Asian-Pacific Issuers (as
defined in this Prospectus) and U.S. Government securities. There can be no
assurance that the Fund's investment objective will be achieved. Due to the
risks inherent in international investments generally, the Fund should be
considered as a vehicle for investing a portion of an investor's assets in
foreign securities markets and not as a complete investment program.
INVESTMENT IN SECURITIES OF CHINA ISSUERS INVOLVES RISKS THAT ARE NOT NORMALLY
INVOLVED IN INVESTMENTS IN SECURITIES OF U.S. COMPANIES. THE FUND HAS THE
FLEXIBILITY TO INVEST UP TO 25% OF ITS TOTAL ASSETS IN ILLIQUID SECURITIES.
IN ADDITION, ALTHOUGH THE FUND CURRENTLY INTENDS TO INVEST PRINCIPALLY IN
EQUITY SECURITIES, IT MAY INVEST WITHOUT LIMITATION IN HIGH RISK, HIGH YIELD
DEBT INSTRUMENTS OF CHINA ISSUERS AND ASIAN-PACIFIC ISSUERS THAT ARE LOW RATED
OR UNRATED AND ARE PREDOMINANTLY SPECULATIVE. INVESTMENT IN THE FUND SHOULD
BE CONSIDERED SPECULATIVE. SEE "INVESTMENT OBJECTIVE AND POLICIES" AND "RISK
FACTORS AND SPECIAL CONSIDERATIONS."

Of the ___________ shares of the Fund's Common Stock offered hereby (the
"Shares"),_______ Shares are being offered in the United States and elsewhere
(except Japan) by a group of underwriters (the "U.S. Underwriters") led by
Daiwa Securities America Inc. and Kemper Securities, Inc. (the "U.S.
Offering") and _________ Shares are being offered in Japan by a group of
underwriters (the "Japanese Underwriters") led by Daiwa Securities Co. Ltd.
(the "Japanese Offering" and together with the U.S. Offering, the "Offering"),
subject to transfer between the U.S. Underwriters and the Japanese
Underwriters (collectively, the "Underwriters").

Prior to the Offering, there has been no public market for the Shares.
The Fund intends to make an application to list the Shares on the New York
Stock Exchange. The Fund also intends to apply to list the Shares on the
Osaka Securities Exchange. During an initial period which is not expected to
exceed five days from the date of this Prospectus, the Fund's Shares will not
be listed on any securities exchange. During such period, neither the U.S.
Underwriters nor the Japanese Underwriters intend to make a market in the
Fund's Shares. Consequently, it is anticipated that an investment in the Fund
will be illiquid during such period. SHARES OF CLOSED-END INVESTMENT
COMPANIES HAVE IN THE PAST FREQUENTLY TRADED AT DISCOUNTS FROM THEIR NET ASSET
VALUES. THE RISK OF LOSS ASSOCIATED WITH THIS CHARACTERISTIC OF CLOSED-END
INVESTMENT COMPANIES MAY BE GREATER FOR INVESTORS PURCHASING SHARES IN THE
OFFERING AND EXPECTING TO SELL THE SHARES SOON AFTER THE COMPLETION THEREOF.
There is no restriction on the number of Shares that may be purchased subject
to the transfer restriction described in the footnotes to the table below,
except that the U.S. Underwriters have undertaken to comply, with respect to
non-restricted Shares, with the distribution requirements of the New York
Stock Exchange. See "Underwriting."
(Continued on following page)

This Prospectus sets forth concisely information about the Fund that a
prospective investor should know before purchasing Shares. 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
MAXIMUM PRICE SALES LOAD PROCEEDS
TO PUBLIC(1) (1)(2) TO THE FUND(3)
------------- ---------- --------------

<S> <C> < C> <C>
Per Share . . . . . . . . $15.00 $ $

Total(4) . . . . . . . . $ $ $
</TABLE>
(Footnotes on following page)

The Shares in the U.S. Offering 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
share certificates for shares in the U.S. Offering will be made in New York,
New York on or about _________________, 1994.

DAIWA SECURITIES AMERICA INC. KEMPER SECURITIES, INC.
The date of this Prospectus is _________, 1994

<PAGE> 5

IN CONNECTION WITH THIS OFFERING, THE U.S. UNDERWRITERS MAY OVER-ALLOT
OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
SHARES 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 MARKETS OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.

(Continued from previous page)

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.

Fidelity Management & Research Company will serve as investment manager
to the Fund. Fidelity International Investment Advisors will serve as the
Fund's investment adviser and will be responsible for the day-to-day
management of the Fund.

The address of the Fund is 82 Devonshire Street, Boston, Massachusetts
02109. The Fund's telephone number is (800) 426-5523.

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

(Notes from prior page)

(1) The "Maximum Price to Public" and the "Maximum Sales Load" per share will
be reduced to US$_________ and US$________ , respectively, for purchases in
single transactions (as defined herein under "Underwriting") of
__________ or more Shares in the U.S. Offering, subject to the following
sentence. Purchasers who agree to purchase Shares in the U.S. Offering at
the reduced price will be restricted from transferring such Shares for a
period of 90 days after the closing of the Offering. See "Underwriting."

(2) The Fund, the investment manager and the investment adviser have agreed to
indemnify the several Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933.

(3) Before deducting expenses payable by the Fund, estimated at $ ________ ,
which include $_____________to be paid to the Underwriters in partial
reimbursement of their expenses.

(4) The Fund has granted to the U.S. Underwriters an option, 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 option is exercised in full, the total Maximum Price
to Public will be US$___________ , the Maximum Sales Load will be
US$_____________and the Proceeds to the Fund will be US$____________.
See "Underwriting."

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

The information set forth in this Prospectus regarding China, Hong Kong
and their respective economies and the Stock Exchange of Hong Kong Ltd. has
been extracted from various government and private publications. The Fund and
its Board of Directors make no representation 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, to "RMB" or "renminbi"
are to Chinese renminbi and to "H.K. dollars" or "HK$" are to Hong Kong
dollars. On September __, 1994, the exchange rates published in The Wall
Street Journal were RMB ________ = US$ 1.00 and HK$_______ = US$ 1.00 and,
unless otherwise specified, all renminbi and H.K. dollar amounts have been
converted to U.S. dollars at such exchange rates. No representation is made
that the renminbi, H.K. dollar or U.S. dollar amounts in this Prospectus could
have been or could be converted into renminbi, H.K. dollars or U.S. dollars,
as the case may be, at any particular rate or at all. See "Appendix A - The
People's Republic of China and Hong Kong - Exchange Rate and Foreign Exchange
Control" for information regarding historical rates of exchange between the
Chinese renminbi, the H.K. dollar and the U.S. dollar.

Certain numbers in this Prospectus have been rounded for ease of
presentation, and, as a result, may not total precisely.

2
<PAGE> 6

PROSPECTUS SUMMARY

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

The Fund . . . . . . . . . . . . The Fund is a newly organized,
non-diversified, closed-end management
investment company established for
investors seeking to invest a portion of
their assets in a professionally managed
portfolio composed primarily of
securities of China Issuers (as defined
below). Although the Fund currently
intends to invest principally in equity
securities, it also may invest in debt
securities as described below. Fidelity
Management & Research Company (the
"Investment Manager") will serve as the
Fund's investment manager and will
supervise the Fund's investment program.
Fidelity International Investment
Advisors (the "Investment Adviser") will
be responsible for the day-to-day
management of the Fund's portfolio
through its office in Hong Kong. See
"The Fund" and "Management of the Fund
-- Investment Manager and Investment
Adviser."

Investment in China and Hong Kong [To be provided.]

Investment Objective and Policies The Fund's investment objective is
long-term capital appreciation. As a
matter of fundamental policy and under
normal market conditions, at least 65%
of the Fund's total assets will be
invested in securities of China Issuers
(as defined below). The Investment
Adviser currently anticipates that, once
the Fund is fully invested, at least 80%
of its net assets will be invested in
equity securities of China Issuers. The
Fund will not consider dividend income
as a primary factor in choosing
securities, unless the Investment
Adviser believes the income will
contribute to or is an indication of the
securities' growth potential. No
assurance can be given that the Fund's
investment objective will be realized.
See "Investment Objective and Policies"
and "Risk Factors and Special
Considerations."

As used in this Prospectus, China
Issuers are entities that, as determined
by the Investment Adviser, (i) are
organized under the laws of The People's
Republic of China ("China"), Hong Kong
or Macau, (ii) regardless of where
organized, derive at least 50% of their
revenues or profits from goods produced
or sold, investments made, or services
performed, or have at least 50% of their
assets located in China, Hong Kong or
Macau, (iii) have the primary trading
market for their securities in China,
Hong Kong or Macau or (iv) are

3
<PAGE> 7

governments, agencies thereof or other
political sub-divisions of China, Hong
Kong or Macau.

Equity securities in which the Fund may
invest include common and preferred
stock, American, global or other types
of depositary receipts, convertible
bonds, notes and debentures, equity
interests in trusts, partnerships, joint
ventures and common stock purchase
warrants and rights relating to equity
securities or indices.

The Fund is authorized to engage in
certain investment practices, such as
investing in the government debt of
China or Hong Kong, certain currency
hedging techniques, the lending of
portfolio securities, forward
commitments, standby commitment
agreements and the purchase or sale of
put and call options, but many of these
practices are not available or not
permitted under relevant laws and
regulations. The Fund may engage in
these investment practices to the extent
the practices become available or
permissible in the future. See
"Investment Objective and Policies --
Other Investment Policies."

Most of the securities purchased by the
Fund are expected to be traded on a
foreign stock exchange or in a foreign
over-the-counter market. However, the
Fund may invest up to 25% of its total
assets in securities that are illiquid,
that is, securities for which there is
no readily available market, or no
market at all. See "Investment
Objective and Policies."

Up to 35% of the Fund's total assets may
be invested in equity or debt securities
of Asian-Pacific Issuers (as defined
below) and U.S. Government securities.
"Asian-Pacific Issuers" are entities
that, as determined

4
<PAGE> 8

by the Investment Adviser, (i) are
organized under the laws of, (ii)
regardless of where organized, derive at
least 50% of their revenues or profits
from goods produced or sold, investments
made, or services performed or have at
least 50% of their assets located in,
(iii) have the primary trading market
for their securities in, or (iv) are
governments or agencies or
instrumentalities or other political
subdivisions of, Australia, Bangladesh,
India, Indonesia, Malaysia, New Zealand,
Pakistan, the Philippines, Singapore,
South Korea, Sri Lanka, Thailand,
Vietnam or any other country in the
Asian-Pacific region (including
Cambodia, Laos and Myanmar) in which the
Fund is permitted to invest in the
future. The Fund will not invest in any
countries that do not have diplomatic
relations with Japan. These countries
currently include Taiwan and North
Korea, and may, in the future, include
other countries that sever diplomatic
relations with Japan.

During the Fund's initial investment
period, and for temporary defensive
purposes, the Fund may invest without
limitation in Temporary Investments (as
defined below). See "Investment
Objective and Policies -- Temporary
Investments."

After the Fund's initial investment
period, for temporary defensive
purposes, the Fund may vary from its
investment policies by investing,
without limitation in investment grade
debt instruments, including unrated
securities of equivalent quality as
determined by the Investment Adviser,
short-term indebtedness or cash
equivalents denominated in U.S. dollars
or other currencies. No assurance can
be given that the Fund's investment
objective will be achieved. See
"Investment Objective and Policies" and
"Risk Factors and Special
Considerations."

The Offering . . . . . . . . . . The Fund is offering ___________ shares
of Common Stock, $0.001 par value (the
"Shares"), for sale in concurrent
offerings. Of the ________ Shares being
offered, _______ Shares (the "U.S.
Shares") are being offered in the United
States and elsewhere (except Japan) by a
group of underwriters (the "U.S.
Underwriters") led by Daiwa Securities
America Inc. and Kemper Securities, Inc.
(the "U.S. Offering") and ________Shares
(the "Japanese Shares") are being
offered in Japan by a group of
underwriters (the "Japanese
Underwriters," and together with the
U.S. Underwriters the "Underwriters")
led by Daiwa Securities Co. Ltd. (the
"Japanese Offering"). The initial
public offering price of the Shares is
$15.00 per

5
<PAGE> 9

share, which will be reduced to $_____
for purchases in single transactions (as
defined under "Underwriting" below)
of____ or more Shares in the U.S.
Offering, subject to the following
sentence. Purchasers who agree to
purchase Shares in the U.S. Offering at
a reduced price will be restricted from
transferring such Shares for a period of
90 days after the closing of the
Offering. There is no restriction on
the number of Shares that may be
purchased subject to the transfer
restriction described above, except that
the U.S. Underwriters have undertaken to
comply, with respect to non-restricted
Shares, with the distribution
requirements of the New York Stock
Exchange, Inc. (the "NYSE"). The U.S.
Underwriters have also been granted
options to purchase an aggregate
of____________ additional shares of the
Fund's Common Stock to cover
over-allotments. The Shares are subject
to transfer between the U.S.
Underwriters and the Japanese
Underwriters. See "Underwriting."

The closing of each offering is a
condition to the closing of the other
offering. The relative sizes of the
U.S. Offering and the Japanese Offering
will be determined by negotiations
between the Fund and the Underwriters
and will depend on a number of factors,
including the final number of Shares to
be offered in each of the offerings. It
is expected that a substantial portion
of the Shares will be sold outside the
United States, except that the U.S.
Underwriters have undertaken to
distribute the shares of Common Stock in
a manner that complies with the
distribution requirements of the NYSE.
The Fund cannot predict what effect if
any, the relative sizes of the U.S.
Offering and the Japanese Offering will
have on the secondary market in the
United States and Japan or on the value
of the Shares.

Listing . . . . . . . . . . . . . The Fund intends to make an application
to list its Common Stock on the NYSE.
The Fund also intends to make an
application to list the Shares on the
Osaka Securities Exchange. During an
initial period which is not expected to
exceed five business days from the date
of this Prospectus, the Fund's Shares
will not be listed on any securities
exchange. During such period, neither
the U.S. Underwriters nor the Japanese
Underwriters intend to make a market in
the Fund's Shares. Consequently, it is
anticipated that an investment in the
Fund will be illiquid during such
period.

NYSE Stock Symbol . . . . . . . . " "

6
<PAGE> 10

Investment Manager and
Investment Adviser . . . . . . Fidelity Management & Research Company,
a leading international investment
manager, will act as Investment Manager
of the Fund and will supervise the
Fund's investment program. The Fidelity
organization has more than [25] years
experience investing in Asia. Fidelity
International Investment Advisors
("FIIA"), the Fund's Investment Adviser
and an affiliate of the Investment
Manager, is responsible for the
day-to-day management of the Fund's
investments through the Investment
Adviser's office in Hong Kong. Fidelity
Investments Japan Limited (the "Sub-
Adviser") will provide, at the request
of the Investment Adviser, advisory
services concerning Fund assets invested
in securities of Asian-Pacific Issuers.
As of August 31, 1994, the Investment
Manager, the Investment Adviser and
their affiliates had over $270 billion
under management of which more than
$[50] billion was invested in
non-U.S. securities (including over $15
billion in Asian securities, over $ ____
billion in securities of China Issuers
and over $7 billion managed from Asian
offices).

The Investment Manager, together with
the Investment Adviser, the Sub-Adviser
and their other affiliates (sometimes
collectively referred to herein as
"Fidelity"), has extensive research
capabilities within the Asian region,
and maintains offices in Hong Kong,
Singapore and Tokyo, which are staffed
by 35 investment professionals. These
offices routinely research and screen
for investment potential and focus on
the identification, through extensive
management contacts and on-site visits,
of companies within China and Hong Kong.
In 1993, Fidelity conducted over ___
company visits in China and Hong Kong.

Joseph Tse, a Country Fund Manager of
Fidelity Investments Management (Hong
Kong) Ltd. (an affiliate of the
Investment Adviser) and an employee of
the Investment Adviser based in its Hong
Kong office, will serve as the Fund's
principal portfolio manager. See
"Management of the Fund -- Investment
Manager and Investment Adviser."

Advisory Fees and Expenses . . . The Fund will pay the Investment Manager
a monthly basic fee at an annual rate of
1.00% of the Fund's average daily net
assets for its services. The Investment
Manager will pay the Investment Adviser
60% of the fees paid by the Fund to the
Investment Manager. The Investment
Adviser will pay the Sub-Adviser a fee
equal to 50% of the fee paid to the
Investment Adviser with

7
<PAGE> 11

respect to Fund assets managed by the
Sub-Adviser on a discretionary basis,
and 30% of the fee paid to the
Investment Adviser with respect to Fund
assets managed by the Sub-Adviser on a
non-discretionary basis. See
"Management of the Fund -- Compensation
and Expenses." The advisory fee paid by
the Fund is higher than those paid by
most U.S. investment companies investing
exclusively in the securities of
U.S. issuers, primarily because of the
additional time and expense required of
the Investment Manager and the
Investment Adviser in pursuing the
Fund's policy of investing in
securities, including illiquid
securities, of China Issuers. In
addition, the operating expense ratio of
the Fund can be expected to be higher
than that of a fund investing primarily
in securities of U.S. issuers. It is
expected, however, that the Fund's
investment advisory fee, as well as its
overall expense ratio, will be
comparable to that of many closed-end
management investment companies of
comparable size (i) that invest
primarily in securities of China Issuers
or other emerging market issuers and
(ii) whose securities are listed in both
the United States and Japan.

Administration . . . . . . . . . Fidelity Service Co. ("Service"), a
division of FMR Corp., the parent
company of the Investment Manager, will
serve as the Fund's administrator
pursuant to the terms of an
Administration Agreement. The Fund will
pay to Service a monthly fee at an
annual rate of .10% of the Fund's
average daily net assets for its
services. See "Management of the Fund
-- Administration." Daiwa Securities
Trust Company ("DST") will act as the
Fund's sub-administrator pursuant to a
Sub-Administration Agreement. The Fund
will pay DST a monthly fee at an annual
rate of .10% of the Fund's average daily
net assets for its services and
facilities under the Sub-Administration
Agreement.

Dividends and Distributions . . . The Fund intends to distribute annually
to holders of Common Stock substantially
all of its net investment income and net
realized capital gains, if any.

Under the Fund's Dividend Reinvestment
and Cash Purchase Plan (the "Plan"), a
shareholder may elect to have all
dividends and distributions
automatically reinvested in additional
shares of Common Stock of the Fund.
Participants also have the option of
making additional cash payments,
annually, to be used to acquire
additional shares of Common Stock of the
Fund in the open market. Shareholders
whose shares are held in the name of a
broker or nominee should contact such
broker

8
<PAGE> 12

or nominee to confirm that they may
participate in the Fund's Plan.
Shareholders holding shares of the
Common Stock of the Fund through Japan
Securities Clearing Corporation will not
be enrolled in the Plan unless they
elect to participate. See "Dividends
and Distributions; Dividend Reinvestment
and Cash Purchase Plan."

Repurchase of Shares . . . . . . The Fund may from time to time
repurchase its shares at prices below
their net asset value or make a tender
offer for its shares. See "Description
of Capital Stock -- Common Stock."
Custodian, Transfer Agents, Dividend
Paying Agents and Registrars . The Chase Manhattan Bank, N.A. will act
as custodian for the Fund's assets. The
Chase Manhattan Bank, N.A. may designate
foreign sub-custodians approved by the
Fund's Board of Directors in accordance
with the regulations of the Securities
and Exchange Commission (the
"Commission" or the "SEC"). State
Street Bank and Trust Company will act
as transfer agent, dividend paying agent
and registrar for the Fund's Common
Stock. ________________ will act as the
Fund's shareholder servicing and
dividend disbursing agent for the Fund's
Common Stock beneficially owned by
investors in Japan. See "Custodian,
Transfer Agents, Dividend Paying Agents
and Registrars."

Risk Factors and Special
Considerations Because the Fund currently intends to
invest primarily in securities of China
Issuers, an investor in the Fund should be
aware of certain risks relating to China,
Hong Kong and Macau, the securities
markets in which securities of China
Issuers are traded and international
investments generally which are not
typically associated with U.S. domestic
investments. In particular,
considerations and risks not
typically associated with investing in
securities of U.S. domestic companies
include (a) the risk of nationalization or
expropriation of assets or confiscatory
taxation, (b) greater social, economic and
political uncertainty (including the risk
of war), (c) dependency on exports and the
corresponding importance of international
trade, which could be negatively affected
by China's potential loss of "Most Favored
Nation" status with the United States, (d)
greater price volatility, substantially
less liquidity and significantly smaller
market capitalization of securities
markets, particularly in China, (e)
currency exchange rate fluctuations, the
lack of available currency hedging
instruments and the possible blockage of
the exchange of foreign currency, (f)
higher rates of inflation, (g) controls on
foreign investment and limitations on

9
<PAGE> 13

repatriation of invested capital and on the
Fund's ability to exchange local currencies
for U.S. dollars, (h) greater governmental
involvement in and control over the
economy, (i) the risk that the Chinese
government may decide not to continue to
support the economic reform programs
implemented since 1978 and could return to
the completely centrally planned economy
that existed prior to 1978, (j) the risk
that the reunification of Hong Kong with
China in 1997 will disrupt Hong Kong's
economy, (k) the fact that China Issuers,
particularly those located in China, may be
smaller, less seasoned and newly-organized
companies, (l) the difference in, or lack
of, auditing and financial reporting
standards which may result in
unavailability of material information
about China Issuers, particularly in China,
(m) the fact that statistical information
regarding the economy of China may be
inaccurate or not comparable to statistical
information regarding the U.S. or other
economies, (n) less extensive regulation of
the securities markets in which securities
of China Issuers are traded, (o) the fact
that the settlement period of securities
transactions in foreign markets may be
longer, (p) risks regarding the maintenance
of the Fund's portfolio securities and cash
with foreign subcustodians and securities
depositories, and (q) the risk that it may
be impossible or more difficult to obtain
and/or enforce a judgment than in the
United States. Following the establishment
of the People's Republic of China by the
Communist Party in 1949, the Chinese
government renounced various debt
obligations incurred by China's predecessor
governments, which obligations remain in
default, and expropriated assets without
compensation. There can be no assurance
that the Chinese government will not take
similar action in the future. An
investment in the Fund involves risk of a
total loss.

Corporate and Securities Laws. Stock
corporations are a relatively new concept
in China. China does not at present have a
well developed, consolidated body of
securities laws or laws governing
corporations or joint stock companies.
Most of the company and securities laws and
regulations of China have only recently
been introduced and are therefore in the
preliminary stages of development. Laws
regarding fiduciary duties of officers and
directors, and the protection of investors,
are in the early stages of development and
existing laws do not cover all
contingencies.

Thinly Traded Markets and Illiquid
Investments. Due to the limited number
of securities listed on securities

10
<PAGE> 14

exchanges in China and Hong Kong (B, H
and N shares (as defined below)) issued
and currently available to foreign
investors, the Fund may be limited in
its choice of available investments in
issuers located in China. China
announced recently that no companies
would be permitted to offer and list
their shares on the Chinese stock
exchanges during the remainder of 1994.
The Fund may invest up to 25% of its
total assets in illiquid securities.
Such investments may involve a high
degree of business and financial risk.
Because of the absence of any trading
market for these investments, the Fund
may take longer to liquidate these
positions than it would for listed
securities. In addition to financial
and business risks, issuers whose
securities are not listed will not be
subject to the same disclosure
requirements applicable to issuers whose
securities are listed. See "Risk
Factors and Special
Considerations--Direct Investments."

Debt Securities. The value of any debt
securities held by the Fund, and thus to
some degree the net asset value of the
Fund's Common Stock, generally will
fluctuate with (i) changes in the
perceived creditworthiness of the
issuers of those securities,
(ii) movements in interest rates,
(iii) changes in currency exchange rates
and (iv) the risk factors and special
considerations described above. The
extent of the fluctuation will depend on
various other factors, including the
maturity of the Fund's investments, the
extent to which the Fund holds
instruments denominated in currencies
other than the U.S. dollar and the
extent to which the Fund hedges its
interest rate and currency exchange rate
risks. The Investment Adviser will make
independent evaluations as to the
creditworthiness of issuers of debt
securities that may differ from those of
internationally recognized credit rating
agency organizations, such as Moody's
Investors Service, Inc. ("Moody's") and
Standard & Poor's Ratings Group ("S&P").
The Fund's success in attaining its
investment objective will be affected by
the Investment Adviser's evaluation of
the current and future creditworthiness
of issuers, and of interest rate trends.

Debt Securities - High Yield High Risk
Securities. There is no limit on the
percentage of the Fund's debt securities
investments that may be low rated or
unrated. The Fund's investments in debt
securities of China Issuers or Asian-
Pacific Issuers may have credit quality
below investment grade as determined by
internationally recognized credit rating
agency organizations. Debt securities
rated below investment grade (commonly
referred to as "junk bonds") are
considered to be

11
<PAGE> 15

speculative. Investment in low rated
securities typically involves risks not
associated with higher rated securities,
including, among others, overall greater
risk of failure to pay interest and
principal, potentially greater
sensitivity to general economic
conditions, greater market price
volatility and a less liquid secondary
trading market. Certain of the Fund's
investments may be considered to have
extremely poor prospects of ever
attaining any real investment standing,
to have a current vulnerability to
default, to be unlikely to have the
capacity to pay interest and repay
principal when due in the event of
adverse business, financial or economic
conditions, or to be in default or not
current in the payment of interest or
principal. See "Risk Factors and
Special Considerations -- Debt
Securities -- High Yield, High Risk
Securities" and "Appendix C - Debt
Ratings."

Investment Practices. The Fund's
investment policies permit it to engage
in various investment practices that are
not presently available in the Chinese
or other Asian-Pacific markets. To the
extent the practices are available
presently or in the future outside of
these markets, the Fund may use various
investment practices that involve
special considerations, including
purchasing and selling options on
securities, financial futures, fixed
income and stock indices, currencies and
other financial instruments, entering
into financial futures contracts,
entering into interest rate
transactions, entering into currency
transactions, entering into equity swaps
and related transactions, entering into
securities transactions on a when-issued
or delayed delivery basis, entering into
repurchase agreements and lending
portfolio securities. See "Additional
Investment Activities," "Investment
Objective and Policies -- Other
Investments," "Risk Factors and Special
Considerations -- Investment Practices"
and "Appendix B -- General
Characteristics and Risks of
Derivatives."

Operating and Organizational Expenses.
The operating expense ratio of the Fund
may be higher than that of a fund
investing predominantly in the
securities of U.S. issuers since the
expenses of the Fund (such as investment
management and administration fees,
custodial and communication costs) are
higher. Ongoing compliance with listing
and regulatory requirements in the
United States and Japan will also
increase the operating expenses of the
Fund. See "Management of the Fund."
Similarly, the organizational expenses
of the Fund may be higher than those of
a fund listed on one exchange.

12
<PAGE> 16

Non-Diversification. The Fund is
classified as a "non-diversified"
investment company under the 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. However, the Fund intends to
comply with the diversification
requirements imposed by the Internal
Revenue Code of 1986, as amended (the
"Code"), for qualification as a
regulated investment company. 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, will be subject to greater risk
of loss with respect to its portfolio
securities. Moreover, because the Fund
is non-diversified and will invest
primarily in securities of China
Issuers, the Fund may be more
susceptible than a more widely-
diversified fund to any single economic,
political or regulatory occurrence. An
investment in the Fund is not a balanced
investment program by itself, and is
intended to provide diversification as
part of a more complete investment
program.

Withholding and Other Taxes. Income and
capital gains on securities held by the
Fund may be subject to withholding or
other taxes imposed by the governments
of China or Hong Kong or other foreign
governments, which would reduce the
return to the Fund on those securities.
The imposition of such taxes and the
rates imposed are subject to change.
The Fund may elect, when eligible, to
"pass through" to the Fund's
shareholders, as a deduction or credit,
the amount of foreign taxes paid by the
Fund. The taxes passed through to
shareholders will be included in each
shareholder's income. Certain
shareholders, including some non-U.S.
shareholders, will not be entitled to
the benefit of a deduction or credit
with respect to foreign taxes paid by
the Fund. If a shareholder is eligible
and elects to credit foreign taxes, such
credit is subject to limitations. Other
foreign taxes, such as transfer taxes,
may be imposed on the Fund, but would
not give rise to a credit, or be
eligible to be passed through to
shareholders. See "Taxation."

Certain Provisions of the Articles of
Incorporation. The Fund's Articles of
Incorporation contain certain
anti-takeover provisions that may have
the effect of: (i) inhibiting the Fund's
possible conversion to open-end status
by requiring a 75% shareholder vote to
make such a conversion or to enter into
a business combination that

13
<PAGE> 17

would result in such a conversion and
(ii) limiting the ability of other
entities or persons to acquire control
of the Fund or to change the composition
of its Board of Directors. Such
provisions could have the effect of
depriving shareholders of an opportunity
to sell their shares of Common Stock at
a premium over prevailing market prices
by discouraging a third party from
seeking to obtain control of the Fund.
The Fund's Board of Directors has
determined that these provisions are in
the best interests of shareholders
generally. See "Risk Factors and
Special Considerations" and "Description
of Capital Stock -- Special Voting
Provisions."

Secondary Market and Net Asset Value
Discount. Prior to the Offering, there
has been no public market for the Fund's
Common Stock. There can be no assurance
that an active trading market will
develop or be sustained. The Fund
cannot predict what effect, if any, the
relative sizes of the U.S. Offering and
the Japanese Offering will have on the
secondary market of the Shares of Common
Stock in the United States and Japan or
on the value of the Shares. In
addition, Shares of closed-end
investment companies frequently trade at
a discount from net asset value. This
characteristic is a risk separate and
distinct from the risk that the Fund's
net asset value will decrease as a
result of its investment activities and
may be greater for investors expecting
to sell their shares in a relatively
short period following completion of the
Offering. It should be noted that
shares of some closed-end funds have
sold at a premium to net asset value.
The Fund cannot predict whether its
Shares will trade at, above or below net
asset value. The Fund is intended
primarily for long-term investors and
should not be considered as a vehicle
for short-term trading purposes. See
"Risk Factors and Special
Considerations."

Dual Market Listing. The Fund intends
to list its Shares on the NYSE and the
Osaka Securities Exchange. Dual listing
may increase the volatility of the price
of the Fund's Shares and may reduce the
effectiveness of the U.S. Underwriters'
market stabilization activities.

Transfer Restrictions. Investors who
purchase Shares in the U.S. Offering at
a reduced price will be restricted from
transferring such Shares for a period of
90 days after the closing of the
Offering. There is no restriction on
the number of Shares that may be
purchased subject to the transfer
restriction described above, except that
the U.S. Underwriters have undertaken to
comply, with

14
<PAGE> 18

respect to non-restricted Shares, with
the distribution requirements of the
NYSE. See "Underwriting." To the
extent these investors 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 of Common Stock
available for sale on the secondary
market during the 90-day restriction
period.

Investors should carefully consider
their ability to assume the foregoing
risks before making an investment in the
Fund. An investment in shares of Common
Stock of the Fund may not be appropriate
for all investors and should not be
considered as a complete investment
program. See "Risk Factors and Special
Considerations."

15
<PAGE> 19

SUMMARY OF EXPENSES

<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load (as a percentage of offering price) . . . . . . . . . . . . . . . . . . . . _____% (1)

ANNUAL EXPENSES (as a percentage of net assets attributable to shares of Common Stock)
Management Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.00%
Other Expenses (estimated) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ____%
Administration Fees . . . . . . . . . . . . . . . . . . . . . . . . . . 0.20%
Other Operating Expenses (estimated) . . . . . . . . . . . . . . . . . ___%
Total Annual Expenses (estimated) . . . . . . . . . . . . . . . . . . . . . . . . . . ____%
</TABLE>

- ----------------
(1) The sales load is reduced for certain transactions. See "Underwriting."

THE PURPOSE OF THIS TABLE IS TO ASSIST THE INVESTOR IN UNDERSTANDING
THE VARIOUS COSTS AND EXPENSES THAT AN INVESTOR IN THE FUND WILL BEAR DIRECTLY
OR INDIRECTLY.

As of the date of this Prospectus, the Fund had not commenced
investment operations. The amount set forth in "Other Expenses" is,
therefore, based on estimated amounts for its first fiscal year, assuming
no exercise of the over-allotment option granted to the U.S. Underwriters.
"Other Operating Expenses" will include custodial and transfer agency
fees, legal and accounting fees, printing costs and listing fees. A
portion of the Fund's expenses may be reduced as a result of certain
brokerage arrangements. For additional information with respect to the
expenses identified in the table above, see "Management of the Fund."

EXAMPLE

The following example demonstrates the projected U.S. dollar amount
of total cumulative expenses that would be incurred over various periods
with respect to a hypothetical investment in the Fund. These amounts are
based upon payment by an investor of a % sales load and payment by the
Fund of operating expenses at the levels set forth in the table above.

An investor would pay the following expenses on a $1,000
investment, assuming (1) a 5% annual return and (2) reinvestment of all
dividends and distributions at net asset value:

1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
$ $ $ $

THIS EXAMPLE AS WELL AS THE INFORMATION SET FORTH IN THE TABLE
ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF THE FUTURE EXPENSES OF
THE FUND, AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
Moreover, while the example assumes a 5% annual return, the Fund's
performance will vary and may result in a return greater or less than 5%.
In addition, while the example assumes reinvestment of all dividends and
distributions at net asset value, this may not be the case for
participants in the Plan. See "Dividends and Distributions; Dividend
Reinvestment and Cash Purchase Plan."

16
<PAGE> 20

THE FUND

The Fund, incorporated in Maryland on September 29, 1994, is a
non-diversified, closed-end management investment company registered under
the 1940 Act. The Fund's investment objective is long-term capital
appreciation. The Fund seeks to achieve its objective by investing
primarily in equity and debt securities of China Issuers.

The address of the Fund is 82 Devonshire Street, Boston,
Massachusetts 02109. The Fund's telephone number is (800) 426-5523.

INVESTMENT STRATEGY

[To be provided]

INVESTMENT IN CHINA AND HONG KONG

[To be provided]

USE OF PROCEEDS

The net proceeds of the Offering will be approximately $
(or approximately $ if the U.S. Underwriters exercise the over-allotment
option in full) after payment of the sales load and organizational and
offering expenses.

The net proceeds of the Offering will be invested in accordance
with the Fund's investment objective and policies. The Fund anticipates
that, under current market conditions, the net proceeds of the Offering
will be fully invested in accordance with the Fund's investment objective
and policies within three months from the date of this Prospectus, and in
any event, no later than six months from the date of this Prospectus.
However, depending on market conditions, it may be necessary to make such
investments over a longer period of time in order to avoid disruption of
securities markets in China, Hong Kong and Macau and to minimize the
Fund's impact on the prices and trading of securities of China Issuers.
Under such circumstances, the Fund will attempt to invest at least 65% of
its total assets in securities of China Issuers within a one-year period.
Pending such investment, it is anticipated that the proceeds will be
invested in Temporary Investments (as defined below). See "Investment
Objective and Policies -- Temporary Investments." Offering expenses
estimated at $________ will be paid from the proceeds of the Offering and
will be charged to capital. Organizational costs of the Fund estimated at
$__________ will be amortized on a straight-line basis for a five-year
period beginning at the commencement of operations of the Fund.

INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is long-term capital
appreciation. As a matter of fundamental policy and under normal market
conditions, the Fund will invest at least 65% of its total assets in
securities of China Issuers. The Investment Adviser currently anticipates
that, once the Fund is fully invested, at least 80% of its net assets will
be invested in equity securities of China Issuers. Equity securities
include common stocks, preferred stocks, American, global or other types
of depositary receipts, rights or warrants to purchase common or preferred
stock, equity interests in trusts, partnerships, joint ventures or similar
enterprises and debt securities convertible into common or preferred stock
or debt securities of issuers having no equity securities outstanding
which are or may be convertible into common or preferred stock based on
potential

17
<PAGE> 21

future equity offerings by such issuers. As used in this Prospectus,
China Issuers are entities that, as determined by the Investment Adviser,
(i) are organized under the laws of China, Hong Kong or Macau, (ii)
regardless of where organized, derive at least 50% of their revenues or
profits from goods produced or sold, investments made, or services
performed, or have at least 50% of their assets located in China, Hong
Kong or Macau, (iii) have the primary trading market for their securities
in China, Hong Kong or Macau or (iv) are governments, agencies thereof or
other political sub-divisions of China, Hong Kong or Macau. The Fund will
invest in companies that, in the opinion of the Investment Adviser,
possess the potential for growth. The Fund will not consider dividend
income as a primary factor in choosing securities, unless the Investment
Adviser believes the income will contribute to or is an indicator of the
securities' growth potential.

The Fund's investment objective and policy of investing at least
65% of its total assets in equity and debt securities of China Issuers is
fundamental and cannot be changed without the approval of a majority of
the Fund's outstanding voting securities, which, as used in this
Prospectus, means the lesser of (i) 67% of the shares represented at a
meeting at which more than 50% of the outstanding shares are present in
person or represented by proxy or (ii) more than 50% of the outstanding
shares. The Fund's investment policies that are not designated
fundamental policies may be changed by the Board of Directors of the Fund
without shareholder approval. The Fund is designed primarily for
long-term investment, and investors should not consider it a short-term
trading vehicle. As with all investment companies, there can be no
assurance that the Fund's investment objective will be achieved.

The Fund may invest in debt securities denominated in U.S.
dollars or other currencies. It is a non-fundamental policy of the Fund
that, under normal market conditions, no more than 35% of the Fund's total
assets will be invested in debt securities. The Fund's assets may be
invested in debt securities when the Investment Adviser believes that such
securities offer opportunities for long-term capital appreciation. The
Fund's investments in debt securities will include bonds, notes, bills or
other fixed income or floating rate debt obligations, including
participations in and assignments of portions of loans. These
securities may be unrated or be rated below instrument grade. The
Investment Adviser will make independent evaluations as to the
creditworthiness of issuers of debt securities that may differ from those
of internationally recognized credit rating agency organizations, such as
Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Ratings
Group ("S&P"). The Fund's success in attaining its investment objective
with respect to investments in debt securities will depend largely on the
Investment Adviser's evaluation of the current and future creditworthiness
of issuers, and of interest rate trends. Sustained periods of
deteriorating economic conditions or rising interest rates are more likely
to lead to a weakening in the issuer's capacity to pay interest and repay
principal than in the case of higher-rated securities.

Most of the securities purchased by the Fund are expected to be
traded on a stock exchange or in an over-the-counter market. Subject to
applicable laws and regulations, the Fund, however, may invest up to 25%
of its total assets in illiquid securities, that is, equity or debt
securities for which there is no readily available market or no market at
all. The Fund therefore may not be able to readily sell such securities.
Such securities are unlike securities that are traded in the open market,
which can be expected to be sold immediately.

The sale price of securities that are not readily marketable may
be lower or higher than the Fund's most recent estimate of their fair
value. Generally, less public information is available with respect to
the issuers of these securities than with respect to companies whose
securities are traded on an exchange. Securities not readily marketable
are more likely to be issued by start-up, small or family businesses and
therefore subject to greater economic, business and market risks than the
listed securities of more well-established companies. Adverse conditions
in the public securities markets may at certain times preclude a public
offering of an issuer's securities. There may also be contractual
restrictions on the resale of securities.

Up to 35% of the Fund's total assets may be invested in
securities of Asian-Pacific Issuers (as defined below) and U.S. Government
securities. "Asian-Pacific Issuers" are entities that, as determined by
the

18
<PAGE> 22

Investment Adviser, (i) are organized under the laws of, or with a
principal office in, (ii) regardless of where organized, derive at least
50% of their revenues or profits from goods produced or sold, investments
made, or services performed or have at least 50% of their assets located
in, (iii) have the primary trading market for their securities in, or (iv)
are governments or agencies or instrumentalities or other political
subdivisions of, Australia, Bangladesh, India, Indonesia, Malaysia, New
Zealand, Pakistan, the Philippines, Singapore, South Korea, Sri Lanka,
Thailand, Vietnam or any other country in the Asian-Pacific region
(including Cambodia, Laos and Myanmar) in which the Fund is permitted to
invest in the future. The Fund will not invest in any countries that do
not have diplomatic relations with Japan. These countries currently
include Taiwan and North Korea, and may, in the future, include other
countries that sever diplomatic relations with Japan. The Fund may also
hold other instruments described below and in "Appendix B -- General
Characteristics and Risks of Derivatives."

The Fund may invest its assets in a broad spectrum of industries.
In selecting industries and companies for investment, Fidelity may
consider overall growth prospects, financial condition, earnings,
valuations, competitive position, technology, research and development,
productivity, labor costs, raw material costs and sources, profit margins,
return on investment, structural changes in local economies, capital
resources, the degree of government regulation or deregulation, management
and other factors.

The Investment Adviser normally will invest the Fund's assets
according to its investment strategy. For temporary defensive purposes,
the Fund may vary from its investment policies by investing without
limitation in Temporary Investments (as defined below) and investment
grade debt instruments, including unrated securities of equivalent credit
quality as determined by the Investment Adviser, short-term indebtedness
or cash equivalents denominated in U.S. dollars or, if it becomes
permissible for the Fund to so invest, denominated in renminbi or H.K.
dollars. The Fund may also at any time, with respect to up to 35% of its
total assets, hold bank deposits or invest funds in U.S.
dollar-denominated money market instruments as reserves for dividends and
other distributions to shareholders.

TEMPORARY INVESTMENTS

The Fund may hold and/or invest its assets without limitation in
cash and/or Temporary Investments pending initial investment in accordance
with the Fund's investment objective and policies and for temporary
defensive purposes. To the extent that the Fund invests in Temporary
Investments, it may not achieve its investment objective. In addition,
for cash management purposes, the Fund may invest its assets in cash
and/or rated or unrated short-term debt securities of any quality.

Temporary Investments include high grade debt securities (rated A
or above by S&P or A or above by Moody's or with an equivalent rating by
other nationally recognized securities rating organizations) or unrated
securities judged by the Investment Adviser to be of equivalent quality,
denominated in U.S. dollars or in another freely convertible currency
including: (1) short-term (less than 12 months to maturity) and
medium-term (not more than five years to maturity) obligations issued or
guaranteed by (a) the U.S. government, its agencies or instrumentalities
or (b) international organizations designated or supported by multiple
foreign governmental entities to promote economic reconstruction or
development ("supranational entities"); (2) U.S. finance company
obligations, corporate commercial paper and other short-term commercial
obligations; (3) obligations (including certificates of deposit, time
deposits, demand deposits and bankers' acceptances) of banks; and (4)
repurchase agreements with respect to securities in which the Fund may
invest.

Repurchase agreements are contracts pursuant to which the seller
of a security agrees at the time of sale to repurchase the security at an
agreed upon price and date. When the Fund enters into a repurchase
agreement, the seller will be required to maintain the value of the
securities subject to the repurchase agreement, at not less than their
repurchase price. Repurchase agreements may involve risks in the event of
insolvency or other default by the seller, including possible delays or
restrictions upon the Fund's ability to dispose of the underlying
securities. While it does not appear possible to eliminate all risks from
these

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<PAGE> 23

transactions, it will be the Fund's policy to limit repurchase agreement
transactions to those parties whose creditworthiness has been reviewed and
found satisfactory by the Investment Adviser.

OTHER INVESTMENTS

Illiquid Securities. The Fund may invest up to 25% of its total
assets, valued at the time of purchase, in illiquid securities, that is,
securities for which there is no readily available market, or no market at
all. The Fund may be unable to dispose of its holdings in illiquid
securities at market prices and may have to dispose of such securities
over extended periods of time. See "Risk Factors and Special
Considerations -- Market Characteristics" and "-- Thinly Traded Markets
and Illiquid Investments." In many cases, illiquid securities will be
subject to contractual or legal restrictions on transfer. In addition,
issuers whose securities are not publicly traded may not be subject to the
disclosure and other investor protection requirements that may be
applicable if their securities were publicly traded.

Although not all the securities held by the Fund will be
illiquid, the Fund anticipates that all or most of its portfolio
securities generally will be less liquid than those traded in U.S.
securities markets.

Depositary Receipts. The Fund may invest in securities of China
Issuers through sponsored or unsponsored American Depositary Receipts
("ADRs"), Global Depositary Receipts ("GDRs"), and other types of
Depositary Receipts (which, together with ADRs and GDRs, are hereinafter
referred to as "Depositary Receipts"). 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 of 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. 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. GDRs 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. For purposes of the Fund's investment
policies, the Fund's investments in ADRs, GDRs and other types of
Depositary Receipts will be deemed to be investments in the underlying
securities.

Shares of Other Investment Funds. The Fund may invest in
investment funds which invest principally in securities in which the Fund
is authorized to invest. The Fund does not intend to invest in such
investment funds unless, in the judgment of the Investment Adviser, the
potential benefits of such investment justify the payment of any
applicable premium, sales load and expenses. From time to time, such
investment funds may be the sole means by which the Fund may invest in
securities of certain China Issuers or Asian- Pacific Issuers. See "Risk
Factors and Special Considerations -- Investment and Repatriation
Restriction" and "-- Foreign Exchange Controls." Under the 1940 Act, the
Fund may invest a maximum of 10% of its total assets in the securities of
other investment companies. In addition, under the 1940 Act, not more
than 5% of the Fund's total assets may be invested in the securities of
any one investment company provided that the investment does not represent
more than 3% of the voting stock of the related acquired investment
company. To the extent the Fund invests in other investment funds, the
Fund's shareholders will indirectly incur certain duplicative fees and
expenses, including investment advisory fees and sales loads paid for
transactions in shares of such funds. For a discussion of possible
consequences under U.S. federal income tax laws of the Fund's investment
in foreign investment funds, see "Taxation -- U.S. Federal Income Taxes."

Rule 144A Securities. The Fund may purchase certain restricted
securities ("Rule 144A securities") for which there is a secondary market
of qualified institutional buyers, as contemplated by Rule 144A under the
Securities Act of 1933, as amended (the "Securities Act"). Rule 144A
provides an exemption from the registration requirements of the Securities
Act for the resale of certain restricted securities to qualified

20
<PAGE> 24

institutional buyers. One effect of Rule 144A is that certain Rule 144A
securities may be liquid, though there is no assurance that a liquid
market for any particular Rule 144A security will develop or be
maintained. In promulgating Rule 144A, the Commission stated that the
ultimate responsibility for liquidity determinations is that of an
investment company's board of directors. However, the Commission stated
that the board may delegate the day-to-day function for determining
liquidity to a fund's investment adviser, provided that the board retains
sufficient oversight. The Board of Directors of the Fund has adopted
policies and procedures for the purpose of determining whether securities
that are eligible for resale under Rule 144A are liquid or illiquid
securities. Pursuant to those policies and procedures, the Board of
Directors delegated to the Investment Manager or the Investment Adviser
the determination as to whether a particular security is liquid or
illiquid. For the purpose of determining whether the Fund can invest in
additional illiquid securities, if any Rule 144A security previously
determined to be liquid is later determined to be illiquid, such security
will be considered illiquid.

Convertible Securities. The Fund may invest in convertible
securities including securities that are unrated or rated below investment
grade. See "Risk Factors and Special Considerations -- Debt Securities --
High Yield, High Risk Securities."

Some convertible securities might be subject to redemption at the
option of the issuer at a price established in the convertible security's
governing instrument. If a convertible security held by the Fund is
called for redemption, the Fund may be required to permit the issuer to
redeem the security, convert it into the underlying common or preferred
stock or sell it to a third party.

Warrants. The Fund may invest in warrants, which are securities
permitting, but not obligating, their holder to subscribe for other
securities. Warrants do not carry the right to dividends or voting rights
with respect to their underlying securities, and they do not represent any
rights in the assets of the issuer. An investment in warrants may be
considered speculative. In addition, the value of a warrant does not
necessarily change with the value of the underlying securities and a
warrant ceases to have value if it is not exercised prior to its
expiration date. [Currently, foreign investors, including the Fund, are
not permitted to invest in rights or warrants to purchase equity
securities issued in China.]

Equity-Linked Debt Securities. The Fund may invest in
equity-linked debt securities. The amount of its interest and/or
principal payments which the issuer of equity-linked debt securities is
obligated to make is linked to the performance of a specified index of
equity securities and may be significantly greater or less than payment
obligations in respect of other types of debt securities. As a result,
equity-linked debt securities are more volatile than other types of debt
securities and an investment in equity-linked debt securities may be
considered speculative.

Loans and Other Direct Debt Instruments. The Fund may invest in
loans and other direct debt instruments. Loans and other direct debt
instruments are interests in amounts owed by a corporate, governmental or
other borrower to another party. They may represent amounts owed to
lenders or lending syndicates (loans and loan participations), to
suppliers of goods or services (trade claims or other receivables), or to
other parties. Direct debt instruments involve the risk of loss in case
of default or insolvency of the borrower and may offer less legal
protection to the Fund in the event of fraud or misrepresentation. In
addition, loan participations involve a risk of insolvency of the lending
bank or other financial intermediary. Direct debt instruments may also
include standby financing commitments that obligate the Fund to supply
additional cash to the borrower on demand. Loans and other direct debt
instruments are generally illiquid and transfers are normally possible
only through individually negotiated private transactions. See "Risk
Factors and Special Considerations -- Loans and Other Direct Debt
Instruments."

Borrowings. The Fund may borrow for temporary or emergency
purposes. Borrowed funds are subject to interest costs. Although the
Fund is permitted to borrow, as indicated above, the Fund has no present
intention of engaging in leveraging by borrowing.

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<PAGE> 25

Reverse Repurchase Agreements. In a reverse repurchase
agreement, the Fund sells a portfolio instrument to another party, such as
a bank or broker-dealer, in return for cash and agrees to repurchase the
instrument at a particular price and time. While a reverse repurchase
agreement is outstanding, the Fund will maintain appropriate assets in a
segregated custodial account to cover its obligation under the agreement,
which will consist only of liquid assets, such as cash, U.S. government
securities or other liquid high grade debt securities ("liquid assets").
The Fund will enter into reverse repurchase agreements only with parties
whose creditworthiness has been found satisfactory by the Investment
Manager or the Investment Adviser. Such transactions may increase
fluctuations in the market value of the Fund's assets and may be viewed as
a form of leverage.

Real Estate-Related Instruments. The Fund may invest in real
estate-related instruments, including real estate investment trusts,
commercial and residential mortgage-backed securities, and real estate
financings. Real estate-related instruments are sensitive to factors such
as changes in real estate values and property taxes, interest rates, cash
flow of underlying real estate assets, overbuilding, and the management
skill and creditworthiness of the issuers. Real estate-related
instruments may also be affected by tax and regulatory requirements, such
as those relating to the environment.

ADDITIONAL INVESTMENT ACTIVITIES

HEDGING AND DERIVATIVES

Certain investment practices in which the Fund is authorized to
engage to hedge market risk, such as certain currency hedging techniques,
including currency options and futures, options on such futures and
forward foreign currency transactions, and certain investment techniques,
such as the lending of portfolio securities, forward commitments, standby
commitment agreements and the purchase or sale of put and call options,
may not be available or permitted in the Chinese or other Asian-Pacific
markets. The Fund may engage in these hedging or investment practices to
the extent the practices become available in the future or with respect to
instruments outside of these markets. See "Appendix B -- General
Characteristics and Risks of Derivatives" for a further discussion of
currency hedging techniques. The Fund is also authorized to manage the
effective maturity or duration of debt instruments held by the Fund, or to
seek to increase the Fund's income or gain. Although these strategies are
regularly used by some investment companies and other institutional
investors, few of these strategies can practicably be used to a
significant extent by the Fund at the present time and may not become
available for extensive use in the future. Over time, techniques and
instruments may change as new instruments and strategies are developed or
regulatory changes occur.

Subject to the constraints described above, the Fund may purchase
and sell interest rate, currency or stock index futures contracts and
enter into currency forward contracts and currency swaps; it may purchase
and sell (or write) exchange listed and over-the-counter put and call
options on debt and equity securities, currencies, futures contracts,
fixed income and stock indices and other financial instruments and it may
enter into interest rate transactions, equity swaps and related
transactions and other similar transactions which may be developed to the
extent the Investment Manager or the Investment Adviser determines that
they are consistent with the Fund's investment objective and policies and
applicable regulatory requirements (collectively, these transactions are
referred to in this Prospectus as "Derivatives." See "Appendix B -
General Characteristics and Risk of Derivatives"). The Fund may enter
into futures contracts or options thereon for purposes other than bona
fide hedging if, immediately thereafter, the sum of the amount of its
initial margin and premiums on open contracts and options would not exceed
5% of the liquidation value of the Fund's portfolio; provided, that in the
case of an option that is in-the-money at the time of the purchase, the
in-the-money amount may be excluded in calculating the 5% limitation. The
Fund's interest rate transactions may take the form of swaps, caps, floors
and collars, currency forward contracts, currency futures contracts,
currency swaps and options on currency or currency futures contracts.

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<PAGE> 26

Derivatives may be used to attempt to protect against possible
changes in the market value of securities held in or to be purchased for
the Fund's portfolio resulting from securities market or currency exchange
rate fluctuations, to protect the Fund's unrealized gains in the value of
its portfolio securities, to facilitate the sale of those securities for
investment purposes, to manage the effective maturity or duration of the
Fund's portfolio, or to establish a position in the derivatives markets as
a substitute for purchasing or selling particular debt or equity
securities. The ability of the Fund to utilize Derivatives successfully
will depend on the Investment Adviser's ability to predict pertinent
market movements, which cannot be assured. These skills are different
from those needed to select portfolio securities. The use of Derivatives
in certain circumstances will require that the Fund segregate cash, liquid
high grade debt obligations or other assets to the extent the Fund's
obligations are not otherwise "covered" through ownership of the
underlying security, financial instrument or currency.

A detailed discussion of Derivatives, including applicable
requirements of the Commodity Futures Trading Commission, the requirement
to segregate assets with respect to these transactions and special risks
associated with such strategies, appears in Appendix B. See also "Risk
Factors and Special Considerations -- Investment Practices."

The degree of the Fund's use of Derivatives may be limited by
certain provisions of the Code. See "Taxation."

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES

The Fund may purchase securities on a when-issued or delayed
delivery basis. Securities purchased on a when-issued or delayed delivery
basis are purchased for delivery beyond the normal settlement date at a
stated price. No income accrues to the purchaser of a security on a
when-issued or delayed delivery basis prior to delivery. Such securities
are recorded as an asset and are subject to changes in value based upon
changes in market prices. Purchasing a security on a when-issued or
delayed delivery basis can involve a risk that the market price at the
time of delivery may be lower than the agreed-upon purchase price, in
which case there could be an unrealized loss at the time of delivery. The
Fund generally will establish a segregated account in which it will
maintain liquid assets in an amount at least equal in value to the Fund's
commitments to purchase securities on a when-issued or delayed delivery
basis. If the value of these assets declines, the Fund will place
additional liquid assets in the account on a daily basis so that the value
of the assets in the account is equal to the amount of such commitments.
As an alternative, the Fund may elect to treat when-issued or delayed
delivery securities as senior securities representing indebtedness, which
are subject to asset coverage requirements under the 1940 Act.

PURCHASE OF SECURITIES ON MARGIN

The Fund does not currently intend to purchase securities on
margin, except that the Fund may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that margin
payments in connection with futures contracts and options on futures
contracts will not constitute purchasing securities on margin.

INVESTMENT RESTRICTIONS

The Fund's only fundamental policies, that is, policies that
cannot be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities, are (i) its investment objective,
(ii) its policy that under normal market conditions, at least 65% of the
Fund's total assets will be invested in equity and debt securities of
China Issuers, and (iii) the following eleven restrictions. As used in
this Prospectus, a "majority of the Fund's outstanding 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 or (ii) more
than 50% of the

23
<PAGE> 27

outstanding shares. The other policies and investment restrictions
referred to in this Prospectus are not fundamental policies of the Fund
and may be changed by the Fund's Board of Directors without shareholder
approval. Unless otherwise noted, whenever an investment policy or
limitation states a maximum percentage of the Fund's assets that may be
invested in any security or other asset, or sets forth a policy regarding
quality standards, such standard or percentage limitation will be
determined immediately after and as a result of the Fund's acquisition of
such security or other asset. Accordingly, any subsequent change in
values, assets, or other circumstances will not be considered when
determining whether the investment complies with the Fund's investment
policies and limitations. Under its fundamental policies, the Fund will
not:

(1) purchase the securities of any issuer (other
than securities issued or guaranteed by the U.S. government or
any of its agencies or instrumentalities), if, as a result, more
than 25% of the Fund's total assets would be invested in
companies whose principal business activities are in the same
industry;

(2) issue senior securities, except as permitted
under the 1940 Act;

(3) borrow money, except that the Fund may borrow
money for temporary or emergency purposes in an amount not
exceeding 10% of its total assets (including the amount
borrowed); any borrowings that come to exceed this amount will be
reduced promptly in accordance with reasonable investment
practice to the extent necessary to comply with the 10%
limitation;

(4) underwrite securities issued by others, except
to the extent that the Fund may be considered an underwriter
within the meaning of the Securities Act in the disposition of
restricted securities;

(5) purchase or sell real estate unless acquired as
a result of ownership of securities or other instruments (but
this will not prevent the Fund from investing in securities or
other instruments backed by real estate or securities of
companies engaged in the real estate business);

(6) purchase or sell physical commodities unless
acquired as a result of ownership of securities or other
instruments (but this will not prevent the Fund from purchasing
or selling options and futures contracts or from investing in
securities or other instruments backed by or indexed to, or
representing interests in, physical commodities or investing or
trading in derivative investments);

(7) make any loan if, as a result, more than 33 1/3%
of its total assets would be lent to other parties, but this
limitation does not apply to purchases of debt securities or to
repurchase agreements;

(8) acquire more than 25% of the outstanding voting
stock of any company;

(9) purchase securities on margin, except as
described under "Additional Investment Activities -- Purchase of
Securities on Margin";

(10) engage in short sales of securities; or

(11) invest more than 25% of its total assets in any
particular company or issuer, except securities issued or
guaranteed by the U.S Government or any of its agencies or
instrumentalities.

As a matter of non-fundamental policy, the Fund will not purchase
any portfolio securities while borrowings representing more than 5% of its
total assets are outstanding. To meet federal tax requirements for
qualification as a "regulated investment company," the Fund intends to
limit its investments so that at the close of each quarter of its taxable
year, with regard to at least 50% of total assets, no more than 5% of
total

24
<PAGE> 28

assets are invested in the securities of a single issuer and the Fund will
not hold more than 10% of the outstanding voting securities of that
issuer. The foregoing limitation does not apply to "Government
securities" as defined for federal tax purposes.

AFFILIATED FINANCIAL INSTITUTION TRANSACTIONS

As a matter of operating policy, the Fund will not purchase or
borrow securities from or sell or lend securities to any affiliate of the
Fund or to the Sub-Administrator, except as permitted under the 1940 Act.
The Fund may engage in transactions with financial institutions that are,
or may be considered to be, "affiliated persons" of the Fund under the
1940 Act. These transactions may include, for example, repurchase
agreements with custodian banks; purchase of short-term obligations of,
and repurchase agreements with, the 50 largest U.S. banks (measured by
deposits); municipal securities; U.S. government securities with
affiliated financial institutions that are primary dealers in these
securities; short-term currency transactions; and short-term borrowings.
In accordance with exemptive orders issued by the SEC, the Board of
Directors will establish and periodically review procedures applicable to
transactions involving affiliated financial institutions.

FUND'S RIGHTS AS A SHAREHOLDER

The Fund does not intend to invest for the purpose of exercising
control or management of any company or to direct or administer the
day-to-day operations of any company. The Fund, however, may exercise its
rights as a shareholder and may communicate its views on important matters
of policy to management, the Board of Directors, and shareholders of a
company when the Investment Manager or the Investment Adviser determines
that such matters could have a significant effect on the value of the
Fund's investment in the company. The activities that the Fund may engage
in, either individually or in conjunction with others, may include, among
others, supporting or opposing proposed changes in a company's corporate
structure or business activities; seeking changes in a company's directors
or management; seeking changes in a company's direction or policies;
seeking the sale or reorganization of the company or a portion of its
assets; or supporting or opposing third party takeover efforts. This area
of corporate activity is increasingly prone to litigation and it is
possible that the Fund could be involved in lawsuits related to such
activities. The Investment Manager and the Investment Adviser will
monitor such activities with a view to mitigating, to the extent possible,
the risk of litigation against the Fund, and the risk of actual liability
if the Fund is involved in litigation. No guarantee can be made, however,
that litigation against the Fund will not be undertaken or liabilities
incurred.

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<PAGE> 29

RISK FACTORS AND SPECIAL CONSIDERATIONS

Investors should recognize that investing in securities of China
Issuers involves certain risks and special considerations including those
set forth below, which are not typically associated with investing in U.S.
Securities. These include: (a) the risk of nationalization or
expropriation of assets or confiscatory taxation, (b) greater social,
economic and political uncertainty (including the risk of war), (c)
dependency on exports and the corresponding importance of international
trade, which could be negatively affected by China's potential loss of
"Most Favored Nation" status with the United States, (d) greater price
volatility, substantially less liquidity and significantly smaller market
capitalization of securities markets, particularly in China, (e) currency
exchange rate fluctuations, the lack of available currency hedging
instruments and the possible blockage of the exchange of foreign currency,
(f) higher rates of inflation, (g) controls on foreign investment and
limitations on repatriation of invested capital and on the Fund's ability
to exchange local currencies for U.S. dollars, (h) greater governmental
involvement in and control over the economy, (i) the risk that the Chinese
government may decide not to continue to support the economic reform
programs implemented since 1978 and could return to the completely
centrally planned economy that existed prior to 1978, (j) the risk that
the reunification of Hong Kong with China in 1997 will disrupt Hong Kong's
economy, (k) the fact that China Issuers, particularly those located in
China, may be smaller, less seasoned and newly-organized companies, (l)
the difference in, or lack of, auditing and financial reporting standards
which may result in unavailability of material information about China
Issuers, particularly in China, (m) the fact that statistical information
regarding the economy of China may be inaccurate or not comparable to
statistical information regarding the U.S. or other economies, (n) less
extensive regulation of the securities markets in which securities of
China Issuers are traded, (o) the fact that the settlement period of
securities transactions in foreign markets may be longer, (p) risks
regarding the maintenance of the Fund's portfolio securities and cash with
foreign subcustodians and securities depositories, and (q) the risk that
it may be impossible or more difficult to obtain and/or enforce a judgment
than in the United States. Following the establishment of the People's
Republic of China by the Communist Party in 1949, the Chinese government
renounced various debt obligations incurred by China's predecessor
governments, which obligations remain in default, and expropriated assets
without compensation. There can be no assurance that the Chinese
government will not take similar action in the future. An investment in
the Fund involves risk of a total loss.

POLITICAL, ECONOMIC AND OTHER FACTORS

The value of the Fund's assets may be adversely affected by
political, economic or social instability in China, diplomatic
developments and changes in law or regulations, particularly in China.
In addition, the economies of China and Hong Kong may differ favorably or
unfavorably from other more established economies in such respects as the
rate of growth of gross domestic product, the rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position,
among others, and economic information regarding such factors may not be
comparable to statistical information with respect to such more
established economies. In addition, certain economic data regarding China
may be unreliable and inaccurate. China has only recently permitted
private economic activities, and the government of China has exercised and
continues to exercise substantial control over many sectors of the Chinese
economy through regulation and state ownership. Accordingly, government
actions in the future, including any decision not to continue to support
the economic reform programs implemented in 1978 and to return to the
completely centrally planned economy that existed prior to 1978, could
have a significant effect on economic conditions in China, which could
affect private sector companies and the Fund, and market conditions,
prices and yields of securities in the Fund's portfolio. China is a
socialist state which since 1949 has been, and is expected to continue to
be, controlled by the Communist Party of China.

Continued economic growth and development in China, as well as
opportunities for foreign investment in and prospects of private sector
enterprises in China, will be dependent in many respects upon the
implementation of the economic reform program begun in 1978. Although
this program was recently reaffirmed in China's Eighth Five-Year Economic
Plan (for the period from 1991 to 1995), there can be no

26
<PAGE> 30

assurance that the government of China will continue to support this
program or that the program will result in growth of the Chinese economy.

Following the establishment of the People's Republic of China in
1949, the government of China renounced various debt obligations, which
have never been paid, and expropriated assets without compensation. There
can be no assurance that the government of China will not take similar
action in the future with respect to assets of companies in which the Fund
owns an interest. An investment in the Fund involves risk of a total
loss.

At present, a significant portion of the private sector activity
in China is export driven and, therefore, affected by developments in the
economies of China's principal trading partners. Revocation by the United
States of China's "Most Favored Nation" trading status, which the U.S.
Congress considers annually and most recently renewed unconditionally in
June 1994, would adversely affect the trade and economic development of
China and, indirectly, the economy of Hong Kong, as such action would
reduce the volume of trade flowing through Hong Kong.

The exchange rate of renminbi against major foreign currencies,
especially the U.S. dollar, has experienced significant volatility. For
example, on June 1, 1993, the value of the renminbi dropped by almost 25%,
following the removal of the official ceiling on the swap center rates,
and then climbed sharply to pre-June levels, following the change of the
governorship of the People's Bank of China (the "PBOC") on July 2, 1993.
As of January 1, 1994, the SAEC implemented a new managed floating rate
system designed to adjust the official exchange rate to stay in line with
the swap center rates. Consequently, the official exchange underwent a
devaluation of approximately 50% from US$1.00 = RMB5.8145 at the end of
1993 to approximately US$1.00 = RMB8.7000. Since the beginning of 1994
the official exchange rate and the swap center rates have been relatively
stable, due at least in part to measures adopted by the Chinese government
to stabilize the renminbi. However, there can be no assurances that the
renminbi exchange rate will not experience further substantial
fluctuations in the future. Recently, the official exchange rate is being
used as the benchmark rate for all foreign exchange transactions in China,
including those at swap centers.

In contrast to Western industrial countries, where the selection
of government officials through election or appointment is an open process
supported by well-developed, stable institutions, the process of selecting
the top government leadership in China is not subject to public scrutiny
and thus cannot be predicted or assessed in advance with any reasonable
degree of accuracy. Furthermore, individual political leaders in China
have had in many instances a disproportionate personal influence over the
policies of their government. Therefore, changes in the top political
leadership of China or the departure of a single political leader may have
a significant adverse impact on policy and the political and economic
environment in China.

Over the last few years, the Chinese economy has registered a
steady and high growth rate. Domestic investments have sharply increased,
partially due to the relaxed lending policies of the PBOC. However, there
have been recent indications of shortages in energy and raw materials,
strained transportation systems and significant price fluctuations in the
real estate markets. There have also been sharp price increases in
consumer products. These developments have heightened concerns that the
Chinese economy is overheated. It was recently announced that the
consumer price index in China for 1994 through July increased 22% from a
year earlier. The inflation rate was 13.2% and 5.4% for 1993 and 1992,
respectively. In response, the Chinese government has taken measures to
curb the excessive expansion of the economy. Such measures include the
replacement of the governor of the PBOC, tightening lending policies,
raising interest rates, stabilizing the renminbi and scaling back
investment in real estate projects. Such measures have yet to curb
inflation and there can be no assurances that these austerity measures,
alone, will succeed in slowing down the economy's expansion or control
inflation, nor can there be any assurances that they will not have an
adverse effect on the Chinese economy in general.

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<PAGE> 31

Hong Kong will revert to the sovereignty of China in July 1997.
Although China has committed by treaty to preserve the present economic
and social freedoms enjoyed in Hong Kong for 50 years after regaining
sovereignty over Hong Kong, the continuation of the current form of the
economic system in Hong Kong after the reversion will depend on the
actions of the government of China. China and the United Kingdom have
also yet to resolve their differences on certain issues relating to the
reversion of sovereignty, such as the nationality status of certain ethnic
minorities in Hong Kong, the construction of a new international airport
and, most recently, electoral reforms. In addition, such reversion has
increased sensitivity in Hong Kong to political developments and
statements by public figures in China. Business confidence in Hong Kong,
therefore, can be significantly affected by such developments and
statements, which in turn can affect markets and business performance.

INVESTMENT AND REPATRIATION RESTRICTIONS

Foreign investment in China is restricted or controlled to
varying degrees. These restrictions or controls may at times limit or
preclude foreign investment in certain China Issuers and increase the
costs and expenses of the Fund. China may require governmental approval
prior to investments by foreign persons, limit the amount of investment by
foreign persons or limit the amount of investment by foreign persons in a
particular company, or limit investment by foreign persons to only a
specific class of securities of a company that may have less advantageous
terms than the classes available for purchase by Chinese nationals.
Currently, China limits investments by foreign persons in securities
listed on Chinese securities exchanges to renminbi-denominated special
shares ("B" shares). In addition, China may restrict investment
opportunities in issuers or industries deemed important to national
interests. China may require governmental approval for the repatriation
of investment income, capital or the proceeds of sales of securities by
foreign investors. In addition, if there is a deterioration in China's
balance of payments or for other reasons, China may impose temporary
restrictions on foreign capital remittances abroad. Accordingly, the Fund
will treat investments with repatriation restrictions as illiquid for
purposes of any applicable limitations under the 1940 Act. As a
closed-end fund, the Fund is not currently limited in the amount of
illiquid securities it may acquire. The Fund could be adversely affected
by delays in, or a refusal to grant, any required governmental approval
for repatriation of capital, as well as by the application to the Fund of
any restrictions on investments. If for any reason the Fund were unable
to distribute an amount equal to substantially all of its investment
company taxable income (as defined for U.S. tax purposes) within
applicable time periods, the Fund would cease to qualify for the favorable
tax treatment afforded to regulated investment companies under the Code.
In addition, the ability of the Fund to obtain timely and accurate
information relating to its investments is a significant factor in
complying with the requirements applicable to regulated investment
companies and in making tax related computations. Thus, if the Fund were
unable to obtain accurate information on a timely basis, it might be
unable to qualify as a regulated investment company or its tax
computations might be subject to revision (which could result in the
imposition of taxes, interest and penalties). See "Taxation."

CORPORATE AND SECURITIES LAWS

China's legal system is a civil law system which is based on
written statutes and in which decided legal cases have little precedent
value. At present, China does not have a consolidated body of securities
laws or laws governing corporations or joint stock companies. Most of the
company and securities laws and regulations of China have only recently
been introduced and are, therefore, in their preliminary stages of
development. Laws regarding fiduciary duties of officers and directors,
and the protection of investors, are in their early stage of development,
and laws may not exist to cover all contingencies. As a result, the
administration of laws and regulations by government agencies may be
subject to considerable discretion. As legal systems in China develop,
foreign investors may be adversely affected by new laws, changes to
existing laws and preemption of local laws by national laws. In
circumstances where adequate laws exist, it may not be possible to obtain
swift and equitable enforcement of the law.

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MARKET CHARACTERISTICS

The securities markets in China are substantially smaller, less
liquid and more volatile than the major securities markets in the United
States. The two main securities markets in China, the Shanghai Securities
Exchange (the "SHSE") and the Shenzhen Stock Exchange (the "SZSE"), have
experienced significant volatility. During the period December 31, 1993
to June 30, 1994, the B share indices for the SHSE and the SZSE (market
capitalization weighted indices for all listed B share equities on the
respective exchanges) decreased approximately 35% and 26%, respectively.
The relatively small market capitalization of, and trading volume on, the
Chinese exchanges may cause the Fund's investments in securities listed on
these exchanges to be comparatively less liquid and subject to greater
price volatility than investments on securities markets in the United
States and other industrialized countries. The limited liquidity of the
securities markets in China may also affect the Fund's ability to acquire
or dispose of securities at the price and time it desires. At June 30,
1994, there were more than 200 companies listed on the Chinese exchanges
with aggregate market capitalization of approximately US$31.5 billion (RMB
272.2 billion). On that date, the market capitalization of the Ne York
Stock Exchange was in excess of approximately US$4.4 trillion. For the
year ended December 31, 1993, the average daily equity trading value of
listed companies on the Chinese exchanges was approximately $23.3 million,
resulting in an annual aggregate trading value of approximately $5.7
billion. By comparison, for the year ended December 31, 1993, the average
daily equity trading value on the New York Stock Exchange was
approximately $9.0 billion and the annual aggregate trading value was
approximately $2.3 trillion. China announced recently that no companies
would be permitted to offer and list their shares on the Chinese stock
exchanges during the remainder of 1994 due to weakness in such markets.
The relatively small market capitalization of, and trading volume on, the
Chinese exchanges may cause the Fund's investments in securities listed on
these exchanges to be comparatively less liquid and subject to greater
price volatility than comparable U.S. investments. The limited liquidity
of the securities markets in China may also affect the Fund's ability to
acquire or dispose of securities at the price and time it desires.

In comparison to the Chinese securities markets, the Hong Kong
Stock Exchange is relatively well developed and active. However, the Hong
Kong stock market is sensitive to developments in China. Recently, for
example, the Hong Kong stock market experienced periods of volatility in
reaction to political uncertainties, particularly relating to ongoing
disputes between China and Britain over the construction of a new
international airport in Hong Kong and the political reforms proposed by
Hong Kong's Governor Patten, and potential non-renewal of China's "Most
Favored Nation" status with the United States, as well as to interest rate
increases in the United States. At June 30, 1994 there were 508 companies
listed on the Hong Kong Stock Exchange with aggregate market
capitalization of approximately $290 billion (approximately HK$2.24
trillion). For the six-month period ended June 30, 1994, average daily
equity trading value on the Hong Kong Stock Exchange was approximately
$397 million (approximately HK$3.1 billion). The Investment Adviser
believes that approximately [90] companies listed on the Hong Kong Stock
Exchange currently qualify as China Issuers, with aggregate market
capitalization of approximately $[__] billion (approximately HK$[___]
billion) as of ________________________, 1994, and it is anticipated that
the Fund will invest a significant portion of its proceeds from the Offering
in the securities of such issuers.

DISCLOSURE AND REGULATORY STANDARDS.

Disclosure and regulatory standards in China and Hong Kong may,
in many respects, be less stringent than U.S. standards. In addition,
there is less extensive regulation of securities markets on which
securities of China Issuers trade than in the United States, particularly
in China. Accounting, auditing and financial standards and requirements
may not have been established in some respects in China, or, to the extent
established, differ, in some cases significantly, from those applicable to
U.S. issuers. In particular, the assets and profits appearing on the
financial statements of a China Issuers may not reflect its financial
position or results of operations in the way they would be reflected had
such financial statements been prepared in accordance with U.S. generally
accepted accounting principles. There is substantially less publicly
available information about China Issuers, particularly those located in
China, than there is about U.S. issuers. The

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<PAGE> 33

securities markets in China are in the earliest stages of development and
are undergoing a period of rapid growth and regulatory reforms, which may
lead to difficulties in settlement and recording of transactions and in
interpreting and applying the relevant regulations and which may affect
the Fund's ability to invest in these markets. Furthermore, there is a
low level of monitoring and regulation of the markets and the activities
of investors in such markets, and enforcement of existing regulations has
been extremely limited. Interest and dividends on securities held by the
Fund may be subject to withholding taxes imposed by China, Hong Kong or
other foreign governments.

COMPARABILITY OF STATISTICAL ECONOMIC DATA OF CHINA

Although statistics with respect to the economy of China
generally track well with observed economic trends, some statistics may
not correlate with Western measures, or may be flawed by ineffective
collection methods or other problems. Due to such factors, statistical
information regarding the economy of China may be inaccurate or not
comparable to statistical information with respect to the U.S. or other
economies. Particular statistical areas that may not be comparable or
accurate include data regarding unemployment, industrial output and
inflation. Furthermore, economic reforms have complicated statistical
measurements due to the rapid growth of the non-state sector of the
economy, including rural enterprises, a segment that is particularly
difficult to measure.

FOREIGN EXCHANGE CONTROL

China regulates the outward remittance by foreign investors of
their share of net profits or dividends, and final repatriation of their
investments, in foreign currency. Foreign investors may remit out of
profits or dividends derived from a source within China. Except for such
profits or dividends, remittance by foreign investors of any other amounts
(including, for instance, proceeds of sale arising from a disposal by a
foreign investor of any of his investment in China) out of China is
subject to the approval of the head office of the State Administration of
Exchange Control (the "SAEC") or its local branch office. In addition,
the ability of China Issuers to pay dividends may depend on the
availability of foreign currency. Subject to payment of relevant taxes,
foreign investors in "B" shares are not, under current regulations,
restricted from remitting out of China any dividends paid in respect of or
proceeds derived from the sale of "B" shares listed on either the Shanghai
Securities Exchange or the Shenzhen Stock Exchange. See "Taxation --
Chinese Taxes." The remittance out of China of sums due to holders of "B"
shares upon the liquidation of a company requires the approval of the
regulatory authorities.

As part of recent currency reforms, China abolished its
two-tiered currency system effective January 1, 1994 and replaced it with
a unified controlled floating exchange rate system based on market forces.
Prior to January 1, 1994, renminbi had to be converted into foreign
exchange through the Bank of China or other authorized institutions at the
official exchange rate prescribed by the SAEC on a daily basis, or at swap
centers at an exchange rate largely determined by supply and demand.

Under the new system, the official exchange rate has been removed
and the renminbi is now convertible at a rate that is fixed daily by the
People's Bank of China ("PBOC") based on the interbank foreign exchange
rate reported on the previous trading day. When the new system came into
operation on January 1, 1994, the floating rate was set at approximately
8.7 renminbi to the U.S. dollar, representing a 33 percent devaluation of
the renminbi from the previous official rate of 5.7 renminbi to the U.S.
dollar. As of March __, 1994, the floating rate was US$1 = RMB ___. As
the floating exchange rate is based on market forces, the renminbi could
be susceptible to more volatility and there is no assurance that the
renminbi will not be subject to further devaluation.

While the new system has removed the distinction between the
official rate and the swap rate for the renminbi, it is still not a freely
convertible currency. Under the new system, only persons or companies who
have obtained government approval may exchange foreign currencies for the
renminbi (or vice versa) at

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<PAGE> 34

appointed Chinese banks designated to carry out foreign exchange
transactions ("appointed Chinese banks"). Many details of this recent
currency reform are unclear at this stage, including which government body
is responsible for granting approval, the names of the appointed Chinese
banks and the requirements of persons or companies who wish to obtain
approval to exchange foreign currencies.

In furtherance of the currency reform, the National Foreign
Exchange Centre ("NFEC") was opened in Shanghai on January 1, 1994, which
is intended to gradually replace all swap centers and become an interbank
market for appointed Chinese banks to trade and settle their foreign
currencies. However, the NFEC has not fully commenced its operations and
it is unclear when the NFEC will be able to provide services to the
appointed Chinese banks to carry out foreign exchange transactions.

When the NFEC is fully operational, it is intended that the new
exchange rate will be based on the average exchange rate traded at the
NFEC on the previous trading day. Until such time, the swap system will
continue to operate and any person or company who wishes to buy or sell
foreign exchange at a swap center must first obtain the approval of the
SAEC or its local office where the swap center is located.

FOREIGN CURRENCY AND HEDGING CONSIDERATIONS

The Fund's assets are invested principally in securities of China
Issuers and substantially all of the income received by the Fund is in
foreign currencies, including Chinese renminbi and Hong Kong dollars.
However, the Fund computes and distributes its income in U.S. dollars, and
the computation of income is made on the date that the income is earned by
the Fund at the foreign exchange rate in effect on that date. Therefore,
if the value of the relevant foreign currency falls relative to the U.S.
dollar between the earning of the income and the time at which the Fund
converts the foreign currency to U.S. dollars, the Fund will be required
to borrow money or liquidate securities in order to make distributions if
the Fund has insufficient cash in U.S. dollars to meet distribution
requirements. See "Taxation" and "Dividends and Distributions; Dividend
Reinvestment and Cash Purchase Plan." 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 for 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 invests primarily in securities denominated or
quoted in foreign currencies, changes in the exchange rates at which such
foreign currencies may be converted into U.S. dollars will affect the
dollar value of securities in the Fund's portfolio and the unrealized
appreciation or depreciation of investments. Furthermore, the Fund incurs
costs in connection with conversions between U.S. dollars and foreign
currencies. Foreign exchange dealers realize a profit based on the
difference between the prices at which they are buying and selling various
currencies. Thus, a dealer normally will offer to sell a foreign currency
to the Fund at one rate, while offering a lesser rate of exchange should
the Fund desire immediately to resell that currency to the dealer. The
Fund will conduct its foreign currency exchange transactions either at the
spot rate prevailing in the foreign currency exchange market, or through
entering into forward, futures or options contracts to purchase or sell
foreign currencies.

The Fund may seek to protect the value of some portion or all of
its portfolio holdings against currency risks by engaging in hedging
transactions. Currently, there is no market in which the Fund may engage
in many of these hedging transactions, including with respect to the
renminbi, and there can be no guarantee that instruments suitable for
hedging currency or market or interest rate shifts will be available at
the time when the Fund wishes to use them. The Fund is authorized to
enter into forward currency exchange contracts and currency futures
contracts and options on such futures contracts, as well as to purchase
put or call options on foreign currencies, in U.S. or foreign markets, to
the extent available. In order to hedge against adverse market shifts,
the Fund is permitted to purchase put and call options on stocks, write
covered call options on stocks and enter into stock index futures
contracts and related options. The Fund also is authorized to hedge
against interest rate fluctuations affecting portfolio securities by
entering into interest rate

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<PAGE> 35

futures contracts and options thereon. For a description of such hedging
strategies, see "Investment Objective and Policies -- Foreign Currency and
Other Hedging Transactions, Options and Futures Contracts" and Appendix B
to this Prospectus. The Fund will not enter into transactions in futures
contracts or related options for purposes other than bona fide hedging for
which the aggregate initial margin and premium exceed 5% of the net
liquidation value of its assets (after taking into account any unrealized
profits and losses).

DEBT SECURITIES -- HIGH YIELD, HIGH RISK SECURITIES

The Fund's investment policies do not limit the percentage of the
Fund's debt securities investments which may be invested in debt
securities that are unrated or rated below investment grade. Under
current laws and regulations in China, the Fund is prohibited from
investing in debt securities denominated in renminbi except to a very
limited extent as explained above. The market value of debt securities
generally varies in response to changes in interest rates and the
financial conditions of each issuer. During periods of declining interest
rates, the value of debt securities generally increases. Conversely,
during periods of rising interest rates, the value of such securities
generally declines. These changes in market value will be reflected in
the Fund's net asset value.

The Fund's investments in debt securities of China Issuers or of
Asian-Pacific Issuers may generally be considered to have credit quality
below investment grade as determined by internationally recognized credit
rating agency organizations. Debt securities rated below investment grade
(commonly referred to as "junk bonds" when issued in the United States)
are considered to be speculative. Investment in low rated securities
typically involves risks not associated with higher rated securities,
including, among others, overall greater risk of timely and ultimate
payment of interest and principal, potentially greater sensitivity to
general economic conditions, greater market price volatility and less
liquid secondary market trading. Certain of the Fund's investments may be
considered to have extremely poor prospects of ever attaining any real
investment standing, to have a current identifiable vulnerability to
default, to be unlikely to have the capacity to pay interest and repay
principal when due in the event of adverse business, financial or economic
conditions, or to be in default or not current in the payment of interest
or principal.

Low rated debt securities may be more susceptible to real or
perceived adverse economic and competitive industry conditions than
investment grade securities. The prices of low rated debt securities have
been found to be less sensitive to interest rate changes than higher rated
investments, but more sensitive to adverse economic downturns or
individual corporate developments. A projection of an economic downturn
or of a period of rising interest rates, for example, could cause a
decline in low rated debt securities prices because the advent of a
recession could lessen the ability of a highly leveraged company to make
principal and interest payments on its debt securities. If the issuer of
low rated debt securities defaults, the Fund may incur additional expenses
in seeking recovery. See "Appendix C -- Debt Ratings" for a description
of ratings of debt instruments.

LOANS AND OTHER DIRECT DEBT INSTRUMENTS

Purchasers of loans and other forms of direct indebtedness depend
primarily upon the creditworthiness of the borrower for payment of
principal and interest. Direct debt instruments may not be rated by any
nationally recognized rating service. If the Fund does not receive
scheduled interest or principal payments on such indebtedness, the Fund's
share price and yield could be adversely affected. Loans that are fully
secured offer the Fund more protections than an unsecured loan in the
event of non-payment of scheduled interest or principal. However, there
is no assurance that the liquidation of collateral from a secured loan
would satisfy the borrower's obligation, or that the collateral can be
liquidated. Indebtedness of borrowers whose creditworthiness is poor
involves substantially greater risks, and may be highly speculative.
Borrowers that are in bankruptcy or restructuring may never pay off their
indebtedness, or may pay only a small fraction of the amount owed. Direct
indebtedness of China Issuers will also involve a risk that the
governmental

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<PAGE> 36

entities responsible for the repayment of the debt may be unable, or
unwilling, to pay interest and repay principal when due.

Investments in loans through direct assignment of a financial
institution's interests with respect to a loan may involve additional
risks to the Fund. For example, if a loan is foreclosed, the Fund could
become part owner of any collateral, and would bear the costs and
liabilities associated with owning and disposing of the collateral. In
addition, it is conceivable that under emerging legal theories of lender
liability, the Fund could be held liable as a co-lender. Direct debt
instruments may also involve a risk of insolvency of the lending bank or
other intermediary. Direct debt instruments that are not in the form of
securities may offer less legal protection to the Fund in the event of
fraud or misrepresentation. In the absence of definitive regulatory
guidance, the Fund relies on the Investment Manager's and the Investment
Adviser's research in an attempt to avoid situations where fraud or
misrepresentation could adversely affect the Fund.

A loan is often administered by a bank or other financial
institution that acts as agent for all holders. The agent administers the
terms of the loan, as specified in the loan agreement. Unless, under the
terms of the loan or other indebtedness, the Fund has direct recourse
against the borrower, it may have to rely on the agent to apply
appropriate credit remedies against a borrower. If assets held by the
agent for the benefit of the Fund were determined to be subject to the
claims of the agent's general creditors, the Fund might incur certain
costs and delays in realizing payment on the loan or loan participation
and could suffer a loss of principal or interest.

Direct indebtedness purchased by the Fund may include letters of
credit, revolving credit facilities, or other standby financing
commitments obligating the Fund to pay additional cash on demand. These
commitments may have the effect of requiring the Fund to increase its
investment in a borrower at a time when it would not otherwise have done
so, even if the borrower's condition makes it unlikely that the amount
will ever be repaid. The Fund will set aside appropriate liquid assets in
a segregated custodial account to cover its potential obligations under
standby financing commitments.

The Fund limits the amount of total assets that it will invest in
any one issuer. For purposes of these limitations, the Fund generally
will treat the borrower as the "issuer" of indebtedness held by the Fund.
In the case of loan participations where a bank or other lending
institution serves as financial intermediary between the Fund and the
borrower, if the participation does not shift to the Fund the direct
debtor-creditor relationship with the borrower, SEC interpretations
require the Fund, in appropriate circumstances, to treat both the lending
bank or other lending institution and the borrower as "issuers" for these
purposes. Treating a financial intermediary as an issuer of indebtedness
may restrict the Fund's ability to invest in indebtedness related to a
single financial intermediary, even if the underlying borrowers represent
many different companies.

SWAPS AND SIMILAR INSTRUMENTS

Swap agreements can be individually negotiated and structured to
include exposure to a variety of different types of investments or market
factors. Depending on their structure, swap agreements may increase or
decrease the Fund's exposure to long- or short-term interest rates (in the
United States or abroad), foreign currency values, mortgage securities,
corporate borrowing rates, or other factors such as security prices or
inflation rates. Swap agreements can take many different forms and are
known by a variety of names. The Fund is not limited to any particular
form of swap agreement if the Investment Manager or the Investment Adviser
determines it is consistent with the Fund's investment objective and
policies.

In a typical cap or floor agreement, one party agrees to make
payments only under specified circumstances, usually in return for payment
of a fee by the other party. For example, the buyer of an interest rate
cap obtains the right to receive payments to the extent that a specified
interest rate exceeds an agreed-upon level, while the seller of an
interest rate floor is obligated to make payments to the extent that a
specified

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<PAGE> 37

interest rate falls below an agreed-upon level. An interest rate collar
combines elements of buying a cap and selling a floor.

Swap agreements will tend to shift the Fund's investment exposure
from one type of investment to another. For example, if the Fund agreed
to exchange payments in U.S. dollars for payments in foreign currency, the
swap agreement would tend to decrease the Fund's exposure to U.S. interest
rates and increase its exposure to foreign currency and interest rates.
Caps and floors have an effect similar to buying or writing options.
Depending on how they are used, swap agreements may increase or decrease
the overall volatility of the Fund's investments and its share price and
yield.

The most significant factor in the performance of swap agreements
is the change in the specific interest rate, currency, or other factors
that determine the amounts of payments due to and from the Fund. If a
swap agreement calls for payments by the Fund, the Fund must be prepared
to make such payments when due. In addition, if the counterparty's
creditworthiness declined, the value of a swap agreement would be likely
to decline, potentially resulting in losses. The Fund expects to be able
to eliminate its exposure under swap agreements either by assignment or
other disposition, or by entering into an offsetting swap agreement with
the same party or a similarly creditworthy party.

The Fund will maintain appropriate liquid assets in a segregated
custodial account to cover its current obligations under swap agreements.
If the Fund enters into a swap agreement on a net basis, it will segregate
assets with a daily value at least equal to the excess, if any, of the
Fund's accrued obligations under the swap agreement over the accrued
amount the Fund is entitled to receive under the agreement. If the Fund
enters into a swap agreement on other than a net basis, it will segregate
assets with a value equal to the full amount of the Fund's accrued
obligations under the agreement.

INDEXED SECURITIES

The Fund may purchase securities whose prices are indexed to the
prices of other securities, securities indices, currencies, precious
metals or other commodities, or other financial indicators. Indexed
securities typically, but not always, are debt securities or deposits
whose value at maturity or coupon rate is determined by reference to a
specific instrument or statistic. Gold-indexed securities, for example,
typically provide for a maturity value that depends on the price of gold,
resulting in a security whose price tends to rise and fall together with
gold prices. Currency-indexed securities typically are short-term to
intermediate-term debt securities whose maturity values or interest rates
are determined by reference to the values of one or more specified foreign
currencies, and may offer higher yields than U.S. dollar-denominated
securities of equivalent issuers. Currency-indexed securities may be
positively or negatively indexed; that is, their maturity value may
increase when the specified currency value increases, resulting in a
security that performs similarly to a foreign currency-denominated
instrument, or their maturity value may decline when foreign currencies
increase, resulting in a security whose price characteristics are similar
to a put on the underlying currency. Currency-indexed securities may also
have prices that depend on the values of a number of different foreign
currencies relative to each other.

To the extent that the Fund invests in indexed securities, it
will be subject to the risks associated with changes in the particular
indices, which may include reduced or eliminated interest payments and
losses of invested principal. Certain indexed securities may have the
effect of providing a degree of investment leverage, because they may
increase or decrease in value at a rate that is a multiple of the changes
in applicable indices. As a result, the market value of such securities
will generally be more volatile than the market values of fixed-rate
securities.

The performance of indexed securities depends to a great extent
on the performance of the security, currency, or other instrument to which
they are indexed, and may also be influenced by interest rate changes in
the United States and abroad. At the same time, indexed securities are
subject to the credit risks associated

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with the issuer of the security, and their values may decline
substantially if the issuer's creditworthiness deteriorates. Recent
issuers of indexed securities have included banks, corporations, and
certain U.S. government agencies. Indexed securities may be more volatile
than the underlying instruments.

INVESTMENT PRACTICES

Certain risks and special considerations of certain of the
investment practices in which the Fund may engage are described above
under "Investment Objective and Policies" and "Additional Investment
Activities." In addition, the Fund's ability to engage in these investment
practices may be limited by certain rules and regulations in China.
Derivatives involve special risks, including possible default by the other
party to the transaction, illiquidity and, to the extent the Investment
Adviser's view as to certain market movements is incorrect, the risk that
the use of a Derivative could result in greater losses than if it had not
been used. Use of put and call options could result in losses to the
Fund, force the purchase or sale of portfolio securities at inopportune
times or for prices higher or lower than current market values, or cause
the Fund to hold a security it might otherwise sell. The use of currency
transactions could result in the Fund's incurring losses as a result of
the imposition of exchange controls, suspension of settlements, or the
inability to deliver or receive a specified currency in addition to
exchange rate fluctuations. The use of options and futures transactions
entails certain special risks. In particular, the variable degree of
correlation between price movements of futures contracts and price
movements in the related portfolio position of the Fund could create the
possibility that losses on the derivative instrument will be greater than
gains in the value of the Fund's position. In addition, futures and
options markets could be illiquid in some circumstances and certain
over-the-counter options could have no markets. The Fund might not be
able to close out certain positions without incurring substantial losses.
To the extent the Fund utilizes futures and options transactions for
hedging, such transactions should tend to minimize the risk of loss due to
a decline in the value of the hedged position and, at the same time, limit
any potential gain to the Fund that might result from an increase in value
of the position. Finally, the daily variation margin requirements for
futures contracts create a greater ongoing potential financial risk than
would purchases of options, in which case the exposure is limited to the
cost of the initial premium and transaction costs. Losses resulting from
the use of Derivatives will reduce the Fund's net asset value, and
possibly income, and the losses may be greater than if Derivatives had not
been used. Additional information regarding the risks and special
considerations associated with Derivatives appears in "Appendix B
General Characteristics and Risks of Derivatives."

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, could be subject to greater risk of loss. The Fund,
however, intends to comply with the diversification requirements imposed
by the Code for qualification as a regulated investment company, which
generally limits investments in any one issuer to 25% of the Fund's total
assets. See "Taxation U.S. Federal Income Taxes" and "Investment
Restrictions."

WITHHOLDING AND OTHER TAXES

The Fund may be subject to certain taxes, including withholding
or other taxes on income and capital gains, that are or may be imposed by
China and Hong Kong or other foreign governments, which will reduce the
return to the Fund. See "Taxation -- U.S. Income Taxes" below for a
discussion of the rules and limitations applicable to the treatment of
non-U.S. income taxes under the U.S. Federal income tax laws. Certain
shareholders, including some non-U.S. shareholders, will not be entitled
to the benefit of a deduction or credit with respect to non-U.S. income
taxes paid by the Fund. If a shareholder is eligible and elects to credit
foreign taxes, such credit is subject to limitations. Other foreign
taxes, such as transfer taxes, may be imposed on the Fund, but would not
be eligible to be passed through to shareholders as a credit or deduction.

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Also, additional U.S. Federal income taxes and charges may be incurred as
a result of any investment made in "passive foreign investment companies."
See "Taxation -- U.S. Federal Income Taxes" and "-- Other Taxation."

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. Such provisions could have the effect of depriving
shareholders of an opportunity to sell their shares of Common Stock at a
premium over prevailing market prices by discouraging a third party from
seeking to obtain control of the Fund. See "Description of Capital Stock
- -- Special Voting Provisions."

SECONDARY MARKET AND NET ASSET VALUE DISCOUNT

The Fund is a newly organized company with no prior operating
history. Prior to the Offering, there has been no public market for the
Fund's shares of Common Stock. The Fund cannot predict what effect, if
any, the relative sizes of the U.S. Offering and the Japanese Offering
will have on the secondary market trading on the Fund's Shares of Common
Stock in the United States or on the value of the Shares. There can be no
assurance that an active trading market will develop or be sustained. In
addition, shares of closed-end investment companies have in the past
frequently traded at a discount from their net asset values and initial
offering prices. 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 loss associated with
purchasing shares of a closed-end investment company is more pronounced
for investors who purchase in the initial public offering and who wish to
sell their shares of Common Stock in a relatively short period of time.

FOREIGN SUBCUSTODIANS AND SECURITIES DEPOSITORIES

Rules adopted under the 1940 Act permit the Fund to maintain its
foreign securities and cash in the custody of certain eligible non-U.S.
banks and securities depositories. Certain banks in foreign countries may
not be eligible sub-custodians for the Fund under such rules, in which
event the Fund may be precluded from purchasing securities in which it
would otherwise invest, and other banks that are eligible foreign sub-
custodians may be recently organized or otherwise lack extensive operating
experience. In addition, in certain countries, such as China, there may
be legal restrictions or limitations on the ability of the Fund to recover
assets held in custody by foreign sub-custodians in the event of the
bankruptcy of the sub- custodian. The Fund also may experience settlement
delays or other material difficulties. See "Risk Factors and Special
Considerations -- Settlement Procedures and Delays."

TRANSFER RESTRICTIONS

Investors who purchase Shares at a reduced price will be
restricted from transferring such shares for a period of 90 days after the
closing of the Offering. There is no restriction on Shares that may be
purchased subject to the transfer restriction described above, except that
the Underwriters have undertaken to comply, with respect to non-restricted
shares, with the distribution requirements of the NYSE. See
"Underwriting." To the extent these investors sell their Shares once the
transfer restriction is no longer applicable, the market price of the
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.

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

36
<PAGE> 40

and communication costs) are higher. See "Summary of Expenses."
Brokerage commissions and transaction costs for transactions both on and
off securities exchanges in China [and Hong Kong] are generally higher
than in the United States. Ongoing compliance with listing and regulatory
requirements in the United States and Japan will also increase the
operating expenses of the Fund. Similarly, the organizational expenses of
the Fund may be higher than those of a fund listed on one exchange. It is
expected, however, that the Fund's investment advisory fee, as well as its
overall expense ratio, will be comparable to those of many close-end
management investment companies of comparable size (i) that invest
primarily in securities of China Issuers or other emerging market issuers
and (ii) whose securities are listed in both the United States and Japan.

37
<PAGE> 41

SECURITIES MARKETS IN CHINA AND HONG KONG

The information set forth in this Appendix has been extracted
from various government and private publications and sources. 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.

SECURITIES MARKETS OF THE PEOPLE'S REPUBLIC
OF CHINA

HISTORICAL DEVELOPMENTS

HISTORY

The first securities exchange in China was organized in the 1890s
in Shanghai. The first officially recognized exchange was established in
1914 in Shanghai and focused principally on the trading of government
bonds. Additional exchanges were opened in Beijing in 1918 and in Tianjin
in 1921. By the period following World War II, Shanghai had become one of
the major financial centers in Asia. However, when the Chinese Communist
Party assumed power in 1949, China's securities markets were closed and
all securities were abolished. The Beijing and Tianjin securities
exchanges reopened in 1950 and 1949, respectively, but were closed again
in 1952. Securities markets were then nonexistent in China until the
early 1980s.

Informal securities markets reemerged in various cities in China
following the initiation of China's "open door" economic reform program in
1978. Since then, trading of securities in China has been conducted in
the over-the-counter ("OTC") markets in a number of major cities in China.

On November 26, 1990, the Shanghai Stock Exchange ("SHSE") was
established in Shanghai and trading commenced officially on December 19,
1990. The Shenzhen Stock Exchange ("SZSE") was established informally in
Shenzhen, Guangdong Province in December 1990 and trading commenced
officially on July 3, 1991. To date, the SHSE and the SZSE are the only
two officially recognized exchanges in China. The SHSE and the SZSE limit
trading to securities that are listed on the two exchanges, while unlisted
securities continue to be traded in the OTC markets. To date,
cross-listing and cross-trading of securities listed on the two exchanges
have not been permitted. In addition, off-exchange trading of listed
securities is not permitted.

EQUITY MARKETS

Initially, shares listed on both the SHSE and the SZSE were made
available only to Chinese investors and were traded only in Chinese
renminbi ("renminbi" or "RMB"), China's official currency. Such shares
are commonly referred to as A shares. In 1991, to attract foreign
investment and gain access to new sources of capital as part of China's
economic growth initiatives carried out under the "open door" policy,
China's central government permitted Shanghai and Shenzhen to adopt
regulations providing for the creation of B shares, a special category of
renminbi-denominated shares. B shares are available exclusively for
investment in foreign currency by foreign investors. See
"Regulation--Securities Regulation--B Share Measures."

The first issues of B shares were listed and traded on the SHSE
on February 21, 1992, and on the SZSE on February 28, 1992. As of June
30, 1994, there were 192 companies, comprising 164 A share issues and 28 B
share issues, listed on the SHSE and 127 companies, comprising 105 A share
issues and 22 B share issues, listed on the SZSE. China's equity markets
are still relatively illiquid and at times have shown extreme volatility.
Stock exchange regulators have in the past imposed price movement
restrictions on listed securities to curb volatility. However, currently
there are no such restrictions.

38
<PAGE> 42

The table below sets forth the number of listed companies and the
market capitalization as of the dates, and value of trading in equity
securities in U.S. dollars on the SHSE and SZSE for the periods,
indicated, together with similar information for comparison to The Stock
Exchange of Hong Kong Limited (the "Hong Kong Stock Exchange" or "HKSE")
and the New York Stock Exchange (the "NYSE"):

<TABLE>
<CAPTION>
Number of
Listed
Companies Market Capitalization
--------- ---------------------

December 31, December 31,
------------ June 30, ------------
1991 1992 1993 1994 1991 1992 1993
---- ---- ---- ---- ---- ---- ----
(In millions of US$)
<S> <C> <C> <C> <C> <C> <C> <C>
Securities Exchange
Shanghai Stock
Exchange(1) . . . 8 29 106 192 512(2) 9,708(2) 38,519(2)
Shenzhen Stock
Exchange(1) . . . 7 29 76 127 1,404(2) 8,605(2) 14,753(2)
Hong Kong Stock
Exchange . . . . . 357 413 477 508 122,033(4) 170,793(4) 381,459(4)
New York Stock
Exchange . . . . . 1,385(5) 1,989(5) 2,361(5) 2,471(5) 3,484,341 3,797,637 4,545,000
</TABLE>

Trading Value of
Equity Securities
-----------------
Six
Months
Year Ended Ended
December 31, June 30,
June 30, ------------
1994 1991 1992 1993 1994
---- ---- ---- ---- ----
(In millions of US$)
<S> <C> <C> <C> <C> <C>
Securities Exchange
Shanghai Stock
Exchange(1) . . . 22,031(2) 140(3) 4,294(3) 41,761(3) 18,822(3)
Shenzhen Stock
Exchange(1) . . . 9,413(2) 619(3) 7,633(3) 15,263(3) 7,857(3)
Hong Kong Stock
Exchange . . . . . 287,250(4) 42,938(4) 90,502(4) 156,733(4) 89,125(4)
New York Stock
Exchange . . . . . 4,375,800 1,520,200(6) 1,745,500(6) 2,300,000(6) 1,270,408(6)

</TABLE>

- -------------------------------
(1) Includes A shares and B shares.
(2) Converted to U.S. dollars at the swap center exchange rates in
effect on the respective dates shown through December 31, 1993 and
at the official exchange rate quoted by the PBOC for June 30, 1994.
(3) Converted to U.S. dollars at the average swap center exchange rates
for the respective periods shown through December 31, 1993 and at
the average official exchange rate for the six months ended June
30, 1994.
(4) Converted at the rate of US$1.00 = HK$7.80.
(5) Domestic companies.
(6) Includes domestic and foreign companies and investment funds.
Sources: NYSE, HKSE, SHSE and SZSE.

Under current Chinese law, B shares are the only publicly traded
securities in China available for purchase by foreign investors, including
the Fund. In addition, foreign investors may make direct investments in
Chinese companies through joint ventures or in other privately negotiated
transactions or make investments in H shares or N shares (described below)
or indirectly in offshore holding companies with substantial subsidiary
companies in China. Foreign investors, including the Fund, currently are
not permitted to acquire A shares, and Chinese law makes no provisions for
the acquisition by foreign investors of securities in the OTC markets.

The listing of new issues remains subject to tight central
government control, in addition to the objective criteria established in
or pursuant to the Chinese laws and regulations described below. For
example, the Chinese government has from time to time imposed quotas,
suspensions and allocation systems to regulate the pace of share
offerings. Most recently, at the end of July 1994, government regulators
suspended all new domestic offerings until at least the end of 1994. This
action appears to have been taken in response to volatility and declines
in prices on both the SHSE and the SZSE, as well as to uncertainty and
delays in the implementation of regulation of listed companies. It has
been reported, for example, that large numbers of domestically listed
companies have failed to comply on a timely basis with periodic reporting
requirements.

On the other hand, China has taken steps to increase liquidity in
the market for existing issues. For example, certain SHSE-listed B share
issues have been made available in the U.S. market in the form of American
Depository Receipts ("ADRs"). Another proposal would provide for the
establishment of Sino-foreign investment companies to give foreign
investors access to the A share market. However, it has been reported
that the A share and B share markets will not be allowed to fully merge
until some time after the renminbi becomes freely convertible, which is
not expected to occur for several years.

39
<PAGE> 43

OVERVIEW AND RECENT REGULATORY DEVELOPMENTS

China is currently in the midst of a broad reform of the
regulation of its domestic securities markets. The securities markets
first came under national regulation in May 1992 when the State Economic
Restructuring Commission under the State Council (the "State Restructuring
Commission") published the Standard Opinion for Joint Stock Limited
Liability Companies (the "Standard Opinion") and the Standard Opinion for
Limited Liability Companies. The Standard Opinion, which became effective
as of May 15, 1992, contains provisions that govern both the securities
law and corporate law aspects of securities offerings. In conjunction
with these measures, the Ministry of Finance and the State Restructuring
Commission, together with other relevant governmental agencies, have
promulgated ancillary regulations on accounting, tax, land use rights,
state-owned assets, and labor relations.

To meet the growing demand for a centralized administration of
securities regulations from the rapidly developing securities markets, in
October 1992 the State Council established the China Securities
Commissions (the "Securities Commission" and the China Securities
Regulatory Commission (the "Regulatory Commission"), which have since
assumed responsibility at the national level for the overnight and
administration of the Chinese securities markets from the People's Bank of
China (the "PBOC")) and local regulators in Shanghai and Shenzhen. On April
22, 1993, the State Council published the Provisional Share Rules on the
Administration of the Offering and Trading of Shares (the "Provisional
Share Rules") that regulate the offering and trading of equity securities
in China. The Provisional Share Rules are China's first regulatory
measures at the national level to regulate the operation of the securities
markets following the establishment of the Securities Commission and the
Regulatory Commission. On July 7, 1993, the Securities Commission adopted
Provisional Rules for the Administration of Securities Exchanges (the
"Provisional Stock Exchange Rules"). On August 2, 1993, the State Council
promulgated the Rules for the Administration of Enterprise Bonds (the
"Bond Rules"). However, these rules and regulations leave a number of
matters for future regulation. The Securities Commission and the
Regulatory Commission are still in the process of soliciting comments on a
proposed national securities law, regulations governing B shares and
regulations governing the operation of securities firms, all of which are
being drafted and reviewed by various working committees of the National
People's Congress and the State Council.

The Company Law of the People's Republic of China (the "Company
Law"), adopted by the National People's Congress in December 1993, took
effect as of July 1, 1994. Also on July 1, 1994, the Regulations of the
People's Republic of China for Administering Company Registration (the
"Registration Regulations") were adopted to provide procedural guidance
for the registration of joint stock and limited liability companies
pursuant to the Company Law.

In late 1992, China took steps to expand foreign investment in
securities of large-scale Chinese companies by authorizing on a selected
basis domestic enterprises to list H shares directly on exchanges outside
China. In November 1992, the State Council selected nine state
enterprises with substantial assets to be reorganized as joint stock
limited liability companies and seek listing on the HKSE and other
overseas securities exchanges. All nine companies have completed
offerings and listings on the HKSE, while one of them has also completed
an offering and listing on the NYSE. In January 1994, the Regulatory
Commission authorized an additional 22 enterprises to seek international
listings pending final approval by the State Council. Among the 22
enterprises, 17 were selected to list H shares on the HKSE, of which two
have completed their offerings and listings, and five were selected to
list N shares represented by ADRs on the NYSE, of which one has completed
its offering and listing.

To facilitate the H share issues and the internationalization of
China's securities markets, China's securities regulators have accelerated
their cooperation with their counterparts in Hong Kong. On May 24, 1993,
an Addendum to the Standard Opinion for Joint Stock Limited Liability
Companies Applicable to Companies to be Listed in Hong Kong (the
"Addendum") was promulgated by the State Restructuring Commission to
modify the application of certain provisions of the Standard Opinion to
permit the direct

40
<PAGE> 44

offering and listing of H shares on the HKSE. On June 10, 1993, the State
Restructuring Commission issued a letter to the HKSE to explain and
clarify certain issues arising from the Standard Opinion and the Addendum.
On June 19, 1993, the Regulatory Commission, the SHSE, the SZSE, the Hong
Kong Securities and Futures Commission (the "SFC") and the HKSE jointly
signed a memorandum of Regulatory Cooperation (the "Cooperation
Memorandum") relating to future regulatory cooperation among the five
agencies in developing China's securities markets. The parties to the
Cooperation Memorandum established a special mechanism through which these
agencies can provide mutual assistance and exchange information in order
to provide greater investor protection and maintain fair, orderly and
efficient securities markets in China and Hong Kong. See
"Regulation--Overseas Offerings and Joint Regulatory Efforts."

On August 18, 1994, the State Council issued regulations
governing offerings by Chinese joint stock companies (the "Overseas
Regulations"). See "Regulation--Overseas Offerings and Joint Regulatory
Efforts."

REGULATIONS

REGULATORY OVERSIGHT

Commencing in the late 1980's and until late 1992, regulatory
oversight of China's securities markets was primarily the responsibility
of the PBOC, at the national level, together with the municipal
governments of Shanghai and Shenzhen, respectively. With the
establishment of the Securities Commission and the Regulatory Commission,
China's securities markets formally came under a centralized
administration at the national level.

In a circular published on December 17, 1992 ("Document No. 68"),
the State Council announced that the Securities Commission's main tasks
include initiating legislation, formulating public policies and
establishing plans with respect to the development of China's securities
market, and coordinating and overseeing works of securities regulators at
all levels. The Securities Commission reports directly to the State
Council. The Regulatory Commission's main tasks include promulgating
securities rules and regulations, investigating securities law violations,
and the day-to-day administration of the securities markets and securities
regulations. The Regulatory Commission is subject to the supervision of
the Securities Commission.

Document No. 68 also sets out the responsibilities of other State
Council departments and local People's Governments, including: (i) the
State Planning Commission (drawing up a securities plan and maintaining
overall balance), (ii) the PBOC (examining and authorizing securities
firms), (iii) the Ministry of Finance (registration of accountants and
accounting firms), and (iv) the State Restructuring Commission (drafting
laws and regulations for share system experiments and coordinating share
system experiments).

SECURITIES REGULATION

China has not yet promulgated a national securities law. The
securities markets have been regulated primarily through various
provisional rules, standard opinions and administrative measures issued by
the State Council, State Council agencies and municipal governments.
Securities regulations were promulgated first at the local level. On
November 27, 1990, the PBOC and the Shanghai Municipal People's Government
promulgated the Measures for Administration of the Trading of Securities
of Shanghai Municipality (the "SHSE Measures"). The SHSE Measures came
into effect on December 1, 1990, and govern the establishment of the SHSE
and regulate the issuance and trading of securities in Shanghai. Special
regulations were issued on November 22, 1991 by the PBOC and the Shanghai
Municipal People's Government governing the issue of B shares in Shanghai.

On May 15, 1991, the PBOC and the Shenzhen Municipal People's
Government promulgated the Provisional Measures of Shenzhen Municipality
on Share Issuing and Trading (the "SZSE Measures"). The SZSE Measures
became effective on June 15, 1991, and govern the establishment of the
SZSE and regulate

41
<PAGE> 45

the issuance and trading of shares in Shenzhen. Special Regulations were
issued on December 5, 1991 by the PBOC and the Shenzhen Municipal People's
Government to govern the issuance and trading of B shares in Shenzhen.

At the national level, the Company Law follows the Standard
Opinion in most respects in providing guidance with respect to both the
securities law and, in particular, corporate law aspects of securities
offerings. The Company Law also generally provides a legal framework for
the activities of Chinese corporations and their shareholders, including
the State. See "Regulation--Corporate Regulations."

The Provisional Share Rules, also issued at the national level,
expand on Document No. 68 in defining the powers and duties of the
Securities Commission and the Regulatory Commission and prescribe rules
designed to regulate the offering process and the trading markets. To
date, the Provisional Share Rules have been made explicitly applicable to
A shares and are, to the extent relevant, applicable to H shares and N
shares, subject to the new Overseas Regulations. The Regulatory
Commission also has suggested that the general principles of the
Provisional Share Rules will apply to B shares unless specifically
superseded by forthcoming B share regulations. The Provisional Share
Rules also are expected to supersede existing regulations to the extent
that they are inconsistent.

On June 12, 1993, the Regulatory Commission, pursuant to the
Provisional Share Rules, promulgated the Provisional Implementation
Measures on Disclosure of Information. Pursuant to these measures, the
Regulatory Commission is responsible for supervising disclosure of
information by companies which have offered shares to the public. These
measures also contain provisions dealing with prospectuses and listing
reports to be issued in connection with the public offering of shares in
China, publication of interim and final reports and announcement of
material transactions or matters by companies which have offered shares to
the public. In June 1994, the Regulatory Commission issued regulations
governing the contents and format of interim reports by listed companies.
In July 1994, the Regulatory Commission announced that it would seek
disciplinary actions against those listed companies which had failed to
timely file their annual reports.

On August 15, 1993, the Securities Commission promulgated the
Provisional Measures On the Prohibition of Deceptive Securities Dealing
Activities (the "Anti-Fraud Rules"). Pursuant to the Anti-Fraud Rules,
the Securities Commission and the Regulatory Commission are responsible
for investigating and penalizing insider trading, market manipulation and
other fraudulent and deceptive activities.

The following are significant aspects of China's securities
regulations, primarily as set forth in the Provisional Share Rules and
certain provisions of the Company Law.

Offering and Listing Criteria

Offering Criteria. In order to make a public offering of shares,
a Chinese issuer must satisfy the following requirements: (i) its business
must be in conformity with state industrial policies; (ii) the ordinary
shares offered shall be on one class with equal rights; (ii) it must be
established as a joint stock limited liability company (or have received
the necessary approvals therefor), and, if already in existence or
established through reorganization of an existing State enterprise, it
must have been profitable for the three years preceding the offering; (iv)
its net assets must not be less than 30% of its total assets and its
intangible assets must not exceed 20% of its net assets; (v) its promoters
must subscribe for at least 35% of the total amount of its share capital
(which would normally include the predecessor State enterprise of the
company); (vi) at least 25% of the total amount of shares must be issued
to individual members of the general public (except in the case of a
company whose share capital exceeds RMB400 million in which case at least
15% of its shares must have been issued to the public), of which no more
than 10% shall be issued to the issuer's employees or staff; and (vii) it
must not have engaged in any major violations of the law in the three
years preceding the offering.

42
<PAGE> 46

A company is not permitted to make a public offering of shares
more frequently than once every twelve months and it may not make any
subsequent public offering of shares unless the proceeds from the previous
public offering have been used for the purpose described in the prospectus
relating to that offering and yielded favorable results. The twelve-month
rule has been expressly waived for H share and N share offerings. Such
waiver has been incorporated into the Overseas Regulations.

Under the Company Law, a company must also have been profitable
and paying dividends for the three years preceding any subsequent proposed
offering. Shareholder approval as to such matters as the class, size and
price of the offering is required in connection with any share issue.

Listing Criteria. In order to list its shares on a Chinese
securities exchange, a company must (i) have completed a public offering
of at least RMB50 million at face value; (ii) have at least 1,000 natural
person shareholders, each of whom must be a holder of at least 1,000
shares; (iii) have been profitable for the preceding three years; and (iv)
have a favorable recommendation from a member of the relevant exchange.

Additional criteria for companies seeking to list on the SHSE or
the SZSE are set forth below. See "Stock Exchanges--The Shanghai Stock
Exchange" and "Stock Exchanges--The Shenzhen Stock Exchange,"
respectively.

Approval Process

A Chinese issuer seeking to make a public offering must prepare
an application and submit it for approval to the applicable government and
regulatory authorities, as well as the applicable stock exchanges. The
approval process may take several months to complete. After obtaining
listing approval, the issuer may commence the share offering.

As part of its application, an issuer must include, among other
things, (i) proposed articles of association; (ii) the prospectus to be
used for the offering; (iii) a feasibility study outlining the use of the
proceeds; (iv) audited financial statements for the preceding three years;
(v) legal opinions; (vi) assets valuation report and valuation
confirmation report by the state assets administration; and (vii) plan of
distribution and underwriting agreements.

Prospectus Liability

The promoters or directors of the issuer, as well as the lead
underwriter of the offering, must sign the prospectus and warrant that (i)
it does not contain any false or seriously misleading statements or
omissions of material facts and (ii) they assume joint liability in
connection with such warranty. In addition, all experts, such as the
auditor, valuators, and lawyers, must review and verify the truthfulness,
accuracy and completeness of the information contained in the documents
they prepare for the issuer in accordance with the standards of their
respective professions.

Trading

The Company Law restricts the transfer of shares in the domestic
market to transactions through a legally established securities exchange
facility.

The Provisional Share Rules include provisions governing
secondary market activities such as a short- swing profit recapture rule
that requires company insiders to surrender any profit they may have made
by selling or buying the company's shares within a six-month period. The
Provisional Share Rules prohibit transactions in securities options,
futures or indices without explicit authorization from the Securities
Commission and prohibit or restrict other transactions that may present
conflicts of interests.

43
<PAGE> 47

Promoters may not assign or transfer their shares within three
years of the establishment of a company. In addition, the Company Law
requires that directors, supervisors, and managers disclose the extent of
their holdings and restricts them from transferring shares during their
term in office.

Takeover Regulations

The Provisional Share Rules contain certain provisions that
require a person to sell shares or disclose his holdings when such
person's holdings reach a certain percentage of an issuer's outstanding
shares. For example, natural persons who are Chinese nationals may not
hold more than 0.5% of a listed company's issued and outstanding ordinary
shares. Any legal person that becomes the holder of 5% or more of a
listed company's total issued and outstanding ordinary shares must report
such holdings to the company, the applicable stock exchange and the
Regulatory Commission, and it must also issue a public announcement. A
similar report and announcement must be made in respect of any subsequent
change of 2% or more in any such holding. Any legal person that becomes
the holder to 30% or more of the total issued and outstanding ordinary
shares of a listed company (other than a promoter of such company) must
make a tender offer bid to all other shareholders for all of the remaining
shares of the company. The Provisional Share Rules do not specify the
scope of application of these tender offer provisions. Regulators also
have not yet offered any guidance on reconciling the takeover provisions
with the current restrictions on ownership of A shares, B shares, H shares
and N shares.

Continuous Reporting and Disclosure

Each listed company must file with the Regulatory Commission and
the applicable stock exchange annual reports, including audited financial
statements, and semiannual reports, including unaudited interim financial
statements. These reports are required to include information relating to
the company's production, management discussion and analysis of financial
conditions and result of operations, competition, major properties,
outstanding shares, affiliates, management and material litigation.

In addition, the occurrence of certain material events may
require a listed company to file a report with the Regulatory Commission
and the applicable stock exchange. Such material events include: (i)
major changes in business policies, (ii) entering into material contracts,
(iii) incurring of major debt obligations, (iv) acquisitions or disposal
of material assets, (v) the issuance of new laws or regulations having a
material impact on the company, (vi) major legal proceedings, (vii)
material changes in management, (viii) major change in outstanding shares
and (ix) liquidation proceedings. Unless otherwise specifically permitted
by the Regulatory Commission or the applicable securities exchange, all
documents and information required to be reported under these provisions
must also be disclosed by public announcement and made available to
shareholders. There is no requirement to distribute any such documents or
information to shareholders.

Supervision, Enforcement and Dispute Resolution

Activities subject to administrative action and penalties include
unauthorized share offerings, insider trading, trading shares other than
on an authorized exchange, trading in margin securities, trading on
customers' accounts without proper authorization and various market
manipulation activities. Persons responsible for making a false statement
of a material fact or a misleading statement of a material fact in a
prospectus are also subject to administrative penalties. The Provisional
Share Rules provide for a private right of action when a violation results
in losses to third parties. Securities-related disputes between market
participants as well as disputes between securities firms and exchanges
may be resolved through arbitration. The Provisional Share Rules do not,
however, make any provision for criminal sanctions, although violations
may be prosecuted under other applicable Chinese criminal statutes.

44
<PAGE> 48

SECURITIES REGULATIONS -- B SHARE MEASURES

China does not yet have a national law or regulation that governs
the issuance, listing and trading of B shares. The Provisional Share
Rules by their terms do not apply to B shares although they expressly
contemplate the issuance of national B share regulations. Pending the
issuance of such regulations, the regulation of B shares is therefore
still left to existing administrative measures adopted at the local level.

Regulations relating to the issue of B shares in Shanghai were
promulgated in November 1991 by the PBOC and the Shanghai Municipal
People's Government. These are the Measures of Shanghai Municipality for
the Administration of Special Renminbi-Denominated Shares, which were
supplemented by the Detailed Implementing Rules, promulgated by the PBOC
Shanghai Branch and Special Rules for the Trading and Settlement of B
Shares enacted by the SHSE in February 1992 (together, the "SHSE B Share
Measures").

The Provisional Measures of Shenzhen Municipality for the
Administration of Special Renminbi-Denominated Shares were promulgated in
December 1991 by the PBOC and the Shenzhen Municipal People's Government,
and were supplemented by the Detailed Implementing Rules which were
promulgated by the PBOC Shenzhen Branch in December 1992 and the Special
Trading and Settlement Rules for B Shares which were enacted by the SZSE
in January 1992 (together, the "SZSE B Share Measures").

The substantive provisions of the SHSE B Share Measures and the
SZSE B Share Measures are substantially similar to the Provisional Share
Rules. However, the SHSE B Shares Measures and the SZSE B Shares Measures
remain relevant to the extent that they have applied to B shares issued to
date, and to the extent that they are not preempted by the B share
regulations contemplated by the Provisional Share Rules. See also "Stock
Exchanges -- The Shanghai Stock Exchange" and "Stock Exchanges -- The Shenzhen
Stock Exchanges" below.

CORPORATE REGULATIONS

The Company Law, promulgated in December 1993 with effect from
July 1, 1994, is China's first national law governing the establishment
and operation of companies. Prior to adoption of the Company Law,
primarily the Standard Opinion and the Addendum governed Chinese companies
at the national level. Under current policy in China it appears that the
Company Law supersedes prior regulations to the extent that such
regulations are inconsistent with the Company Law.

The legal ability of shareholders to bring actions in Chinese
courts based on the Standard Opinion (as well as other regulations
described herein) is unclear and has not yet been tested. The Company Law
does provide shareholders with the right to bring actions in Chinese
courts, but such right also have not yet been tested.

The following are significant aspects of the Company Law and
Chinese corporate regulations.

Corporate Organizations

The Company Law distinguishes between a limited liability company
and a joint stock company. Under the Company Law, the term "limited
liability company" means a small capitalization, closely held corporate
organization with no more than 50 shareholders. A joint stock company
must have a minimum registered capital of RMB10 million and may have any
number of shareholders. In addition, joint stock companies generally are
subject to more stringent corporate governance requirements under the
Company Law as described in this Appendix.

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Establishment of a Joint Stock Company

The Company Law provides generally that at least five promoters
are required to set up a joint stock company and such joint stock company
may be established either through the subscription by promoters for all
the shares or through a public offering. Only a simple majority of the
promoters are required to be residents of China, thus permitting
foreigners to participate as promoters. In the case of the reorganization
of a State-owned enterprise, fewer than five promoters are permitted, but
the company must be established through subscription by the promoters for
a portion of the shares (at least 35%) and through the public offering of
the remaining shares. A company may not repurchase its own shares except
to reduce the company's capital, in which case it must cancel the shares
within 10 days after the repurchase.

The establishment of a joint stock company may not be formally
registered until after the shares subscribed or offered to the public have
been sold. Within 30 days after the closing of the offering, shareholders
representing a majority of the shares must meet to adopt various
resolutions after which the board of directors must apply within 30 days
for registration of establishment of the company. The company
registration authority must make its decision regarding the approval of
the registration within 30 days after the receipt of an application.

The Registration Regulations provide for registration procedures
pursuant to the Company Law. Joint stock companies and limited liability
companies, including overseas-funded limited liability companies, are
required to disclose to the relevant registration authorities the company
name, address, legal representative, registered capital, enterprise type,
business description, duration of business and, for limited liability
companies, the names of shareholders or, for joint stock companies, the
names of promoters. The Registration Regulations also provide for
registration procedures applicable to changes to a company's
organizational documents and termination of a company, as well as for an
annual examination by the registration authorities of the company's
financial statement. While explicitly applicable to overseas- funded
limited liability companies, the Registration Regulations may not govern
other foreign-funded Chinese enterprises, apparently including joint stock
companies with foreign shareholders.

Definition of Share Categories

The Company Law permits the issuance of bearer shares in addition
to registered shares. The Company Law also contemplates the creation of
multiple classes of shares, and, although it does not expressly provide
for different categories of shares such as those set forth in the Standard
Opinion, as described below, it does not abolish such distinctions.

The Standard Opinion defines the difference categories of shares
that a Chinese joint stock company may issue. Article 24 of the Standard
Opinion defines the categories of shares as follows:

"State shares" are shares purchased with State assets by
government departments or organs authorized to represent State
investment;

"legal person shares" are shares purchased by corporate
legal persons with legally allocated funds or shares purchased by
public institutions and social groups with legal person status
with assets authorized by the State for use in business;

"individual shares" are shares purchased by individual
members of the public or employees of the company with their own
legal assets: and

"foreign investment shares" are shares purchased in the
form of special renminbi denominated shares by investors from
foreign countries or the regions of Hong Kong, Macau and Taiwan.

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State shares, legal person shares and individual shares are now
commonly referred to as "A shares," and special renminbi-denominated
shares offered only to foreign investors and listed on the SHSE or SZSE
are commonly referred to as "B shares." In most instances, however, the
term "A shares" is used to refer to individual shares held by Chinese
natural persons that are listed and traded on the SHSE and SZSE. To date,
State shares cannot be freely traded without government approval, and
legal person shares are traded only on the OTC market.

In addition, selected Chinese companies may issue overseas an
additional category of shares, known as H shares, which are subscribed in
foreign currency and admitted for listing on the HKSE and other overseas
stock exchanges (as contemplated by the Addendum). Certain other Chinese
companies are being permitted to issue a category of shares, known as N
shares, which are subscribed in foreign currency and represented by ADRs
admitted for listing on the NYSE.

Capital Structure

A Chinese company may issue ordinary shares and preference
shares. Preference shares have priority right in the distribution of
dividends and liquidation. Dividends on preference shares are cumulative.

Under the Company Law, the minimum registered capital for a joint
stock company is RMB10 million. The value of capital contribution through
capitalization of industrial property and nonpatented technology may not
exceed 20% of the company's registered capital.

Shareholder Rights

Shareholders of the same class have equal rights. All holders of
ordinary shares have the right to attend shareholders' meetings and to
vote in person or by proxy. All shareholders have the right to inspect
the company's records, minutes of shareholders' meetings and financial
reports, as well as the right to make inquiries regarding the company's
business operations and put forward suggestions.

An annual shareholders' meeting is required to be held within six
months following the end of each fiscal year. According to the Company
Law, a special shareholders' meeting shall be held within two months if
the board of directors deems it to be necessary, or when it is requested
by either the supervisory committee or by one or more shareholders holding
in the aggregate 10% or more of the shares of the company. A special
shareholders' meeting shall also be held within two months, if the
company's accumulated and unrecovered losses account for one-third of the
amount of the actual share capital of the company or if one- third of the
directors' positions become vacant.

Ordinary resolutions proposed at a shareholders' meeting may be
adopted upon the approval of a simple majority of the voting rights
present at the meeting. Special resolutions, dealing with such matters as
merger, division or dissolution of the company or amendment of the
articles of association, require the approval of a two-thirds majority of
the voting rights present. Shareholders may be represented by proxy.

Most matters affecting a company may be resolved by a shareholder
vote. However, government approvals also may be required to effect
amendment of the articles of association with respect to such matters as
the company's business purpose.

Under the Company law, a shareholder of a company may bring an
action in a people's court in China to seek injunction against such
company when such company, acting in accordance with the resolutions of
its shareholders or its board of directors that are adopted in violation
of laws and regulations, takes actions that infringe upon the lawful
interests of such shareholders.

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Dividends

Dividends can only be paid out of profits available for
distribution at the discretion of the board of directors, with the
approval of the shareholders. Before a company distributes profits to
shareholders, it must: (1) satisfy all tax liabilities; (2) provide for
losses in previous years; and (3) make allocations to its official surplus
accumulation fund and public welfare fund and other designated funds as
provided in detail in the Standard Opinion.

In addition, before paying a dividend on B shares, H shares or N
shares, a company must file a notification with and obtain a clearance
from the applicable branch of the State Administration of Exchange Control
(the "SAEC"). Dividends on B shares and other distributions thereon or
proceeds from the sale thereof may be remitted by shareholders out of
China after payment of tax, if any, in accordance with law.

Liquidation

In the event of the liquidation of a company, any surplus assets
remaining after payment of all liquidation expenses, wages owed to
employees, labor insurance premiums, taxes and debts will be distributed
among the shareholders in proportion to their shareholdings.

Directors

Board meetings must be convened at least twice a year. The
Standard Opinion provides that, except in cases of major corporate events,
such as merger, acquisition, or issuance of new shares or bonds, where the
approval of two-thirds of the directors voting is required, a simple
majority of the board of directors is sufficient for board resolutions.
However, the Company Law requires only a simple majority in all cases. In
the event of a tie, the board chairman has two votes. The Company Law
provides that directors must attend meetings in person, but may be
represented by another director by proxy under certain circumstances.
With respect to companies admitted to listing on the HKSE, any director
who has a personal interest in any matter to be voted on must declare his
interest in a board meeting at which the matter is considered and is not
entitled to vote or be counted towards the quorum.

Supervisors

A joint stock company must establish a supervisory committee
which will function in relative autonomy from the board of directors. A
supervisory committee will oversee the actions of the board of directors
and senior management personnel to safeguard the interests of the
shareholders and employees of the company. Under the Company Law, a
supervisory committee must consist of at least three members; the
proportion of employee representatives may be determined in the company's
articles of association. A supervisor is prohibited from concurrently
holding the position of director, manager or other senior administrative
positions.

OVERSEAS OFFERINGS AND JOINT REGULATORY EFFORTS

The Cooperation Memorandum among the Securities Commission, the
SHSE, the SZSE, the SFC and the HKSE has established a special mechanism
through which the parties to the Cooperation Memorandum are able to
provide mutual assistance and the exchange of information on a timely and
regular basis for the explicit purpose of providing greater investor
protection and maintaining fair, orderly and efficient securities markets
in China and Hong Kong. Among other things, the parties agreed on the
principles that govern their cooperation in the regulation of their
respective securities markets. These general principles include: (i)
fair, orderly, efficient and transparent securities trading; (ii)
adequate, accurate and timely disclosure to potential investors to enable
them to make properly informed assessments of issuers and the investment
products they issue; (iii) full, accurate and immediate disclosure by
listed companies to shareholders and the public of any

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information which might reasonably be expected to have a material effect
on market activity in, or prices of, listed securities; (iv) equal and
fair treatment of all holders of securities; (v) the fiduciary obligation
of directors of a listed company to act in the interests of its
shareholders as a whole; (vi) prevention and sanction of fraud on
investors, oppression of minority shareholders, market manipulation and
insider trading; and (vii) equal treatment of all shareholders if control
of a listed company changes.

The Cooperation Memorandum also prescribes requirements for
Chinese issuers listing H shares on the HKSE. The parties have agreed
that a Chinese issuer may not permit amendments to certain sections of the
articles of association of Chinese issuers which have been mandated by the
HKSE. These sections include provisions relating to (i) varying the right
of existing classes of shares, (ii) voting rights, (iii) the power of the
Chinese issuer to purchase its own shares, (iv) rights of minority
shareholders and (v) procedures on liquidation. In addition, certain
amendments to the articles of association of a Chinese issuer require the
approval and assent of relevant Chinese authorities. The Addendum
requires an issuer of H shares to comply with the Provisional Share Rules
where relevant and modifies the Standard Opinion in several significant
respects for Chinese companies listing in Hong Kong. The modifications to
the Standard Opinion, applicable only to Chinese companies approved to
list in Hong Kong, include: (i) the Chinese company's initial articles of
association may set forth the aggregate share capital authorized to be
issued from time to time, without the need to obtain shareholder approval,
within 15 months after incorporation; (ii) a Chinese company reorganized
from a large-scale State enterprise may, upon approval, be established
with such enterprise as sole promoter and immediately thereafter engage in
a public offering; and (iii) the Chinese company is not subject to the 12
month waiting period between share issues otherwise required by the
Standard Opinion. See also "Securities Markets of Hong Kong -- The Hong
Kong Stock Exchange -- Listing Requirements for Chinese H Share Issuers."

The recently adopted Overseas Regulations set forth guidelines
for joint stock companies approved to make overseas offerings and listings
of H shares or N shares (directly or represented by ADRs). As described
above, such offerings may be made only with the State Council's approval.
Certain provisions of the Overseas Regulations are summarized below.

Under the Overseas Regulations, the shares offered overseas must
be denominated to renminbi, but they may be subscribed for and traded in a
foreign currency. Dividends are calculated and declared in renminbi but
paid in foreign currencies. Other provisions allow a company approved to
make an overseas offering to make the offering less than twelve months
after the company's last offering; existing regulations would otherwise
require waiting at least twelve months. Varying the provisions of the
Company Law, the Overseas Regulations permit offerings of H shares or N
shares to be made with fewer than five promoters. Provisions applicable
on an ongoing basis to a company listed overseas include a requirement
that the company provide a minimum of 45 days notice to shareholders prior
to convening a shareholders' meeting. Shareholders representing more than
5% of voting rights can submit a written proposal to put certain matters
on the agenda of the shareholders' meeting. The Overseas Regulations also
provide guidelines for joint stock companies concerning hiring or
dismissing professional advisors, such as accountants. Under the Overseas
Regulations, the disclosure made by a joint stock company overseas must be
consistent with that made domestically.

While the application of the Overseas Regulations to companies
that have already completed H share or N share offerings is unclear, it
appears that the Overseas Regulations are intended to take effect
immediately with respect to offerings currently being prepared and future
offerings.

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STOCK EXCHANGES

THE SHANGHAI STOCK EXCHANGE

Overview

As of June 30, 1994, there were 53 debt issues (including
government bonds and bond futures and bonds issued by financial
institutions and companies) and 192 equity issues being traded on the
SHSE. Of the 192 equity issues, 164 were A shares and 28 were B shares.

The average daily turnover on the SHSE for both equities and debt
grew from RMB3.4 million in 1990 when the exchange first started, to
RMB998 million for 1993 and to RMB2.3 billion for the first six months of
1994. Total market capitalization for the equity issues listed on the
SHSE as of June 30, 1994 amounted to approximately RMB190.8 billion, of
which RMB9.55 billion represented B shares.

The official stock market index in Shanghai is the SHSE Index
compiled by the SHSE. The SHSE Index follows the weighted market
capitalization method embracing all listed stocks, with December 19, 1990
as the base day with an index value of 100. The SHSE also compiles the
SHSE B Share Index, which also follows the weighted market capitalization
method embracing all listed B shares, with February 21, 1992 as the base
day with an index value of 100.

The SHSE Index has experienced significant fluctuations. The
SHSE index closed at 469.29 at the close of business on June 30, 1994,
compared to a high for the first six months of 1994 of 907.09 on January
11, 1994, and the record high of 1,536 on February 15, 1993. On December
31, 1993, the SHSE Index closed at 833.80. On August 5, 1994, following
the suspension of new listings announced on July 29, 1994, the SHSE Index
closed at 683.04.

The SHSE B Share Index has demonstrated similar volatility. The
SHSE B Share Index reached its record high of 140 at the close of business
on May 26, 1992. On December 31, 1993, it stood at 103. For the first
six months of 1994, the SHSE B Share Index reached a high of 104.71 on
January 6, 1994 and a low of 60.24 on April 13, 1994. On June 30, 1994,
the B Share Index stood at 67.57, and on August 5, 1994, it closed at
74.40.

Trading on the SHSE is carried out through a computerized
automatic matching system which effects each transaction based on the
principle of price and time priority. Trading information is displayed on
an electronic screen in the trading hall and transmitted electronically to
members' trading counters. A publication entitled "Shanghai Securities
News" is published by the SHSE five times per week, providing public
market information such as share price data, market turnover, and company
announcements. Only spot trading is allowed.

Listing Criteria

The listing requirements for the SHSE were initially
provided by the SHSE Measures and the SHSE B Share Measures. Most of the
listing criteria of the SHSE Measures and the SHSE B Share Measures have
been incorporated into or superseded by the Provisional Share Rules. With
respect to A shares, the Provisional Share Rules are expected to supersede
any of the following provisions to the extent that they are inconsistent.
The continued applicability of the SHSE Measures and the SHSE B Share
Measures with respect to listing requirements for B shares may depend on
the anticipated national B share regulations.

Under the SHSE Measures, an issuer seeking to list its securities
on the SHSE must first satisfy the following issuance requirements: (i)
the issuer must have obtained approval from the relevant authorities to be
established as a joint stock company; (ii) in the case of a newly
established joint stock company, the

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promoter must have obtained an investment certificate evidencing
subscription for at least 30% of the total amount of the issuer's share
capital; (iii) in the case of a State-owned enterprise being restructured
as a joint stock company, the issuer must have obtained an asset
confirmation report from the Administration for State Assets or, in the
case of a non-State-owned enterprise being restructured as a joint stock
company, an assets valuation report; (iv) in the case of an existing joint
stock company issuing shares in order to increase its capital, the issuer
must have obtained audited financial statements indicating continuous
profits during at least the two years and the quarter preceding the
offering, and a shareholders' resolution authorizing the issue; and (v)
the issuer must submit an application to the PBOC Shanghai Branch,
together with the company's articles of association, the prospectus to be
used for the share issue, and the underwriting agreements.

Once it has complied with all the issuance requirements, the
issuer seeking to list its shares must submit to the SHSE the following
additional documents: (i) an application for the listing of its shares;
(ii) a report on the listing of the securities; (iii) an agreement from at
least one securities firm to assist it in the trading of the securities;
and (iv) shareholder registration list.

A company seeking to issue and list B shares on the SHSE must
comply with the following additional requirements under the SHSE B Share
Measures: (i) the proceeds from the issuance of the B shares must be used
in accordance with applicable State policies and regulations; (ii) it must
have a stable, adequate source of foreign exchange revenue (i.e.,
sufficient to pay out the B share dividends); and (iii) the percentage of
B shares to the total shares of the company must not exceed the upper
limit set by the PBOC Shanghai Branch.

The Operational System

The SHSE operates on a membership system and only securities
institutions may be admitted as members upon approval of the PBOC Shanghai
Branch. As of June 30, 1994, the SHSE had 541 members, comprising banks,
finance companies, securities companies, insurance companies, trust and
investment companies and open credit cooperatives. These institutions
must become members of the Securities Trade Association (the "STA"), which
is a self-governing trade organization, and its articles of association
specify such matters as the purpose, nature, conditions for membership,
rights and obligations of members and accounting rules of the STA.

The trading and registration of transfer of registered shares is
suspended 10 days before each announced date for payment of dividends or
bonuses or the issuance of new shares. Under the SHSE Measures, if the
transfer registration procedures are not completed within the specified
time limits, the dividends and newly issued shares will be issued to the
persons in whose names the securities were registered at the time of such
distribution or issuance.

Trading of B Shares

In Shanghai, shares with a total face value of RMB1,000
constitute one trading unit. Trading must be conducted between
non-Chinese investors in foreign currencies through approved brokers.
Investors outside China must conduct the sale and purchase of B shares
through approved foreign brokers. All trades must be transacted on the
trading floor; no off-market transactions are allowed. Forward buying,
short selling and trading of shares outside the SHSE are strictly
prohibited. All trades must be matched by the SHSE system and crossing as
well as block trading are not allowed. All B shares are denominated in
RMB and settled in U.S. dollars.

Under the SHSE rules, the brokerage commission for a B share
transaction is up to 0.6% of the total amount of the transaction, such
rate to be reduced to 0.5% and 0.4%, respectively, for transactions
exceeding RMB500,000 and RMB5,000,000 in value, respectively. Stamp duty
is 0.3% of the amount of the transaction. The SHSE transaction levy on
securities dealers is 0.03% of the amount of the transaction. A share
transfer registration fee of 0.1% of the face value of the shares
transferred is payable. Certain other

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fees may also be payable to the banks appointed to coordinate primary and
secondary clearing and settlement and to foreign brokers for their
services.

THE SHENZHEN STOCK EXCHANGE

Overview

As of June 30, 1994, there were 13 debt issues (including
government bonds and corporate bonds) and 127 equity issues being traded
on the SZSE. Of the 127 equity issues, 105 are A shares and 22 are B
shares.

The average daily turnover on the SZSE for both equities and debt
grew from RMB11.8 million in 1991 when the exchange first started, to
RMB560 million for 1993 and was RMB551 million for the first six months of
1994. Total market capitalization for the equity issues listed on the
SZSE as of June 30, 1994 amounted to approximately RMB81.4 billion, of
which RMB5.4 billion represented B shares.

The official stock market index in Shenzhen is the SZSE Index
compiled by the SZSE. The SZSE index follows the weighted market
capitalization method embracing all listed stocks, with April 3, 1991 as
the base day with an index value of 100. The SZSE also compiles the SZSE
B Share Index, which also follows the weighted market capitalization
method embracing all listed B shares, with February 28, 1992 as the base
day with an index value of 100.

Similarly to the SHSE Index, the SZSE Index has experienced
significant fluctuations. On February 22, 1993, the SZSE Index reached
its record high of 369. By the close of business on December 31, 1993 the
SZSE Index had declined to 238. On May 3, 1994, the SZSE Index reached
161.87 and at the close of business on June 13, 1994 fell to match the
previous record low set in early 1992 of 128.48. On June 30, 1994, the
SZSE Index closed at 119.89, but by August 5, 1994 it rose to close at
162.26.

The SZSE B Share Index has also experienced significant
fluctuations. The SZSE B Share Index reached its record high of 185 on
February 22, 1993. On December 31, 1993, the SZSE B Share Index was 141.
At the close of business of June 30, 1994, the SZSE B Share Index closed
at 104.42, and on August 5, 1994 it closed at 107.04.

Trading on the SZSE is carried out through a computerized
automatic matching system which effects each transaction based on the
principle of price and time priority. Trading information is displayed on
an electronic screen in the trading hall and transmitted electronically to
members' trading counters. A publication entitled "Shenzhen Securities"
is published by the SZSE twice per week, providing public market
information such as share price data, market turnover, and company
announcements. Only spot trading is allowed.

Listing Criteria

The listing requirements for the SZSE were initially provided by
the SZSE Measures and the SZSE B Share Measures. Most of the listing
criteria of the SZSE Measures and the SZSE B Share Measures have been
incorporated into or superseded by the Provisional Share Rules. With
respect to A shares, the Provisional Share Rules are expected to supersede
the following provisions to the extent that they are inconsistent. The
continued applicability of the SZSE Measures and the SZSE B Share Measures
with respect to listing requirements for B shares may depend on the
anticipated national B share regulations.

Under the SZSE Measures, an issuer seeking to list its securities
on the SZSE must first meet the following issuance requirements: (i) it
must have obtained the necessary approval from the relevant authorities to
be established as a joint stock company; (ii) its production and
operations must comply with Shenzhen's industrial policies; (iii) it must
have a good financial and business record and net assets of at least RMB10

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million; (iv) its net tangible assets for the year prior to the offering
must have accounted for at least 25% of its gross tangible assets; (v) its
promoters must have subscribed for at least an aggregate face value of
RMB5 million of its shares, representing at least 25% of its total share
capital; (vi) it must have offered at least 25% of shares to the public,
of which no more than 10% shall have been offered to its employees or
staff; (vii) it must have a minimum of 200 shareholders after the
offering; and (viii) the issuer as well as its promoters must not have
engaged in any illegal activities. The SZSE Measures further provide that
shares subscribed by an issuer's employees and staff are not transferrable
within one year after the offering, after which no more than 10% of such
shares may be transferred during any six-month period.

Once it has complied with all the issuance requirements, an
issuer seeking to list its shares on the SZSE must meet additional and
more stringent requirements which include the following: (i) there must
have been a minimum return on capital of more than 10% in the year
preceding listing and more than 8% over the two years prior to the year
preceding the listing; (ii) the number of registered shareholders must
exceed 1,000, and the total number of shares held by shareholders holding
less than 0.5% of the company's shares must account for more than 25% of
the issuer's issued and outstanding shares; (iii) the company must have
been continuously profitable for at least three years preceding the
offering and it must not have had any accumulated losses; and (v) its
tangible assets must have been at least 35% of its gross tangible assets
for the year prior to listing.

A company seeking to issue B shares in Shenzhen must comply with
the following requirements under the SZSE B Share Measures: (i) it must
obtain written approval from the relevant state authorities for utilizing
foreign investment or becoming a foreign investment enterprise, and its
use of proceeds from the B share issue must conform to the laws and
regulations of the State concerning the administration of foreign
investment; (ii) it must have a stable, adequate source of foreign
exchange revenue (i.e, sufficient to pay out the B share dividends); and
(iii) the percentage of B shares must be within the limit set by the PBOC
Shenzhen Branch.

The Operational System

The SZSE operates on a membership system and only securities
institutions may be admitted as members upon approval of the PBOC. As of
June 30, 1994, the SZSE had 482 members, comprising banks, finance
companies, securities companies, insurance companies and trust and
investment companies.

Securities institutions in Shenzhen may join the Joint Meeting
of Shenzhen Securities Institutions, whether or not they are members of
the SZSE. This self-governing organization was formed in August of 1990.
Its responsibilities and objectives include, among others, facilitating
communication among securities institutions and strengthening
self-discipline among members.

The trading and registration of transfer of registered shares is
suspended 10 days before each announced date for payment of dividends or
bonuses or the issuance of new shares. Under the Shanghai Measures, if
the transfer registration procedures are not completed within the
specified time limits, the dividends and newly issued shares will be
issued to the persons in whose name the securities were registered at the
time of such distribution or issuance.

Trading of B Shares

In Shenzhen, one trading unit or lot is equal to 2,000 shares.
Trading in B shares must be conducted between non-Chinese investors in
foreign currencies, through approved brokers. All trades must be
transacted on the trading floor; no off-market transactions are allowed.
Forward buying, short selling and trading of shares outside the SZSE are
strictly prohibited. All trades must be matched by the SZSE system and
crossing as well as block trading are not allowed. All B shares are
denominated in RMB and settled in Hong Kong dollars.

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Under the SZSE rules, the brokerage commission for a B share
transaction is 0.6% of the transaction amount and the stamp duty is 0.3%
of the price of the sale and purchase. The SZSE transaction levy is 0.1%
of the price of each transaction. A share transfer registration fee of
0.3% of the face value of the B shares transferred is payable by the buyer
to the official registrar of the B shares. Certain other fees may also be
payable to the clearing and settlement bank and foreign brokers for their
services.

Any single investor (individual or institution) of B shares who
becomes a holder of more than 5% of a company's total number of issued and
outstanding shares must disclose his identity to the SZSE. Furthermore,
overseas legal persons with close business relationships with an issuing
company may not hold more than 15% of the total issued B shares.

CLEARING AND SETTLEMENT OF B SHARES ON THE SHSE AND THE SZSE

In both Shenzhen and Shanghai, clearing and settlement of B share
transactions are effected on the third day after the relevant trade day.

Clearing and settlement of B shares are effected in a scripless
manner, that is, by credit and debt entries in the investor's cash and
share sub-accounts under an approved broker's account maintained with the
relevant clearing and settlement agent. No share certificates are issued
to investors. Cash settlement is effected on a broker-to-broker,
transaction-by-transaction basis.

SHSE

The Shanghai Securities Central Registration and Clearing Company
(the "Shanghai Registration and Clearing Company"), established by the
SHSE in May 1993, serves as the central book-entry depository and sole
clearing agent, transfer agent and registrar for SHSE-listed B shares.
The holdings of each investor in SHSE-listed B shares are separately
identified and held in a separate account for the investor at the Shanghai
Registration and Clearing Company. Where the investor holds its B shares
through a custodian bank, the investor's shareholdings are recorded on the
books of the Shanghai Registration and Clearing Company as held by the
custodian bank through a separate sub-account.

Clearing and settlement of B share transactions are conducted at
two levels: primary and secondary. The Shanghai Registration and
Clearing Company is responsible for coordinating the primary settlement,
in respect of both shares and cash, between the Shanghai brokers and the
SHSE, which is effected on a net-off basis. Parallel to the primary
settlement, clearing of customer payments, which takes place between the
brokers licensed to deal on the SHSE and off-shore brokers, currently is
handled by Citibank, N.A., Shanghai branch ("Citibank Shanghai Branch"),
and all brokers approved to trade B shares listed on the SHSE maintain
U.S. dollar accounts with Citibank Shanghai Branch.

SZSE

Clearing and settlement of B shares transactions currently are
handled by the Shenzhen branches of Citibank, N.A., Standard Chartered
Bank and The Hong Kong and Shanghai Banking Corporation Limited,
respectively (each a "designated bank"), under appointment by the Shenzhen
Registrars Company, Ltd. acting pursuant to the Shenzhen Measures. Only
one designated bank acts as registration and transfer bank and handles
clearing and settlement for the securities of each issuer listed on the
SZSE.

Overseas investors trading B shares must open an account with an
authorized domestic securities broker or its foreign agent. The
designated bank will then open a "share registration account" with an
assigned common identification number for the investor. Where the
investor holds its B shares through a custodian bank, the investor's
shareholdings are recorded on the books of the designated bank as held by
the custodian bank through a separate sub-account. If the investor opens
an account with more than one

54
<PAGE> 58

designated bank, the same identification number will be used. Deposit and
payment of B shares must be made through such accounts. A separate "cash
account" will be maintained for settlement.

OTC AND DEBT MARKETS

OTC Market

In December 1990, the Securities Trading Automated Quotations
System ("STAQ"), a nationwide trading system for treasury securities and
corporate bonds, was put into operation to facilitate trading of approved
securities. By February 1994, STAQ had 305 member companies and 13,000
shareholders had established accounts within the STAQ system. In June
1993, a second system, the National Electronic Trading System ("NETS") was
put into operation. NETS is operated by the China Securities Trading
System Corporation Limited, a national securities trading body which uses
the national computer network to provide such services as price
quotations, trading, clearing and settlement. NETS went into operation
initially in three provinces and three municipalities and linked 22
securities brokers, with trading on a provisional basis in shares of three
entities with legal person status.

Debt Market

China commenced issuing state treasury bonds in 1981, and Chinese
enterprises commenced issuing corporate bonds in 1982. Debt securities
are now traded on both the SHSE and the SZSE, as well as in the OTC
markets, including the STAQ system. In addition, since at least 1982,
Chinese governmental entities have issued debt securities in overseas
markets. To date, China has not adopted any regulations with respect to
the acquisition by foreign investors, including the Fund, of debt
securities issued in China's domestic markets.

As of June 30, 1994, there were 53 debt issues listed on the SHSE
and 13 debt issues listed on the SZSE. The trading value of such debt
issues in the aggregate was approximately RMB3.9 billion. The 53 SHSE
listed issues included 12 corporate issues, seven financial institution
issues and 34 government issues, while of the 13 SZSE listed issues, nine
were corporate issues and four were government issues. Debt issues
trading on the STAQ system consist primarily of four government issues.

Enterprise bonds denominated in foreign currency were for the
first time issued to domestic institutional investors in June 1993 when
the PBOC approved the issuance of US$40 million aggregate principal amount
of one-year and two-year term notes by the China Metallurgy Import and
Export Company. Although individual investors are still not permitted to
invest in such debt securities, any duly established Chinese companies,
whether or not Sino-foreign joint ventures, are permitted to purchase the
notes.

Until the Company Law came into effect, the only regulations at
the national level specifically applicable to domestic debt securities
were the Bond Rules, which became effective on August 2, 1993, replacing
similar regulations adopted in 1987. The Bond Rules provide, among other
things, that state enterprise bonds are negotiable securities that are
freely transferable and acceptable as collateral. The Bond Rules also
limit the interest rate payable on enterprise bonds to no more than 40%
above the prevailing interest rate paid on fixed savings deposits of
comparable maturity for individuals. Under the Bond Rules, the PBOC was
designated as the regulatory authority for Chinese enterprise bond issues.

The Company Law permits joint stock companies to issue either
bearer or registered bonds in order to raise production and operation
funds but not to cover losses or nonproduction expenditures. A company
may also issue bonds convertible into shares. Currently, it remains
unclear whether convertible bonds may be issued offshore. In order to
issue bonds, a joint stock company must have net assets of at least RMB30
million and the aggregate principal amount of the bonds may not exceed 40%
of those net assets. The average yearly distributable profits for the
preceding three years must be sufficient to pay at least one year's
interest.

55
<PAGE> 59

Under the Company Law, the Securities Commission and the Regulatory
Commission are responsible for approving the issuance of corporate bonds.

In addition to the Bond Rules and the Company Law, the SHSE
Measures and the SZSE Measures are generally applicable to debt issues
listed on the respective exchanges. See "Regulation" and "Securities
Exchanges."

On September 28, 1987 the PBOC issued Regulations on the Control
of Bonds Issued Abroad by Domestic Institutions to regulate overseas debt
issues by Chinese entities. In order to issue bonds overseas, a Chinese
entity must submit an application to the PBOC for approval. The
application must include such items as historical financial information,
foreign exchange balance statement, a description of the securities, a
risk evaluation and a schedule of principal and interest payments. The
SAEC is responsible for coordinating and supervising overseas bond issues
and the use and repayment of the proceeds.

As is the case with respect to many of the regulations applicable
to China's equity markets, government regulators have not yet clarified
the relationship among the various foregoing laws and regulations
governing the debt markets.

56
<PAGE> 60

SECURITIES MARKETS OF HONG KONG
HISTORICAL DEVELOPMENT

The earliest predecessor of The Stock Exchange of Hong Kong
Limited, the Association of Stockbrokers in Hong Kong, began formal
trading of investment securities in 1891. The Association of Stockbrokers
in Hong Kong was renamed the Hong Kong Stock Exchange in 1914 and a second
exchange, the Hong Kong Stockbrokers Association, opened in 1921. The two
exchanges were merged in 1947 to form The Hong Kong Stock Exchange
Limited.

Trading expanded to the Far East Exchange in 1969, the Kam Ngan
Stock Exchange in 1971 and the Kowloon Stock Exchange in 1972. These four
exchanges merged to form The Stock Exchange of Hong Kong Limited (the
"Hong Kong Stock Exchange" or "HKSE"), which commenced trading on April 2,
1986. The HKSE, with a total market capitalization as of June 30, 1994 of
approximately HK$2,241 billion (approximately US$287 billion), is now the
second largest stock market in Asia, measured by market capitalization,
behind only that of Tokyo. As of that date, 508 companies and 965
securities were listed on the Hong Kong Stock Exchange. For the period
from January 1, 1993 to June 30, 1994, the average daily trading value on
the Hong Kong Stock Exchange was approximately HK$5,698 million
(approximately US$551 million). The securities listed include ordinary
shares, warrants and other derivative instruments.

In addition to an active stock market, Hong Kong has an active
foreign exchange market, an interbank money market, a large gold bullion
market and a futures exchange.

REGULATION

The Hong Kong Securities and Futures Commission ("SFC") was
established on May 1, 1989, following enactment of the Securities and
Futures Commission Ordinance (the "SFC Ordinance"). The creation of the
SFC was part of a complete reform of Hong Kong's securities market
following the October 1987 market crash. The SFC Ordinance transfers the
functions of the former Securities Commission, the Commodities Trading
Commission and the Office of the Commissioner for Securities and
Commodities Trading to the SFC. It also provides a general regulatory
framework for the securities and futures industries, leaving certain
elements to be provided by regulations, administrative procedures and
guidelines developed by the SFC.

The SFC also administers the Securities Ordinance, the Protection
of Investors Ordinance, the Commodities Trading Ordinance, the Stock
Exchanges Unification Ordinance, the Securities (Disclosure of Interest)
Ordinance and the Securities (Insider Dealing) Ordinance.

The Securities Ordinance and the Stock Exchange Unification
Ordinance, together with the SFC Ordinance (together, the "Ordinances"),
provide an orderly framework within which dealings in securities are
conducted and the HKSE operates. These Ordinances require the
registration of dealers, dealing partnerships, investment advisers and
other intermediaries and provide for the investigation of suspected
malpractice and the maintenance of a compensation fund to compensate
clients of defaulting brokers. The Commodities Trading Ordinance,
together with the SFC Ordinance, provides a regulatory framework within
which the Hong Kong Futures Exchange (the "HKFE") operates. It includes
provisions for the registration of dealers and their representatives and
the maintenance of a compensation fund to compensate clients of defaulting
commodity dealers.

The Protection of Investors Ordinance prohibits the use of
fraudulent or reckless means to induce investors to buy or sell
securities, or to induce them to take part in any investment arrangement
in respect of property other than securities (the latter being regulated
by the Securities Ordinance). The Protection of Investors Ordinance
regulates the issue of publications related to such investments by
prohibiting any solicitations to invest without such solicitation
materials first being submitted to the SFC for authorization.

57
<PAGE> 61

Both the Securities (Insider Dealing) Ordinance and the
Securities (disclosure of Interests) Ordinance came into effect as of
September 1, 1951. The former substantially increases the penalties for
insider dealing as compared with those previously applicable. The latter
requires that company shareholders with 10 percent or more of the voting
shares of a listing company disclose their interests and dealings publicly
and that the directors and executives disclose certain dealings.

The SFC is an autonomous statutory body outside the civil
service. It has five executive directors and five nonexecutive directors.
The Governor of Hong Kong appoints the directors and may give policy
directions to the SFC. Each year the SFC must present the Financial
Secretary with a report and an audited statement of its accounts, which
are submitted to the Legislative Council. The SFC seeks advice on policy
matters from its Advisory Committee, whose independent members are
appointed by the Governor and are broadly representative of market
participants and relevant professions. The SFC is funded largely by the
market and partly by the government. Market contribution is in the form
of fees and charges for specific services and functions performed, plus a
statutory levy on transactions recorded on the HKSE and the HKFE.

In addition to SFC regulations, issuers of securities in Hong
Kong must comply with the rules of the HKSE, including the listing
standards. See "Hong Kong Stock Exchange--General Listing Requirements."

THE HONG KONG STOCK EXCHANGE

EQUITY MARKET

Hong Kong has an active new issue market for equity securities.
The following table summarizes the new listings on the Hong Kong Stock
Exchange between 1987-1993.

NEW LISTINGS ON THE HKSE

<TABLE>
<CAPTION>
VALUE OF NEW VALUE OF NEW
LISTINGS LISTINGS
-------------------------- --------------------------
NUMBER NUMBER
OF NEW (HK$ (US$ OF RIGHTS (HK$ (US$
YEAR LISTINGS MILLIONS) MILLIONS)* ISSUES MILLIONS) MILLIONS)(1)
---- -------- --------- --------- ------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
1987 . . . . . . . . . . . . 32 2,819 361 36 28,388 3,639
1988 . . . . . . . . . . . . 38 1,301 167 33 5,122 657
1989 . . . . . . . . . . . . 12 3,368 432 21 5,574 715
1990 . . . . . . . . . . . . 17 3,824 490 14 2,650 340
1991 . . . . . . . . . . . . 60 6,962 893 17 10,007 1,283
1992 . . . . . . . . . . . . 64 11,982 1,536 29 11,241 1,441
1993 . . . . . . . . . . . . 68 28,884 3,703 23 9,266 1,188
</TABLE>

- -------------------
(1) Converted at the rate of US$1.00 = HK$7.80.
Source: HKSE.

58
<PAGE> 62

The table below sets out selected data on the Hong Kong Stock
Exchange for each year since 1986, including the value of securities
traded during each year, and the number of companies and securities listed
and the total market capitalization as of December 31 of each year.

SELECTED DATA ON THE HKSE

VALUE OF DECEMBER 31,
SECURITIES TRADED MARKET CAPITALIZATION
----------------- -----------------------------
(HK$ (US$ LISTED LISTED (HK$ (US$
YEAR MILLIONS) MILLIONS) COMPANIES SECURITIES MILLIONS) MILLIONS)(1)
- ---- --------- --------- --------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
1986 . . . . . . . . . . . 23,128 15,786 253 335 419,281 53,754
1987 . . . . . . . . . . . 371,406 47,616 276 412 419,612 53,796
1988 . . . . . . . . . . . 199,481 25,574 304 479 580,378 74,407
1989 . . . . . . . . . . . 299,147 38,352 298 479 605,010 77,565
1990 . . . . . . . . . . . 288,715 37,015 299 520 650,410 83,386
1992 . . . . . . . . . . . 700,578 89,818 413 749 1,332,184 170,793
1993 . . . . . . . . . . . 1,222,675 156,753 477 891 2,975,399 381,458
</TABLE>

- -------------------
(1) Converted at the rate of US$1.00 = HK$7.80.
Source: HKSE.

The Hang Seng Index is the most widely followed indicator
of stock price performance in Hong Kong. The Hang Seng Index is an
arithmetic index based on the securities of 33 companies, weighted by
their respective market capitalizations, and is thus strongly influenced
by large capitalization stocks. The following table sets out the high,
low and year-end close for the Hang Seng Index for each year since 1986.

HANG SENG INDEX

<TABLE>
<CAPTION>
% CHANGE
FROM PRIOR
YEAR HIGH LOW PERIOD END PERIOD END
- ---- ---- --- ---------- ----------
<S> <C> <C> <C> <C>
1986 . . . . . . . . . 2,568.3 1,559.9 2,568.3 ---
1987 . . . . . . . . . 3,949.7 1,894.9 2,302.8 (10.3)
1988 . . . . . . . . . 2,772.5 2,223.0 2,687.4 16.7
1989 . . . . . . . . . 3,309.6 2,093.6 2,836.6 5.6
1990 . . . . . . . . . 3,559.9 2,736.6 3,024.6 6.6
1991 . . . . . . . . . 4,297.3 2,984.0 4,297.3 42.1
1992 . . . . . . . . . 6,447.1 4,301.8 5,512.4 28.3
1993 . . . . . . . . . 11,888.4 5,437.8 11,888.4 216.0
</TABLE>

- -------------------
Source: HKSE

The Hong Kong stock market can be volatile and is sensitive both
to developments in China and to the strength of other world markets. For
example, in 1989, the Hang Seng Index rose to 3,310 in May from its
previous year-end level of 2,687 but fell to 2,094 in early June following
the events at Tianamnen Square. The Hang Seng Index gradually climbed in
subsequent months, but fell by 181 points on October 16, 1989
(approximately 6.5%) following a substantial fall in the U.S. stock
market. More recently, the Hang Seng Index has fluctuated significantly
in reaction to political uncertainties, particularly relating to the
disputes between China and Britain over the construction of a new
international airport and the political reforms proposed by Governor
Patten of Hong Kong, potential non-renewal of China's "Most Favored
Nation" Status with the United States and interest rate increases in the
United States.

59
<PAGE> 63

GENERAL LISTING REQUIREMENTS

In order to list equity securities on the HKSE, an issuer
generally must have (i) an adequate trading record under substantially the
same management (generally three years); (ii) an adequate open market for
the securities it seeks to list (i.e., there are sufficient holdings of
outstanding shares by public shareholders); (iii) an expected market value
of at least HK$100,000,000 for the securities it seeks to list with the
expected market capitalization of each class of security (excluding
warrants and options) at least HK$50,000,000; and (iv) sufficient
management presence in Hong Kong. In addition, all new issuers must have
a sponsor, usually a member of the HKSE, and must also have two of its
directors as authorized representatives to function as the issuer's
principal channel of communication with the HKSE.

In order to list debt securities on the HKSE, an issuer must be
duly incorporated or otherwise established under the laws of the country
in which it was incorporated or established and must maintain a paying
agent at an address in Hong Kong until no debt security is outstanding,
unless the issuer performs that function. The issuer may not be a Hong
Kong private company.

LISTING REQUIREMENTS FOR CHINESE H SHARE ISSUERS

Listing Rules. In June 1993, the HKSE adopted modifications and
exceptions to its listing rules so that Chinese issuers can seek listing
in Hong Kong. While some of the changes were made to facilitate listing
of Chinese companies which cannot otherwise be listed under the existing
rules, most were adopted to ensure that prospective Hong Kong investors in
securities of Chinese companies are adequately protected. China's State
Council has taken regulatory action complementing the HKSE's actions.

Under the new rules, in order for a Chinese issuer to be listed
on the HKSE, the HKSE must first be satisfied that (1) the Chinese company
is duly incorporated or otherwise established in China as a joint stock
limited liability company; (2) there are adequate communication and
cooperation arrangements in place between the HKSE and the relevant
securities regulatory authorities in China; (3) in the case of a Chinese
issuer having equity securities listed or to be listed on a Chinese stock
exchange, there are adequate communication and cooperation arrangements in
place between the HKSE and such Chinese stock exchange authority; and (4)
applicable Chinese law and the articles of association of the Chinese
issuer provide a sufficient level of shareholder protection to holders of
H shares. Most Chinese issuers duly established as joint stock limited
liability companies are expected to meet these preliminary requirements.

Chinese issuers seeking listing on the HKSE must then meet the
general listing criteria required of Hong Kong issuers. To the extent
that such criteria are amended to provide additions, modifications or
exceptions in the case of Chinese issuers, Chinese issuers must meet such
additional and modified criteria. The following are the more significant
listing requirements specifically applicable to Chinese issuers.

A Chinese issuer with issued and outstanding A shares must
satisfy the requirements that (1) all H shares must be held by the public,
(ii) H shares held by the public normally must constitute not less than
10% of the total issued share capital of the issuer; and (iii) the
aggregate number of H shares and A shares which are held by the public
must constitute not less than 25% of the total issued share capital of the
Chinese issuer. A Chinese issuer without any A shares outstanding must
satisfy the requirement that H shares held by the public constitute not
less than 25% of the total issued share capital of the Chinese issuer.
The HKSE will normally accept a lower percentage of H shares in the case
of a Chinese issuer whose H shares have an expected market value at the
time of listing of over HK$4 billion. A Chinese issuer without A shares
outstanding, but proposing at any time thereafter to issue A shares or any
other securities ranking equally with its H shares and not listed on the
HKSE, must take action to ensure that it will be in compliance with the
specified minimum percentages of public shareholders when it makes the
proposed offering.

60
<PAGE> 64

In addition to the minimum percentage rule, a Chinese issuer must
also maintain a minimum number of shareholders to ensure an adequate
trading market. Under normal circumstances, there should be not fewer
than three holders for each HK$ 1 million of the issue, with a minimum of
100 holders.

The minimum percentage of public shareholders must be maintained
at all times during the duration of listing. If the percentage falls
below the minimum, the HKSE has the right to suspend trading until
appropriate steps have been taken to restore the minimum percentage of
securities of public shareholders. If the HKSE is satisfied that, even
though the percentage has fallen below the minimum, there remains an open
market in the securities, the HKSE may refrain from suspension against
receipt of an undertaking from the controlling shareholders to take
appropriate steps to ensure restoration of the minimum percentage of
securities to public hands within a specified period. At any time when
the percentage of securities held by the public is less than the required
minimum, and the HKSE has permitted trading in the securities to continue,
the HKSE will monitor closely all trading in the securities to ensure that
an adequate market does not exist and will suspend the securities promptly
if there is any unusual price movement.

A Chinese issuer with controlling shareholders, which are
governmental entities, promoters, industrial enterprises, financial or
commercial institutions, must also demonstrate to the HKSE's satisfaction
that each such controlling shareholder does not have a substantial
interest in a business that might compete with the issuer. Where the
controlling shareholder of a Chinese issuer is a Chinese governmental
entity (whether national, provincial, municipal or local) with control
over or other interests in a potentially competing business, the Chinese
issuer must satisfy the HKSE that such control will not adversely affect
the Chinese issuer by virtue of the nature of the relationship, or any
special arrangement or agreement with such "controlling shareholder," or
such shareholder's relationship or arrangement with the potentially
competing business or the management thereof.

With respect to management, a Chinese issuer must have at least
two independent non-executive directors and must have two of its executive
directors ordinarily resident in Hong Kong.

A Chinese issuer is also subject to the disclosure requirements
of the HKSE, which impose, among other things, an obligation to keep the
HKSE informed of any material information relating to the Chinese issuer
that might have a material effect upon the market price of its securities,
in the case of equity securities, or might reasonably be expected to
significantly affect the Chinese issuer's ability to meet its obligations,
in the case of debt securities.

Corporate Governance Rules. The HKSE has imposed additional
requirements in respect of the articles of association of a Chinese
issuer. These additional requirements seek to extend certain Hong Kong
company law concepts with no counterpart in the Standard Opinion to
Chinese issuers seeking to list on the HKSE and must be incorporated into
the articles of association of such Chinese issuers.

To comply with these additional requirements, the articles of
association of a Chinese joint stock limited liability company seeking to
list on the HKSE must, among other things, (i) restrict the authority of
directors to dispose of any fixed assets of the company; (ii) include
provisions on the definition of shareholders and on the share register
(including the particulars to be kept on the register of its
shareholders); (iii) include provisions on the obligations of directors,
supervisors and officers to shareholders, and of controlling shareholders
to other shareholders of the company; (iv) include provisions giving to
shareholders rights to information and provisions on disclosure of the
financial position of the company; (v) protect class rights and include
provisions on variation of rights of existing shares or classes of shares;
(vi) include provisions setting out the fiduciary and other duties of
directors and the obligations of supervisors; (vii) provide for the
appointment and removal of auditors; (viii) provide for the appointment of
receiving agents to receive dividends on behalf of holders of H shares;
and (ix) provide for differences or claims arising from the articles of
association or the Standard Opinion concerning the affairs of the company
between a holder of H shares

61
<PAGE> 65

and (1) the company, (2) a director, supervisor or officer of the company,
or (3) a holder of A shares of the company to be referred to arbitration.

A Chinese issuer accepted for listing on the HKSE is further
required to retain for at least three years following its listing the
services of its sponsor or other financial adviser or professional firm
acceptable to the HKSE to provide it with professional advice on
continuous compliance with the listing rules and its listing agreement
with the HKSE, and to act at all times, together with the authorized
representatives of the issuer, as its principal channel of communication
with the HKSE. The appointment of a sponsor may not be terminated until a
replacement acceptable to the HKSE has been appointed. In addition, new
legislation has been passed in China, effective July 1, 1994, which is
intended to replace the Standard Opinion. The HKSE is currently reviewing
the new legislation and its listing rules which may or may not lead to
changes.

TRADING AND SETTLEMENT

Trading on the HKSE is conducted through a computerized system to
convey bid and asked prices for securities. Trades are then effected on a
matched trade basis directly between buyers and sellers. All securities
are traded in board lots. For most companies a board lot is 1,000 shares,
although board lots can vary in size from 100 to 5,000 shares. Odd lots
are traded separately, usually at a small discount to the board lot
prices. Share certificates in board lots, together with transfer deed,
must be delivered on the day following the transaction. Payment is due
against delivery. A brokerage commission of not less than 0.25% (subject
to a minimum charge of HK$50) is payable to the broker executing the
transaction and a transaction levy of 0.02% is payable to the HKSE.
Finally, the Hong Kong government charges a stamp duty of HK$3.00 for
every HK$1,000 of the transaction price or any part thereof.

Settlement on the HKSE is conducted on a book-entry system. In
June 1992, the Central Clearing and Settlement System ("CCASS") was
launched by the Hong Kong Securities Clearing Company Limited. The CCASS
is a computerized book-entry clearing and settlement system. It reduces
scrip circulation in the market by the immobilization of share
certificates delivered by participants to the CCASS Depository.
Settlement is electronically recorded as increases or decreases in
participants' stock account balances, without the physical movement of
share certificates. At present, brokers, custodians, stock lenders and
stock pledgees--the intermediaries through whom investors deal--are
eligible to participate in CCASS. Ordinary shares, preference shares and
registered warrants, which account for almost all of the stock market
turnover, have been accepted into CCASS in phases throughout 1993. In
addition to clearing and settlement services, the Hong Kong Securities
Clearing Company (HKSCC) provides electronic money settlement services,
CCASS and depository services, and common nominee services. Currently two
categories of transactions in eligible securities are accepted for
clearing and settlement in CCASS: exchange trades (trades effected on the
HKSE) between two broker participants and settlement instructions (SI)
transactions (transactions such as broker- custodian transactions, stock
borrowing/lending, stock pledging and portfolio movements) between any two
participants.

62
<PAGE> 66

MANAGEMENT OF THE FUND

DIRECTORS AND OFFICERS

The names of the directors and principal officers of the Fund are
set forth below, together with their positions and their principal
occupations during the past five years and, in the case of the directors,
their positions with certain other international organizations and
publicly held companies.

<TABLE>
<CAPTION>
Name and Address Position with Fund Principal Occupation and Other Affiliations
---------------- ------------------ -------------------------------------------

<S> <C> <C>
*Edward C. Johnson 3d Director and President Chairman, Chief Executive Officer and Director of
FMR Corp. FMR Corp.; Director and Chairman of the Board and of
82 Devonshire Street the Executive Committee of FMR; Chairman and a
Mail Stop F5A Director of FMR Texas Inc. (1989), Fidelity
Boston, MA 02109 Management & Research (Far East) Inc.; Director or
Trustee and President of all other registered
management investment companies advised by FMR,
Chairman of all other Funds in the Fidelity Group of
International Funds.
*J. Gary Burkhead Director and Senior Vice President of FMR; and President and a Director of
Fidelity Investments President FMR Texas Inc. (1989), Fidelity Management &
82 Devonshire Street Research (U.K.) Inc. and Fidelity Management &
Mail Stop E14G Research (Far East) Inc.; Director or Trustee and
Boston, MA 02109 Senior Vice President of all other registered
management investment companies managed by FMR.

William Ebsworth Vice President Chief Investment Officer, Fidelity Investments (Hong
Fidelity Investments Kong) (1991-Present); Director, Fidelity Investments
(Hong Kong) Management (Hong Kong) Ltd.; Research Director,
7B Nicholson Tower Fidelity Investments (Hong Kong) (1990-1991); Fund
Tower 4 Manager, Fidelity Investments (Boston and Tokyo)
109 Repulse Bay Road (1986-1990); Vice President of Fidelity Advisor
Hong Kong Emerging Asia Fund, Inc. and Fidelity Advisor Korea
Fund, Inc.

Arthur S. Loring Secretary Senior Vice President and General Counsel of FMR;
Fidelity Investments Vice President -- Legal of FMR Corp.; Vice President
82 Devonshire Street and Clerk of Fidelity Distributors Corporation;
Mail Stop F5C Secretary of all other registered management
Boston, MA 02109 investment companies managed by FMR.
</TABLE>

63
<PAGE> 67

<TABLE>
<CAPTION>
Name and Address Position with Fund Principal Occupation and Other Affiliations
---------------- ------------------ -------------------------------------------

<S> <C> <C>
*Gary L. French Director and Treasurer Treasurer of all other registered management
Fidelity Investments investment companies managed by FMR; Senior Vice
82 Devonshire street President, Fund Accounting, Fidelity Accounting &
Mail Stop D8 Custody Services Co. (1991); Vice President, Fund
Boston, MA 02109 Accounting, Fidelity Accounting & Custody Services
Co. (1990); Senior Vice President, Chief Financial
and Operations Officer, Huntington Advisers, Inc.
(1985-1990).
Stuart E. Fross Assistant Secretary An employee of FMR Corp. (1990-present); Associate,
Fidelity Investments Dechert Price & Rhoads (law firm) (1987-1990);
82 Devonshire Street Assistant Secretary of Fidelity Advisor Emerging
Mail Stop F5H Asia Fund, Inc. and Fidelity Advisor Korea Fund,
Boston, MA 02109 Inc.

John Costello Assistant Treasurer Assistant Treasurer of all other registered
Fidelity Investments management investment companies managed by FMR and
82 Devonshire Street an employee of FMR Co.
Mail Stop D8
Boston, MA 02109
Leonard M. Rush Assistant Treasurer Assistant Treasurer of all other registered
Fidelity Investments management investment companies managed by FMR and
82 Devonshire Street an employee of FMR Co.
Mail Stop D8
Boston, MA 02109
</TABLE>

- ---------------------
* Director who is an "interested person" of the Fund within the meaning
of the 1940 Act.

Additional Directors, including non-interested Directors, will be
named before the Offering is commenced.

Directors who are not "interested persons" (as defined in the
1940 Act) of the Investment Manager or the Investment Adviser will be paid
a fee of $______per year, plus up to $______for every meeting of the Board
attended and $______as an annual committee meeting fee. All directors
will be reimbursed for travel and out-of-pocket expenses incurred in
connection with meetings of the Board of Directors.

The officers of the Fund conduct and supervise the daily business
operations of the Fund, while the directors, in addition to their
functions set forth elsewhere under "Management of the Fund," review such
actions and decide on general policy.

The Fund also has an Audit Committee composed currently of
Messrs. [____].

In addition, at the Fund's first annual stockholders meeting, the
Board of Directors will be classified into three classes, each with a term
of three years with only one class of directors standing for election in
any year. Such classification may prevent replacement of a majority of
the directors for up to a two-year period while the classification is in
effect. Commencing on the date of the annual meeting of stockholders in
the year 2000, the Board of Directors will no longer be divided into
classes and each director will stand for election at such meeting and at
each annual meeting of stockholders held thereafter.

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The Articles of Incorporation and By-Laws of the Fund provide
that the Fund will indemnify its directors and officers and will indemnify
employees or agents of the Fund against liabilities and expenses incurred
in connection with litigation in which they may be involved because of
their offices with the Fund to the fullest extent permitted by law. Under
Maryland law, a corporation may indemnify any director or officer made a
party to any proceeding by reason of service in that capacity unless it is
established that (1) the act or omission of the director or officer was
material to the matter giving rise to the proceeding and (A) was committed
in bad faith or (B) was the result of active and deliberate dishonesty;
(2) the director or officer actually received an improper personal benefit
in money, property or services; or (3) in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that
the act or omission was unlawful. In addition, the Fund's Articles of
Incorporation provide that the Fund's directors and officers will not be
liable to shareholders for money damages, except in limited instances.
Under Maryland law, a corporation may restrict or limit the liability of
directors or officers to the corporation or its stockholders for money
damages, except to the extent that (1) it is proved that the person
actually received an improper benefit or profit in money, property, or
services, or (2) a judgment or other final adjudication adverse to the
person is entered in a proceeding based on a finding in the proceeding
that the person's action, or failure to act, was the result of active and
deliberate dishonesty and was material to the cause of action adjudicated
in the proceeding. However, nothing in the Articles of Incorporation or
By-Laws of the Fund protects or indemnifies a director, officer, employee
or agent against any liability 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.

The Fund's Articles of Incorporation and By-Laws provide that the
Fund's Board of Directors has the sole power to adopt, alter or repeal the
Fund's By-Laws.

INVESTMENT MANAGER AND INVESTMENT ADVISER

The Investment Manager is Fidelity Management & Research Company
and the Investment Adviser is Fidelity International Investment Advisors.
Pursuant to a management agreement (the "Management Agreement") between
the Fund and the Investment Manager, the Investment Manager will supervise
the Fund's investment program. The Investment Manager will consult with
the Investment Adviser on a regular basis regarding the Investment
Adviser's decisions concerning the purchase, sale or holding of particular
securities. In addition to the foregoing, the Investment Manager will
monitor the performance of the Fund's outside service providers, including
the Fund's administrator, transfer agent and custodian. The Investment
Manager will pay the reasonable salaries and expenses of such of the
Fund's officers and employees and any fees and expenses of such of the
Fund's directors who are directors, officers or employees of the
Investment Manager, except that the Fund may bear travel expenses or an
appropriate portion thereof of directors and officers of the Fund who are
directors, officers or employees of the Investment Manager to the extent
that such expenses relate to attendance at meetings of the Board of
Directors or any committees thereof.

Pursuant to an investment advisory agreement (the "Advisory
Agreement") among the Investment Manager, the Investment Adviser and the
Fund, the Investment Adviser is responsible on a day-to-day basis for
investing the Fund's portfolio in accordance with its investment
objective, policies and restrictions. The Investment Adviser has
discretion over investment decisions for the Fund and, in that connection,
will place purchase and sale orders for the Fund's portfolio securities.
Joseph Tse will be primarily responsible for the day-to-day management of
the Fund's portfolio. Mr. Tse will work with a team of professionals in
Hong Kong in managing the Fund's portfolio. Mr. Tse is the Manager of
Fidelity Funds Hong Kong & China Fund, which he has managed since October
1990. Mr. Tse also manages the South East Asia component of eight global
funds. Prior to joining Fidelity in January 1990 as an analyst, Mr. Tse
worked for The Chase Manhattan Bank, N.A. In addition, the Investment
Adviser will make available research and statistical data to the Fund.
The Investment Adviser will pay the reasonable salaries and expenses of
such of the Fund's officers and employees and any fees and expenses of
such of the Fund's directors who are directors, officers or employees of
the Investment Adviser, except that the Fund may bear travel expenses or
an appropriate

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portion thereof of directors and officers of the Fund who are directors,
officers or employees of the Investment Adviser to the extent that such
expenses relate to attendance at meetings of the Board of Directors or any
committees thereof.

Investment Manager. Fidelity Management & Research Company will
act as Investment Manager of the Fund. The Fidelity investment management
organization was established in 1946. Today, the Fidelity organization is
the largest mutual fund company in the United States, and is known as an
innovative provider of high quality financial services to individuals and
institutions. In addition to its mutual fund business, the Fidelity
organization operates one of the leading discount brokerage firms in the
United States, Fidelity Brokerage Services, Inc. As of August 31, 1994,
the Investment Manager, the Investment Adviser and their affiliates had
over $270 billion under management, of which more than $[50] billion was
invested in non-U.S. securities (including over $15 billion in Asian
securities, over $___ billion in securities of China Issuers and over $7
billion managed from Asian offices). The Fidelity organization employs
over [375] investment professionals worldwide. The Investment Manager
also manages the Fidelity Advisor Emerging Asia Fund, Inc., a closed-end
investment company.

The Investment Manager, together with the Investment Adviser and
its other affiliates, has extensive research capabilities within the Asian
region, and maintains offices in Hong Kong, Singapore and Tokyo which are
staffed by 35 investment professionals. In 1993, Fidelity conducted over
___ company visits in China and Hong Kong.

FMR Corp. is the parent company of the Investment Manager.
Through ownership of voting common stock, members of the Edward C. Johnson
3d family form a controlling group with respect to FMR Corp. Changes may
occur in the Johnson family group, through death or disability, which
would result in changes in each individual family member's holding of FMR
Corp. voting common stock. Such changes could result in one or more
family members becoming holders of over 25% of such stock. FMR Corp. has
received an opinion of special counsel that changes in the composition of
the Johnson family group under these circumstances would not result in the
termination of the Fund's management or distribution contracts and,
accordingly, would not require a shareholder vote to continue operation
under those contracts.

The Investment Manager's main offices are located at 82
Devonshire Street, Boston, Massachusetts 02109.

Investment Adviser. Fidelity International Investment Advisors,
the Fund's Investment Adviser and an affiliate of the Investment Manager,
will provide discretionary portfolio management services through the
Investment Adviser's office in Hong Kong. The Investment Adviser is an
investment adviser registered under the Investment Advisers Act of 1940,
as amended, and was organized in 1983 under the laws of Bermuda. The
Investment Adviser primarily provides investment advisory services to
non-U.S. and U.S. investment companies and institutional investors
investing throughout the world. The Investment Adviser is a 98% owned
subsidiary of Fidelity International Limited ("FIL"). The Investment
Adviser's and FIL's main offices are located at Pembroke Hall, 42 Crow
Lane, Pembroke, Bermuda.

FIL is a Bermuda company formed in 1968 which primarily provides
investment advisory services to non-U.S. investment companies and
institutional investors investing in securities of issuers throughout the
world. More than 25% of the voting stock of FIL is owned directly or
indirectly by Edward C. Johnson 3d and trusts for the benefits of Johnson
family members.

Pursuant to a Sub-Advisory Agreement (the "Sub-Advisory
Agreement"), the Investment Adviser and the Fund have appointed Fidelity
Investments Japan Limited (the "Sub-Adviser") to provide advisory services
concerning the Fund's assets invested in securities of Asian-Pacific
Issuers, from time to time.

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Sub-Adviser. Fidelity Investments Japan Limited ("FIJ"), the
Sub-Adviser, will, upon the request of the Investment Adviser, provide
advisory services concerning the Fund's assets invested in securities of
Asian-Pacific Issuers. The Sub-Adviser is an affiliate of the Investment
Manager and the Investment Adviser and is registered as an investment
adviser under the Investment Adviser Act of 1940. The Sub-Adviser was
formed on November 17, 1986 under the laws of Japan and its main offices
are located at 19th Floor, Shiroyama JT Mori Building, 4-3-1 Toronomon
Minatu-ku, Tokyo 105, Japan. It is a wholly-owned subsidiary of FIL.

COMPENSATION AND EXPENSES

As compensation for its services, the Investment Manager will
receive from the Fund a monthly fee at an annual rate of 1.00% of the
Fund's average daily net assets. The Investment Adviser will receive from
the Investment Manager 60% of the fees paid by the Fund to the Investment
Manager. The Sub-Adviser will receive from the Investment Adviser a fee
equal to 50% of the fee paid to the Investment Adviser with respect to
assets managed by the Sub-Adviser on a discretionary basis and 30% of the
fee paid to the Investment Adviser with respect to assets managed by the
Sub-Adviser on a non-discretionary basis.

Except for the expenses borne by the Investment Manager and the
Investment Adviser pursuant to the Management Agreement and the Advisory
Agreement, the Fund will pay or cause to be paid all of its expenses
including, among other things: organizational and offering expenses (which
will include out-of-pocket expenses, but not overhead or employee costs,
of the Investment Manager and the Investment Adviser); expenses for legal,
accounting and auditing services; taxes and governmental fees; dues and
expenses incurred in connection with membership in investment company
organizations; fees and expenses incurred in connection with listing the
Fund's shares on any stock exchange; costs of printing and distributing
shareholder reports, proxy materials, prospectuses, stock certificates and
distributions of dividends; charges of the Fund's custodians,
sub-custodians, registrars, transfer agents, dividend disbursing agents
and dividend reinvestment plan agents; payment for portfolio pricing
services to a pricing agent, if any; registration and filing fees of the
SEC; expenses of registering or qualifying securities of the Fund for sale
in the various states; freight and other charges in connection with the
shipment of the Fund's portfolio securities; fees and expenses of
non-interested directors; costs of shareholders' meetings; insurance;
interest; brokerage costs; and litigation and other extraordinary or
nonrecurring expenses.

DURATION AND TERMINATION; NON-EXCLUSIVE SERVICES

Unless earlier terminated as described below, each of the
Management Agreement, the Advisory Agreement and the Sub-Advisory
Agreement will remain in effect until ________________, 1996 and from year
to year thereafter if approved annually (i) by a majority of the
non-interested directors of the Fund and (ii) by the Board of Directors of
the Fund or by a majority of the outstanding voting securities of the
Fund. The Management Agreement may be terminated upon 60 days' written
notice without penalty by the Fund's Board of Directors or by vote of a
majority of the outstanding voting securities of the Fund or by the
Investment Manager and will terminate in the event it is assigned (as
defined in the 1940 Act). The Advisory Agreement may be terminated upon
60 days' written notice without penalty by the Fund's Board of Directors
or by vote of a majority of the outstanding voting securities of the Fund
or by the Investment Manager and will terminate in the event it is
assigned (as defined in the 1940 Act). The Sub-Advisory Agreement may be
terminated upon 60 days written notice without penalty by Fund's Board of
Directors or by vote of a majority of the outstanding voting securities of
the Fund or by the Investment Adviser or the Sub-Adviser and will
terminate in the event it is assigned (as defined in the 1940 Act).

The services of the Investment Manager and the Investment Adviser
are not deemed to be exclusive, and nothing in the relevant service
agreements will prevent any of them or their affiliates from providing
similar services to other investment companies and other clients (whether
or not their investment objectives and policies are similar to those of
the Fund) or from engaging in other activities.

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ADMINISTRATION

Administrator. Fidelity Service Co. ("Service"), a division of
FMR Corp., will serve as the Fund's administrator pursuant to an agreement
with the Fund (the "Administration Agreement"). As compensation for its
services, Service will receive from the Fund monthly fees at an annual
rate of .10% of the Fund's average daily net assets. Service is located
at 82 Devonshire Street, Boston, MA 02109.

Service performs various administrative services, including
providing the Fund with the services of persons to perform administrative
and clerical functions, maintenance of the Fund's books and records,
pricing and securities lending services, preparation of various filings,
reports, statements and returns filed with government authorities, and
preparation of financial information for the Fund's proxy statements and
semiannual and annual reports to shareholders.

Sub-Administrator. Service and the Fund will enter into a
sub-administration agreement (the "Sub- Administration Agreement") with
Daiwa Securities Trust Company ("DST") under which DST will perform, or
arrange for affiliates or others to perform, subject to Service's
supervision, certain administrative functions in Japan, including
responding to general inquiries from shareholders of the Fund in Japan,
supervising and coordinating the translation and filing of reports to 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 the shareholder servicing and
dividend disbursing agent and Japanese counsel, and supervision and
coordination of proxy solicitation in Japan. For DST's services and
facilities, the Fund will pay DST a monthly fee, payable in arrears in
U.S. dollars, at an annual rate of .10% of the Fund's average daily net
assets. DST is located at One Evertrust Plaza, Jersey City, New Jersey
07302.

PORTFOLIO TRANSACTIONS

The Fund has no obligation to deal with any brokers or dealers in
the execution of transactions in portfolio securities. Subject to
policies established by the Fund's Board of Directors, the Investment
Adviser will be responsible for the Fund's portfolio decisions and the
placing of the Fund's portfolio transactions.

All orders for the purchase or sale of portfolio securities will
be placed on behalf of the Fund by the Investment Adviser pursuant to
authority contained in the Advisory Agreement. The Investment Adviser
also will be responsible for the placement of transaction orders for other
investment companies and accounts for which either of them or their
affiliates act as investment adviser. In selecting broker-dealers,
subject to applicable limitations of the federal securities laws, the
Investment Adviser will consider various relevant factors, including, but
not limited to the size and type of the transaction; the nature and
character of the markets for the security to be purchased or sold; the
execution efficiency, settlement capability, and financial condition of
the broker-dealer firm; the broker-dealer's execution services rendered on
a continuing basis; the reasonableness of any commissions and arrangements
for payment of Fund expenses.

The Fund may execute portfolio transactions with broker-dealers
who provide research and execution services to the Fund or other accounts
over which the Investment Adviser or its affiliates exercise investment
discretion. Such services may include advice concerning the value of
securities; the advisability of investing in, purchasing, or selling
securities; the availability of securities or the purchasers or sellers of
securities; furnishing analyses and reports concerning issuers,
industries, securities, economic factors and trends, portfolio strategy,
and performance of accounts; and effecting securities transactions and
performing functions incidental thereto (such as clearance and
settlement). The selection of such broker-dealers generally is made by
the Investment Adviser (to the extent possible consistent with execution
considerations) in accordance with a ranking of broker-dealers determined
periodically by the Investment Adviser's investment staff based upon its
assessment of the quality of research and execution services provided.

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The receipt of research from broker-dealers that execute
transactions on behalf of the Fund may be useful to the Investment Adviser
in rendering investment management services to the Fund or their other
clients, and conversely, such information provided by broker-dealers who
have executed transaction orders on behalf of other clients of the
Investment Adviser may be useful to the Investment Adviser in carrying out
its obligations to the Fund. The receipt of such research will not reduce
the Investment Adviser's normal independent research activities; however,
it will enable the Investment Adviser to avoid the additional expenses
that could be incurred if the Investment Adviser tried to develop
comparable information through their own efforts.

Subject to applicable limitations of the federal securities laws,
broker-dealers may receive commissions for agency transactions that are in
excess of the amount of commissions charged by other broker-dealers in
recognition of their research and execution services. In order to cause
the Fund to pay such higher commissions, the Investment Adviser must
determine in good faith that such commissions are reasonable in relation
to the value of the brokerage and research services provided by such
executing broker-dealers, viewed in terms of a particular transaction or
the Investment Adviser's overall responsibilities to the Fund and its
other clients. In reaching this determination, the Investment Adviser
will not attempt to place a specific dollar value on the brokerage and
research services provided, or to determine what portion of the
compensation should be related to those services.

The Investment Adviser is authorized to use research services
provided by and to place portfolio transactions with brokerage firms that
have provided assistance in the distribution of shares of the Fund or
shares of other Fidelity funds to the extent permitted by law. The
Investment Adviser may use research services provided by and place agency
transactions with Fidelity Brokerage Services, Inc. ("FBSI") and Fidelity
Brokerage Services, Ltd. ("FBSL"), subsidiaries of FMR Corp., if the
commissions are fair, reasonable, and comparable to commissions charged by
non-affiliated, qualified brokerage firms for similar services.

The Investment Adviser may allocate brokerage transactions to
broker-dealers who have entered into arrangements with the Investment
Manager or the Investment Adviser under which the broker-dealer allocates
a portion of the commissions paid by the Fund toward payment of the Fund's
expenses, such as transfer agency fees or custodian fees. The transaction
quality must, however, be comparable to those of other qualified
broker-dealers.

Section 11(a) of the Securities Exchange Act of 1934 prohibits
members of national securities exchanges from executing exchange
transactions for accounts which they or their affiliates manage, except if
certain requirements are satisfied. Pursuant to such requirements, the
Board of Directors has authorized FBSI to effect Fund portfolio
transactions on national securities exchanges in accordance with approved
procedures and applicable SEC rules.

The Board of Directors periodically will review the Investment
Adviser's performance of its responsibilities in connection with the
placement of portfolio transactions on behalf of the Fund and review the
commissions paid by the Fund over representative periods of time to
determine if they are reasonable in relation to the benefits to the Fund.

From time to time the Board of Directors will review whether the
recapture for the benefit of the Fund of some portion of the brokerage
commissions or similar fees paid by the Fund on portfolio transactions is
legally permissible and advisable. The Fund seeks to recapture soliciting
broker-dealer fees on the tender of portfolio securities, but at present
no other recapture arrangements are in effect. The Board of Directors
intends to continue to review whether recapture opportunities are
available and are legally permissible and, if so, to determine in the
exercise of their business judgment, whether it would be advisable for the
Fund to seek such recapture.

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Investment decisions for the Fund are made independently from
those for other funds and accounts advised or managed by the Investment
Adviser. When two or more funds or accounts managed by the Investment
Adviser are simultaneously engaged in the purchase or sale of the same
security, the prices and amounts are allocated in accordance with a
formula considered by the Investment Adviser to be equitable to each fund.
In some cases this system could adversely affect the size of the position
obtained for or disposed of by the Fund and could have a detrimental
effect on the price or value of a security as far as the Fund is
concerned. In other cases, however, the ability of the Fund to
participate in volume transactions will produce better executions and
prices for the Fund. In addition, because of different investment
objectives, a particular security may be purchased for one or more funds
or accounts when one or more funds or accounts are selling the same
security. It is the current opinion of the Board of Directors that the
desirability of retaining FIIA as Investment Adviser to the Fund outweighs
any disadvantages that may be said to exist from exposure to simultaneous
transactions.

It is expected that the annual portfolio turnover rate of the
Fund will not exceed [150%]. The portfolio turnover rate is calculated by
dividing the lesser of sales or purchases of portfolio securities by the
average monthly value of the Fund's portfolio securities. For purposes of
this calculation, portfolio securities exclude all securities having a
maturity when purchased of one year or less.

DIVIDENDS AND DISTRIBUTIONS; DIVIDEND
REINVESTMENT AND CASH PURCHASE PLAN

The Fund intends to distribute annually to shareholders
substantially all of its net investment income, and to distribute any net
realized capital gains at least annually. Net investment income for this
purpose is income other than net realized long- and short-term capital
gains net of expenses.

Pursuant to the Dividend Reinvestment and Cash Purchase Plan (the
"Plan"), shareholders whose shares of Common Stock are registered in their
own names may elect to have all distributions automatically reinvested by
State Street Bank and Trust Company (the "Plan Agent") in Fund shares
pursuant to the Plan. Shareholders who do not elect to participate in the
Plan will receive distributions in cash paid by check in U.S. dollars
mailed directly to the shareholder by State Street Bank and Trust Company,
as dividend paying agent. In the case of shareholders, such as banks,
brokers or nominees, that hold shares for others who are beneficial
owners, the Plan Agent will administer the Plan on the basis of the number
of shares certified from time to time by the shareholders as representing
the total amount registered in such shareholders' names and held for the
account of beneficial owners that have not elected to receive
distributions in cash. Investors that own shares registered in the name
of a bank, broker or other nominee should consult with such nominee as to
participation in the Plan through such nominee, and may be required to
have their shares registered in their own names in order to participate in
the Plan. Shareholders holding shares of the Common Stock of the Fund
through Japan Securities Clearing Corporation will not be enrolled in the
Plan unless they elect to participate.

The Plan Agent serves as agent for the shareholders in
administering the Plan. If the directors of the Fund declare an income
dividend or a capital gains distribution payable either in the Fund's
Common Stock or in cash, nonparticipants in the Plan will receive cash and
participants in the Plan will receive Common Stock, to be issued by the
Fund or purchased by the Plan Agent in the open market, as provided below.
If the market price per share on the valuation date equals or exceeds net
asset value per share on that date, the Fund will issue new shares to
participants at net asset value; provided, however, if the net asset value
is less than 95% of the market price on the valuation date, then such
shares will be issued at 95% of the market price. The valuation date will
be the dividend or distribution payment date or, if that date is not a New
York Stock Exchange trading day, the next preceding trading day. If net
asset value exceeds the market price of Fund shares at such time, or if
the Fund should declare an income dividend or capital gains distribution
payable only in cash, the Plan Agent will, as agent for the participants,
buy Fund shares in the open market, on the New York Stock Exchange or
elsewhere, for the participants' accounts on, or shortly after, the
payment

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date. If, before the Plan Agent has completed its purchases, the market
price exceeds the net asset value of a Fund share, the average per share
purchase price paid by the Plan Agent may exceed the net asset value of
the Fund's shares, resulting in the acquisition of fewer shares than if
the distribution had been paid in shares issued by the Fund 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 receive the uninvested portion of the dividend amount
in newly issued shares at the close of business on the last purchase date.

Participants have the option of making additional cash payments
to the Plan Agent, annually, in any amount from $100 to $3,000, for
investment in the Fund's Common Stock. The Plan Agent will use all such
funds received from participants to purchase Fund shares in the open
market on or about February 15. Any voluntary cash payment received more
than 30 days prior to this date will be returned by the Plan Agent, and
interest will not be paid on any invested cash payment. To avoid
unnecessary cash accumulations, and also to allow ample time for receipt
and processing by the Plan Agent, it is suggested that participants send
in voluntary cash payments to be received by the Plan Agent approximately
ten days before an applicable purchase date specified above. A
participant may withdraw a voluntary cash payment by written notice, if
the notice is received by the Plan Agent not less than 48 hours before
such payment is to be invested.

The Plan Agent maintains all shareholder accounts in the Plan and
furnishes written confirmations of all transactions in an account,
including information needed by shareholders for personal and tax records.
Shares in the account of each Plan participant will be held by the Plan
Agent in the name of the participant, and each shareholder's proxy will
include those shares purchased pursuant to the Plan.

There is no charge to participants for reinvesting dividends or
capital gains distributions or voluntary cash payments. The Plan Agent's
fees for the reinvestment of dividends and capital gains distributions and
voluntary cash payments will be paid by the Fund. 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 stock
or in cash. However, each participant will pay 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 and
capital gains distributions and voluntary cash payments made by the
participant. Brokerage charges for purchasing small amounts of stock for
individual accounts through the Plan are expected to be less than the
usual brokerage charges for such transactions, because the Plan Agent will
be purchasing stock for all participants in blocks and prorating the lower
commission thus attainable.

The receipt of dividends and distributions under the Plan will
not relieve participants of any income tax which may be payable on such
dividends or distributions. See "Taxation."

Experience under the Plan may indicate that changes in the Plan
are desirable. Accordingly, the Fund and the Plan Agent reserve the right
to terminate the Plan as applied to any voluntary cash payments made and
any dividend or distribution paid subsequent to notice of the termination
sent to members of the Plan at least 30 days before the record date for
such dividend or distribution. The Plan also may be amended by the Fund
or the Plan Agent, but (except when necessary or appropriate to comply
with applicable law, rules or policies of a regulatory authority) only by
at least 30 days' written notice to participants in the Plan. All
correspondence concerning the Plan should be directed to the Plan Agent at
Two Heritage Drive, Quincy, Massachusetts 02171.

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TAXATION

U.S. FEDERAL INCOME TAXES

The Fund intends to elect and to qualify as a regulated
investment company under the Code. To so qualify the Fund must, among
other things: (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, gains from the sale
or other disposition of stock or securities and gains from the sale or
other disposition of foreign currencies, or other income (including gains
from options, futures contracts and forward contracts) derived with
respect to the Fund's business of investing in stocks, securities or
currencies; (b) derive less than 30% of its gross income from the sale or
other disposition of the following assets held for less than three months
- -- (i) stock and securities, (ii) options, futures and forward contracts
(other than options, futures and forward contracts on foreign currencies),
and (iii) foreign currencies (and options, futures and forward contracts
on foreign currencies) which are not directly related to the Fund's
principal business of investing in stocks and securities (or options and
futures with respect to stock or securities); and (c) diversify its
holdings so that, at the end of each quarter, (i) at least 50% of the
value of the Fund's total assets is represented by cash and cash items,
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 in value than 5% of the
Fund's total assets and to not more than 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of the
Fund's total assets is invested in the securities (other than U.S.
Government securities or securities of other regulated investment
companies) of any one issuer or of any two or more issuers that the Fund
controls and that are determined to be engaged in the same business or
similar or related businesses.

As a regulated investment company, the Fund will not be subject
to U.S. federal income tax on its investment company taxable income in
every year that it distributes to its shareholders at least 90% of its
investment company taxable income; however, even if the Fund were to so
distribute at least 90% of its investment company taxable income in such
year, the Fund would be subject to tax on its income and gains to the
extent that it does not distribute to its shareholders an amount equal to
such income and gains. See "Passive Foreign Investment Companies" below.
Investment company taxable income includes dividends, interest and net
short-term capital gains in excess of net long-term capital losses, but
does not include net long-term capital gains in excess of net short-term
capital losses. The Fund intends to distribute annually to its
shareholders substantially all of its investment company taxable income.
If necessary, the Fund may borrow money temporarily or liquidate assets to
make such distributions. Dividend distributions of investment company
taxable income (including distributions from short-term capital gains) are
taxable to a U.S. shareholder as ordinary income to the extent of the
Fund's current and accumulated earnings and profits, whether paid in cash
or in shares. Since the Fund will not invest in the stock of domestic
corporations, distributions to corporate shareholders of the Fund will not
be entitled to the deduction for dividends received by corporations. If
the Fund fails to satisfy the 90% distribution requirement or fails to
qualify as a regulated investment company in any taxable year, it will be
subject to tax in such year on all of its taxable income, whether or not
the Fund makes any distributions to its shareholders.

As a regulated investment company, the Fund also will not be
subject to U.S. federal income tax on its net long-term capital gains, if
any, that it distributes to its shareholders. If the Fund retains for
reinvestment or otherwise an amount of such net long-term capital gains,
it will be subject to a tax of up to 35% of the amount retained. The
Board of Directors of the Fund will determine at least once a year whether
to distribute any net long-term capital gains in excess of net short-term
capital losses and capital loss carryovers from prior years. The Fund
expects to designate amounts retained as undistributed capital gains in a
notice to its shareholders who, if subject to U.S. federal income taxation
on long-term capital gains, (a) will be required to include in income for
U.S. federal income tax purposes, as long-term capital gains, their
proportionate shares of the undistributed amount, and (b) will be entitled
to credit against their U.S. federal income tax liabilities their
proportionate shares of the tax paid by the Fund on the undistributed
amount and to claim refunds to the extent that their credits exceed their
liabilities. For U.S. federal income

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<PAGE> 76

tax purposes, the basis of shares owned by a shareholder of the Fund will
be increased by an amount equal to 65% of the amount of undistributed
capital gains included in the shareholder's income. Distributions of net
long-term capital gains, if any, by the Fund are taxable to its
shareholders as long-term capital gains whether paid in cash or in shares
and regardless of how long the shareholder has held the Fund's shares.
Such distributions of net long-term capital gains are not eligible for the
dividends received deduction. Under the Code, net long-term capital gains
will be taxed at a rate no greater than 28% for individuals and 35% for
corporations. Shareholders will be notified annually as to the U.S.
federal income tax status of their dividends and distributions.

Shareholders receiving dividends or distributions in the form of
additional shares pursuant to the Plan should be treated for U.S. federal
income tax purposes as receiving a distribution in an amount equal to the
amount of money that the shareholders receiving cash dividends or
distributions will receive, and should have a cost basis in the shares
equal to such amount.

If the net asset value of shares is reduced below a shareholder's
cost as a result of a distribution by the Fund, the distribution will be
taxable even if it, in effect, represents a return of invested capital.
Investors considering buying shares just prior to a dividend or capital
gain distribution payment date should be aware that, although the price of
shares purchased at that time may reflect the amount of the forthcoming
distribution, those who purchase just prior to the record date for a
distribution will receive a distribution which will be taxable to them.
The amount of capital gains realized and distributed (which from an
investment standpoint may represent a partial return of capital rather
than income) in any given year will be the result of investment
performance, among other things, and can be expected to vary from year to
year.

If the Fund is the holder of record of any stock on the record
date for any dividends payable with respect to such stock, such dividends
are included in the Fund's gross income not as of the date received but as
of the later of (a) the date such stock became ex-dividend with respect to
such dividends (i.e., the date on which a buyer of the stock would not be
entitled to receive the declared, but unpaid, dividends) or (b) the date
the Fund acquired such stock, either of which date may be earlier than the
date the dividend is received. Accordingly, in order to satisfy its
income distribution requirements, the Fund may be required to pay
dividends based on anticipated earnings, and shareholders may receive
dividends in an earlier year than would otherwise be the case.

Under the Code, the Fund may be subject to a 4% excise tax on a
portion of its undistributed income. To avoid the tax, the Fund must
distribute annually at least 98% of its ordinary income (not taking into
account any capital gains or losses) for the calendar year and at least
98% of its capital gain net income for the 12-month period ending, as a
general rule, on October 31 of the calendar year. For this purpose, any
income or gain retained by the Fund that is subject to corporate income
tax will be treated as having been distributed at year-end. In addition,
the minimum amounts that must be distributed in any year to avoid the
excise tax will be increased or decreased to reflect any
under-distribution or over-distribution, as the case may be, in the
previous year. For a distribution to qualify under the foregoing test,
the distribution generally must be declared and paid during the year. Any
dividend declared by the Fund in October, November or December of any year
and payable to shareholders of record on a specified date in such a month
shall be deemed to have been received by each shareholder on December 31
of such year and to have been paid by the Fund not later than December 31
of such year, provided that such dividend is actually paid by the Fund
during January of the following year.

The Fund will maintain accounts and calculate income by reference
to the U.S. dollar for U.S. federal income tax purposes. If the Fund's
dividends exceed its taxable income in any year, which is sometimes the
result of currency related losses, all or a portion of the Fund's
dividends may be a return of capital to shareholders for tax purposes.
Furthermore, exchange control regulations may restrict the ability of the
Fund to repatriate investment income or the proceeds of sales of
securities. These restrictions and limitations may

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<PAGE> 77

limit the Fund's ability to make sufficient distributions to satisfy the
90% distribution requirement and avoid the 4% excise tax.

The Fund's transactions in foreign currencies, forward contracts,
options and futures contracts (including options and futures contracts on
foreign currencies) will be 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), accelerate recognition of income to the Fund, defer
Fund losses, and affect the determination of whether capital gains and
losses are characterized as long-term or short-term capital gains or
losses. These rules could therefore affect the character, amount and
timing of distributions to shareholders. These provisions also may
require the Fund to mark-to-market certain types of the positions in its
portfolio (i.e., treat them as if they were closed out) which may cause
the Fund to recognize income without receiving cash with which to make
distributions in amounts necessary to satisfy the 90% and 98% distribution
requirements for avoiding income and excise taxes.

The Fund may make investments that accrue income that is not
matched by a current receipt of cash by the Fund, such as investments in
certain obligations having original issue discount (i.e., an amount equal
to the excess of the stated redemption price of the security at maturity
over its issue price), or market discount (i.e., an amount equal to the
excess of the stated redemption price of the security at maturity over its
basis immediately after it was acquired) if the Fund elects to accrue
market discount on a current basis. In addition, income may continue to
accrue for federal income tax purposes with respect to a non-performing
investment. Any of the foregoing income would be treated as income earned
by the Fund and therefore would be subject to the distribution
requirements of the Code. Because such income may not be matched by a
concurrent receipt of cash to the Fund, the Fund may be required to
dispose of other securities to be able to make distributions to its
investors. See the discussion of distribution requirements above. The
extent to which the Fund may liquidate securities at a gain may be limited
by the 30% limitation discussed above.

Upon the sale or exchange of its shares, a shareholder will
realize a taxable gain or loss depending upon the amount realized and the
shareholder's basis in the shares. Such gain or loss will be treated as a
capital gain or loss if the shares are capital assets in the shareholder's
hands, and will be long-term if the shareholder's holding period for the
shares is more than 12 months and otherwise will be short-term. Any loss
realized on a sale or exchange will be disallowed to the extent that the
shares disposed of are replaced (including replacement through the
reinvesting of dividends and capital gains distributions in the Fund)
within a period of 61 days beginning 30 days before and ending 30 days
after the disposition of the shares. In such a case, the basis of the
shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized by a shareholder on the sale of Fund shares held by the
shareholder for six months or less will be treated for federal income tax
purposes as a long-term capital loss to the extent of any distributions of
long-term capital gains received by the shareholder with respect to such
shares.

An amount received by a shareholder from the Fund in exchange for
shares of the Fund (pursuant to a repurchase of shares in a tender offer
or otherwise) generally will be treated as a payment in exchange for the
shares tendered, which may result in taxable gain or loss as described
above. However, if the amount received by a shareholder exceeds the fair
market value of the shares tendered, or if a shareholder does not tender
all of the shares of the Fund owned or deemed to be owned by the
shareholder, all or a portion of the amount received may be treated as a
dividend taxable as ordinary income or as a return of capital. In
addition, if a tender offer is made, shareholders who do not tender their
shares could be deemed, under certain circumstances, to have received a
taxable distribution as a result of their increased proportionate interest
in the Fund.

Backup Withholding

The Fund may be required to withhold federal income tax at a rate
of 31% ("backup withholding") from dividends and redemption proceeds paid
to non-corporate shareholders. This tax may be withheld from

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dividends if (i) the shareholder fails to furnish the Fund with the
shareholder's correct taxpayer identification number (ii) the IRS notifies
the Fund that the shareholder has failed to report properly certain
interest and dividend income to the IRS and to respond to notices to that
effect, or (iii) when required to do so, the shareholder fails to certify
that he or she is not subject to backup withholding. Redemption proceeds
may be subject to withholding under the circumstances described in (i)
above. Backup withholding is not an additional tax. Any amounts withheld
under the backup withholding rules from payments made to a shareholder may
be credited against such shareholder's federal income tax liability.

Passive Foreign Investment Companies

The Fund intends to make investments which may, for federal
income tax purposes, constitute investments in shares of foreign
corporations. If the Fund purchases shares in certain foreign passive
investment entities described in the Code as passive foreign investment
companies ("PFICs"), the Fund will be subject to U.S. federal income tax
at ordinary income tax rates on a portion of any "excess distribution"
(the Fund's ratable share of distributions in any year that exceeds 125%
of the average annual distribution received by the Fund in the three
preceding years or the Fund's holding period, if shorter, and any gain
from the disposition of such shares), even if such income is distributed
as a taxable dividend by the Fund to its shareholders. Additional charges
in the nature of interest may be imposed on the Fund in respect of
deferred taxes arising from such "excess distributions." If the Fund were
to invest in a PFIC and elect to treat the PFIC as a "qualified electing
fund" under the Code (and if the PFIC were to comply with certain
reporting requirements), in lieu of the foregoing requirements the Fund
would be required to include in income each year its pro rata share of the
PFIC's ordinary earnings and net realized capital gains, whether or not
such amounts were actually distributed to the Fund. Such amounts would be
subject to the 90% and calendar year distribution requirements described
above.

Legislation pending in the U.S. Congress would unify and, in
certain cases, modify the anti-deferral rules contained in various
provisions of the Code, including the provisions dealing with PFICs,
related to the taxation of U.S. shareholders of foreign corporations. In
the case of a passive foreign company, as defined in the proposed
legislation ("PFC"), having "marketable stock," the proposed legislation
would require a U.S. shareholder, such as the Fund, owning less than 25%
of a PFC that is not U.S.-controlled to mark-to-market the PFC stock
annually, unless the shareholder elected to include in income currently
its proportionate share of the PFC's income and gain. Otherwise, U.S.
shareholders would be treated substantially the same as under current law.
Special rules applicable to mutual funds would classify as "marketable
stock" all stock in PFCs held by the Fund. It is unclear if or when the
proposed legislation will become law and if it is enacted, the form it
will take. Moreover, on April 1, 1992, proposed regulations of the IRS
were published providing a mark-to-market election for regulated
investment companies that would have effects similar to the proposed
legislation. These regulations would be effective for taxable years
ending after promulgation of the regulations as final regulations. The
IRS subsequently issued a notice indicating that final regulations will
provide that regulated investment companies may elect the mark-to-market
election for tax years ending after March 31, 1992 and before April 1,
1993. Whether and to what extent the notice will apply to taxable years
of the Fund is unclear.

Foreign Tax Credits

The Fund may be subject to certain taxes, including withholding
taxes, imposed by China, Hong Kong or other foreign countries with respect
to its income and capital gains. If the Fund qualifies as a regulated
investment company, if certain distribution requirements are satisfied and
if more than 50% of the value of the Fund's total assets at the close of
any taxable year consists of stock or securities of foreign corporations,
which for this purpose may include obligations of foreign governmental
issuers, the Fund may elect, for U.S. federal income tax purposes, to
treat any foreign country's income or withholding taxes paid by the Fund
that can be treated as income taxes under the U.S. income tax principles,
as paid by its shareholders. The Fund expects to qualify for and make
this election. For any year that the Fund makes such an election, each

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<PAGE> 79

shareholder will be required to include in its income an amount equal to
its allocable share of such income taxes paid by the Fund to a foreign
country's government and shareholders will be entitled, subject to certain
limitations, to credit their portions of these amounts against their U.S.
federal income tax due, if any, or to deduct their portions from their
U.S. taxable income, if any. No deductions for foreign taxes paid by the
Fund may be claimed, however, by non-corporate shareholders (including
certain foreign shareholders described below) who do not itemize
deductions. Shareholders that are exempt from tax under Section 501(a) of
the Code, such as pension plans, generally will derive no benefit from the
Fund's election. However, such shareholders should not be disadvantaged
either because the amount of additional income they are deemed to receive
equal to their allocable share of such foreign countries' income taxes
paid by the Fund generally will not be subject to U.S. federal income tax.

The amount of foreign taxes that may be credited against a
shareholder's U.S. federal income tax liability will generally be limited,
however, to an amount equal to the shareholder's U.S. federal income tax
rate multiplied by its foreign source taxable income. For this purpose,
the Fund generally expects that the capital gains it distributes, whether
as ordinary income dividends or capital gains distributions, will not be
treated as foreign source taxable income. In addition, this limitation
must be applied separately to certain categories of foreign source income,
one of which is foreign source "passive income." For this purpose,
foreign source "passive income" includes dividends, interest, capital
gains and certain foreign currency gains. As a consequence, certain
shareholders may not be able to claim a foreign tax credit for the full
amount of their proportionate shares of foreign taxes paid by the Fund.
Each shareholder will be notified within 60 days after the close of the
Fund's taxable year whether, pursuant to the election described above, the
foreign taxes paid by the Fund will be treated as paid by its shareholders
for that year and, if so, such notification will designate (i) such
shareholder's portion of the foreign taxes paid to such country and (ii)
the portion of the Fund's dividends and distributions that represents
income derived from sources within such country.

Foreign Shareholders

U.S. taxation of a shareholder who, as to the United States, is a
foreign investor depends, in part, on whether the shareholder's income
from the Fund is "effectively connected" with a United States trade or
business carried on by the shareholder.

If the foreign investor is not a resident alien and the income
from the Fund is not effectively connected with a United States trade or
business carried on by the foreign investor, distributions of net
investment income and net realized short-term capital gains will be
subject to a 30% (or lower treaty rate) United States withholding tax.
Furthermore, such foreign investors may be subject to an increased United
States tax on their income resulting from the Fund's election (described
above) to "pass-through" amounts of foreign taxes paid by the Fund, but
will not be able to claim a credit or deduction in the United States with
respect to the foreign taxes treated as having been paid by them.
Distributions of net realized long-term capital gains, amounts retained by
the Fund which are designated as undistributed capital gains, and gains
realized upon the sale of shares of the Fund will not be subject to United
States tax unless a foreign investor who is a nonresident alien individual
is physically present in the United States for more than 182 days during
the taxable year and, in the case of a gain realized upon the sale of Fund
shares, unless (i) such gain is attributable to an office or fixed place
of business in the United States or (ii) such nonresident alien individual
has a tax home in the United States and such gain is not attributable to
an office or fixed place of business located outside the United States.
This rule only applies, however, in exceptional cases because any
individual present in the United States for more than 182 days during the
taxable year generally is treated as a resident for U.S. federal income
tax purposes and as a resident is subject to U.S. federal income tax on
the individual's worldwide income at the graduated rates applicable to
U.S. citizens, rather than to the 30% withholding tax. A determination by
the Fund not to distribute long-term capital gains may reduce a foreign
investor'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, and the foreign investor may not
be able to claim a credit or deduction with respect

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<PAGE> 80

to such taxes. In the case of a foreign investor who is a nonresident
alien individual, the Fund may be required to withhold U.S. federal income
tax at a rate of 31%, unless the foreign investor files an appropriate
form certifying under penalty of perjury as to his nonresident alien
status.

If a foreign investor is a resident alien or if dividends or
distributions from the Fund are effectively connected with a United States
trade or business carried on by the foreign investor, dividends of net
investment income, distributions of net short-term and long-term capital
gains, amounts retained by the Fund that are designated as undistributed
capital gains and any gains realized upon the sale of shares of the Fund
will be subject to United States income tax at the rates applicable to
United States citizens or domestic corporations. If the income from the
Fund is effectively connected with a United States trade or business
carried on by a foreign investor that is a corporation, then such foreign
investor also may be subject to the 30% branch profits tax.

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 investors are advised to consult their own tax
advisers with respect to (a) whether their income from the Fund is or is
not effectively connected with a United States trade or business carried
on by them (b) whether they may claim the benefits of an applicable tax
treaty and (c) any other tax consequences to them of an investment in the
Fund.

Other Taxation

Distributions also may be subject to state, local and foreign
taxes depending on each shareholder's particular position.

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.

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

CHINESE TAXES

[to be reviewed by local counsel]

Income Taxes. Under the Income Tax Law of the People's Republic
of China Concerning Foreign Investment Enterprises and Foreign
Enterprises, which took effect in July 1991, the Fund's income from
dividends and profit distribution of companies in China will be subject to
a maximum 20% income tax collected through withholding. A notice issued
in July 1993 by the State Tax Bureau (the "Notice") provides, inter alia,
that dividends received by foreign investors in respect of their holdings
of B shares, H shares or N shares issued by Chinese companies will not be
subject to income tax (including any Chinese withholding tax) until a new
tax law is promulgated. Under the income tax convention between China and
the United States, the 20% tax rate on dividends may be reduced to 10% if
the Fund is eligible to claim benefits under that treaty. Fund
shareholders will not be subject to Chinese taxes on distributions from
the Fund and on the disposition of Fund shares unless they are residents
of China.

Under current practice, China does not collect taxes on gains
(whether of a capital or trading nature) realized from the sale of shares
in joint stock companies. In addition, a notice issued jointly by the
Ministry

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<PAGE> 81

of Finance and the State Tax Bureau indicated that no such tax will be
imposed through at least 1995. However, pursuant to the Notice, if such
gains were realized by the Fund through an establishment or office in
China, they will form part of the taxable profit of the establishment or
office, although losses from the sale of such shares will also be
deductible. Accordingly, while the matter is not free from doubt, it does
not presently appear that the Fund would be liable for Chinese taxes on
such gains. Practices in China could change prospectively or
retroactively, thereby resulting in taxation in China of the Fund's
realized gains from dispositions of shares in joint stock companies.
Gains realized from the sale of interests in other Chinese companies may
be subject to tax at a maximum 20% rate.

Income Taxation of Chinese Enterprises. Pursuant to the new
income tax regulation issued by the State Council which came into effect
on January 1, 1994, the income tax rate for a joint stock company is 33%.
However, the current income tax rate on most joint stock companies listed
on the SHSE and the SZSE is 15%. Such preferential treatment is approved
by local or central tax authorities.

Transfer Taxes and Fees. The acquisition or sale by the Fund of
B shares in a company listed on the SHSE or the SZSE is subject to a 0.3%
stamp tax and a 0.6% broker's commission on each of the buyer and seller.
The 0.6% broker's commission will be reduced to 0.5% and 0.4%,
respectively, if the transaction value exceeds RMB500,000 and
RMB5,000,000, respectively. Transfer registration fees and transaction
levies will also apply. For a discussion of the rates at which such fees
are imposed, see "The Securities Markets of China and Hong Kong -- The
Shanghai Stock Exchange" and "-- The Shenzhen Stock Exchange." Clearing
fees are handled in accordance with the relevant regulations of the
clearing bank based upon the actual amount cleared. These transfer taxes
and fees are not income or similar taxes and therefore do not qualify as
foreign income taxes that can be passed through to shareholders for U.S.
foreign tax credit purposes.

Business Tax. The Business Tax Tentative Regulations were
promulgated by the State Council on November 28, 1993 and became effective
on January 1, 1994. These new regulations apply to foreign investment
enterprises that provide various labor services and that assign intangible
assets or sell immovable property in China. There are seven different
types of labor services subject to business tax, and the specific tax
rates depend on the industries engaged in. The different industries and
their respective tax rates are as follows: transportation industry (8%),
construction industry (3%), finance and insurance (3%), post and
telecommunications (3%), culture and sports (3%), entertainment industry
(5%-20%) and service industry (5%).

The transfer of intangible assets and the sale of immovable
property are both subject to a 5% business tax.

The Fund may incur the business tax on certain direct investments.

HONG KONG TAXES

[to be reviewed by local counsel]

Taxation of the Fund. The Fund will be subject to Hong Kong
profits tax if it carries on business in Hong Kong and has profits arising
in or derived from Hong Kong as a result of such business. Where such
profits do not arise in or are not derived from Hong Kong, for example
profits from the sale of shares or other securities of, or dividends
received from, companies listed on an exchange outside of Hong Kong, the
Fund will not be liable for Hong Kong profits tax. The profits tax
currently is imposed at the rate of 16.5%. The Fund intends to seek to
minimize its liability for Hong Kong profits tax to the extent
practicable; however, there can be no assurance that the Fund will be able
to do so.

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<PAGE> 82

If the Fund converts to an open-end investment company, it may be
necessary for the Fund to apply for authorization under the Hong Kong
Securities Ordinance. Provided that such application is approved and the
current state of the law still prevails at that time, the Fund's gains and
profits arising from the sale of securities both inside and outside Hong
Kong would be exempt from Hong Kong profits tax.

Taxation of Stockholders. There is no tax in Hong Kong on
capital gains arising from the sale by an investor of shares of the Fund.
However, in the case of certain investors (principally, share traders,
financial institutions and insurance companies carrying on business in
Hong Kong) who are otherwise subject to tax in Hong Kong, such gains may
be considered to be part of the investor's normal business profits and in
such circumstances will be subject to Hong Kong profits tax at the current
rate of 16.5% for corporations and 15% for individuals.

Except in the case of certain investors of the type described
above (who may be considered to be carrying on business in Hong Kong),
dividends which the Fund pays to its stockholders are not taxable in Hong
Kong (whether through withholding or otherwise) under current legislation
and practice.

No Hong Kong stamp duty will be payable in respect of
transactions in the Fund's shares of Common Stock provided that the
register of stockholders is maintained outside of Hong Kong.

NOTICES

Shareholders will be notified annually by the Fund of the
dividends, distributions and deemed distributions made by the Fund to its
shareholders. Furthermore, shareholders will be sent, if appropriate,
various written notices after the close of the Fund's taxable year
regarding certain dividends, distributions and deemed distributions that
were paid (or that were treated as having been paid) by the Fund to its
shareholders during the preceding taxable year.

PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT THEIR OWN TAX
ADVISERS CONCERNING FOREIGN, FEDERAL, STATE AND LOCAL TAX MATTERS, AND
WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF AN INVESTMENT
IN THE FUND.

NET ASSET VALUE

Net asset value will be determined daily by dividing the value of
the net assets of the Fund (the value of its assets less its liabilities
including borrowings, exclusive of capital stock and surplus) by the total
number of shares of Common Stock outstanding. Portfolio securities may be
valued by various methods depending on the primary market or exchange on
which they trade. Most equity securities for which the primary market is
the United States will be valued at the last sale price or, if no sale has
occurred, at the closing bid price. Equity securities for which the
primary market is outside the United States will be valued using the
official closing price or the last sale price in the principal market
where they are traded. If the last sale price (on the local exchange) is
unavailable, the last evaluated quote or last bid price normally will be
used. Short-term securities will be valued either at amortized cost or at
original cost plus accrued interest, both of which approximate current
value. Convertible securities and fixed-income securities will be valued
primarily by a pricing service that uses a vendor security valuation
matrix which incorporates both dealer-supplied valuations and electronic
data processing techniques. This two-fold approach is believed to more
accurately reflect fair value because it takes into account appropriate
factors such as institutional trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, trading
characteristics, and other market data, without exclusive reliance upon
quoted, exchange, or over-the-counter prices. Use of pricing services has
been approved by the Board of Directors.

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<PAGE> 83

Securities and other assets for which there is no readily
available market will be valued in good faith by a committee appointed by
the Board of Directors. The procedures set forth above need not be used
to determine the value of the securities owned by the Fund if, in the
opinion of a committee appointed by the Board of Directors, some other
method (e.g., closing over-the-counter bid prices in the case of debt
instruments traded on an exchange) would more accurately reflect the fair
market value of such securities.

Generally, the valuation of foreign and domestic equity
securities, as well as corporate bonds, U.S. government securities, money
market instruments, and repurchase agreements, will be substantially
completed each day at the close of the NYSE. The values of any such
securities held by the Fund are determined as of such time for the purpose
of computing the Fund's net asset value. Foreign security prices are
furnished by independent brokers or quotation services which express the
value of securities in their local currency. Fidelity Service Company
gathers all exchange rates daily at the close of the NYSE using the last
quoted price on the local currency and then translates the value of
foreign securities from their local currency into U.S. dollars. Any
changes in the value of forward contracts due to exchange rate
fluctuations and days to maturity are included in the calculation of net
asset value. If an extraordinary event that is expected to materially
affect the value of a portfolio security occurs after the close of an
exchange on which that security is traded, then the security will be
valued as determined in good faith by a committee appointed by the Board
of Directors.

DESCRIPTION OF CAPITAL STOCK

COMMON STOCK

The authorized capital stock of the Fund is 100,000,000 shares of
Common Stock ($.001 par value). The Common Stock, when issued, will be
fully paid and nonassessable. All shares of Common Stock are equal as to
dividends, distributions and voting privileges. There are no conversion,
preemptive or other subscription rights. In the event of liquidation,
each share of Common Stock is entitled to its proportion of the Fund's
assets after payment of all debts and expenses and any preferential
liquidating distributions to holders of any preferred stock issued by the
Fund. There are no cumulative voting rights for the election of
directors. Prior to the Offering, the Investment Manager will own 100% of
the outstanding shares of Common Stock of the Fund and, consequently, will
be a controlling person of the Fund until the shares offered hereby are
issued and sold.

The Fund's Board of Directors has the authority to classify and
reclassify any authorized but unissued shares of capital stock and to
establish the rights and preferences of such unclassified shares. The
Fund has no present intention of offering additional shares of its Common
Stock except in connection with the Plan. See "Dividends and
Distributions: Dividend Reinvestment and Cash Purchase Plan." Other
offerings of its Common Stock, if made, will require approval of the
Fund's Board of Directors. Any additional offering will be subject to the
requirements of the 1940 Act that shares of Common Stock may not be sold
at a price below the then current net asset value (exclusive of
underwriting discounts and commissions) except in connection with an
offering to existing shareholders or with the consent of a majority of the
Fund's outstanding Common Stock.

The Fund's shares of Common Stock will trade in the open market
at a price which is a function of several factors, including their net
asset value and yield. The shares of closed-end investment companies
frequently sell at a discount from, but sometimes at or at a premium over,
their net asset values. See "Risk Factors and Special Considerations."
There can be no assurance that it will be possible for investors to resell
shares of the Fund at or above the price at which shares are offered by
this Prospectus or that the market price of the Fund's shares will equal
or exceed net asset value. The Fund may from time to time repurchase its
shares at prices below their net asset value or make a tender offer for
its shares. While this may have the

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<PAGE> 84

effect of increasing the net asset value of those shares that remain
outstanding, the effect of such repurchases on the market price of the
remaining shares cannot be predicted.

Any offer made by the Fund to repurchase its shares of Common
Stock will be at a price equal to the net asset value of the Common Stock
on a date subsequent to the Fund's receipt of all tenders. During the
pendency of any tender offer by the Fund, the Fund will calculate daily
the net asset value of the Common Stock and will establish procedures
which will be specified in the tender offer documents, to enable
shareholders to ascertain readily such net asset value. Each offer will
be made and shareholders notified in accordance with the requirements of
the Securities Exchange Act of 1934 and the 1940 Act, either by
publication or mailing or both. Each offering document will contain such
information as is prescribed by such laws and the rules and regulations
promulgated thereunder, including information for shareholders to consider
in deciding whether to tender shares of Common Stock and detailed
instructions on how to tender such shares of Common Stock. When a tender
offer is authorized to be made by the Fund's Board of Directors, a
shareholder wishing to accept the offer will be required to tender all
(but not less than all) of the shares of Common Stock owned by such
shareholder (or attributed to him for U.S. federal income tax purposes
under Section 318 of the Code) unless the Fund has received a ruling from
the Internal Revenue Service, or an opinion satisfactory to it, that a
tender of less than all of a shareholder's shares of Common Stock will not
cause certain adverse tax consequences with respect to non-tendering
shareholders. There can be no assurance that the Fund will receive such a
ruling or opinion.

In addition, if Fund shares are trading at a discount from net
asset value, the Board of Directors of the Fund may also consider whether
to submit to stockholders a proposal that the Fund be converted to an
open-end investment company. Any such proposal would generally require
the favorable votes of three-fourths of the Fund's outstanding shares then
entitled to vote and of the directors as specified under "--Special Voting
Provisions." Shareholders of an open-end investment company may require
the company to redeem their shares at any time (except in certain
circumstances as authorized by or under the 1940 Act) at their net asset
value, less such redemption charge, if any, as might be in effect at the
time of redemption. The Board of Directors of the Fund, may, however,
determine that the Fund should not take any action to convert the Fund to
an open-end investment company. In light of the position of the
Commissions' staff that illiquid securities may not exceed 15% of total
assets of a registered open-end investment company, any attempt to convert
the Fund to such a company would have to take into account the percentage
of illiquid securities in the Fund's portfolio at the time, and other
factors. The Fund cannot predict whether on this basis it would be able
to effect any such conversion or whether, if relief from the Commission's
position was required, it could be obtained.

If the Fund must liquidate portfolio securities in order to
purchase shares of Common Stock tendered, the Fund may realize gains and
losses. Such gains may be realized on securities held for less than three
months. Because the Fund, as a regulated investment company under the
Code, may not derive 30% or more of its gross income from the sale or
disposition of stocks and securities held less than three months, such
gains would reduce the ability of the Fund to sell other securities held
for less than three months that the Fund may wish to sell in the ordinary
course of its portfolio management, which may adversely affect the Fund's
yield. See "Taxation -- U.S. Federal Income Taxes." The portfolio
turnover rate of the Fund may or may not be affected by the Fund's
repurchases of Shares pursuant to a tender offer.

SPECIAL VOTING PROVISIONS

The Fund presently has provisions in its Articles of
Incorporation and By-Laws which may have the effect of limiting the
ability of other entities or persons to acquire control of the Fund, to
cause it to engage in certain transactions, or to modify its structure.

Under these provisions, a director may be removed from office
only for cause by vote of at least 75% of the shares of capital stock
entitled to be voted on the matter. Also conversion of the Fund from a

81
<PAGE> 85

closed-end to an open-end investment company requires approval of 75% of
the entire Board of Directors and the affirmative vote of holders of at
least 75% of the Common Stock outstanding unless it is approved by a vote
of 75% of the Continuing Directors (as defined below), in which event such
conversion requires the approval of the holders of a majority of the
outstanding Common Stock. A "Continuing Director" is any member of the
Board of Directors of the Fund who is not a person or affiliate of a
person who enters or proposes to enter into a Business Combination (as
defined below) with the Fund (an "Interested Party") and who has been a
member of the Board of Directors for a period of at least 12 months, or
has been a member of the Board of Directors since April 1, 1994, or is a
successor of a Continuing Director who is unaffiliated with an Interested
Party and is recommended to succeed a Continuing Director by a majority of
the Continuing Directors then on the Board of Directors of the Fund.

In addition, at the Fund's first annual stockholders meeting, the
Board of Directors will be classified into three classes, each with a term
of three years with only one class of directors standing for election in
any year. Commencing on the date of the annual meeting of stockholders in
the year 2000, the Board of Directors will no longer be divided into
classes and each director will stand for election at such meeting and at
each annual meeting of stockholders held thereafter. Such classification
may prevent replacement of a majority of the directors for up to a
two-year period while the classification is in effect.

Additionally, the affirmative vote of 75% of the entire Board of
Directors and the holders of at least (i) 75% of the Common Stock and (ii)
in the case of a Business Combination (as defined below), 66% of the
Common Stock other than Common Stock held by an Interested Party who is
(or whose affiliate is) a party to a Business Combination (as defined
below) or an affiliate or associate of the Interested Party, are required
to authorize any of the following transactions:

(i) merger, consolidation or statutory share
exchange of the Fund with or into any other person;

(ii) issuance or transfer by the Fund (in one or a
series of transactions in any 12 month period) of any securities
of the Fund to any person or entity for cash, securities or other
property (or combination thereof) having an aggregate fair market
value of $1,000,000 or more, excluding issuances or transfers of
debt securities of the Fund, sales of securities of the Fund in
connection with a public offering, issuances of securities of the
Fund pursuant to a dividend reinvestment plan adopted by the Fund
and issuances of securities of the Fund upon the exercise of any
stock subscription rights distributed by the Fund and portfolio
transactions effected by the Fund in the ordinary course of its
business;

(iii) sale, lease, exchange, mortgage, pledge,
transfer or other disposition by the Fund (in one or a series of
transactions in any 12 month period) to or with any person or
entity of any assets of the Fund having an aggregate fair market
value of $1,000,000 or more except for portfolio transactions
(including pledges of portfolio securities in connection with
borrowings) effected by the Fund in the ordinary course of its
business (transactions within clauses (i), (ii) and (iii) above
being known individually as a "Business Combination");

(iv) the voluntary liquidation or dissolution of the
Fund, or an amendment to the Fund's Articles of Incorporation, to
terminate the Fund's existence; or

(v) unless the 1940 Act or federal law requires a
lesser vote, any stockholder proposal as to specific investment
decisions made or to be made with respect to the Fund's assets as
to which stockholder approval is required under federal or
Maryland law.

However, the stockholder vote described above will not be
required with respect to the foregoing transactions (other than those set
forth in (v) above) if they are approved by a vote of 75% of the
Continuing

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<PAGE> 86

Directors. In that case, if Maryland law requires stockholder approval,
the affirmative vote of a majority of the votes entitled to be cast
thereon shall be required.

Reference is made to the Articles of Incorporation and By-Laws of
the Fund, on file with the Commission, for the full text of these
provisions. See "Further Information."

CUSTODIAN, TRANSFER AGENTS, DIVIDEND PAYING AGENTS AND REGISTRARS

The Chase Manhattan Bank, N.A., 1211 Avenue of the Americas, New
York, New York 10036, will act as custodian for the Fund's assets. The
Chase Manhattan Bank, N.A. may designate foreign sub-custodians approved
by the Fund's Board of Directors in accordance with the regulations of the
SEC. State Street Bank and Trust Company will act as the transfer agent,
dividend paying agent and registrar for the Fund's Common Stock.

______________________ will act as the Fund's shareholder
servicing and dividend disbursing agent for the Fund's Common Stock
beneficially owned by investors in Japan.

UNDERWRITING

The U.S. Underwriters named below, acting through Daiwa
Securities America Inc. and Kemper Securities, Inc. as their
representatives (the "U.S. Representatives"), 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
Shares set forth below opposite their respective names. The U.S.
Underwriters are committed to purchase all of such Shares if any are
purchased.

<TABLE>
<CAPTION>
Number of
U.S. Underwriters U.S. Shares
----------------- --------------
<S> <C>
Daiwa Securities America Inc. . . . . . . . . . . . . . . . . . . . . . . . . . .
Kemper Securities, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
==============

</TABLE>
The Fund has also entered into an underwriting agreement (the
"Japanese Underwriting Agreement," together with the U.S. Underwriting
Agreement, the "Underwriting Agreements") with a group of underwriters
(the "Japanese Underwriters," together with the U.S. Underwriters, the
"Underwriters") led by Daiwa Securities Co. Ltd. (the "Japanese
Representative"). Subject to the terms and conditions set forth in the
Japanese Underwriting Agreement, the Fund has agreed to sell to the
Japanese Underwriters, and the Japanese Underwriters have agreed to
purchase, an aggregate of _______ Shares.

The U.S. Underwriters and the Japanese Underwriters have entered
into an agreement (the "Intersyndicate Agreement") providing for the
coordination of their activities under the direction of [Kemper
Securities, Inc.], acting on behalf of the U.S. Underwriters and the
Japanese Underwriters. Pursuant to the Intersyndicate Agreement, the U.S.
Underwriters and the Japanese Underwriters will not offer to sell or sell
Japanese Shares to anyone outside of Japan. The foregoing limitations do
not apply to stabilization transactions or to certain other transactions
specified in the Intersyndicate Agreement. Pursuant to the

83
<PAGE> 87

Intersyndicate Agreement, sales may be made among any of 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. Representatives and the Japanese Representative have
advised the Fund that they propose initially to offer the 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 of ______ or more Shares in the U.S.
Offering, subject to the following. Purchasers who agree to purchase
Shares in the U.S. Offering at the reduced price will be restricted from
selling, assigning or otherwise transferring or contracting to sell,
assign or otherwise transfer those Shares for a period of 90 days after
the closing of the offering. The minimum investment is 100 Shares (U.S.
$1,500), except that there is no minimum investment for purchases for
Individual Retirement Accounts and other retirement plans. In addition,
the U.S. Representatives have advised the Fund that they propose to offer
the Shares to certain dealers at such price less a concession not in
excess of $____ per share in the U.S. Offering ($____ per share for
purchases in single transactions of _____ or more Shares in the U.S.
Offering). The U.S. Underwriters may allow, and such dealers may reallow,
a concession not in excess of $______ per share to certain other dealers
(______ per share for purchases in single transactions of ______ or more
Shares in the U.S. Offering). The sales load is equal to ___% of the
initial public offering price (____% in the case of purchases in single
transactions of ______ or more Shares). After the initial public
offering, the public offering price, concession and allowance may be
changed. Investors purchasing Shares from the U.S. Underwriters in the
initial public offering must pay for such Shares on or before ____________,
1994.

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 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 a "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 of
the Fund 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 card holders of a company, policyholders of an
insurance company or noninvestment advisory customers of a bank.

Prior to the Offering, there has been no public market for the
Shares. The Fund intends to make an application to list its Shares on the
New York Stock Exchange. In order to meet the requirements for listing,
the U.S. Underwriters have undertaken to sell lots of 100 or more Shares
to a minimum of 2,000 beneficial holders, as prescribed by the New York
Stock Exchange.

The Fund intends to make an application to list its shares on the
Osaka Securities Exchange. In order to meet one of the requirements for
listing of the Shares on the Osaka Securities Exchange, the Japanese
Underwriters will undertake to sell Shares to a minimum of 600 investors
in Japan.

During an initial period which is not expected to exceed five
days from the date of this Prospectus, the Fund's shares will not be
listed on any securities exchange. During such period, neither the U.S.
Underwriters nor the Japanese Underwriters intend to make a market in the
Fund's Shares. Consequently, it is anticipated that an investment in the
Fund will be illiquid during such period.

The Fund has agreed to pay the Underwriters up to $________ in
partial reimbursement of actual expenses incurred in connection with the
Offering.

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<PAGE> 88

The U.S. Underwriters have been granted an option, exercisable
for 45 days from the date of this Prospectus, by the Fund, to purchase up
to an aggregate of________ 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 Underwriters exercise
their option, each U.S. 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 currently anticipate that a substantial
portion of the Shares will be sold outside the United States. The U.S.
Underwriters' ability to engage in stabilization may be adversely affected
by trading in the Shares on the Osaka Securities Exchange.

The Fund, the Investment Manager and the Investment Adviser have
agreed to indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act.

The Sub-Administrator is an affiliate of Daiwa Securities America
Inc. and will receive compensation for its services to the Fund.

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

The settlement date for the U.S. Offering and the Japanese
Offering is scheduled to occur on the same day. The proceeds to the Fund
in each of the U.S. Offering and the Japanese Offering will be $_____per
Share.

EXPERTS

The financial statement of the Fund included in this Prospectus
has been so included in reliance on the report of Price Waterhouse LLP,
160 Federal Street, Boston, Massachusetts 02110, the Fund's 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 Rogers & Wells, New York, New York and certain legal matters
will be passed upon for the Underwriters by Brown & Wood. Counsel for the
Fund and the Underwriters will rely, as to matters of Maryland law, on
Piper & Marbury, Baltimore, Maryland. With respect to all matters of the
laws of China and Hong Kong, counsel for the Fund and counsel for the
Underwriters will rely on ____________________ and ______________,
respectively.

FURTHER INFORMATION

Further information concerning these securities and their issuer
may be found in the Registration Statement of which this Prospectus
constitutes a part on file with the Commission. Current holdings and
recent investment strategies will be described in the Fund's financial
reports, which will be sent to shareholders twice a year.

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<PAGE> 89

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholder and Board of Directors of
FIDELITY ADVISOR CHINA FUND, INC.

In our opinion, the accompanying statement of assets and
liabilities presents fairly, in all material respects, the financial
position of Fidelity Advisor China Fund, Inc. (the "Fund") at
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.

PRICE WATERHOUSE LLP
Boston, Massachusetts
______________, 1994

86
<PAGE> 90

FIDELITY ADVISOR CHINA FUND, INC. (NOTE 1)

STATEMENT OF ASSETS AND LIABILITIES
, 1994
<TABLE>
<S> <C>
Assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Deferred organization expenses (Note 2) . . . . . . . . . . . . . .
------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . $

Liabilities:
Accrued organization expenses (Note 2) . . . . . . . . . . . . . . $
Commitments (Notes 2 and 3) . . . . . . . . . . . . . . . . . . . .
-----------
Net Assets (____ shares of $.001 par value shares of common stock
issued and outstanding; 100,000,000 shares authorized) . . . . . . . $
==========
Net asset value per share . . . . . . . . . . . . . . . . . . . . . . $
==========
</TABLE>

NOTES TO FINANCIAL STATEMENT

NOTE 1

Fidelity Advisor China Fund, Inc. (the "Fund") was incorporated as
a Maryland corporation on September 29, 1994 and has had no operations to
date other than matters relating to its organization and registration as a
non-diversified, closed-end management investment company under the
Investment Company Act of 1940, as amended, and the sale and issuance to
Fidelity Management & Research Company (the "Investment Manager") of______
shares of its common stock for an aggregate purchase price of $_________.
The books and records of the Fund will be maintained in U.S. dollars.

NOTE 2

Organization expenses relating to the Fund incurred and to be
incurred by the Investment Manager will be reimbursed by the Fund. Such
expenses, estimated at $________, will be deferred and amortized on a
straight-line basis for a five-year period beginning at the commencement
of operations of the Fund. Offering costs, estimated at $________, will
be paid from the proceeds of the offering and charged to capital at the
time of the issuance of such shares.

NOTE 3

The Fund will enter into a management agreement with the Investment
Manager, pursuant to which the Investment Manager will, among other
things, supervise the Fund's investment program and monitor the
performance of the Fund's service providers.

The Investment Manager will enter into an investment advisory
agreement with Fidelity International Investment Advisors (the "Investment
Adviser"), an affiliate of the Investment Manager, pursuant to which the
Investment Adviser is responsible for the management of the Fund's
portfolio in accordance with the Fund's investment policies and for making
decisions to buy, sell, or hold particular securities.

Fidelity Service Co., a division of FMR Corp., the parent company
of the Investment Manager, will serve as the Fund's administrator pursuant
to the terms of an Administration Agreement. The Fund will pay

87
<PAGE> 91

Fidelity Service Co. a monthly fee at an annual rate of .10% of the Fund's
average daily net assets for its services.

The Fund will pay the Investment Manager a monthly fee for its
management services at an annual rate of 1.00% of the Fund's average daily
net assets. The Investment Manager will pay the Investment Adviser a
monthly fee for its advisory services equal to 60% of the fees paid by the
Fund to the Investment Manager. The Investment Adviser will pay the
Sub-Adviser a fee equal to 50% of the fee paid to the Investment Adviser
with respect to assets managed by the Sub-Adviser on a discretionary basis
and 30% of the fee paid to the Investment Adviser with respect to assets
managed by the Sub-Adviser on a non-discretionary basis.

Certain officers and/or directors of the Fund are officers and/or
directors of the Investment Manager or the Investment Adviser.

88
<PAGE> 92

APPENDIX A

THE PEOPLE'S REPUBLIC OF CHINA AND HONG KONG

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; furthermore, no
representation is made that any correlation exists between the People's
Republic of China, Hong Kong or their economies in general and the performance
of the Fund.

THE PEOPLE'S REPUBLIC OF CHINA

GENERAL INFORMATION

GEOGRAPHY AND POPULATION

The People's Republic of China was founded on October 1, 1949. Its
capital is Beijing. China is situated in the eastern part of Asia and borders
Russia, Mongolia, Kazakhstan and Kyrgyzstan in the north, Tajikistan,
Afghanistan, Pakistan, India, Nepal and Bhutan in the west, Myanmar, Laos and
Vietnam in the south and Korea and the Pacific Ocean in the east. China
extends approximately 3,400 miles from north to south and 3,200 miles from east
to west, occupying a territory of approximately 3.7 million square miles, or
one-fifteenth of the world's total land area. In terms of land mass, China is
the third largest country in the world.

China has a widely varied topography, with mountain ranges and
highlands located generally in the west, and plains and river basins located
generally in the east. The terrain is divided into mountainous areas (33%),
plateaus (26%), river basins (19%), plains (12%) and rolling hills (10%).
There are three principal river basin systems in eastern China: the Yellow
River in the north, the Yangtze River in central China and the Pearl River in
the south, each of which supports intensive agricultural, industrial and
transportation activities. In 1992, total arable land in China was 235.7
million acres (approximately 10% of the total area, while forest areas
accounted for 317.8 million acres (approximately 13.4% of the total area).

China extends over tropical, subtropical and temperate zones; however,
most of the country's land mass and population are located in the temperate
zone.

China's total population increased from approximately 542 million in
1949 to approximately 1.19 billion at the end of 1993, making China, with
one-fifth of the world's population, the world's most populous country. Over
the last 40 years, there has been a significant increase in the urban
population of China. In 1949, urban population accounted for 10.6% of the
total population, while it accounted for 28.1% of the total population as of
the end of 1993. The population increase has created demands on the Chinese
economy that have been difficult to satisfy in such areas as housing,
education, mass transit and employment. In order to control population growth,
the Government of China (the "Government") has adopted a policy of family
planning and encourages each couple to have only one child. This policy has
resulted in the annual rate of population growth declining from 3.33% in 1963
(the highest annual growth rate since 1949) to 1.15% in 1993. In 1991, people
under 20 years of age represented 37.1% of the total population of China while
people from 20 to 39 years of age represented 35.5%, people from 40 to 59 years
of age represented 18.2%, and people 60 years of age and older represented 9.2%
of the total population of China. The average age of the Chinese population is
expected to increase as a result of the reduction in population growth rate and
an increased average life expectancy (70 years in 1993 compared to 36 years in
1949) due to improved medical care and other factors.

A-1
<PAGE> 93
GOVERNMENTAL STRUCTURE

China has one of the world's oldest civilizations, with its origins in
the second millennium B.C. The first unified Chinese state was established in
approximately 200 B.C. under the Qin Dynasty. Imperial China was transformed
gradually after 1840 to a semi-colonial and semi- feudal country. In 1911, a
revolution led by Dr. Sun Yat-sen overthrew the Qing Dynasty, the last feudal
dynasty of China, and the Republic of China was founded. As a result of the
Chinese Revolution in 1949, the People's Republic of China was founded by the
Communist Party of China (the "CPC") in 1949. The CPC has since been the
governing political party.

The Government is organized pursuant to the Chinese constitution (the
"Constitution"), the first of which was adopted in 1954 and was subsequently
replaced by the 1978 and 1982 constitutions, the last of which was amended in
1988 and 1993. The Constitution provides that China may be divided into
political subdivisions, which currently consist of 23 provinces, five
autonomous regions (Inner Mongolia, Guangxi, Ningxia, Xinjiang and Tibet) and
three municipalities directly under the administration of the Central
Government (Beijing, Tianjin and Shanghai) and 2,171 counties. The four
principal levels of Government administration are the central, the provincial
(which includes provinces, autonomous regions and the three directly
administered municipalities), the county and the township. The primary
legislative bodies are the people's congresses, which are organized at each
level. The delegates of the people's congress at the central level, the
National People's Congress (the "NPC"), are elected, in part, by the delegates
of the people's congresses at lower levels. As used herein, "Central
Government" means the central level of governmental administration and "Local
Government" means the provincial, county and township levels. In addition to
the NPC, the other principal Government organs are the State Council, the
Central Military Commission of China (the "Central Military Commission"), the
Office of the President of China (the "President"), the People's Courts at both
the Central Government and Local Government levels, and the People's
Procuratorates at both the Central Government and Local Government levels.

INTERNATIONAL RELATIONS AND INTERNATIONAL ORGANIZATIONS

International Relations. China is a permanent member of the United
Nations Security Council. China has established diplomatic relations with more
than 150 countries and trade relations with more than 180 countries and
regions, of which more than 80 countries have signed trade agreements with
China.

In recent years, China has improved its diplomatic relations with
neighboring and other countries. Relationships with India have improved
significantly, resulting in recent state visits by the Indian Prime Minister to
China and by the Chinese Premier to India. The normalization of
Sino-Vietnamese diplomatic relations led to a visit to Vietnam by Premier Li
Peng in November 1992. China established full diplomatic relations with Saudi
Arabia in 1990, South Korea in 1992 and Israel in 1993.

In December 1984, the governments of China and the United Kingdom
entered into an agreement, known as the Joint Declaration on the Question of
Hong Kong (the "Hong Kong Joint Declaration"), pursuant to which China will
resume the exercise of sovereignty over Hong Kong on July 1, 1997. The Hong
Kong Joint Declaration further provides that the present social and economic
system in Hong Kong will remain unchanged for 50 years after 1997, under the
policy of "one country, two systems." Until July 1, 1997, China and the United
Kingdom are both responsible for the prosperity and stability of Hong Kong. In
1990, the NPC adopted the People's Republic of China's Basic Law of the Hong
Kong Special Administrative Region (the "Basic Law"). The Basic Law is
intended to serve as a quasi-constitution for the Hong Kong Special
Administrative Region as of July 1, 1997. Under the Basic Law, the Hong Kong
Special Administrative Region is to have its own legislature and legal and
judicial system and full economic autonomy for 50 years. Although China and
the United Kingdom have for years been working together in many areas to ensure
a smooth return of sovereignty over Hong Kong to China, China and the United
Kingdom have yet to resolve differences on, among other issues, the nationality
status of certain Hong Kong residents and

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election reforms and the status of and membership in certain of Hong Kong's key
political institutions following July 1, 1997.

On April 13, 1987, the governments of China and Portugal entered into
an agreement, known as the Joint Declaration on the Question of Macau (the
"Macau Joint Declaration"), affirming that China will resume the exercise of
sovereignty over Macau on December 20, 1999, and that China will practice the
policy of "one country, two systems" in Macau. The principles of the Macau
Joint Declaration were adopted in the People's Republic of China's Basic Law of
the Macau Special Administrative Region which was promulgated by the NPC on
March 31, 1993.

China and the United States extend to each other Most Favored Nation
("MFN") trading status. On May 28, 1993, the President of the United States
signed an executive order which renewed China's MFN status for another year,
but set certain conditions governing the renewal of such status in June 1994.
On June 2, 1994, the President made a determination that China's MFN status be
renewed for another year without such conditions. In making such
determination, the President also announced that the United States would no
longer link the annual extension of MFN status for China to non-trade
conditions such as those set forth in the May 28, 1993 executive order. With
respect to other trade areas, the Government has taken a series of measures to
bring its trade and foreign exchange regulatory regime in line with
international standards with the objective of, among other things, resuming its
status as a contracting party to the General Agreement on Tariffs and Trade
("GATT") as early as 1994. See "Foreign Trade and Balance of Payments--Most
Favored Nation Status and GATT."

International Organizations. China is a member of many international
organizations, including the United Nations, the International Monetary Fund
(the "IMF"), the Asian Development Bank ("ADB"), the African Development Bank
(the "AFDB"), the World Bank Group and the Asia and Pacific Economic Council
("APEC").

HISTORICAL OVERVIEW

Since the founding of the People's Republic of China in 1949 following
the Chinese Revolution, China has undergone and continues to undergo
significant political, economic and social changes. See "The Chinese
Economy--Economic Reforms." A series of changes from the largely agrarian,
semi-feudal, semi-colonial society that existed prior to 1949 to a centralized
economic and social system and, since 1978, to a more open economy and, most
recently, to a "socialist market economy," have occurred in a country having
the largest population in the world. During the course of this development,
there have occurred periodic disruptions, some of which, such as the "Great
Leap Forward" movement coupled with severe natural disasters between 1958 and
1961 and the "Cultural Revolution" between 1966 and 1976, have caused
significant economic difficulties for China.

THE CHINESE ECONOMY

ECONOMIC OVERVIEW

Since 1949, China has developed and operated a centrally planned
economy, managed in part through a series of five-year economic and social
development plans (each a "Five-Year Plan") formulated by the State Council.
Each Five-Year Plan sets overall agricultural, industrial, financial and other
economic and social development targets. In implementing the Five-Year Plans,
the State Planning Commission (the "SPC"), a commission directly under the
State Council, established specific annual production and development targets,
formulates and supervises the implementation of annual plans designed to
achieve those targets and approves major economic projects. Although developed
within the framework of Central

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Government plans, the economy has also been characterized by Local Government
autonomy with respect to the development of certain sectors.

China historically has had an agrarian economy. In 1993,
approximately 73% of its labor force lived in rural areas. Since the
establishment of the People's Republic of China in 1949, the Government has
fostered growth in the industry and construction sector as well as the
continued vitality of the agriculture sector. More recently, the services
sector (including commerce, transportation and telecommunications) has
experienced substantial growth. In 1993, industry and construction accounted
for approximately 52% of China's GDP, while agriculture accounted for
approximately 21% of GDP and the services sector accounted for approximately
27% of GDP. In 1992, China was the world's eleventh largest economy and the
second largest in Asia in terms of GDP.

The principal participants in the Chinese economy (which, in part,
overlap) are enterprises ("State-owned enterprises") wholly owned by the people
of China acting through the Government (the "State"); collective enterprises
owned by local groups for which the Government is not responsible for wages or
similar obligations ("collectively owned enterprises"); businesses operated by
private individuals ("privately owned enterprises"); joint stock companies,
including joint stock companies that are subject to varying degrees of State
ownership; and enterprises owned at least 25% by foreign individuals or foreign
companies ("foreign-invested enterprises" or "FIEs"). State-owned enterprises
continue to constitute the largest sector of the economy. In 1992, State-owned
enterprises, located mostly in urban areas, accounted for approximately 48% of
China's total industrial gross output value, while collectively owned
enterprises, predominantly located in rural areas, accounted for approximately
38%. The private sector, which generally comprises service industries and
operates in both rural and urban areas, accounted for approximately 6.8%, and
joint stock companies, FIEs and joint ventures among State-owned enterprises,
collectively owned enterprises and privately owned enterprises (such joint
ventures, "cooperative enterprises") together accounted for approximately 7.1%
of total industrial gross output value in 1992.

ECONOMIC REFORMS

China's "open-door" policy and economic reform programs were formally
adopted at the Third Plenary Session of the Central Committee of the 11th
National Party's Congress in December 1978. Although the initial reform
programs embraced comprehensive policies and long-term objectives,
implementation has occurred gradually over the last 15 years. Overall, the
reform programs are intended to transform China's centrally planned economy
into a market-oriented economy with an effective macro-economic control system,
a modern enterprise system and an equitable system of income distribution and
social security.

The Government has repeatedly affirmed China's commitment to
continuing economic reform. In October 1992, the 14th National Party's
Congress of the CPC declared that China would adopt a "socialist market
economy" in which market forces would play a significant role, while the
Government would set economic targets and guide growth through macro-economic
regulations. Moreover, the National People's Congress adopted an amendment to
the Constitution in March 1993 incorporating the concept of a socialist market
economy.

On November 14, 1993, the Central Committee of the CPC reaffirmed its
commitment to pursue the implementation of economic reforms through the
adoption of the "Decision of the CPC Central Committee on Issues Concerning the
Establishment of a Socialist Market Economy" (the "Decision on Economic
Structure"). These reforms include (1) reducing the Government's
administrative control over the economy in favor of management of the economy
using macro-economic monetary and fiscal tools; (2) introducing further
competition in the labor market; (3) promoting further corporatization of
State-owned enterprises and reducing the involvement of the Government in the
management of such enterprises; (4) continuing to permit the prices of more
goods and services to be determined by market forces; (5) actively and steadily
expanding financing activities in the form of stocks and bonds; (6) developing
an auction system in which the public can

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bid for commercial land-use rights; (7) comprehensively revising the taxation
system; (8) separating the policy-lending activities from the
commercial-lending activities of China's major banks in order to develop such
banks into commercial banks; and (9) permitting deposit and loan interest rates
to float freely within a range.

The Government's first substantial action in implementing the Decision
on Economic Structure came on January 1, 1994, when the Government implemented
a managed-floating-rate system under which the renminbi, though still not
freely convertible, is allowed to float within limits against other currencies
based on market forces. In addition, several new tax regulations came into
effect on January 1, 1994 that are designed to introduce uniformity, simplicity
and fairness into the current taxation system and to clarify the fiscal
relationships between the Government and State-owned enterprises and between
the Central and the Local Governments. The implementation of economic reforms
by the Government since 1978 has been marked by a number of other specific
reform measures, including rural reforms, enterprise reforms, price reforms,
fiscal reforms and foreign trade and investment reforms described below.

An important element of the Government's reform programs is price
reform, which was commenced in 1979 when the Government substantially raised
agricultural prices and moderately raised prices for textile products and
certain raw materials. Since 1985, the Government has eliminated
State-mandated prices on agricultural products except for a handful of staples
and cotton (the price and distribution of which is still subject to overall
Government control) and adopted a dual-price regime for industries under which
an increasing percentage of raw materials and industrial products has been sold
at market prices. As a result of price reforms, most commodity prices in China
are now determined by market forces. In areas where prices remain subject to
Government regulation (primarily energy (particularly coal, crude oil and
electricity), transportation and rare metals), the Government is generally
pursuing a policy of gradually increasing State-mandated prices to market
levels. Although implementation of certain of the price reforms scheduled for
1993 was postponed and the Government has imposed from time to time measures
intended to control increases in the market prices of certain staples in an
effort to stabilize economic growth and curb inflation, the Government intends
to continue its price reform program with the objective of ultimately
eliminating all State-mandated prices.

Since 1978, fiscal reforms have been an important part of the
Government's reform program. The Government's objective is to liberalize
financial regulation and to provide more financial autonomy to State-owned
enterprises and Local Governments. Comprehensive fiscal reforms began in 1983
with the implementation of the Government's policy to shift the source of
Government revenues from mandatory remittance of profits by State-owned
enterprises to taxes levied upon revenues or profits. Another important aspect
of fiscal reforms is the reform of the fiscal relationship between the Central
and Local Governments. The "financial responsibility system" was first
introduced in the early 1980s with the objective of clarifying the fiscal
responsibilities of the Central and Local Governments and giving the Local
Governments more autonomy in managing their local economic and social
development. Under this system, a Local Government enters into an agreement
with the Central Government pursuant to which the Local Government remits to
the Central Government a fixed amount (or percentage) of revenues and retains
the balance for local budgetary expenditures.

Although the financial responsibility system has played a positive
role by giving the Local Governments more autonomy in managing their own
financial affairs, such a system has resulted in new imbalances between the
finances of the Central and Local Governments. In its recent efforts to
further reform the fiscal system, the Central Committee of the CPC has, in the
Decision on Economic Structure, called for new fiscal and taxation reform
measures designed to clarify the fiscal responsibilities between the Central
and Local Governments and establish an equitable and more uniform taxation
system. The new tax regulations effective January 1, 1994 unify and simplify
the tax system, provide a new allocation of tax revenues between the Central
and Local Governments and establish separate tax collection systems for the
Central and Local Governments.

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Since 1988, foreign trade has become increasingly decentralized and
liberalized, import quotas and tariffs have been reduced, the number of
companies permitted to engage in foreign trade has increased, and the amount of
foreign exchange that companies are permitted to retain has increased. The
creation of foreign exchange adjustment centers (the "Swap Centers") in 1986
has provided FIEs and other Chinese companies with a mechanism to trade
renminbi for foreign currencies at prices determined largely by market factors
instead of being required to be self-sufficient in generating foreign exchange
from exports. In the year ended December 31, 1993, as much as 80% by value of
all foreign exchange transactions in China took place through the Swap Centers.
Effective January 1, 1994, a unitary exchange rate system was introduced in
China, replacing the dual-rate system previously in effect. In connection with
the creation of a unitary exchange rate, the establishment of the China Foreign
Exchange Trading System ("CFETS") interbank foreign exchange market and phasing
out of the Swap Centers was announced. However, it has now been announced that
the Swap Centers will be retained, and foreign-invested enterprises are
currently permitted to satisfy foreign exchange requirements only through the
Swap Centers.

An important component of the Government's reform program is to
promote foreign trade and encourage foreign direct investment in order to
accelerate the inward flow of foreign capital, technology and management
techniques. Since 1978, the Government has adopted a series of special
preferential tax and other policies for FIEs in general and export-oriented and
high technology FIEs in particular. The preferential policies were first
implemented in five special economic zones and later extended to 14 "open
coastal cities" and to the Pearl River Delta and the Yangtze River Delta "open
regions." In 1993, the State Council approved the further extension of such
policies to eight inland provincial capitals. The Government is also promoting
similar developments for China's border regions to facilitate trade with
neighboring countries.

Aside from the Government's reform programs, China has also issued
debt obligations, including the issue in February 1994 of US$1 billion in a
global bond offering. As of August 24, 1994, China had investment grade
ratings of A3 by Moody's and BBB by Standard & Poor's.

MAJOR ECONOMIC INDICATORS

Over the last five years, China has experienced significant economic
growth stimulated by the Government's continued implementation of the economic
reform policies initiated in 1978. Between 1989 and 1993, the annual real
growth of GDP averaged 8.6% per year. Between 1988 and 1992, average income,
including non-wage income, increased by 23% in urban areas and 17.9% in rural
areas.

Between 1989 and 1993, Township and village enterprises ("TVEs")
increased the gross output value of their production by 3.9 times in nominal
terms from RMB742.8 billion to RMB902.3 billion. Foreign capital investment,
including foreign loans and foreign direct investment, increased from US$10.1
billion in 1989 to US$36.8 billion in 1993. During this same period, the
aggregate of total imports and exports increased from US$111.7 billion to
US$195.7 billion.

After several years of rapid industrial expansion, the Chinese economy
began experiencing imbalances and significant inflation in 1988. In order to
control economic expansion and combat inflation, the Government adopted
measures to control prices, credit, expenditures and investment. Subsequently,
inflation declined from 18.5% in 1988 to 2.1% in 1990, and annual growth in GNP
declined from 11.3% to 4.1% over the same period. Economic expansion, as
measured by GDP growth, has since returned to levels comparable to those in
1988, reaching 13.6% in 1992 and 13.4% in 1993, while inflation increased to
5.4% in 1992 and 13.2% in 1993. During 1993, GDP of China's industry and
agriculture sectors increased by 21.1% and 4.0%, respectively; imports
increased by 29% to US$104 billion, while exports increased by 8% to US$92
billion; external borrowings increased by an estimated 36% to US$10.8 billion;
and foreign direct investment increased by 134% to US$25.8 billion. This rapid
expansion, its effects on structural weaknesses in the economy, and the
resulting high rate of inflation, prompted a new round of "macro-economic
controls" during 1993. These measures included increases in interest rates,
measures to discourage speculative investments

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(especially in the area of real estate), and the postponement of certain price
reforms. At the same time, the Government has moved to accelerate the reform
of the monetary system, the financial system, taxation and public finance.
Among industrial countries (as designated by the IMF), in comparison, GDP grew
3.2% in 1989, 2.2% in 1990, 0.4% in 1991 and 1.4% in 1992. (Source:
International Financial Statistics Yearbook 1993, International Monetary Fund.)

The following table sets forth selected data regarding the Chinese
economy for 1989 through 1993:

MAJOR ECONOMIC INDICATORS

<TABLE>
<CAPTION>
1989 1990 1991 1992 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
GNP (In billions of RMB) . . . . . . 1,599.3 1,769.5 2,023.6 2,437.9 N/A
Per Capita GNP (In RMB) . . . . . . . 1,430 1,559 1,758 2,093 N/A
National Income (In billions of RMB) 1,317.6 1,438.4 1,655.7 2,022.3 2,488.2
Exports (In billions of US$) . . . . 52.5 62.1 71.9 85.0 91.8
Imports (In billions of US$) . . . . 59.1 53.4 63.8 80.6 104.0
Current Account Balance (In billions
of US$) (year end) . . . . . . . . (4.3) 12.0 13.3 6.4 (11.9)
Official International Reserves (In
billions of US$) (year end) . . . 7.1 12.7 23.3 21.2 N/A
Total Industrial Gross Output Value
(In billions of RMB) . . . . . . . 2,201.7 2,392.4 2,824.8 3,706.6 5,289.6
Total Agricultural Gross Output Value
(In billions of RMB) . . . . . . . 653.5 766.2 815.7 908.5 1,099.4
Inflation . . . . . . . . . . . . . . 17.8% 2.1% 2.9% 5.4% 13.2%
</TABLE>
- -------------------------
Sources: China Statistical Yearbooks, 1991, 1992 and 1993, State
Statistical Bureau of China; A Statistical Survey of China 1994;
SAEC.

The following table sets forth data regarding percentage changes in
certain key Chinese economic indicators for 1989 through 1993:

ECONOMIC GROWTH RATES

<TABLE>
<CAPTION>
1989 1990 1991 1992 1993
------- ------- ------- ------- -------
(Percentage Increase)
<S> <C> <C> <C> <C> <C>
GNP . . . . . . . . . . . . . . . . . . . 4.4% 4.1% 8.2% 13.4% N/A%
Per Capita GNP . . . . . . . . . . . . . 2.8 2.5 6.7 11.6 N/A
GDP . . . . . . . . . . . . . . . . . . . 4.3 3.9 8.0 13.6 13.4
National Income . . . . . . . . . . . . . 3.7 5.1 7.7 15.4 15.1
Consumption . . . . . . . . . . . . . . . 1.5 6.0 10.2 14.2 N/A
Total Industrial Gross Output Value . . . 8.5 7.8 14.5 27.5 29.0
Total Agricultural Gross Output Value . . 3.1 7.6 3.7 6.4 7.8
</TABLE>

- -------------------------
Source: China Statistical Yearbook, 1993, State Statistical Bureau of
China; A Statistical Survey of China 1994.

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<PAGE> 99
The following table sets forth the amounts contributed to GDP by major
industrial sectors of the Chinese economy for 1989 through 1993:

GDP BY ECONOMIC SECTOR

<TABLE>
<CAPTION>
1989 1990 1991 1992 1993
------- ------- ------- ------- -------
(IN BILLIONS OF RMB)
<S> <C> <C> <C> <C> <C>
Primary Sector(1) . . . . . . . . . 422.8 501.7 528.9 580.0 665.0
------- ------- ------- ------- -------
Secondary Sector
Industry(2) . . . . . . . . . . 648.4 685.8 808.7 1,028.5 1,414.0
Construction . . . . . . . . . . 79.4 85.9 101.5 141.5 210.5
------- ------- ------- ------- -------
Subtotal . . . . . . . . . . . 727.8 771.7 910.2 1,170.0 1,624.5
------- ------- ------- ------- -------
Tertiary Sector(3) . . . . . . . . 449.2 494.7 579.8 686.3 848.5
------- ------- ------- ------- -------
Total . . . . . . . . . . . . 1,599.8 1,768.1 2,018.8 2,436.3 3,138.0
======= ======= ======= ======= =======
</TABLE>
- -------------------------
(1) Includes farming, animal husbandry, fishery and forestry.
(2) Includes industry and energy.
(3) Includes transportation, postal and telecommunications, commerce,
real estate, financial services, insurance, education, tourism,
entertainment and other services.
Source: China Statistical Yearbook, 1993, State Statistical Bureau of China;
A Statistical Survey of China 1994.

The following table sets forth the growth in GDP by sector for 1989
through 1993:

GDP GROWTH RATES BY SECTOR

<TABLE>
<CAPTION>
1989 1990 1991 1992 1993
------- ------- ------- ------- -------
(IN BILLIONS OF RMB)
<S> <C> <C> <C> <C> <C>
Primary Sector . . . . . . . . . . 3.1% 7.3% 2.4% 4.7% 4.0%
Secondary Sector . . . . . . . . . 3.8 3.2 13.3 21.8 20.4
Tertiary Sector . . . . . . . . . . 6.7 2.1 5.5 8.9 9.3
</TABLE>

- -------------------------
Source: China Statistical Yearbook, 1993, State Statistical Bureau of China.

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<PAGE> 100
The following table sets forth selected data regarding national income
and consumption for 1989 through 1993:

NATIONAL INCOME AND CONSUMPTION

<TABLE>
<CAPTION>
1989 1990 1991 1992 1993
------- ------- ------- ------- -------
(IN BILLIONS OF RMB, EXCEPT PER CAPITA)
<S> <C> <C> <C> <C> <C>
National Income
Agriculture . . . . . . . . . . 420.9 500.0 526.9 579.5 631.7
Industry 624.1 661.0 770.3 980.5 1,286.2
Construction . . . . . . . . . . 77.4 83.9 100.0 141.1 205.4
Transportation . . . . . . . . . 54.7 78.7 88.7 96.8 111.2
Commerce . . . . . . . . . . . . 140.5 114.8 168.9 216.4 253.6
------- ------- ------- ------- -------
Total . . . . . . . . . . . . 1,317.6 1,438.4 1,655.7 2,022.3 2,488.2
======= ======= ======= ======= =======
Per Capita 1,178 1,267 1,439 1,736 2,111
Consumption
Private . . . . . . . . . . . . 776.1 820.2 924.4 1,094.8 1,352.6
Public . . . . . . . . . . . . . 124.4 146.1 172.5 203.7 242.3
------- ------- ------- ------- -------
Total . . . . . . . . . . . . 900.5 966.3 1,096.9 1,298.5 1,594.9
======= ======= ======= ======= =======
</TABLE>
- -------------------------
Source: China Statistical Yearbook, 1993, State Statistical Bureau of China;
A Statistical Survey of China 1994.

PRIMARY SECTOR

The primary, or agriculture, sector includes farming, animal
husbandry, fishery and forestry. It represented 21.2% of GDP and employed
approximately 57.4% of the labor force in 1993. Although the GDP of the
primary sector increased from RMB422.8 billion in 1989 to RMB665.0 billion in
1993, its share of GDP declined from 26.4% to 21.2% over the same period due to
larger gains in the secondary and tertiary sectors.

The following table sets forth a breakdown of the gross output value
of China's primary sector for 1989 through 1993:

GROSS OUTPUT VALUE OF PRIMARY SECTOR

<TABLE>
<CAPTION>
1989 1990 1991 1992 1993
-------- -------- -------- -------- --------
(IN BILLIONS OF RMB)
<S> <C> <C> <C> <C> <C>
Farming . . . . . . . . . . . . . . 367.4 448.2 466.3 504.0 660.5
Animal Husbandry . . . . . . . . . 179.7 196.4 215.6 245.7 301.4
Fishery . . . . . . . . . . . . . . 34.9 41.1 48.3 61.4 88.1
Forestry . . . . . . . . . . . . . 28.5 33.0 36.8 42.3 49.4
Other . . . . . . . . . . . . . . . 42.9 47.5 48.7 55.1 (1)
------- -------- -------- -------- --------
Total . . . . . . . . . . . . 653.5 766.2 815.7 908.5 1,099.4
======= ======== ======== ======== =========
</TABLE>
- -------------------------
(1) For 1993, currently available data does not provide a separate category
for "other." Sectors that would normally fall within the
category of "other" under the year-end statistics are currently contained
in "Farming" or "Animal Husbandry."
Source: China Statistical Yearbook, 1993, State Statistical Bureau of China;
A Statistical Survey of China 1994.

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<PAGE> 101
The following table sets forth the percentages of growth of the major
components of primary sector gross output value for 1988 through 1992:

GROWTH IN PRIMARY SECTOR GROSS OUTPUT VALUE

<TABLE>
<CAPTION>
1988 1989 1990 1991 1992
------- -------- -------- -------- --------
(PERCENTAGE CHANGE)
<S> <C> <C> <C> <C> <C>
Farming . . . . . . . . . . . . . . (0.2)% 1.8% 8.6% 1.0% 3.5%
Animal Husbandry . . . . . . . . . 12.7 5.6 7.0 8.9 8.8
Fishery . . . . . . . . . . . . . . 11.6 7.2 10.0 7.6 15.3
Forestry . . . . . . . . . . . . . 2.3 0.4 3.1 8.0 7.7
Other . . . . . . . . . . . . . . . 12.6 6.0 3.8 0.3 11.2
Overall Growth . . . . . . . . 3.9 3.1 7.6 3.7 6.4
</TABLE>
- -------------------------
Source: China Statistical Yearbook, 1993, State Statistical Bureau of China.

SECONDARY SECTOR

The secondary sector is composed of industry (including energy) and
construction. The secondary sector constituted 51.8% of GDP in 1993 and, based
on constant prices, grew by 20.4% over 1992.

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<PAGE> 102
The following table sets forth data pertaining to industrial gross
output value for 1988 through 1993:

INDUSTRIAL GROSS OUTPUT VALUE

<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993
-------- -------- -------- -------- -------- --------
(IN BILLIONS OF RMB)
<S> <C> <C> <C> <C> <C> <C>
Ownership Type
State-Owned Enterprises . . . . 1,035.1 1,234.3 1,306.4 1,495.5 1,782.4 2,330.7
Collectively Owned Enterprises . 658.7 785.8 852.3 1,008.5 1,410.1 N/A
Privately Owned Enterprises . . 79.0 105.8 129.0 160.9 250.7 N/A
Others(1) . . . . . . . . . . . 49.5 75.8 104.8 160.0 263.4 N/A
-------- -------- -------- -------- -------- --------
Total . . . . . . . . . . . . 1,822.5 2,201.7 2,392.4 2,824.8 3,706.6 5,289.6
======== ======== ======== ======== ======== ========
Industry Type(2)
Light Industry
Using Farm Products as Raw
Materials . . . . . . . . . 471.7 562.6 611.9 700.0 827.9 N/A
Using Non-Farm Products as Raw
Materials . . . . . . . . . 216.5 252.3 265.7 323.0 393.9 N/A
-------- -------- -------- -------- -------- --------
Subtotal . . . . . . . . . 688.2 814.9 877.7 1,023.0 1,221.8 1,506.5
======== ======== ======== ======== ======== ========
Heavy Industry
Manufacturing . . . . . . . . 385.9 452.7 459.0 552.4 751.4 N/A
Raw Materials . . . . . . . . 297.2 372.4 N/A 494.8 636.5 N/A
Mining . . . . . . . . . . . . 87.4 107.4 N/A 138.7 162.8 N/A
-------- -------- -------- -------- -------- --------
Subtotal . . . . . . . . . 770.5 932.5 991.2 1,185.9 1,550.7 2,204.9
-------- -------- -------- -------- -------- --------
Total . . . . . . . . . . . 1,458.7 1,747.4 1,868.9 2,208.9 2,772.5 3,711.4
======== ======== ======== ======== ======== ========

</TABLE>
- -------------------------
(1) Includes joint stock companies, FIEs and cooperative enterprises.
(2) Includes only enterprises with independent accounting systems that are
regarded as separate economic units. For example, enterprises owned by
Government ministries that do not keep separate accounts and subsidiaries
of enterprises not involved in the relevant industry type that keep
separate accounts are excluded from this presentation.
Sources: China Statistical Yearbooks, 1989-1993, State Statistical Bureau of
China; A Statistical Survey of China 1994.

The following table sets forth the percentages of industrial gross
output value of the various ownership sectors for 1988 through 1993:

INDUSTRIAL GROSS OUTPUT VALUE BY OWNERSHIP

<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993
-------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
State-Owned Enterprises . . . . . . 56.8% 56.1% 54.6% 52.9% 48.1% 44.1%
Collectively Owned Enterprises . . 36.2 35.7 35.6 35.7 38.0 N/A
Privately Owned Enterprises . . . . 4.3 4.8 5.4 5.7 6.8 N/A
Other(1) . . . . . . . . . . . . . 2.7 3.4 4.4 5.7 7.1 N/A
------ ------ ------ ------ ------ ------
Total . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ====== ======
</TABLE>
- -------------------------
(1) Includes joint stock companies, FIEs and cooperative enterprises.
Source: China Statistical Yearbook, 1993, State Statistical Bureau of
China; A Statistical Survey of China 1994.

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<PAGE> 103

The following table sets forth data pertaining to growth rates in
industrial gross output value for 1988 through 1993:

GROWTH RATES IN INDUSTRIAL GROSS OUTPUT VALUE

<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993
-------- -------- -------- -------- ------- -------
(PERCENTAGE CHANGE)
<S> <C> <C> <C> <C> <C> <C>
State-Owned Enterprises . . . . . . 12.6% 3.9% 3.0% 8.6% 12.4% 6.4%
Collectively Owned Enterprises . . 28.2 10.5 9.0 18.4 39.3 28.6
Privately Owned Enterprises . . . . 47.3 23.8 21.1 25.3 52.9 N/A
Others(1) . . . . . . . . . . . . . 61.5 42.7 39.3 50.1 64.9 N/A
Overall Growth . . . . . . . . . . 20.8 8.5 7.8 14.8 27.5 29.0
- -------------------------
</TABLE>
(1) Includes joint stock companies, FIEs and cooperative enterprises.
Source: China Statistical Yearbook, 1993, State Statistical Bureau of China;
Statistical Communique of the State Statistical Bureau of the
People's Republic of China on 1993 National Economic and Social
Development.

The following table sets forth information as to the gross output
values of various industrial segments for 1988 through 1993:

INDUSTRIAL GROSS OUTPUT VALUE BY SEGMENT(1)

<TABLE>
<CAPTION>
INDUSTRIAL SEGMENT 1988 1989 1990 1991 1992
------------------ ------- ------- ------- ------- -------
(IN BILLIONS OF RMB)
<S> <C> <C> <C> <C> <C>
Textile, Leather and Clothing . . . . . . . . . . . 216.4 263.7 290.4 330.9 390.6
Food, Beverage and Tobacco . . . . . . . . . . . . 171.3 200.3 216.3 248.2 288.7
Chemical and Pharmaceutical Products . . . . . . . 155.3 193.1 212.0 240.4 285.1
Smelting and Processing of Metals . . . . . . . . . 128.3 161.2 180.8 211.2 278.9
Machinery Building . . . . . . . . . . . . . . . . 155.4 172.7 167.4 199.5 267.2
Energy Production . . . . . . . . . . . . . . . . . 104.2 132.8 156.2 186.2 224.4
Electric, Electronic and Communications Equipment 116.3 140.1 138.1 168.2 216.5
Transportation Equipment . . . . . . . . . . . . . 57.4 67.0 71.4 97.6 154.4
Building Materials and Other Non-metal Mineral
Products . . . . . . . . . . . . . . . . . . . . 75.3 89.2 89.1 105.5 142.2
Rubber and Plastic Materials . . . . . . . . . . . 53.2 61.1 63.5 75.6 94.7
Petroleum Processing . . . . . . . . . . . . . . . 39.2 45.7 50.2 71.5 90.0
Metal Products . . . . . . . . . . . . . . . . . . 41.2 49.4 52.3 61.5 80.0
Paper, Paper Products and Printing . . . . . . . . 44.9 53.0 56.2 63.9 75.5
Non-metallic Minerals . . . . . . . . . . . . . . . 19.8 22.6 22.1 24.3 28.2
Wood and Wood Products . . . . . . . . . . . . . . 17.7 18.9 18.4 21.2 27.1
Ferrous and Non-ferrous Ores and Metals . . . . . . 9.7 12.4 14.0 16.1 18.4
Others . . . . . . . . . . . . . . . . . . . . . . 53.1 64.2 70.5 87.1 110.6
------- ------- ------- ------- -------
Total . . . . . . . . . . . . . . . . . . . . . 1,458.7 1,747.4 1,868.9 2,208.9 2,772.5
======= ======= ======= ======= =======
</TABLE>
- -------------------------
(1) Includes only enterprises with independent accounting systems that are
regarded as separate economic units.

Source: China Statistical Yearbooks, 1989-1993, State Statistical Bureau of
China.

A-12
<PAGE> 104
Energy

Energy production continues to be a priority for China. China's
principal source of energy is coal. Coal production grew from 1.05 billion
metric tons to 1.14 billion metric tons in 1993, making China one of the
world's largest coal producers. The Eighth Five-Year Plan (1991-1995) calls
for China's annual coal output to reach 1.2 billion metric tons by 1995.

China's annual output of crude oil reached 145 million tons in 1993.
China also produced 16.6 billion cubic meters of natural gas in 1993.

China's electric power industry has experienced relatively rapid
development in recent years, with total electric power generation reaching 816
billion kilowatt-hours in 1993. China's first nuclear power unit, located in
Qinshan, Zhejiang Province, with a generating capacity of 310 megawatts,
commenced operations in 1991. A second unit, located in Daya Bay, Guangdong
Province, commenced operations in 1994. In addition to nuclear technology,
China plans to develop hydroelectric power as an important energy source.
Currently, China plans or is in the process of building seven major
hydroelectric power plants with a large generating capacity. In March 1993,
the National People's Congress approved the construction of the Three Gorges
Dam and related projects, including hydroelectric power generating facilities
which are expected to have an installed capacity of 17,680 megawatts and annual
generation of 84 billion kilowatt-hours. This project is expected to take at
least 17 years to complete and require capital investment (based on 1990
prices, excluding interest during construction) of at least RMB57 billion. If
completed according to current plans, the Three Gorges Dam will have a larger
total installed generating capacity than any of the world's existing
hydroelectric facilities.

The following table sets forth China's energy production and
consumption for 1988 through 1993:

ENERGY PRODUCTION AND CONSUMPTION(1)

<TABLE>
<CAPTION>
HYDRO- TOTAL TOTAL
COAL OIL NATURAL GAS ELECTRIC PRODUCTION CONSUMPTION
---- --- ----------- -------- ---------- -----------
(IN MILLIONS OF METRIC
(PERCENTAGE OF TOTAL PRODUCTION) TONS OF SCE)(1)
<S> <C> <C> <C> <C> <C> <C>
1988 . . . . . . . . . . . . 73.1% 20.4% 2.0% 4.5% 958.0 930.0
1989 . . . . . . . . . . . . 74.1 19.3 4.0 2.6 1,016.4 969.3
1990 . . . . . . . . . . . . 74.2 19.0 2.0 4.8 1,039.2 987.0
1991 . . . . . . . . . . . . 74.1 19.2 2.0 4.7 1,048.4 1,037.8
1992(2) . . . . . . . . . . . 74.3 18.9 2.0 4.8 1,072.6 1,087.3
1993(2) . . . . . . . . . . . 77.1 19.2 2.0 1.7 1,076.3 1,080.1
</TABLE>
- -------------------------
(1) Excludes bio-energy, solar, geothermal and nuclear energy. All fuels have
been converted to Standard Coal Equivalent (SCE), under which
1 kg of coal = 0.714 kg of SCE; 1 kg of oil = 1.43 kg of SCE; 1 cubic
meter of natural gas = 1.33 kg of SCE. Hydroelectric power is converted
to SCE based on coal required to produce equivalent thermal
external-electric power.
(2) The amount by which consumption exceeded production was covered by
reserves and imports.
Source: China Statistical Yearbook, 1993, State Statistical Bureau of China;
A Statistical Survey of China 1994.

CONSTRUCTION

The construction sector is an important sector of the Chinese economy.
In 1993, the GDP of the construction sector was RMB210.5 billion, representing
6.7% of total GDP. The construction sector consists primarily of
infrastructure development, commercial property development and residential
housing. Because

A-13
<PAGE> 105
of the demands of rapid economic growth, the Government intends to continue to
expend substantial resources on the construction of infrastructure projects
such as public roads, bridges, urban mass transit systems and energy
facilities. The Government expects that the acceleration of certain housing
reforms in urban areas and rapid economic development in rural townships will
lead to increased growth in the housing industry.

TERTIARY SECTOR

In 1993, the tertiary sector represented 27.0% of GDP. The tertiary
sector is composed of all other segments of the economy which are not included
in either the primary or secondary sectors of the economy such as
transportation, postal and telecommunications, commerce, real estate, financial
services, insurance, education, tourism, entertainment and other services.
Official statistics are available only for the commerce, transportation and
postal and telecommunications segments.

The following table sets forth the proportion of GDP contributed by
each segment of the tertiary sector for 1989 through 1993:

GDP OF THE TERTIARY SECTOR

<TABLE>
<CAPTION>
1989 1990 1991 1992 1993
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Transportation, Postal and Telecommunications . . . 4.9% 6.2% 6.3% 6.3% 6.1%
Commerce . . . . . . . . . . . . . . . . . . . . . 6.3 4.7 6.2 5.9 5.7
Other . . . . . . . . . . . . . . . . . . . . . . . 16.9 17.1 16.2 16.0 15.2
----- ----- ----- ----- -----
Total . . . . . . . . . . . . . . . . . . . . . . . 28.1 28.0 28.7 28.2 27.0
===== ===== ===== ===== =====
</TABLE>
- -------------------------
Source: China Statistical Yearbook, 1993, State Statistical Bureau of China;
A Statistical Survey of China 1994.

Transportation

Rail is China's most important means of long-distance transportation,
representing in 1993 approximately 45% and 39% of total passenger and cargo
transportation, respectively, in terms of volume. In 1993, there were
approximately 33,600 miles of railroad track, almost all of which were owned
and operated by the Central Government.

In 1992, there were approximately 579,000 miles of paved roads open to
the public, approximately 46,250 miles of which were constructed between 1988
and 1992. Almost all of the counties and 95% of the towns throughout China can
now be reached by paved or unpaved roads. Transportation by road has become
more important in recent years, representing in 1993 approximately 46% and 14%
of total passenger and cargo traffic, respectively, in terms of volume.

Although all of the airlines in China are owned by the State and are
subject to the administration of the Civil Aviation Administration of China,
they are independently operated. Between 1989 and 1993, the distance covered
by Chinese airlines on domestic and international commercial routes increased
from approximately 294,900 miles to approximately 600,500 miles.

Postal and Telecommunications

Driven by the rapid growth of China's economy as a whole, the postal
and telecommunications segment, which is almost completely owned and operated
by the State, has experienced substantial growth in the last five years, with
the value of the total activity increasing from approximately RMB6.5 billion in
1989 to approximately RMB46.3 billion in 1993. The number of telephones has
increased from 10.8 million (approximately 10 for every 1,000 of the
population) in 1989 to 26.1 million (approximately 22 for every

A-14
<PAGE> 106
1,000 of the population) in 1993, and the total installed long-distance lines
increased from 87,137 in 1989 to 420,323 in 1993. Nevertheless, China's
telecommunications network remains underdeveloped and inadequate to support
continued rapid economic growth. The Government plans to continue to invest
substantial resources to develop the telecommunications industry, including
importing advanced technology and equipment.

Commerce

The majority of the business in the commerce segment is conducted by
collectively owned enterprises and private individuals (including farmers).

The following table sets forth retail sales in the commerce segment by
ownership for 1989 through 1993:

RETAIL SALES BY OWNERSHIP

<TABLE>
<CAPTION>
1989 1990 1991 1992 1993
------- ------- ------- ------- -------
(IN BILLIONS OF RMB)
<S> <C> <C> <C> <C> <C>
State-Owned Enterprises . . . . . . . . . . . . . . . . . 316.8 328.6 378.4 454.0 539.9
Collectively Owned Enterprises . . . . . . . . . . . . . 269.0 263.1 282.6 306.8 357.3
Privately Owned Enterprises . . . . . . . . . . . . . . . 151.0 157.0 184.4 222.8 307.0
Agricultural Sales(1) . . . . . . . . . . . . . . . . . . 69.8 77.3 91.0 107.7 143.4
Joint Ventures (including foreign-invested joint
ventures) . . . . . . . . . . . . . . . . . . . . . . 3.6 4.0 5.2 8.0 11.6
------- ------- ------- ------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . 810.2 830.0 941.6 1,099.3 1,359.2
====== ====== ====== ======= =======
</TABLE>
- -------------------------
(1) Includes sales by farmers to non-farming residents and social groups.
Excludes sales to the State.
Source: China Statistical Yearbook, 1993, State Statistical Bureau of
China; A Statistical Survey of China 1994.

Other

Virtually all activity in segments such as insurance and financial
services, including banking and securities, is conducted by State- owned
enterprises and institutions. Although there are few official statistics
regarding the level of activity in other segments which comprise the "Other"
category of the tertiary sector, the Government believes most of the activity
is also conducted by enterprises owned by the State.

ENVIRONMENT

China has recognized the need to address a range of environmental and
ecological problems associated with its rapid industrial expansion and economic
development, including industrial air pollution, ocean dumping and water
pollution, illegal waste disposal, high rates of forest resource consumption
and decertification. Since coal is still the most important industrial fuel in
China, industries that rely on coal to fuel production such as steel, cement
and energy production, the majority of which are State-owned, produce the most
serious air pollution. The rapid development of industries such as
petrochemicals has made water pollution an increasing problem.

Recently, China has begun to address such problems through the
enactment of national legislation and regulations. The National People's
Congress promulgated China's first national environmental law in September 1979
and a comprehensive environmental statute in December 1989. Nevertheless,
implementation, particularly by Local Governments, has lagged behind such
Central Government legislative actions. The Government will continue its
efforts to seek full implementation of its environmental laws and regulations.

A-15
<PAGE> 107
Currently, the Central and Local Governments provide funding for forest
development, environmental conservation and water and sewage treatment
facilities. China is also seeking funding from international and multilateral
organizations in order to further the development of environmental programs in
such areas as water pollution, depletion of the ozone layer and deforestation.
In addition, industrial enterprises are generally required to devote varying
percentages of their expenditures on environmental protection associated with
their facilities. Under current Government polices, enterprises that cause
pollution at levels that exceed State environmental standards are required to
adopt corrective and remedial measures or face penalties or closure.

EMPLOYMENT AND WAGES

From 1989 through 1993, China's labor force increased by 9.5% to 606
million, while the number of people employed by State-owned enterprises and
urban collectives increased by 8.0% to 147 million. In 1993, only 18.3% of
China's labor force worked for State-owned enterprises. In 1993, approximately
162 million persons, representing 26.7% of China's labor force, worked in urban
areas, and approximately 444 million persons, representing 73.3% of the labor
force, worked in rural areas.

The following table sets forth information pertaining to China's labor
force for 1989 through 1993:

CHINESE LABOR FORCE COMPOSITION

<TABLE>
<CAPTION>
1989 1990 1991 1992 1993
------- ------- ------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Urban Labor Force
State-Owned Entities(1) . . . . . . . . . . . . . . . 101.1 103.5 106.6 108.9 110.9
Collectively Owned Enterprises . . . . . . . . . . . . 35.0 35.5 36.3 36.2 36.0
Privately Owned Enterprises . . . . . . . . . . . . . 6.5 6.7 7.6 8.4 11.2
Others . . . . . . . . . . . . . . . . . . . . . . . . 1.3 1.6 2.2 2.8 3.4
Rural Labor Force . . . . . . . . . . . . . . . . . . . . 409.4 420.1 430.9 438.0 444.4
------- ------- ------- ------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . . 553.3 567.4 583.6 594.3 605.9
======= ======= ======= ======= =======
</TABLE>
- -------------------------
(1) Includes State-owned enterprises, Central and Local Government entities
and other public institutions.
Source: China Statistical Yearbook, 1993, State Statistical Bureau of China;
A Statistical Survey of China 1994.

China calculates its urban unemployment rate as the percentage of the
members of the "urban work force" who register with the local employment
agencies as being unemployed. Urban work force means permanent urban residents
who are (i) registered under the house registration system as an urban
resident; (ii) between the ages of 16 and 50 (in the case of males) and between
the ages of 16 and 45 (in the case of females); and (iii) physically capable of
working. China does not collect statistical data regarding rural unemployment.

A-16
<PAGE> 108
The following table sets forth information pertaining to China's urban
work force unemployment rate for 1989 through 1993:

URBAN WORK FORCE UNEMPLOYMENT RATE

<TABLE>
<CAPTION>
1989 1990 1991 1992 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Total Number of Persons Unemployed in Urban Work Force
(In thousands) . . . . . . . . . . . . . . . . . . . . 3,779 3,832 3,522 3,603 4,200
Unemployment Rate (% of Urban Work Force) . . . . . . . 2.6% 2.5% 2.3% 2.3% 2.6%
</TABLE>
- -------------------------
Source: China Statistical Yearbook, 1993, State Statistical Bureau of China;
A Statistical Survey of China 1994.

State-owned enterprises are authorized to compensate employees on a
merit basis and to provide for unemployment and other benefits. Wages vary
significantly depending on the region and the type of enterprise. Enterprises
in urban areas, particularly in coastal regions, and enterprises with foreign
investment generally offer comparatively higher wages.

Continued growth in China's labor force, together with labor market
changes arising from China's transition from a centralized planned economy to a
socialist market economy, are expected to result in significantly increased
unemployment until new labor markets develop. The Government has announced
measures designed to assist surplus workers, including developing
job-introduction agencies and retraining programs, and widening the scope of
State unemployment insurance.

The following table sets forth information pertaining to average
annual wages in China for 1989 through 1993:

ANNUAL AVERAGE WAGES OF STAFF AND WORKERS(1)

<TABLE>
<CAPTION>
1989 1990 1991 1992 1993
---- ---- ---- ---- ----
(RMB)
<S> <C> <C> <C> <C> <C>
By Sector
Agriculture . . . . . . . . . . . . . . . . . . . . . 1,417 1,577 1,703 1,898 2,290
Industry . . . . . . . . . . . . . . . . . . . . . . . 2,001 2,203 2,424 2,774 3,351
Transportation, Postal and Telecommunications . . . . 2,288 2,520 2,796 3,261 3,890
Education, Culture and Arts . . . . . . . . . . . . . 1,883 2,117 2,243 2,715 3,221
Scientific Research . . . . . . . . . . . . . . . . . 2,118 2,403 2,573 3,115 3,728
Government Agencies . . . . . . . . . . . . . . . . . 1,874 2,113 2,275 2,768 3,266
By Ownership
State-Owned Enterprises . . . . . . . . . . . . . . . 2,055 2,284 2,477 2,878 3,441
Collectively Owned Enterprises . . . . . . . . . . . . 1,557 1,681 1,866 2,109 2,436
Sino-Foreign Joint Ventures . . . . . . . . . . . . . 2,669 2,918 3,406 3,973 N/A
Wholly Foreign-Owned Enterprises by Hong Kong, Macau
and Overseas Chinese . . . . . . . . . . . . . . . . 2,995 3,687 4,879 4,415 N/A
Other Wholly Foreign-Owned Enterprises . . . . . . . . 3,567 3,411 3,806 3,618 N/A
Overall Average . . . . . . . . . . . . . . . . . . . . . 1,935 2,140 2,340 2,711 3,236
</TABLE>
- -------------------------
(1) Data concerning wages does not include the value of certain significant
benefits, including benefits relating to housing, medical care and
education, which are made available by the State and other employers.
Source: China Statistical Yearbook, 1993, State Statistical Bureau of China;
A Statistical Survey of China 1994.

A-17
<PAGE> 109
The following table sets forth information pertaining to percentage
increases in annual average wages in China for 1988 through 1993:

PERCENTAGE INCREASES IN ANNUAL AVERAGE WAGES

<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993
--------------- -------------- --------------- -------------- -------------- --------------
NOMINAL REAL NOMINAL REAL NOMINAL REAL NOMINAL REAL NOMINAL REAL NOMINAL REAL
WAGES WAGES WAGES WAGES WAGES WAGES WAGES WAGES WAGES WAGES WAGES WAGES
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
State-Owned
Enterprises 19.9% (0.7)% 10.9% (4.6)% 11.1% 9.7% 8.5% 3.2% 16.2% 7.0% N/A% 16.1%
Urban
Collectively
Owned
Enterprises 18.1 (2.1) 9.2 (6.1) 8.0 6.6 11.0 5.6 13.0 4.1 N/A 16.1
Others(1) . . 26.6 5.0 13.6 (2.3) 10.3 8.9 16.1 10.5 14.4 5.3 N/A N/A
Overall . . 19.7 (0.8) 10.8 (4.8) 10.6 9.2 9.3 4.0 15.9 6.7 19.4 16.1
</TABLE>
- -------------------------
(1) Includes, among other things, privately owned enterprises, FIEs and
shareholding corporations.
Source: China Statistical Yearbook, 1993, State Statistical Bureau of China;
Statistical Communique of the State Statistical Bureau of the
People's Republic of China on 1993 National Economic and Social
Development.

Staff and workers of State-owned enterprises and employees of the
Central and Local Governments and other public institutions are provided, as
part of their compensation, with free or substantially subsidized rental
housing. Affordable housing that is not part of subsidized housing programs is
generally not available to most Chinese citizens.

FOREIGN INVESTMENT

China promulgated its first joint venture law in 1979. Since then, a
broad range of related laws, administrative rules and regulations have been
adopted that provide a framework within which foreign investment activities can
be effectively conducted and regulated. Foreign investments in China may take
a number of forms, including equity joint ventures, cooperative joint ventures
and wholly foreign-owned enterprises.

Equity joint ventures are "limited liability companies" incorporated
and registered in China. An equity joint venture company is a "Chinese legal
person" which has the right to own, use and dispose of personal property. In
contrast with equity joint ventures, cooperative joint ventures are not
necessarily Chinese legal persons, although many cooperative joint ventures
have such status. If a cooperative joint venture is not a Chinese legal
person, each Chinese and foreign party is responsible for paying its own taxes
on profits derived from the venture and bears its own liability for risks and
losses. A wholly foreign-owned enterprise is owned completely by one or more
foreign investors and does not involve any Chinese joint venture parties. It
is a Chinese legal person under Chinese law. A wholly foreign-owned enterprise
must generally be an enterprise which either utilizes advanced technology or
which exports 50% or more of its products. The establishment of wholly
foreign-owned enterprises is restricted or prohibited in certain specified
sectors, such as media, trading companies, banking, insurance and
telecommunications.

A-18
<PAGE> 110
The following table sets forth information regarding foreign direct
investment in China from 1989 through 1993:

FOREIGN DIRECT INVESTMENT IN CHINA(1)

<TABLE>
<CAPTION>
1989 1990 1991 1992 1993
------- ------- ------- ------- --------
(IN MILLIONS OF US$)
<S> <C> <C> <C> <C> <C>
Actual Investment(2)
Equity Joint Ventures(3) . . . . . . . . . . . . 2,037.2 1,886.1 2,299.0 6,114.6 14,730.0
Wholly Foreign-Owned Enterprises . . . . . . . . 371.4 683.2 1,134.7 2,520.3 6,242.0
Cooperative Joint Ventures(3) . . . . . . . . . 751.8 673.6 763.6 2,122.5 4,363.0
Others . . . . . . . . . . . . . . . . . . . . . 231.6 244.1 168.7 250.0 424.0
------- ------- ------- ------- ---------
Total . . . . . . . . . . . . . . . . . . . . 3,392.0 3,487.0 4,366.0 11,007.7 25,759.0
======= ======= ======== ======== =========
Contracted Investment(4) . . . . . . . . . . . . . 5,600.0 6,596.0 11,977.0 58,124.0 110,852.0
</TABLE>
- -------------------------
(1) Excludes investments in B shares, H shares and N shares, as defined below,
issued by Chinese enterprises.
(2) Reflects amounts disbursed during the relevant period.
(3) Represents amounts contributed by foreign investors.
(4) Reflects amounts committed during the relevant period.
Source: China Statistical Yearbook, 1993, State Statistical Bureau of China;
A Statistical Survey of China 1994.

Aggregate foreign direct investment disbursed in 1993, including
equity joint ventures, cooperative joint ventures and wholly foreign- owned
enterprises, was estimated at US$25.8 billion, representing an increase of 134%
from 1992. During 1993, approximately 83,265 new investment contracts were
approved with an aggregate value of US$110.9 billion.

The following table sets forth information regarding foreign direct
investment and certain other foreign investment not included in the foregoing
table (such as B shares, H shares and N shares) by country or region:

FOREIGN DIRECT INVESTMENT AND OTHER FOREIGN INVESTMENT BY COUNTRIES OR REGIONS

<TABLE>
<CAPTION>
1988 1989 1990 1991 1992
------- ------- ------- ------- -------
(IN MILLIONS OF US$)
<S> <C> <C> <C> <C> <C>
Hong Kong and Macau . . . . . . . . . . . . . . . . 2,428 2,342 2,118 2,662 7,909
Taiwan . . . . . . . . . . . . . . . . . . . . . . -- -- 224 472 1,053
Japan . . . . . . . . . . . . . . . . . . . . . . . 599 407 520 610 748
United States . . . . . . . . . . . . . . . . . . . 244 288 461 331 519
Singapore . . . . . . . . . . . . . . . . . . . . . 30 86 53 58 126
Germany . . . . . . . . . . . . . . . . . . . . . . 25 91 69 162 91
Thailand . . . . . . . . . . . . . . . . . . . . . 7 13 8 20 84
Canada . . . . . . . . . . . . . . . . . . . . . . 6 22 9 11 59
United Kingdom . . . . . . . . . . . . . . . . . . 46 29 20 38 39
Australia . . . . . . . . . . . . . . . . . . . . . 4 46 25 15 35
Other Countries(1) . . . . . . . . . . . . . . . . 351 450 248 288 629
------- ------- ------- ------- -------
Total . . . . . . . . . . . . . . . . . . . . . 3,740 3,774 3,755 4,667 11,292
======= ======= ======= ======= =======
</TABLE>
- -------------------------
(1) Includes more than 50 other countries with lower investment than those
shown.
Source: China Statistical Yearbook, 1993, State Statistical Yearbook of China.

A-19
<PAGE> 111
Foreign investment in China may also take the form of B shares, H
shares and N shares, all of which currently may be purchased only by
non-Chinese nationals. For a review of the securities markets of China, see
Appendix B.

FOREIGN TRADE AND BALANCE OF PAYMENTS

FOREIGN TRADE

Prior to 1978, foreign trade was not a significant part of China's
economy. As a key component of the economic reform program started in 1978,
the Government decided to open China to the outside world by attracting foreign
investment to China and developing foreign trade. Since then, foreign trade
has become an increasingly important part of the Chinese economy. Imports
bring into China advanced technologies and equipment which China needs to
modernize its economy, and exports provide China with the foreign exchange
needed for the purchase of such technologies and equipment. Although the
overall foreign trade policy is still formulated by the Central Government,
implementation of such policy has become increasingly decentralized, with the
Local Governments and local enterprises enjoying increasing autonomy in
conducting foreign trade activities. China's trading partners include
approximately 180 countries and regions throughout the world.

China's foreign trade has grown significantly since 1978 in both
absolute value and in the range of products traded. The following table sets
forth information pertaining to China's foreign trade for 1989 through 1993:

FOREIGN TRADE

<TABLE>
<CAPTION>
1989 1990 1991 1992 1993
------- ------- ------- ------- -------
(IN BILLIONS OF US$, EXCEPT FOR PERCENTAGES)
<S> <C> <C> <C> <C> <C>
Exports . . . . . . . . . . . . . . . . 52.5 62.1 71.9 85.0 91.8
Imports . . . . . . . . . . . . . . . . 59.1 53.4 63.8 80.6 104.0
Balance of Trade . . . . . . . . . . . (6.6) 8.7 8.1 4.4 (12.2)
Exports as % of Imports . . . . . . . . 88.8% 116.3% 112.7% 105.5% 88.3%
Exports as % of GNP . . . . . . . . . . 12.2% 16.9% 19.0% 19.2% 16.8%(1)
</TABLE>
- ------------------------------
(1) This figure reflects exports as a percentage of GDP for 1993.
Source: China Statistical Yearbook, 1993, State Statistical Bureau of China;
A Statistical Survey of China 1994.

On the basis of bilateral trade value, China ranked 15th worldwide in
1991 and 11th in 1992. During the period between 1989 and 1993, exports from
China rose at an average annual rate of 14.1%, while imports grew at an average
annual rate of 13.5% in U.S. dollar terms. China's competitive manufacturing
base has contributed to this growth in exports. In 1993, China's foreign trade
deficit was US$12.2 billion. Exports reached US$91.8 billion, an increase of
8.0% over 1992; and imports reached US$104.0 billion, an increase of 29.0% over
1992. Total trade for 1993 was approximately US$196 billion, an increase of
18.2% over 1992.

The trade deficit during 1993 was caused by several domestic and
international factors, including (i) a substantial increase in foreign inward
investments, especially into southern China, necessitating imports of foreign
goods; (ii) increased demand for and rising prices of consumer goods in the
domestic market, motivating manufacturers to concentrate more on the domestic
rather than on the export market; (iii) increased consumer demand for imported
goods; and (iv) a slow economic recovery in the international markets to which
China exports.

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<PAGE> 112
As a component of readjustment measures initiated in June 1993, the
Government took measures to increase exports and tighten regulation of imports
of luxury goods. These measures include stabilizing the swap exchange rate of
the renminbi, providing incentives for investment in export-oriented
enterprises and measures designed to facilitate exports to markets outside
China's traditional trading partners.

Since China has significant natural resources and plentiful low-cost
labor, China's main exports in the years immediately after 1978 were primary
goods. With rapid industrial growth and the opening up of China's markets to
foreign capital, however, the composition of exports has gradually shifted away
from primary goods to manufactured goods. While primary goods amounted to 50%
of all exports in 1980, that percentage decreased to 18% in 1993. During the
same time, exports of manufactured goods, including half-finished goods, rose
from 50% of all exports in 1980 to 82% in 1993.

The composition of imports has changed in recent years as imports of
manufactured goods have steadily outpaced imports of primary goods. There has
also been a significant rise in imports of advanced technology relating to
machinery and transportation equipment. While imports of primary goods
accounted for 35% of total imports in 1980, this dropped to 14% in 1993. In
contrast, imports of manufactured goods increased from 65% of all imports in
1980 to 86% in 1993.

The following table sets forth the composition of China's exports for
1989 through 1993:

COMPOSITION OF EXPORTS

<TABLE>
<CAPTION>
% OF % OF % OF % OF % OF
1989 TOTAL 1990 TOTAL 1991 TOTAL 1992 TOTAL 1993 TOTAL
----- ---- ----- ----- ----- ----- ----- ----- --- -------
(IN BILLIONS OF US$, EXCEPT FOR PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Primary Goods
Food . . . . . . . . . . . . . . . . 6.1 11.6% 6.6 10.6% 7.2 10.1% 8.4 9.8% 8.4 9.2%
Beverages & Tobacco . . . . . . . . 0.3 0.6 0.3 0.5 0.5 0.7 0.7 0.8 0.9 1.0
Non-Food Raw Materials . . . . . . . 4.2 8.0 3.5 5.7 3.5 4.9 3.1 3.7 3.1 3.3
Mineral Fuels, Lubricants &
Related Materials . . . . . . . . 4.3 8.2 5.2 8.4 4.8 6.7 4.7 5.5 4.1 4.5
Animal & Vegetable Oil . . . . . . . 0.1 0.2 0.2 0.3 0.2 0.2 0.1 0.2 0.2 0.2
----- ---- ----- ----- ----- ----- ----- ----- ---- -----
Subtotal . . . . . . . . . . . . 15.1 28.7 15.9 25.6 16.2 22.6 17.1 20.1 16.7 18.2
----- ---- ----- ----- ----- ----- ----- ----- ---- -----
Manufactured Goods
Chemical & Related Products . . . . 3.2 6.1 3.7 6.0 3.8 5.3 4.7 5.1 4.6 5.0
Textiles, Light Industry
Products & Raw Materials . . . . 10.9 20.8 12.6 20.3 14.5 20.1 16.1 19.0 16.4 17.9
Machinery & Transportation Equipment 3.9 7.4 5.6 9.0 7.2 9.9 13.2 15.5 15.3 16.6
Clothing, Garments & Footwear . . . 7.2 13.8 8.5 13.6 11.3 15.7 34.2 40.2 (2) (2)
Others . . . . . . . . . . . . . . . 12.3 23.3 15.8 25.5 19.0 26.4 (1) (1) 38.8 42.3
----- ---- ----- ----- ----- ----- ----- ----- ---- ------
Subtotal . . . . . . . . . . . . 37.5 71.3 46.2 74.4 55.8 77.4 67.9 79.9 75.1 81.8
----- ---- ----- ----- ----- ----- ----- ----- ---- ------
Total . . . . . . . . . . 52.5 100.0% 62.1 100.0% 71.9 100.0% 85.0 100.0% 91.8 100.0%
===== ===== ===== ===== ===== ===== ===== ===== ===== =====

</TABLE>
------------------------------
(1) In 1992, exports previously included under "Others" were
reclassified and included under other categories of Manufactured Goods.
(2) In 1993, exports previously included under "Clothing, Garments &
Footwear" were reclassified and included under the category "Others."
Source: China Foreign Economic Relations and Trade Yearbook, 1992, Ministry
of Foreign Economic Relations and Trade; China Statistics Abstract,
1993, State Statistical Bureau of China; A Statistical Survey of
China 1994.

A-21
<PAGE> 113
The following table sets forth the composition of China's imports for
1989 through 1993:

COMPOSITION OF IMPORTS

<TABLE>
<CAPTION>
% OF % OF % OF % OF % OF
1989 TOTAL 1990 TOTAL 1991 TOTAL 1992(1) TOTAL(1) 1993(1) TOTAL(1)
----- ----- ---- ----- ----- ----- ------- -------- ------- --------
(IN BILLIONS OF US$, EXCEPT FOR PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Primary Goods
Food . . . . . . . . . . . . . . . . 4.2 7.1% 3.3 6.3% 2.8 4.2% 3.2 3.9% 2.2 2.1%
Beverages & Tobacco . . . . . . . . 0.2 0.3 0.2 0.3 0.2 0.3 0.2 0.3 0.3 0.2
Non-Food Raw Materials . . . . . . . 4.8 8.1 4.1 7.7 5.0 7.8 5.8 7.2 5.4 5.2
Mineral Fuels, Lubricants
& Related Materials . . . . . . . 1.7 2.8 1.3 2.4 2.1 3.3 3.6 4.4 5.8 5.6
Animal & Vegetable Oil . . . . . . . 0.9 1.5 1.0 1.8 0.8 1.2 0.5 0.7 0.5 0.5
----- ----- ----- ----- ----- ----- ----- ---- ----- -----
Subtotal . . . . . . . . . . . . 11.8 19.8 9.9 18.5 10.8 16.9 13.3 16.5 14.2 13.7
----- ----- ----- ----- ----- ----- ----- ---- ----- -----
Manufactured Goods
Chemical & Related Products . . . . 7.6 12.9 6.7 12.5 9.3 14.5 11.1 13.8 9.7 9.3
Textiles, Light Industry
Products & Raw Materials . . . . 12.3 20.8 8.9 16.7 10.5 16.5 19.3 23.9 28.6 27.5
Machinery & Transportation Equipment 18.2 30.8 16.9 31.6 19.6 30.7 31.3 38.9 45.0 43.3
Instruments & Meters for
Specialized, Scientific or
Automatic Control, Photographic &
Optical Equipment & Time Pieces . 1.2 2.1 1.2 2.2 1.4 2.1 -- -- -- --
Others . . . . . . . . . . . . . . . 8.1 13.6 9.9 18.6 12.2 19.2 5.6 6.9 6.5 6.2
----- ----- ----- ----- ----- ----- ----- ---- ----- -----
Subtotal . . . . . . . . . . . . 47.4 80.2 43.5 81.5 53.0 83.1 67.3 83.5 89.8 86.3
----- ----- ----- ----- ----- ----- ----- ---- ----- -----
Total . . . . . . . . . . . . 59.1 100.0% 53.4 100.0% 63.8 100.0% 80.6 100.0% 104.0 100.0%
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
------------------------------
(1) In 1992 and 1993, portions of imports previously included under
Instruments & Meters, etc." and "Others" were reclassified and included
under the other categories of Manufactured Goods.
Source: China Foreign Economic Relations and Trade Yearbooks, 1988, 1990
and 1992, Ministry of Foreign Economic Relations and Trade; China
Statistics Abstract, 1993, State Statistical Bureau of China; A
Statistical Survey of China 1994.

The following table sets forth data pertaining to the geographic
distribution of China's trade for 1989 through 1993. The destination of
exports is determined by the immediate destination of goods exported from China
and the origination of imports is determined by the immediate country, region
or territories from which goods are transported into China.

GEOGRAPHIC DISTRIBUTION OF TRADE

<TABLE>
<CAPTION>
1989 1990 1991 1992 1993
--------------- ---------------- --------------- --------------- ---------------
EXPORTS IMPORTS EXPORTS IMPORTS EXPORTS IMPORTS EXPORTS IMPORTS EXPORTS IMPORTS
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(IN BILLIONS OF US$)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Asia . . . . . . . . . . . 28.0 17.7 44.6 29.0 53.3 37.6 61.1 49.0 52.6 62.6
Hong Kong . . . . . . . 14.3 8.0 26.7 14.3 32.1 17.5 37.5 20.5 22.1 10.5
Japan . . . . . . . . . 8.1 6.5 9.0 7.6 10.2 10.0 11.7 13.7 15.8 23.2
Taiwan . . . . . . . . . N/A N/A 0.3 2.3 0.6 3.6 0.7 5.9 1.5 12.9
Europe . . . . . . . . . . 8.3 10.9 9.3 12.8 9.4 12.7 11.4 16.1 16.4 24.0
North America . . . . . . . 4.2 6.9 5.6 8.1 6.7 9.7 9.3 10.8 18.1 12.1
United States . . . . . 3.9 6.1 5.2 6.6 6.2 8.0 8.6 8.9 17.0 10.7
Africa . . . . . . . . . . 0.6 0.3 1.3 0.4 1.0 0.4 1.3 0.5 1.5 1.0
South America . . . . . . . 0.5 1.5 0.8 1.5 0.8 1.6 1.1 1.9 1.8 1.9
Oceania . . . . . . . . . . 0.4 1.4 0.5 1.5 0.6 1.7 0.8 2.1 1.2 2.4
</TABLE>
- -------------------------------
Source: China Foreign Economic Relations and Trade Yearbooks, 1989, 1990,
1991 and 1992, Ministry of Foreign Economic Relations and Trade;
China Statistical Yearbook, 1993, State Statistical Bureau of
China; China Customs Statistics 1994.

China's largest trading partners are Hong Kong, Japan, Europe and the
United States. In 1993, China's two largest trading partners, Hong Kong and
Japan, accounted for approximately 24.1% and 17.3%, respectively, of China's
total exports and approximately 10.1% and 22.3%, respectively, of China's total

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<PAGE> 114
imports. In 1993, Europe and the United States accounted for approximately
12.7% and 18.5%, respectively, of China's total exports and approximately 13.8%
and 10.3%, respectively, of China's total imports.

MOST FAVORED NATION STATUS AND GATT

China has MFN status with various countries, including Japan and the
United States. In general, MFN status is a grant from one country to another
country of the same trading privileges that it makes available to its other MFN
trading partners.

The Government has taken a series of measures to modify its foreign
exchange and trade regulations in accordance with international standards with
the objective of resuming its membership in GATT. On December 29, 1993, the
Government announced the convergence as of January 1, 1994 of the dual foreign
exchange rate system. The dual foreign exchange rate system had the effect of
subsidizing imports where the official exchange rate was applicable. During
1993, the Government twice lowered tariff levels. The Government is committed
to reducing substantially its import and export licensing requirements and
making its regulation of international trade more consistent and transparent.
The Government is also committed to increasing the legal protection of
intellectual property rights and in recent years has adopted regulations
providing further copyright, computer software and trademark protection and has
entered into international agreements committing it to further protection of
such rights and enforcement of such regulations.

The Government is seeking to complete its negotiations for resuming
its status as a contracting party to GATT before the end of 1994. In order to
complete these negotiations, the Government must resolve outstanding requests
from many GATT contracting parties for reduced tariffs and other agreements
with respect to goods and services that may be exported from those countries to
China. The completion of negotiation of those requests will result in lower
tariffs and reduced non-tariff barriers on various goods and services that are
imported to China. This could lead to increased competition with domestic
entities from foreign entities seeking to provide goods and services in China.

A-23
<PAGE> 115
BALANCE OF PAYMENTS

The following table sets forth China's balance of payments and related
statistics for 1989 through 1993:

BALANCE OF PAYMENTS

<TABLE>
<CAPTION>
1989 1990 1991 1992 1993
------ ------ ------- ------ ------
(IN BILLIONS OF US$)
<S> <C> <C> <C> <C> <C>
Current Account
Exports . . . . . . . . . . . . . . . . . . . . . . . . . . 43.2 51.5 58.9 69.6 75.7
Imports . . . . . . . . . . . . . . . . . . . . . . . . . . 48.8 42.3 50.2 64.4 86.3
---- ----- ----- ----- -----
Foreign Trade Balance . . . . . . . . . . . . . . . . . . . . (5.6) 9.2 8.7 5.2 (10.7)
Non-Trade Balance . . . . . . . . . . . . . . . . . . . . . . 0.9 2.6 3.7 0.1 (2.4)
Transfer Balance . . . . . . . . . . . . . . . . . . . . . . . 0.4 0.3 0.8 1.2 1.2
---- ----- ----- ----- -----
Current Account Balance . . . . . . . . . . . . . . . . (4.3) 12.0 13.3 6.4 (11.9)
==== ===== ===== ===== =====
Capital Account
Long-Term Capital Inflow . . . . . . . . . . . . . . . . . . . 12.0 11.6 12.9 27.6 50.4
Long-Term Capital Outflow . . . . . . . . . . . . . . . . . . 7.0 5.2 5.2 27.0 22.9
---- ----- ----- ----- -----
Long-Term Capital Balance . . . . . . . . . . . . . . . . . . 5.0 6.4 7.7 0.7 27.4
Short-Term Capital Balance . . . . . . . . . . . . . . . . . . (1.5) (3.2) 0.4 (0/9) (3.9)
---- ----- ----- ----- -----
Capital Account Balance . . . . . . . . . . . . . . . . 3.4 3.3 8.0 (0.3) 23.5
==== ===== ===== ===== =====
Overall Balance . . . . . . . . . . . . . . . . . . . . . . . . . (0.9) 15.3 21.3 6.1 11.6
Errors and Omissions . . . . . . . . . . . . . . . . . . . . . . 0.3 (3.1) (6.8) (8.3) (9.8)
---- ----- ----- ----- -----
Changes in Reserves . . . . . . . . . . . . . . . . . . . . . . . (0.6) 12.1 14.5 (2.1) 1.8
==== ===== ===== ===== =====
</TABLE>
- -------------------------------
Sources: China Statistical Yearbooks, 1991, 1992 and 1993, State Statistical
Bureau of China, the PBOC.

Non-trade balance account items include income and payments relating
to international tourism, transportation, investment, banking, insurance and
postal services. Transfer balance account items include such unilateral money
flows as reparations, foreign aid and donations, as well as remittances from
overseas Chinese. Capital account items include securities transactions,
direct investment, and bank loans and payments.

As indicated in the above table, the most important and the largest
current account items are exports and imports. From 1988 to 1992, China's
foreign trade balance changed from a deficit of US$5.3 billion at the end of
1983 to a surplus of US$5.2 billion at the end of 1992. Increased exports in
1990, 1991 and 1992 contributed significantly to China's official foreign
exchange reserves, which increased from US$3.4 billion in 1988 to US$19.4
billion in 1992. In 1993, China's foreign trade balance changed to a deficit
of US$10.7 billion, which was largely due to a rise in imports resulting from
accelerated economic growth during the first half of that year. Since June
1993, the Government has undertaken measures to maintain the economic growth
rate at a reasonable level, and expects China's imports and exports to roughly
equal each other in 1994.

China's official international reserves include: (i) gold reserves,
which have remained at approximately 12.67 million troy ounces for many years;
(ii) reserves deposited in the IMF, which are small in amount; (iii) special
drawing rights ("SDRs") at the IMF; and (iv) U.S. dollars and other
convertible foreign currencies, the major liquid asset for international
settlement, the amount of which is subject to change.

A-24
<PAGE> 116
The following table sets forth China's official international reserves
as of December 31 for 1988 through 1993:

OFFICIAL INTERNATIONAL RESERVES

<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993
------ ------ ------ ------- ------ ------
(IN BILLIONS OF US$)
<S> <C> <C> <C> <C> <C> <C>
Foreign Exchange . . . . . . . . . . . . . . . . . . . . 3.4 5.6 11.1 21.7 19.4 21.2
SDRs . . . . . . . . . . . . . . . . . . . . . . . . . . 0.6 0.5 0.6 0.6 0.4 N/A
Reserve Position at IMF . . . . . . . . . . . . . . . . . 0.4 0.4 0.4 0.4 0.8 N/A
Gold(1) . . . . . . . . . . . . . . . . . . . . . . . . . 0.6 0.6 0.6 0.6 0.6 0.6
--- --- ---- ---- ---- ---
Total . . . . . . . . . . . . . . . . . . . . . . . . 5.0 7.1 12.7 23.3 21.2 N/A
=== === ==== ==== ==== ===

</TABLE>
------------------------------
(1) Based on official valuation.
Sources: China Statistical Yearbook, 1993, State Statistical Bureau of
China; Annual Report 1992, the PBOC; A Statistical Survey of
China 1994.

The objective of the Government's foreign exchange reserve policy is
to maintain national reserves amounting to the equivalent in value of at least
three to four months of imports to conform with international standards. The
Government intends to maintain its level of gold reserves at the current level
and diversify its currency base by increasing holdings of the Japanese yen and
the German mark. The U.S. dollar remains the primary foreign currency in the
Government's portfolio.

MONETARY SYSTEM

THE CENTRAL BANK

The People's Bank of China (the "PBOC") is the central bank of China
and is owned by the Government. The PBOC is responsible, within the framework
of the Government's overall economic policy, for the formulation and execution
of monetary policy and, through the State Administration of Exchange Control
(the "SAEC"), a division of the PBOC, foreign exchange policy. The PBOC's
current monetary policy is to encourage stable economic growth while
maintaining a stable currency and controlling inflation through regulation of
the financial sector, money supply and the availability of foreign exchange.

The PBOC has the exclusive right to issue Renminbi, the legal tender
in China. The PBOC regulates the money supply and manages the Government's
gold and foreign currency reserves. It is also entrusted with supervisory and
regulatory powers over all banks and non-bank financial institutions in China.
It provides credit and rediscount facilities to such institutions and
regulates, in accordance with Government policy, lending and deposit-taking by
these institutions. The PBOC is also currently responsible for administering
the Government's borrowings from the IMF and ADB.

Whereas the principal instruments of monetary policy in the past have
been credit ceilings, interest rate and Renminbi exchange rate controls and
direct administrative intervention, the PBOC is moving toward the regulation of
the money supply through open market operations, the regulation of reserve
requirements for banking institutions and discount rates established by the
PBOC on loans available to banks.

The PBOC has undergone a number of changes since it was established in
1948. Because the PBOC was both China's central bank and its only significant
commercial bank prior to the 1978 economic reforms, most financial transactions
in China were handled by the PBOC. In 1979, the rural banking function of the
PBOC was transferred to a newly established, Government-owned bank called the
Agricultural Bank of China (the "ABC"). To strengthen the role of the PBOC as
China's central bank, the Government in 1983

A-25
<PAGE> 117
transferred PBOC's remaining commercial banking functions to another newly
established, Government-owned bank called the Industry and Commerce Bank of
China (the "ICBC").

THE FINANCIAL SECTOR

The majority of the assets in the Chinese financial sector is held and
managed by financial institutions owned by the Central and Local Governments.
The following table sets forth the assets of certain bank and non-bank
financial institutions in China as of December 31 for 1988 through 1992:

ASSETS OF FINANCIAL INSTITUTIONS

<TABLE>
<CAPTION>
1988 1989 1990 1991 1992
--------- --------- --------- --------- ---------
(IN BILLIONS OF RMB)
<S> <C> <C> <C> <C> <C>
People's Bank of China . . . . . . . . . . . . . 462.8 574.4 722.6 901.1 1,016.9
State Banks(1) . . . . . . . . . . . . . . . . . 1,212.5 1,470.0 1,850.9 2,263.3 2,725.3
Rural Credit Cooperatives . . . . . . . . . . . . 148.8 175.3 218.5 272.5 353.5
Urban Credit Cooperatives . . . . . . . . . . . . 20.3 28.4 37.2 56.4 110.5
Trust and Investment Companies . . . . . . . . . 83.4 88.1 118.1 167.4 230.9
Finance Companies(2) . . . . . . . . . . . . . . -- -- -- -- 18.3
Other Banks(2)(3) . . . . . . . . . . . . . . . . -- -- -- -- 34.8
</TABLE>

------------------------------
(1) Includes four specialized banks and the Bank of Communications and
the Industrial Bank of China International Trust and Investment
Corporation.
(2) Statistics for these entities were not compiled by the Government until
1992.
(3) Includes local banks such as Guangdong Development Bank, Shenzhen
Development Bank and Huaxia Bank (of the Capital Steel Corporation).
Source: Annual Report 1992, the People's Bank of China.

Banking and Non-Bank Financial Institutions

The banking industry in China is dominated by institutions owned and
controlled by the Central Government. The banking industry is principally
regulated by the PBOC and is divided among specialized banks, development
banks, commercial banks, cooperatives and other deposit- taking institutions.
Banks and credit cooperatives established in China are subject to regular
audits by the State General Audit Bureau and are required to provide the PBOC
with all information necessary for statistical and business regulation
purposes. A comprehensive banking law is expected to be adopted by the
Government in 1994. The Government is also in the process of further
restructuring the Chinese banking system.

The ICBC, the ABC, the Bank of China (the "BOC") and the People's
Construction Bank of China (the "PCBC") are China's specialized banks. These
banks have engaged in both commercial lending and policy lending (i.e., lending
made for the purpose of implementing certain Governmental economic policies)
and, therefore, have not been operated solely or principally with the objective
of earning profits from their operations. These banks collectively account for
more than three-quarters of the assets of financial institutions in China, and
hence their performance has been a critical determinant of the overall
performance of China's financial sector. As the Chinese banking system is
restructured, these specialized banks are expected to become commercial banks
and policy lending is to be shifted to newly established banks.

The ICBC specializes in providing loans for working capital and
related banking services to industrial and commercial enterprises. The BOC
specializes in foreign exchange transactions and financing international trade.
The ABC specializes in providing lending and other services to the agricultural
and other rural sectors, such as TVEs. The PCBC specializes in providing
budgetary funds to State-owned enterprises and funding

A-26
<PAGE> 118
large infrastructure and other projects. In recent years, the specialized
banks have diversified their businesses beyond their specialties into other
areas (including areas in which other specialized banks are active).

The primary sources of funds for the specialized banks are domestic
retail deposits, funds received from the Government and funds raised through
the issuance of domestic bonds. Funds are also provided, to a limited extent,
through bilateral governmental borrowings, borrowings from international
financial institutions and the international securities markets.

In China, non-bank financial institutions include trust and investment
corporations, insurance companies and other financial companies. Currently,
these institutions are regulated by the PBOC and are audited regularly by the
State General Audit Bureau.

Financial Sector Reform

The Government is taking a number of steps to strengthen the financial
sector and the PBOC's control over the sector. An important step is the
separation of the policy functions and the commercial functions of the
specialized banks, which is being accomplished by moving the policy functions
from those banks to the newly established State Development Bank and Export and
Import Bank, and by reorganizing ABC into a commercial bank and a policy bank.
The PBOC's role as a central bank was strengthened in June 1993 when the PBOC
put all of its branches under the direct control of the head office and
withdrew from its local branches the authority to issue money. The Government
has also announced that regional branches will be set up to improve
coordination among the PBOC's local branches, that the PBOC's ability to make
credit available to non-bank financial institutions will be restricted and that
commercial banks will be required to separate their banking and securities
businesses.

The PBOC expects to commence open market operations in domestic
markets for renminbi-denominated government securities, in part to absorb
excessive money supply in late 1994 or 1995. In addition, the Government, on
an experimental basis, is expected to allow certain foreign banks to conduct
limited renminbi-related businesses.

FOREIGN EXCHANGE POLICY

Although foreign exchange policy has undergone a number of changes
since 1978, the renminbi is still not freely convertible into other currencies.
Whereas it was illegal to take renminbi outside China prior to 1993,
individuals are now permitted to take up to RMB6,000 each out of China. The
Government's policy is to move gradually toward a fully convertible renminbi.

From 1949 to 1978, the official exchange rate of the renminbi had
remained basically fixed at approximately US$1.00 to RMB1.60. Due to the
relatively low level of international trade prior to 1978, the renminbi
exchange rate was an insignificant monetary tool for the Government.

After the Government initiated its economic reform program in 1978,
however, it adopted a managed system whereby the official exchange rate was
adjusted from time to time by the SAEC based on developments in the balance of
payments, changes in domestic cost trends and price changes by China's major
trading partners. Since then, the official exchange rate of the renminbi
against major foreign currencies has experienced gradual but significant
depreciation.

In 1986, the Central Government established official foreign exchange
adjustment centers regulated by the SAEC ("Swap Centers") to provide
marketplaces for importers and exporters to buy and sell foreign currency at
rates set generally by the market ("swap exchange rates") for use in
international trade. Since then, increasing numbers of businesses engaged in
international commerce and finance have been given access to the regional Swap
Centers and the swap exchange rates, and many businesses that previously were
able to

A-27
<PAGE> 119
obtain foreign currency at the official exchange rate have been required to
meet all or part of their foreign currency needs through transactions at the
Swap Centers.

Prior to January 1, 1994, the official exchange rate of renminbi for
U.S. dollars was substantially lower than the swap exchange rates therefor.
For example, on December 31, 1993, the official exchange rate (as reflected by
the noon buying rate in New York City for cable transfers on that day of
renminbi as certified for customs purposes by the Federal Reserve Bank of New
York (the "Noon Buying Rate")) was US$1.00 to RMB5.8145. In contrast, on such
date, the exchange rate at the Shanghai Swap Center was US$1.00 to RMB8.7000.

Starting January 1, 1994, the SAEC implemented a new
managed-floating-rate system, replacing the dual rate system previously in
effect. Under the new system, the PBOC sets daily exchange rates for
conversion of renminbi into U.S. dollars and other currencies based on the
rates set by the Chinese Foreign Exchange Trading Center. On August 15, 1994,
the official exchange rate (as reflected by the Noon Buying Rate) was US$1.00
to RMB8.6112.

The following table sets forth exchange rates between the renminbi and
the U.S. dollar for the periods indicated:

<TABLE>
<CAPTION>
OFFICIAL EXCHANGE RATE SHANGHAI SWAP CENTER RATE
-------------------------------------- ---------------------------------------

PERIOD PERIOD
END AVERAGE(1) HIGH LOW END AVERAGE(1) HIGH LOW
-------- --------- -------- -------- -------- --------- --------- ---------
(EXPRESSED IN RMB PER US$1.00) (EXPRESSED IN RMB PER US$1.00)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1988 . . . . . . . . . 3.7314 3.7314 3.7314 3.7314 6.4400 6.3000 7.2200 6.2300
1989 . . . . . . . . . 4.7339 3.7634 4.7339 3.7314 5.7200 6.2300 7.0000 4.7300
1990 . . . . . . . . . 5.2352 4.7920 5.2352 4.7329 5.7490 5.6405 5.9300 5.1630
1991 . . . . . . . . . 5.4478 5.3343 5.4478 5.2352 5.8980 5.8534 5.9290 5.7490
1992 . . . . . . . . . 5.7662 5.5214 5.9007 5.4124 7.7060 6.7497 7.7700 5.8970
1st Quarter, 1993 . . . 5.7333 5.7670 5.8000 5.7333 8.1450 8.2196 8.8490 7.7180
2nd Quarter, 1993 . . . 5.7756 5.7384 5.7756 5.7076 10.4640 8.9413 10.9230 8.1350
3rd Quarter, 1993 . . . 5.8013 5.7893 5.8063 5.7756 8.7010 8.8060 10.4640 8.4400
4th Quarter, 1993 . . . 5.8145 5.8106 5.8245 5.8013 8.7000 8.7000 8.7500 8.6600

</TABLE>
------------------------------
(1) Determined by averaging the rates on the last business day of each month
during the relevant period.

Sources: For purposes of the above table, official exchange rates
are represented by Noon Buying Rates, and Shanghai Swap
Center Rates have been obtained from the Shanghai Swap
Center. Exchange rates expressed in this table have been
confirmed by the SAEC.

OFFICIAL EXCHANGE RATE
(AT EACH MONTH END IN
1994 AS INDICATED BELOW)

<TABLE>
<CAPTION>
JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY
----------- ------------ ------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
8.7217 8.7262 8.7298 8.7247 8.6796 8.6717 8.6397
</TABLE>

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

Sources: For purposes of the above table, official exchange
rates are represented by the noon buying rates in New York City for
cable transfers of RMB as certified for customs purposes by the
Federal Reserve Bank of New York. The rates shown in the above
table are as of January 31, February 28, March 31, April 29, May 31,
June 30, and July 29, 1994, each of which is the last day in each month
on which the rate is so certified.

In February 1993, in response to the increasing depreciation of the
renminbi against the U.S. dollar, the SAEC imposed limits on foreign currency
exchange rates at the Swap Centers, capping the U.S. dollar to renminbi
exchange rate at approximately US$1.00 to RMB8.40. These limitations, together
with further

A-28
<PAGE> 120
market devaluations of the renminbi and increasing demand for foreign currency
in early 1993, gave rise to the development of unofficial foreign currency
markets, or "black markets," which did not adhere to such restrictions. As a
result, there were periodic shortages of foreign currency at Swap Centers
following the SAEC's actions. On June 1, 1993, the ceilings on swap exchange
rates were removed and the U.S. dollar to renminbi exchange rate at the Swap
Centers changed significantly, with the Shanghai Swap Center closing at US$1.00
= RMB10.17.

Beginning in June 1993, the Government took two significant steps to
stabilize the exchange rate, using both economic and administrative measures.
First, the Government shortened the period during which enterprises are
permitted to retain their foreign exchange earnings. This change in policy
helped to relieve the shortage of foreign currencies at the Swap Centers.
Second, the PBOC, through the SAEC, intervened to stabilize the swap exchange
rates by selling foreign exchange reserves at the Swap Centers. As a result of
these and other macroeconomic measures, the renminbi to U.S. Dollar exchange
rate has since stabilized at lower levels.

The Government's current foreign exchange policy is to eliminate
foreign exchange speculation and to maintain order and stability in the foreign
exchange market. In furtherance of this policy, the SAEC has set up a fund to
moderate price fluctuations by buying and selling renminbi and has caused the
official exchange rate to converge with the swap exchange rates. While the
Swap Centers have made and continue to make an important contribution in
establishing market exchange rates for the renminbi, the Government plans to
eventually replace the Swap Centers with an interbank currency trading network.

MONEY SUPPLY

Since the start of the economic reforms in 1978, monetary indices have
indicated rapid growth in total money supply and an equally significant
increase in the level of monetary assets. This growth is attributable to the
significant growth in the Chinese economy, as well as the levels of inflation
since 1978. The following table sets forth the volume of the money supply for
1988 through 1993:

MONEY SUPPLY

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------------
1988 1989 1990 1991 1992 1993
---------- ---------- ----------- ---------- ----------- ----------
(IN BILLIONS OF RMB)
<S> <C> <C> <C> <C> <C> <C>
M0(1) . . . . . . . . . . . . . 213.4 234.4 264.4 317.8 433.6 586.5
M1(2) . . . . . . . . . . . . . 548.9 583.5 701.2 863.5 1,172.0 N/A
M2(3) . . . . . . . . . . . . . 1,010.0 1,195.0 1,529.4 1,935.0 2,540.2 N/A
</TABLE>
- -------------------------------
(1) Currency in circulation.
(2) M0 plus demand deposits of enterprises and institutions.
(3) M1 plus time deposits of enterprises, deposits of self-financed funds
for capital construction, household deposits and other deposits.
Sources: Annual Report 1992, the People's Bank of China; A Statistical
Survey of China 1994.

Inflation

The Chinese economy has experienced rapid growth in recent years, as
GNP increased by 13.4% in 1993. Such rapid growth has been accompanied by
imbalances in the Chinese economy, especially with respect to inflation. In
1993, the overall general retail price index in China increased by 13.2% from
1992. The overall cost of living index increased by 14.7% in 1993, and the
urban cost of living index increased by an average of 19.6% for 35 large cities
in 1993 over 1992.

A-29
<PAGE> 121
The following table sets forth rates of inflation as measured by
percentage changes in the general retail price indices and the cost of living
indices for the period indicated.

CHANGES IN GENERAL RETAIL PRICE INDICES AND COST OF LIVING INDICES

<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993
--------- --------- --------- --------- --------- ---------
(PERCENTAGE INCREASE)
<S> <C> <C> <C> <C> <C> <C>
General Retail Price Indices(1)
Urban . . . . . . . . . . . . . . . 21.3% 16.0% 0.2% 4.5% 7.7% N/A%
Rural . . . . . . . . . . . . . . . 17.1 18.8 3.2 2.0 3.9 N/A
Overall . . . . . . . . . . . . . . 18.5 17.8 2.1 2.9 5.4 13.2
Cost of Living Indices(2)
Urban . . . . . . . . . . . . . . . 20.7 16.3 1.3 5.1 8.6 16.1
Rural . . . . . . . . . . . . . . . 17.5 19.3 4.5 2.3 4.7 13.7
Overall . . . . . . . . . . . . . . 18.8 18.0 3.1 3.4 6.4 14.7
</TABLE>
- -------------------------------
(1) The general retail price index in China is calculated on a weighted
basket of consumer goods and industrial products for the urban and
rural areas, respectively.
(2) The cost of living index is calculated on a weighted basket of
consumer goods and services for the urban and rural areas,
respectively.
Sources: China Statistical Yearbook, 1993, State Statistical Bureau of
China; A Statistical Survey of China 1994.

There are many causes of the current inflationary pressure on the
Chinese economy. Rapid economic growth since 1991 has stimulated a strong
demand for capital goods and raw materials, pushing up industrial prices.
Inadequate infrastructure has created bottlenecks in the supply of raw
materials, energy and transportation, resulting in even higher industrial
prices. An increased money supply resulting from substantial short-term credit
provided for long-term capital investment and increased credits issued by local
branches of PBOC added to inflationary pressures. Ongoing price reform that
removed most of the Government-set ceilings on prices of both industrial
materials and consumer items further contributed to inflationary pressures.

In response to this situation, the Government has taken macroeconomic
means combined with limited administrative measures to control economic growth
and curb inflation. The principal measures taken include raising interest
rates on bank deposits and Central Government securities, promoting the sale of
Central Government securities, revoking unauthorized tax exemptions conferred
by Local Governments, mandating banks to recover certain loans that were
improperly made or left outstanding, increasing efforts to gain control of
investments in capital assets made without proper Government approval, reducing
Government administrative expenses by 20%, temporarily suspending further price
reforms, restricting speculative investments (especially in the area of real
estate) and increasing regulation of imports of certain luxury goods.

LEGAL SYSTEM

China's legal system is a civil law system based on written statutes.
Decided cases generally do not constitute binding precedents, although such
cases are sometimes referred to for guidance. Though China is still in the
process of developing a comprehensive system of laws, a significant number of
laws and regulations dealing with general economic matters, foreign investment,
protection of intellectual property, taxation, technology transfer and trade
have been promulgated since the start of China's economic reform program in
1978. Moreover, a new Constitution was adopted in 1982 that, among other
things, authorizes foreign investment and guarantees the "lawful rights and
interests" of foreign investors in China and was amended in 1993 to provide for
a "socialist market economy."

A-30
<PAGE> 122
All laws in China are promulgated by the NPC. However, the State
Council, certain of the entities affiliated with the State Council and people's
congresses at the Local Government levels are also vested with the power to
promulgate administrative rules and regulations which have the force of law.

The principal statute governing the judicial system is The Law of the
People's Republic of China Concerning the Organization of the Judicial System,
which took effect in July 1979 and which was amended in September 1983. The
principal statute governing civil relations, including business transactions,
is the General Principles of the Civil Code, enacted in April 1986. The Civil
Code is divided into seven broad categories: general principles, subjects of
civil law, contract, property, civil liability, and remedies and special
provisions governing foreign economic relations. The main statute governing
civil procedure is The Law of the People's Republic of China on Civil Procedure
(the "Civil Procedure Law") which took effect in April 1991.

All foreign individuals, enterprises and other entities are given the
same rights and obligations as Chinese individuals, enterprises and other
entities in instituting or defending proceedings in courts. If, however, the
rights and obligations of Chinese individuals, enterprises or other entities to
institute or defend legal proceedings are subject to any restriction in a
foreign jurisdiction, then reciprocal restrictions may be imposed by Chinese
courts on the rights and obligations of the individuals, enterprises and other
entities of such jurisdictions to institute or defend legal proceedings in
China.

All civil cases are decided by the court on the basis of a majority
vote of the judges sitting on a case and are subject to a two-tier procedure,
with cases heard by a court of first instance, subject to review by appellate
courts. Courts are divided into four levels: the Supreme People's Court, the
High People's Court, the Intermediate People's Court and the Elementary
People's Court, with each level containing a criminal division, a civil
division, an economic division, and an administrative and intellectual property
rights provision. The Supreme People's Court is the highest court in China and
is responsible for supervising all other courts.

If a Chinese court is asked to recognize or enforce a judgment or
ruling given by a foreign court, such judgment or ruling will be recognized and
enforced only where there is an applicable international treaty or other
arrangement or basis for reciprocal enforcement of judgments between China and
the country of the foreign court. The enforcement of such judgment or ruling,
however, may not violate the public security, state sovereignty or basic
principles of the law of China, nor contradict the public interest of China.

Foreign arbitral awards may be enforced in China pursuant to
international treaties to which China is a party, most importantly the
Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the
"New York Convention"), to which China acceded in 1987. As of January 1, 1994,
97 states had become parties to the New York Convention, including the United
States and Hong Kong (to which Great Britain extended application of the
Convention pursuant to its own accession). Applications for enforcement in
China are handled in accordance with the Civil Procedure Law, which provides
that an application for enforcement shall be submitted to the Intermediate
People's Court of the place where the party subject to execution is domiciled
or where such party's property is located.

The China International Economic and Trade Arbitration Commission
("CIETAC"), established in Beijing under the auspices of the China Council for
the Promotion of International Trade, is one of two domestic arbitration
organizations in China charged with arbitrating foreign- related disputes.

CIETAC's arbitration rules provide that CIETAC has jurisdiction over
any dispute arising from "international economic and trade transactions" with
respect to which an arbitration agreement selecting CIETAC arbitration has been
reached. The second arbitration organization exclusively arbitrates
foreign-related maritime disputes. The CIETAC rules provide that an award
rendered by a CIETAC tribunal shall be final and binding on the parties. The
Chinese Civil Procedure Law also provides that a Chinese court may

A-31
<PAGE> 123
only refuse to enforce a CIETAC final award in the event of certain procedural
errors relating to the jurisdiction of CIETAC over a given dispute or the
failure by an arbitration tribunal to abide by CIETAC rules, and may also deny
execution of the award in the event that it determines that doing so would be
against the "public interest." A consistent record of enforcement of foreign
arbitral awards, however, has yet to develop.

A-32
<PAGE> 124
HONG KONG
GENERAL INFORMATION

GEOGRAPHY AND POPULATION

The British colony of Hong Kong consists of Hong Kong Island, the
Kowloon Peninsula, the New Territories and the outlying islands. Situated on
the southern coast of mainland China, it encompasses a total land area of 416
square miles. Hong Kong's strategic location and excellent natural harbor,
combined with its industrious population and free market economic policies,
have generated substantial economic growth in recent years. Hong Kong has been
increasingly becoming economically interconnected with China. In 1990 and
1991, approximately 50% of direct foreign investments made in China were made
by Hong Kong entities. Hong Kong is also China's largest export market as well
as its largest supplier.

English and Chinese are the two official languages, with the vast
majority of the population speaking the Cantonese dialect. According to
official statistics, by the end of 1993, there were 6,019,900 people in Hong
Kong.

GOVERNMENT

As a colony of Great Britain, Hong Kong is currently ruled by the
British Government with a Governor appointed by the Queen on the advice of the
British Government. The executive organ of government is the 16-member
Executive Council ("Exco") which is presided over by the Governor. The
Executive Council advises the Governor on policy and proposes legislation to
the Legislative Council ("Legco") for their approval. The Legislative Council
consists of 60 members, of which 18 are popularly elected, 21 are elected by
distinct industry groups known as "functional constituencies" and 21 are
appointed by the Governor. Legco considers proposed legislation and
scrutinizes public expenditures.

In December 1984, the prime ministers of Great Britain and China
signed an agreement, known as the Joint Declaration, under which Hong Kong will
revert to the sovereignty of China effective July 1, 1997. At that time Hong
Kong will become a special administrative region ("SAR") of China. As provided
in the Basic Law of the Hong Kong Special Administrative Region (the "Basic
Law"), adopted by China's National People's Congress in April 1990 pursuant to
the Joint Declaration, which will be the basic constitutional document of Hong
Kong after June 30, 1997, the SAR is to have its own legislature, legal and
judicial system and full economic autonomy for 50 years. Defense and foreign
affairs will be the responsibility of the central government in Beijing,
although Hong Kong will still be able to participate in international
organizations and agreements, where appropriate. Existing freedoms (the rights
of free speech and assembly, a free press, freedom of religion, and to strike
and to travel) will be ensured by law, and business ownership, private
property, the right of inheritance and foreign investment will be legally
protected. The laws in force in Hong Kong prior to June 30, 1997 will be
maintained, except for any that contravene the Basic Law, and will be subject
to amendment by Hong Kong's legislature.

The Basic Law provides that the Chief Executive of the Hong Kong SAR
shall be recommended by a committee composed of Hong Kong residents
representing a broad spectrum of distinct constituencies, such as industry,
labor and the various professions, and appointed by the Central Government of
China. The members of the committee recommending the first Chief Executive
will be selected by a special committee comprising Hong Kong and Chinese
members, with the members of the committee thereafter being selected by the
constituencies they present. The power of interpretation of the Basic Law is
vested in the Standing Committee of the National People's Congress of China,
although the courts of the Hong Kong SAR may interpret the provision of the
Basic Law in adjudicating cases before them, subject to certain limitations.
The power of amendment of the Basic Law is vested in the National People's
Congress of China. It is not clear how future developments in Hong Kong and
China may affect the implementation of the Basic Law after the transfer of
sovereignty in 1997.

A-33
<PAGE> 125
The Basic Law provides that the Hong Kong dollar will remain the legal
tender in the Hong Kong SAR after the transfer of sovereignty. It also
provides that no exchange control policies will be applied in the Hong Kong SAR
and that the Hong Kong dollar will remain freely convertible.

EXTERNAL AFFAIRS

Hong Kong's foreign relations are currently constitutionally the
direct responsibility of the British Government but, in the day-to-day conduct
of external affairs, Hong Kong enjoys a considerable degree of autonomy and
full autonomy regarding trade matters.

Hong Kong is a member of various international organizations,
including the Asia Pacific Economic Cooperation (APEC) forum, Interpol, and the
Asian Development Bank. Hong Kong became a separate contracting party to the
GATT in 1986, having participated in the activities of the GATT prior to the
date as a British dependent territory. Hong Kong's status with the GATT will
extend beyond 1997.

THE HONG KONG ECONOMY

Hong Kong has a free market economy with no general exchange control
regulations and no general regulations governing foreign investment in Hong
Kong. Because of limited natural resources, Hong Kong has to depend on imports
for virtually all its requirements, including food and other consumer goods,
raw materials, capital goods, fuel and even water. It must, therefore, export
on a sufficient scale to generate foreign exchange earnings to pay for these
imports if the population is to enjoy a rising standard of living. With a
gross value of HK$2,118 billion in total merchandise trade in 1993, Hong Kong
was ranked 10th among the world's trading economies in terms of the value of
its merchandise trade. Hong Kong's largest trading partner is China, followed
by the United States and Japan.

The table below sets forth selected economic data relating to Hong
Kong for the calendar years indicated below:

SELECTED ECONOMIC INDICATORS

<TABLE>
<CAPTION>
1989 1990 1991 1992 1993
--------- --------- --------- --------- ---------
(IN BILLIONS OF HK$, EXCEPT AS INDICATED)
<S> <C> <C> <C> <C> <C>
Real gross domestic product ("GDP")(1) . . . . . 254.4 262.6 273.5 287.9 303.7
Real GDP (percentage change per year)(1) . . . . 2.8% 3.2% 4.1% 5.3% 5.5%
Consumer price inflation . . . . . . . . . . . . 10.1% 9.8% 12.0% 9.4% 8.5%
Unemployment rate . . . . . . . . . . . . . . . . 1.1% 1.3% 1.8% 2.0% 2.0%
Population (millions)(mid-year) . . . . . . . . . 5.69 5.70 5.75 5.81 5.92
Exports FOB (US$ billion)(2) . . . . . . . . . . 73.14 82.20 98.60 119.50 135.2
Imports CIF (US$ billion)(3) . . . . . . . . . . 72.40 82.80 100.60 123.40 138.7
Visible trade balance (US$ billion) . . . . . . . 0.68 (0.68) (2.08) (3.90) (3.4)
Exchange rate (average) HK$:US$ . . . . . . . . . 7.8 7.8 7.8 7.7 7.8
</TABLE>
- -------------------------------
(1) Based on current 1980 market prices.
(2) Free On Board (including re-exports).
(3) Cost, Insurance and Freight.
Sources: 1988-1993: Economic Background: Hong Kong Monthly Digest of
Statistics, June 1994; Economist Intelligence Unit Country Report,
2nd quarter 1994.

The most significant long-term change in the composition of Hong
Kong's GDP and employment is the decline of the manufacturing sector and growth
of the service sector.

A-34
<PAGE> 126
The contribution of the manufacturing sector to GDP declined steadily
from 31% in 1970 to about 13% in 1992, reflecting partly the transfer of
manufacturing facilities to China and partly the continued expansion of the
service sector. The manufacturing sector's share of employment declined from
47% of the workforce to 22% from 1971 to 1993. Nonetheless, manufacturing
still accounts for the third largest share of GDP and second largest share of
employment.

The contribution of the service sectors as a whole (comprising
wholesale, retail and import/export trades; restaurants and hotels; transport,
storage and communications; finance, insurance, real estate and business
services; and community, social and personal services) to GDP increased from
60% in 1970 to 76% in 1992.

The contribution of the agriculture and fishery, mining and quarrying
sectors to both GDP and employment is small.

INDUSTRIAL PRODUCTION

In general, the government follows a laissez-faire policy towards
industry. However, in view of the rising tide of protectionism in major export
markets and growing competition from Asian neighbors in the 1980s, the
government has encouraged productivity and product diversification through the
spread of technical education and management techniques. The overall objective
is to achieve a shift from simple processing work to more capital-intensive and
technologically advanced production. Relocation of the more labor-intensive
production processes across the border into China has helped to increase labor
productivity in the local manufacturing sector.

Approximately 80% of Hong Kong's manufacturing output is exported, and
for a long time external trade has been a driving force behind economic
development. Since the relocation of many production facilities in China
during the 1980s to take advantage of cheaper labor and land prices, the
pattern of Hong Kong's export trade has changed. The increase in the value of
re-exports has steadily outstripped the increase in the value of domestic
exports. For the period 1990-93, the level of domestic exports has remained
steady with a slight decline in 1993, while imports have continually increased
(12.3% in 1993 over the previous year). In 1993, a visible trade deficit of
HK$26.4 billion was recorded.

MOVEMENT OF TRADE VALUES 1990-1993

<TABLE>
<CAPTION>
1990 1991 1992 1993
------------ ----------- ----------- -----------
(IN BILLIONS OF HK$)
<S> <C> <C> <C> <C>
Total merchandise trade . . . . . . . . . . . . . . 1,282 1,545 1,880 2,119
(+13.2)% (+20.5)% (+21.7)% (+12.7)%
Total exports . . . . . . . . . . . . . . . . . 640 766 925 1,046
(+12.2)% (+19.7)% (+20.8)% (+13.1)%
Domestic exports . . . . . . . . . . . . . . . . 226 231 234 223
(+0.8)% (+2.3)% (+1.3)% (-4.7)%
Re-exports . . . . . . . . . . . . . . . . . . . 414 535 691 823
(+19.5)% (+29.2)% (+29.2)% (+19.2)%
Imports . . . . . . . . . . . . . . . . . . . . . . 643 779 955 1,073
(+14.2)% (+21.2)% (+22.6)% (+12.3)%
Visible trade balance . . . . . . . . . . . . . . . -3 -13 .30 -.26
</TABLE>
- ------------------------------
Figures in brackets are the percentage changes over previous years.
Source: Annual Review of Hong Kong External Trade, 1992; Hong Kong External
Trade, May 1994.

A-35
<PAGE> 127
Although the manufacturing sector is a major contributor to Hong
Kong's GDP, its share of GPD has declined since the relocation of production
facilities in China. As a result, there has been a corresponding drop in
domestic exports.

NATURAL RESOURCES AND ENERGY PRODUCTION

Hong Kong has no formal policy on raw material development as its
domestic reserves are negligible. The territory has small deposits of iron,
lead, zinc, tungsten, and beryl. Water is supplied from reservoirs both in
Hong Kong and China.

Hong Kong derives its energy supplies entirely from external sources.
Energy is either imported directly (as in the case of oil and coal), or
produced through intermediate transformation processes using imported fuel (as
in the case of electricity and gas). Electricity supplies are currently
handled by two commercial companies, the Hong Kong Electric Company Limited,
which supplies Hong Kong Island, and the China Light and Power Company Limited,
which supplies Kowloon and the New Territories. The government monitors and
has some control over the financial arrangements of those companies, but
otherwise both have substantial autonomy. Hong Kong has no national oil
company, therefore foreign concerns distribute oil products to local users.

AGRICULTURE, FORESTRY AND FISHERIES

The Agriculture and Fisheries Department oversees the productive use
of agricultural land. Among the major ongoing programs are the agricultural
land rehabilitation scheme and projects for irrigation maintenance and
development. The Department also carries out research into the improvement of
quality and yield of vegetables, flowers and fruit. Studies are also conducted
into marine resources, aquaculture and the environmental impact of development
activities on fisheries. The Vegetable Marketing Organization operates under
the Agricultural Products (Marketing) Ordinance and seeks to maximize returns
to farmers by minimizing costs. Surpluses earned by the Vegetable Marketing
Organization are used to further develop marketing services and the farming
industries.

The shortage of land and labor in Hong Kong has led farmers to
introduce labor-saving devices and intensive production practices.

Approximately 8% of Hong Kong's land is suitable for farming. Common
crops are vegetables and flowers. A small quantity of fruit and other crops is
also grown. Rice production has given way to intensive vegetable production.

INFLATION

The annual rate of inflation as measured by the Consumer Price Index
(A) reached 13.9% in April 1991, but began to decline in 1992. The rate of
increase recorded for 1992 was 9.4% and further declined to 8.5% for 1993 as a
whole.

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<PAGE> 128
The following table sets out the annual percentage changes in the
Consumer Price Index (A) since 1986:

CONSUMER PRICE INDEX(A)(1)

<TABLE>
<CAPTION>
PERCENTAGE
YEAR CHANGE
---- -------------
<S> <C>
1986 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . +2.9%
1987 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . +5.5%
1988 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . +7.4%
1989 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . +10.1%
1990 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . +9.7%
1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . +12.0%
1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . +9.4%
1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . +8.5%
</TABLE>
- ------------------------------
(1) The Consumer Price Index (A) for the years 1986-88 was based on the
1984/85 Household Expenditure Survey of urban households with a monthly
expenditure of between HK$2000 and HK$6499 and for the years 1989-1993
was based on the 1989/90 Household Expenditure Survey of urban
households with a monthly expenditure of between HK$2500 and HK$9999.
Source: Hong Kong Monthly Digest of Statistics, October 1991 and May 1993
editions; Hong Kong Annual Digest of Statistics, 1992; Hong
Kong 1994 Government Yearbook.

FINANCIAL SYSTEM

Hong Kong has no finance ministry or official central bank. Monetary
policy is the responsibility of the Monetary Affairs Branch of the Hong Kong
government. In the absence of a central bank, Hong Kong's currency is issued
by three commercial banks, the locally incorporated Hongkong and Shanghai
Banking Corporation Limited (the "Hongkong Bank") and the United Kingdom
registered Standard Chartered Bank and the Bank of China which was approved by
the Hong Kong Executive Council early last year as the third note-issuing bank.

A linked exchange rate system was introduced on October 17, 1983
(after a period of instability in the exchange rate of the Hong Kong dollar),
whereby the Hong Kong dollar was linked to the United States dollar at a fixed
rate of US$1.00 to HK$7.80. In July 1988 an agreement between the Hong Kong
government and the Hongkong Bank gave the government greater control through
its Exchange Fund over liquidity and interest rates in the interbank market.
This enhanced the government's ability to maintain exchange rate stability
within the framework of the linked exchange rate system.

The supervision of banks, restricted license banks and deposit-taking
companies (collectively known as "authorized institutions") is the
responsibility of the Commissioner of Banking. All licensed banks must join
the Hong Kong Association of Banks (the "HKAB"). Licensed banks may not set
interest rates at their discretion. The HKAB, in accordance with the Hong Kong
Association of Banks Ordinance, has promulgated a set of rules on interest
rates and deposit charges which binds all member banks. These rules fix
minimum rates of interest, return, discount or other benefits paid, granted or
conceded by banks on deposits denominated in Hong Kong dollars.

Foreign banks must have total assets of at least US$16 billion to
obtain a license to operate in Hong Kong, unless they are of exceptionally high
standing or unless their nationality of bank is under- represented in Hong
Kong.

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MONEY SUPPLY

The following table sets forth the volume of Hong Kong's money supply
for 1987 to April 1993:

MONEY SUPPLY

<TABLE>
<CAPTION>
1987 1988 1989 1990 1991 1992 1993
--------- --------- --------- --------- --------- --------- ---------
(IN BILLIONS OF HK$)
<S> <C> <C> <C> <C> <C> <C> <C>
M1 . . . . . . . . . . . . . 82 89 95 108 129 156 188
M2 . . . . . . . . . . . . . 677 825 989 1,210 1,371 1,519 1,762
M3 . . . . . . . . . . . . . 743 893 1,060 1,288 1,437 1,574 1,820
</TABLE>
- -------------------------------
M1 Notes and coins with the public, plus customers' demand deposits with
licensed banks.
M2 M1 plus customers' savings and time deposits with licensed banks, plus
negotiable certificates of deposit issued by licensed banks and held
outside the monetary sector.
M3 M2 plus customers' deposits with restricted license banks and
deposit-taking companies plus negotiable certificates of deposit issued
by restricted license banks and deposit-taking companies held outside
the monetary sector.
Source: Hong Kong Monthly Digest of Statistics, May 1993 and June 1994.

FOREIGN INVESTMENT

The government makes no distinction between local and foreign
companies. There are no general restrictions on capital movements and
repatriation of profits. Since December 1990, the Hong Kong authorities began
discussions with China on plans to negotiate investor protection agreements
with major overseas partners, such as the United States, Japan and several
European countries, to provide guarantees for foreign-owned businesses once
Hong Kong comes under Chinese administration.

Foreign companies wishing to invest directly in the local economy are
required to submit the following documents for registration to the Companies
Registry: a certified copy of the charter, statutes or memorandum, and
articles of the company; a list of the company's directors and secretary; a
memorandum of appointment or power of attorney, or other document executed by
the company so as to be binding on it, authorizing any persons named to accept
service of process and any notices on behalf of the company; a copy of the
company's certificate of incorporation; and a copy of the company's latest
accounts. There are no requirements as to the nationality of directors or
shareholders.

Since Hong Kong cannot independently enter into treaties, it has no
multilateral or bilateral investor protection agreements. The position after
1997 is unclear. There are no particular laws in Hong Kong which give
protection for foreign investors against expropriation.

THE SECURITIES MARKET

The Stock Exchange of Hong Kong Limited ("HKSE") is the second largest
stock exchange in Asia, measured by market capitalization, ranking only behind
Tokyo. As of June 30, 1994, 508 companies and 965 securities were listed on
the HKSE. The securities listed include ordinary shares, warrants, and other
derivative instruments. In addition to an active stock market, Hong Kong has
an active foreign exchange market, an interbank money market, a large gold
bullion market and a futures exchange. The Securities and Futures Commission,
which was established in May 1989, exercises supervision of the securities,
financial investment, and commodities futures industry. Hong Kong is also one
of the major Asian centers for venture capital businesses, many of such
businesses having their Asian head office in Hong Kong.

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Hong Kong has been tightening trading laws to bring the market into
line with international practice. In late 1991, the Securities and Futures
Commission imposed a statutory reform package on the stock exchange designed to
give greater representation on the exchange's ruling council for large,
international stockbrokers and to abolish practices which have been open to
abuse in the past. A new law against insider trading took effect from
September 1991, under which anyone found guilty of insider trading will be
barred from directorships or management of any company for up to five years.
Several investigations have been initiated under the new law. For further
information with respect to the Hong Kong securities market, see Appendix B.

FOREIGN TRADE

Hong Kong is almost entirely dependent on imported resources to meet
the needs of its population and its industry. In 1993, imports of consumer
goods constituted 43% of total imports and imports of raw materials and
semi-manufactured goods constituted 33% of total imports. China and Japan were
the principal suppliers of imports, providing 38% and 17%, respectively.

Re-exports account for 79% of the combined total of domestic exports
and re-exports. Clothing remains the largest component of domestic exports,
accounting for 32% of total domestic exports.

CURRENCY

The currency of Hong Kong is the Hong Kong dollar. The exchange rate
has been linked since 1983 to the U.S. dollar. The exchange rates of the Hong
Kong dollar (end of period figures) against several major currencies are set
out below:

<TABLE>
<CAPTION>
As at December 31,
------------------------------------------------------------------
HK$ per unit 1987 1988 1989 1990 1991 1992 1993
------------ ------- ------- ------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
US$ . . . . . . . . . . . . . . . . . . 7.76 7.81 7.81 7.80 7.78 7.74 7.73
DM . . . . . . . . . . . . . . . . . . 4.91 4.42 4.63 5.20 5.13 4.80 4.46
Pounds Sterling . . . . . . . . . . . . 14.52 14.17 12.60 14.95 14.53 11.77 11.45
Japanese Yen (100) . . . . . . . . . . 6.37 6.26 5.44 5.76 6.22 6.23 6.90
</TABLE>
- ------------------------------
Source: 1987-1993 Figures: Hong Kong Monthly Digest of Statistics, June 1994.

There are no exchange controls, repatriation or remittance
restrictions in Hong Kong, nor are there any restrictions on borrowings from
abroad or on direct investments from abroad. The Hong Kong dollar is linked to
its U.S. counterpart at a parity of HK$7.80:US$1.00.

INFRASTRUCTURE EXPENDITURE

The development of the transport infrastructure has become a priority
government policy. The colony's central location is Asia and its dynamic
economy have given rise to one of the most important regional transport
systems. Government policy has been directed at facilitating the growth of
Hong Kong's transport infrastructure in the run-up to 1997, as much in order to
boost future confidence in the colony as to ensure its preeminent role as a
transport center. The government adopted a HK$127 billion infrastructure
development program called the Port and Airport Development Strategy. The
strategy envisages building a new airport at Chek Lap Kok on the outlying
island of Lantan to replace the existing one at Kai Tak as the region's major
international airport, as well as major port developments, and road and rail
schemes. The cost of the project is to be financed by private investment,
including international financing, and from Hong Kong's reserves. The new
airport is forecast to be completed by 1998, although renegotiations and delays
have occurred due to disagreements between Governor Patten and China over
political reform in Hong Kong prior

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<PAGE> 131
to 1997, and about financing. Other parts of the program will continue into
the next century when Hong Kong will be administered by China.

LEGAL SYSTEM

As a British colony, Hong Kong inherited the English common law
system. However, the law operates in a very different setting from that of its
source. Nevertheless, there has been little questioning of the direct
applicability of the English common law in Hong Kong. Hong Kong has rarely
departed from the received common law from England. This is reinforced by the
continuation of appeals of the Privy Council and the binding authority of Privy
Council decisions on the Hong Kong courts.

To the extent that local court decisions have departed from English
cases, or struck out into new fields, there is a common law of Hong Kong. A
combination of these local cases and the English common law, and perhaps the
common law of other Commonwealth jurisdictions as accepted by the courts of
Hong Kong, make up the common law. The Basic Law, which will operate on Hong
Kong's reversion to China in 1997, in Art. 8 provides: "The laws previously in
force in Hong Kong, that is, the common law, rules of equity, ordinances,
subordinate legislation and customary law shall be maintained, except for those
that are inconsistent with this Law or have been amended by the legislature of
the Hong Kong Special Administrative Region."

The legal profession in Hong Kong is closely modelled on the British
system and Hong Kong legislation consists of United Kingdom Acts of Parliament
(in limited cases only), together with local ordinances and subsidiary
legislation. English was the official language of the law until April 1989,
when the first bilingual ordinance was enacted. All future legislation is to
be in both the English and Chinese languages, both equally authentic.

RELATIONSHIP WITH CHINA

Hong Kong's economy is closely linked to that of China and business
confidence in Hong Kong is linked to events in China. The prospective
reversion of Hong Kong to China sovereignty has increased sensitivity in Hong
Kong to political developments and statements by public figures in China. In
1993, re-exports accounted for approximately 79% of Hong Kong's total exports,
a large proportion of which originates in or is destined for China. In
addition, China is the territory's second largest market for Hong Kong's
domestic exports, after the United States. If the United States were to revoke
China's MFN status or if friction were to result as a result of conditions
imposed on China, the Hong Kong economy would be adversely affected, as such
action would reduce the volume of trade flowing through Hong Kong. An adverse
effect on China's economy would also reduce the value of investments in
companies that derive substantial earnings from China.

Hong Kong is also tied to China by its substantial investments in
China, particularly in Guangdong province. Hong Kong businesses are attracted
to China by cheaper labor and plentiful land. Tourists and business travelers
bound for China account for a significant portion of the visitors to Hong Kong.

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<PAGE> 132
APPENDIX B

GENERAL CHARACTERISTICS AND RISKS OF DERIVATIVES

The following investment practices in which the Fund is authorized to
engage are generally not currently available or permitted under the laws or
regulations of China and other Asian-Pacific countries.

A detailed discussion of Derivatives (as defined below) that may be
used by the Investment Adviser on behalf of the Fund follows below. The Fund
will not be obligated, however, to use any Derivatives and makes no
representation as to the availability of these techniques at this time or at
any time in the future. "Derivatives," as used in this Appendix B, refers to
interest rate, currency or stock index futures contracts, currency forward
contracts and currency swaps, the purchase and sale (or writing) of exchange
listed and over-the-counter ("OTC") put and call options on debt and equity
securities, currencies, interest rate, currency or stock index futures and
fixed income and stock indices and other financial instruments, entering into
various interest rate transactions such as swaps, caps, floors, collars,
entering into equity swaps, caps, floors or trading in other types of
derivatives.

The Fund's ability to pursue certain of these strategies may be
limited by the U.S. Commodity Exchange Act, as amended, applicable regulations
of the Commodity Futures Trading Commission ("CFTC") thereunder and the federal
income tax requirements applicable to regulated investment companies which are
not operated as commodity pools.

PUT AND CALL OPTIONS ON SECURITIES AND INDICES

The Fund may purchase and sell put and call options on debt and equity
securities and indices based upon the prices of debt or equity securities or
other market or economic factors that may affect securities in which the Fund
may invest, such as commodity price levels or rates of inflation. A put option
on a security gives the purchaser of the option the right to sell and the
writer the obligation to buy the underlying security at the exercise price
during the option period. The Fund may also purchase and sell options on
indices based upon the prices of debt or equity securities ("index options").
Index options are similar to options on securities except that, rather than
taking or making delivery of securities underlying the option at a specified
price upon exercise, an index option gives the holder the right to receive cash
upon exercise of the option if the level of the index upon which the option is
based is greater, in the case of a call, or less in the case of a put, than the
exercise price of the option. The purchase of a put option on a security would
be designed to protect against a substantial decline in the market value of a
security held by the Fund. A call option on a security gives the purchaser of
the option the right to buy and the writer the obligation to sell the
underlying security at the exercise price during the option period. The
purchase of a call option on a security would be intended to protect the Fund
against an increase in the price of a security that it intended to purchase in
the future. In the case of either put or call options that it has purchased,
if the option expires without being sold or exercised, the Fund will experience
a loss in the amount of the option premium plus any related commissions. When
the Fund sells put and call options, it receives a premium as the seller of the
option. The premium that the Fund receives for writing the option will serve
as a partial hedge, in the amount of the option premium, against changes in
value of the securities in its portfolio. During the term of the option,
however, a covered call seller has, in return for the premium on the option,
given up the opportunity for capital appreciation above the exercise price of
the option if the value of the underlying security increases, but has retained
the risk of loss should the price of the underlying security decline.
Conversely, a secured put seller retains the risk of loss should the market
value of the underlying security decline below the exercise price of the
option, less the premium received on the sale of the option. The Fund is
authorized to purchase and sell exchange listed options and over-the-counter
options ("OTC Options") which are privately negotiated with the counterparty to
such contract. U.S. Listed options are issued by the Options Clearing
Corporation ("OCC"), which guarantees the performance of the obligations of the
parties to such options.

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<PAGE> 133
All such call options sold (written) by the Fund will be "covered" as
long as the call is outstanding (i.e., the Fund will own the instrument subject
to the call or other securities or assets acceptable under applicable
segregation and coverage rules). All such put options sold (written) by the
Fund will be secured by segregated assets consisting of cash or liquid high
grade debt securities having a value not less than the exercise price.

The Fund's ability to close out its position as a purchaser or seller
of an exchange listed put or call option is dependent upon the existence of a
liquid secondary market. Among the possible reasons for the absence of a
liquid secondary market on an exchange are: (i) insufficient trading interest
in certain options; (ii) restrictions on transactions imposed by an exchange;
(iii) trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities; (iv)
interruption of the normal operations on an exchange; (v) inadequacy of the
facilities of an exchange or the OCC to handle current trading volume; or (vi)
a decision by one or more exchanges to discontinue the trading of options (or a
particular class or series of options), in which event the secondary market on
that exchange (or in that class or series of options) would cease to exist,
although outstanding options on that exchange that had been listed by the OCC
as a result of trades on that exchange would generally continue to be
exercisable in accordance with their terms. OTC Options are purchased from or
sold to dealers, financial institutions or other counterparties which have
entered into direct agreements with the Fund. With OTC Options, such variables
as expiration date, exercise price and premium will be agreed upon between the
Fund and the counterparty, without the intermediation of a third party such as
the OCC. If the counterparty fails to make or take delivery of the securities
underlying an option it has written, or otherwise settle the transaction in
accordance with the terms of that option as written, the Fund would lose the
premium paid for the option as well as any anticipated benefit of the
transaction. The Fund must rely on the credit quality of the counterparty
rather than the guarantee of the OCC. OTC Options with foreign brokers in
China subject the Fund to the credit of such brokers which may be weak, making
such options speculative.

The hours of trading for options on securities may not conform to the
hours during which the underlying securities are traded. To the extent that
the option markets close before the markets for the underlying securities,
significant price and rate movements can take place in the underlying markets
that cannot be reflected in the option markets.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

Characteristics. The Fund may purchase and sell futures contracts on
interest rates and indices of debt and equity securities or other financial
indicators and purchase and sell (write) put and call options on such futures
contracts traded on recognized domestic exchanges as a hedge against
anticipated interest rate changes or movements in equity markets. The sale of
a futures contract creates an obligation by the Fund, as seller, to deliver the
specific type of financial instrument called for in the contract at a specified
future time for a specified price. Options on futures contracts are similar to
options on securities except that an option on a futures contract gives the
purchaser the right in return for the premium paid to assume a position in a
futures contract (a long position if the option is a call and a short position
if the option is a put).

Margin Requirements. At the time a futures contract is purchased or
sold, the Fund must allocate cash or securities as a deposit payment ("initial
margin"). It is expected that the initial margin that the Fund will pay may
range from approximately 1% to approximately 5% of the value of the instruments
underlying the contract. In certain circumstances, however, such as during
periods of high volatility, the Fund may be required by an exchange to increase
the level of its initial margin payment. Additionally, initial margin
requirements may be increased in the future pursuant to regulatory action. An
outstanding futures contract is valued daily and the payment in cash of
"variation margin" may be required, a process known as "marking to the market."
Transactions in listed options and futures are usually settled by entering into
an offsetting transaction, and are subject to the risk that the position may
not be able to be closed if no offsetting transaction can be arranged.

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<PAGE> 134
Limitations on Use of Futures Contracts and Options on Futures
Contracts. The Fund's use of futures contracts and options on futures
contracts will in all cases be consistent with applicable regulatory
requirements and in particular, the rules and regulations of the CFTC.

The Fund may enter into futures contracts or options thereon for
purposes other than bona fide hedging if, immediately thereafter, the sum of
the amount of its initial margin and premiums on open contracts and options
would not exceed 5% of the liquidation value of the Fund's portfolio; provided,
further, that in the case of an option that is in-the-money at the time of the
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. Also, when required, a segregated account of cash or cash
equivalents will be maintained and marked to market in an amount equal to the
market value of the contract. The Investment Adviser may be required to comply
with such different standards as may be established from time to time by CFTC
(or Chinese regulators) rules and regulations with respect to the purchase and
sale of futures contracts and options thereon.

CURRENCY TRANSACTIONS

The Fund may deal in forward currency contracts and other currency
transactions such as futures contracts, options, options on futures contracts
and swaps for any purpose consistent with its investment objective and
policies. Currency transactions include currency forward contracts, exchange
listed currency futures contracts, exchange listed and OTC options on
currencies and currency swaps. A forward currency contract involves a
privately negotiated obligation to purchase or sell (with delivery generally
required) 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. A currency swap is an agreement to exchange
cash flows based on the notional difference among two or more currencies and
operates similarly to an interest rate swap, which is described below. The
Fund may enter into currency transactions with counterparties that are
determined to be creditworthy by the Investment Adviser.

The following discussion summarizes some, but not all, of the possible
currency management strategies involving forward contracts, options on
currencies and futures on currencies that could be used by the Fund.
Transaction hedging is entering into a currency transaction with respect to
specific assets or liabilities of the Fund, which will generally arise in
connection with the purchase or sale of the Fund's portfolio securities or the
receipt of income from them. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency.

The Fund may cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the fund expects
to have portfolio exposure. To reduce the effect of currency fluctuations on
the value of existing or anticipated holdings of portfolio securities, the Fund
may also engage in proxy hedging. Proxy hedging is often used when the
currency to which the Fund's portfolio is exposed is difficult to hedge or to
hedge against the U.S. dollar. Proxy hedging entails entering into a forward
contract to sell a currency whose changes in value are generally considered to
be well correlated with a currency or currencies in which some or all of the
Fund's portfolio securities are or are expected to be denominated, and to buy
U.S. dollars. Currency transactions can result in losses to the Fund if the
currency being hedged fluctuates in value to a degree or in a direction that is
not anticipated. Further, the risk exists that the perceived linkage between
various currencies may not be present or may not be present during the
particular time that the Fund is engaging in proxy hedging. If the Fund enters
into a currency hedging transaction, the Fund will comply with the asset
segregation requirements described below. The Fund may enter into forward
contracts to shift its investment exposure from one currency into another
currency that is expected to perform better relative to the U.S. dollar. For
example, if the Fund held investments denominated in or otherwise exposed to
the Japanese Yen, the Fund could enter into forward contracts to sell Japanese
Yen and purchase Hong Kong Dollars. This type of strategy, sometimes known as
a "cross-hedge," will tend to reduce or eliminate exposure to the currency that
is sold, and increase exposure to the currency that is purchased, much as if
the

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<PAGE> 135
Fund had sold a security denominated in one currency and purchased an
equivalent security denominated in another. Cross-hedges protect against
losses resulting from a decline in the hedged currency, but will cause the Fund
to assume the risk of fluctuations in the value of the currency it purchases.

Successful use of forward currency contracts will depend on the
Investment Adviser's skill in analyzing and predicting currency values.
Forward contracts may substantially change the Fund's investment exposure to
changes in currency exchange rates, and could result in losses to the Fund if
currencies do not perform as the Investment Adviser anticipates. For example,
if a currency's value rose at a time when the Investment Adviser had hedged the
Fund by selling that currency in exchange for dollars, the Fund would be unable
to participate in the currency's appreciation. If the Investment Adviser
hedges currency exposure through proxy hedges, the Fund could realize currency
losses from the hedge and the security position at the same time if the two
currencies do not move in tandem. Similarly, if the Investment Adviser
increases the Fund's exposure to a foreign currency, and that currency's value
declines, the Fund will realize a loss. There is no assurance that the
Investment Adviser's use of forward currency contracts will be advantageous to
the Fund, or that it will hedge at an appropriate time.

Currency transactions are subject to risks different from those of
other portfolio transactions. Because currency control is of great importance
to the issuing governments and influences economic planning and policy,
purchases and sales of currency and related instruments can be adversely
affected by government exchange controls, limitations or restrictions on
repatriation of currency, and manipulations or exchange restrictions imposed by
governments. These forms of governmental actions can result in losses to the
Fund if it is unable to deliver or receive currency or monies in settlement of
obligations and could also cause hedges it has entered into to be rendered
useless, resulting in full currency exposure as well as incurring transaction
costs. Buyers and sellers of currency futures are subject to the same risks
that apply to the use of futures generally. Further, settlement of a currency
futures contract for the purchase of most currencies must occur at a bank based
in the issuing nation. Trading options on currency futures is relatively new,
and the ability to establish and close out positions on these options is
subject to the maintenance of a liquid market that may not always be available.
Currency exchange rates may fluctuate based on factors extrinsic to that
country's economy.

INTEREST RATE TRANSACTIONS

The Fund may enter into interest rate swaps and may purchase or sell
interest rate caps and floors. The Fund would enter into these transactions
primarily to preserve a return or spread on a particular investment or portion
of its portfolio, to manage the duration of its portfolio or to protect against
any increase in the price of the securities the Fund anticipates purchasing at
a later date or for any other purpose consistent with its objective.

The Fund may enter into interest rate swaps, caps and floors on either
an asset-based or liability-based basis, depending on whether it is hedging its
assets or liabilities, and will usually enter into interest rate swaps on a net
basis, i.e., the two payments are netted out, with the Fund receiving or
paying, as the case may be, only the net amount of the two payments on the
payment date. If there is a default by the other party to such a transaction,
the Fund will have contractual remedies pursuant to the agreements related to
the transaction. The swap market has grown substantially in recent years with
a large number of banks and investment banking firms acting both as principals
and as agents utilizing standardized swap documentation. Caps and floors are
more recent innovations for which standardized documentation has not yet been
developed and, accordingly, they are less liquid than swaps.

EQUITY SWAPS AND RELATED TRANSACTIONS

The Fund may enter into equity swaps and may purchase or sell equity
caps and floors. The Fund would enter into these transactions primarily to
preserve a return or spread on a particular investment or

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portion of its portfolio, or to protect against any increase in the price of
the securities the Fund anticipates purchasing at a later date or for any other
purpose consistent with its objective.

The Fund may enter into equity swaps, caps and floors on either an
asset-based or liability-based basis, depending on whether it is hedging its
assets or liabilities, and will usually enter in equity swaps on a net basis,
i.e., the two payment streams are netted out, with the Fund receiving or
paying, as the case may be, only the net amount of the two payments on the
payment date. If there is a default by the other party to such a transaction,
the Fund will have contractual remedies pursuant to the agreements related to
the transaction. The swap market has grown substantially in recent years with
a large number of banks and investment banking firms acting both as principals
and as agents utilizing standardized swap documentation. Caps and floors are
more recent innovations for which standardized documentation has not yet been
developed and, accordingly, they are less liquid than swaps. Certain equity
swaps, caps and floors will be considered illiquid. In such instances,
investment in such equity swaps, caps and floors will be governed by the Fund's
policy on investment in illiquid securities and such securities will be
included in the 35% limit on investment in illiquid securities by the Fund.
See "Risk Factors and Special Considerations -- Thinly Traded Markets and
Illiquid Investments" and "Investment Objective and Policies -- Other
Investments."

RISKS OF DERIVATIVES

The use of Derivatives involves special risks, including possible
default by the other party to the transaction, illiquidity and, to the extent
the Investment Adviser's view as to certain market movements is incorrect, the
risk that the use of Derivatives could result in losses greater than if such
investment strategies had not been used. The use of currency transactions
could result in the Fund's incurring losses as a result of the imposition of
exchange controls, suspension of settlements, or the inability to deliver or
receive a specified currency. The use of options and futures transactions
entails certain special risks. In particular, the variable degree of
correlation between price movements in the related portfolio position of the
Fund could create the possibility that losses on the hedging instrument are
greater than gains in the value of the Fund's position. In addition, futures
and options markets could be illiquid in some circumstances and certain
over-the-counter options could have no markets. As a result, in certain
markets, the Fund might not be able to close out a position without incurring
substantial losses. Although the Fund's use of futures and options
transactions for hedging purposes should tend to minimize the risk of loss due
to a decline in the value of the hedged position at the same time it will tend
to limit any potential gain to the Fund that might result from an increase in
value of the position. Finally, the daily variation margin requirements for
futures contracts create a greater ongoing potential financial risk than would
purchases of options, in which case the exposure is united to the cost of the
initial premium and transaction costs. Losses resulting from Derivatives will
reduce the Fund's net asset value, and possibly income, and the losses can be
greater than if the Derivatives had not been used.

When conducted outside the United States, the use of Derivatives may
not be regulated as rigorously as in the United States, may not involve a
clearing mechanism and related guarantees, and will be subject to the risk of
governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of positions taken as
part of non-U.S. Hedging also could be adversely affected by: (1) other complex
foreign political, legal and economic factors; (2) lesser availability of data
on which to make trading decisions in the United States; (3) delays in the
Fund's ability to act upon economic events occurring in foreign markets during
non-business hours in the United States; (4) the imposition of different
exercise and settlement terms and procedures and margin requirements than in
the United States; and (5) lower trading volume and liquidity.

SEGREGATION AND COVER REQUIREMENTS

Many of the Derivatives which may be used by the Fund are subject to
segregation and coverage requirements established by either the CFTC or the
SEC, with the result that, if the Fund does not hold the

B-5
<PAGE> 137
instrument underlying the futures contract or option or another offsetting
position, the Fund may be required to segregate on an ongoing basis with its
custodian, cash, U.S. government securities, or other liquid high grade debt
obligations in an amount at least equal to the Fund's obligations with respect
to such instruments. Such amounts will fluctuate as the market value of the
obligations increases or decreases. The segregation requirement can result in
the Fund maintaining positions it would otherwise liquidate and consequently
segregating assets with respect thereto at a time when it might be
disadvantageous to do so. In addition, with respect to futures contracts
purchased by the Fund, the Fund will also be subject to the segregation
requirements with respect to the value of the instruments underlying the
futures contract.

OTHER LIMITATIONS

The degree of the Fund's use of Derivatives may be limited by certain
provisions of the Code. See "Taxation" in the Prospectus.

B-6
<PAGE> 138
APPENDIX C

DEBT RATINGS

A description of the rating policies of Moody's and S&P with respect
to bonds and debentures appears below.

MOODY'S INVESTORS SERVICE'S CORPORATE BOND RATINGS

Aaa - Bonds which are rated Aaa are judged to be of the best quality
and carry the smallest degree of investment risk. Interest payments are
protected by a large or by an exceptionally stable margin, and principal is
secure. While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues.

Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.

A - Bonds which are rated A possess many favorable investment
qualities and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.

Baa - Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.

Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.

B - Bonds which are rated B generally lack characteristics of a
desirable investment. Assurance of interest and principal payments or of
maintenance and other terms of the contract over any long period of time may be
small.

Caa - Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.

Ca - Bonds which are rated Ca represent obligations which are
speculative in high degree. Such issues are often in default or have other
marked shortcomings.

C - Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.

Moody's applies numerical modifiers "1", "2" and "3" to certain of its
rating classifications. The modifier "1" indicates that the security ranks in
the higher end of its generic rating category; the modifier "2"

C-1
<PAGE> 139
indicates a mid-range ranking; and the modifier "3" indicates that the issue
ranks in the lower end of its generic rating category.

STANDARD & POOR'S CORPORATE BOND RATINGS

AAA - This is the highest rating assigned by Standard & Poor's to a
debt obligation and indicates an extremely strong capacity to repay principal
and pay interest.

AA - Bonds rated AA also qualify as high quality debt obligations.
Capacity to pay principal and interest is very strong, and differs from AAA
issues only in small degree.

A - Bonds rated A have a strong capacity to repay principal and pay
interest, although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.

BBB - Bonds rated BBB are regarded as having an adequate capacity to
repay principal and pay interest. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to repay principal and pay
interest for bonds in this category than for higher rated categories.

BB-B-CCC-CC-C - Bonds rated BB, B, CCC and CC, and C are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the
obligations. BB indicates the lowest degree of speculation and C the highest
degree of speculation. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.

CI - Bonds rated CI are income bonds on which no interest is being
paid.

D - Bonds rated D are in default. The D category is used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired unless S&P believes that such
payments will be made during such grace period. The D rating is also used upon
the filing of a bankruptcy petition if debt service payments are jeopardized.

The ratings set forth above may be modified by the addition of a plus
or minus to show relative standing within the major rating categories.

MOODY'S INVESTORS SERVICE'S COMMERCIAL PAPER RATINGS

Prime-1 - Issuers (or related supporting institutions) rated Prime-1
have a superior ability for repayment of senior short-term debt obligations.
Prime-1 repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well- established industries, high
rates of return on funds employed, conservative capitalization structures with
moderate reliance on debt and ample asset protection, broad margins in earnings
coverage of fixed financial charges and high internal cash generation, and
well-established access to a range of financial markets and assured sources of
alternate liquidity.

Prime-2 - Issuers (or related supporting institutions) rated Prime-2
have a strong ability for repayment of senior short-term debt obligations.
This will normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, will be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternative
liquidity is maintained.

C-2
<PAGE> 140
Prime-3 - Issuers (or related supporting institutions) rated Prime-3
have an acceptable ability for repayment of senior short-term obligations. The
effect of industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.

Not Prime - Issuers rated Not Prime do not fall within any of the
Prime rating categories.

STANDARD & POOR'S COMMERCIAL PAPER RATINGS

A S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more
than 365 days. Ratings are graded into several categories, ranging from "A-1"
for the highest quality obligations to "D" for the lowest. The four categories
are as follows:

A-1 - This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus (+) sign
designation.

A-2 - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".

A-3 - Issues carrying this designation have adequate capacity for
timely payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.

B - Issues rated "B" are regarded as having only speculative capacity
for timely payment.

C - This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.

D - Debt rated "D" is in payment default. The "D" rating category is
used when interest payments or principal payments are not made on the date due,
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period.

C-3
<PAGE> 141
<TABLE>
<S> <C>
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS. IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE SHARES
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 SOLICITATION OF AN OFFER TO BUY, THE SHARES FIDELITY ADVISOR
IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT CHINA FUND, INC.
IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF COMMON STOCK
THE FUND, THE INVESTMENT MANAGER OR THE INVESTMENT
ADVISER SINCE THE DATE HEREOF.
------------------------

TABLE OF CONTENTS
PAGE -----------
----
Prospectus Summary . . . . . . . . . . . . . . . . . . 3 PROSPECTUS
Summary of Expenses . . . . . . . . . . . . . . . . . . 16
The Fund . . . . . . . . . . . . . . . . . . . . . . . 17 -----------
Investment in China and Hong Kong . . . . . . . . . . 17
Use of Proceeds . . . . . . . . . . . . . . . . . . . . 17
Investment Objective and Policies . . . . . . . . . . . 17
Additional Investment Activities . . . . . . . . . . . 22
Investment Restrictions . . . . . . . . . . . . . . . . 23
Risk Factors and Special Considerations . . . . . . . . 26
Securities Markets in China and Hong Kong . . . . . . . 38
Management of the Fund . . . . . . . . . . . . . . . . 63 DAIWA SECURITIES AMERICA INC.
Portfolio Transactions . . . . . . . . . . . . . . . . 68
Dividends and Distributions; Dividend Reinvestment KEMPER SECURITIES, INC.
and Cash Purchase Plan . . . . . . . . . . . . . . . 70
Taxation . . . . . . . . . . . . . . . . . . . . . . . 72
Net Asset Value . . . . . . . . . . . . . . . . . . . . 79
Description of Capital Stock . . . . . . . . . . . . . 80
Custodian, Transfer Agents, Dividend
Paying Agents and Registrars . . . . . . . . . . . . 83 , 1994
Underwriting . . . . . . . . . . . . . . . . . . . . . 83
Experts . . . . . . . . . . . . . . . . . . . . . . . . 85
Legal Matters . . . . . . . . . . . . . . . . . . . . . 85
Further Information . . . . . . . . . . . . . . . . . . 85
Report of Independent Accountants . . . . . . . . . . . 86
Statement of Assets and Liabilities . . . . . . . . . . 87
Appendix A: The People's Republic of China
and Hong Kong . . . . . . . . . . . . . . . . . . A-1
Appendix B: General Characteristics and
Risks of Derivatives . . . . . . . . . . . . . . . B-1
Appendix C: Debt Ratings . . . . . . . . . . . . . . C-1

UNTIL , 1994 (25 DAYS AFTER THE
COMMENCEMENT OF THE OFFERING), ALL DEALERS EFFECTING
TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.

</TABLE>

<PAGE> 142
PART C -- OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS

<TABLE>
<S> <C>
(1) Financial Statements
-- Report of Independent Accountants
-- Statement of Assets and Liabilities dated ___________, 1994

(2) Exhibits
(a) -- Articles of Incorporation*
(b) -- By-Laws*
(c) -- Not applicable
(d) -- Specimen certificate for Common Stock, par value $.001 per share**
(e) -- Dividend Reinvestment and Cash Purchase Plan**
(f) -- Not applicable
(g) (1) -- Form of Management Agreement with the Investment Manager**
(2) -- Form of Advisory Agreement with the Investment Adviser**
(3) -- Form of Sub-Advisory Agreement with the Sub-Adviser**
(h) (1) -- Form of U.S. Underwriting Agreement**
(2) -- Form of Japanese Underwriting Agreement
(3) -- Form of Master Agreement Among Underwriters**
(4) -- Form of Master Selected Dealer Agreement**
(5) -- Form of Agreement between U.S. Underwriters and Japanese Underwriters**
(i) -- Not applicable
(j) (1) -- Form of U.S. Custodian Agreement**
(2) -- Form of Sub-Custodian Agreement**
(k) (1) -- Form of Agreement for Stock Transfer Services**
(2) -- Form of Administration Agreement**
(3) -- Form of Sub-Administration Agreement**
(4) -- Form of Japanese Shareholder Servicing Agreement**
(l) (1) -- Opinion and Consent of Rogers & Wells**
(2) -- Opinion and Consent of Piper & Marbury**
(m) -- Not applicable
(n) (1) -- Consent of Independent Accountants**
(2) -- Opinion and Consent of [Chinese counsel]**
(3) -- Opinion and Consent of [Hong Kong counsel]**
(o) -- Not applicable
(p) -- Form of Investment Letter**
(q) -- Not applicable
</TABLE>

- --------------
* Filed herewith
** To be filed by Amendment.

ITEM 25. MARKETING ARRANGEMENTS

See Exhibit 2(h) to this Registration Statement.
<PAGE> 143
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.

<TABLE>
<S> <C>
U.S. Securities and Exchange Commission registration fees . . . . . . . . . . . . . . . . $1,112
Listing fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Printing (other than stock certificates) . . . . . . . . . . . . . . . . . . . . . . . .
Engraving and printing stock certificates . . . . . . . . . . . . . . . . . . . . . . .
Fees and expenses of qualification under state securities laws
(excluding fees of counsel) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Auditing and accounting fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NASD fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
--------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
========

</TABLE>
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:

<TABLE>
<CAPTION>
NUMBER OF
TITLE OF CLASS RECORD HOLDERS
-------------- --------------
<S> <C>
Common Stock, $.001 par value one
</TABLE>

ITEM 29. INDEMNIFICATION

Section 2-418 of the General Corporation Law of the State of Maryland,
Article SEVENTH of the Fund's Articles of Incorporation, Article VII of the
Fund's By-Laws, the Management Agreement, the Underwriting Agreements, the
Advisory Agreement and the Sub-Advisory 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.

<PAGE> 144

ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT MANAGER AND INVESTMENT
ADVISER

The description of the business of Fidelity Management & Research
Company ("FMR") and Fidelity International Investment Advisors ("FIIA") is set
forth under the caption "Management of the Fund" in the Prospectus forming part
of this Registration Statement.

The information as to the directors and officers of FMR and FIIA is
set forth in their respective Form ADVs filed with the Securities and Exchange
Commission (File No. 801-7884 and File No. 801-21347), each as amended as of
the date hereof, is incorporated herein by reference.

ITEM 31. LOCATION OF ACCOUNTS AND RECORDS

Fidelity Advisor China [Opportunities] Fund, Inc.
82 Devonshire Street, Boston, Massachusetts 02109

(Fund's Articles of Incorporation and By-Laws)

Fidelity Management & Research Company
82 Devonshire Street, Boston, Massachusetts 02109

(with respect to its services as Investment Manager)

Fidelity International Investment Advisors
Pembroke Hall, 42 Crow Lane, Pembroke, Bermuda

(with respect to its service as Investment Adviser)

Fidelity International Limited
Pembroke Hall, 42 Crow Lane, Pembroke, Bermuda

(with respect to its services as Fund Manager)

The Chase Manhattan Bank, N.A.
1211 Avenue of the Americas, New York, New York 10036

(with respect to its services as Custodian for the Fund's U.S. assets)

State Street Bank and Trust Company
Two Heritage Drive, Quincy, Massachusetts 02171

(with respect to its services as Transfer Agent)

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 (1) subsequent to the effective date
of its registration statement, the net asset value per share declines more

<PAGE> 145

than 10 percent from its net asset value per share as of the effective date of
this registration statement or (2) the net asset value increases to an amount
greater than its net proceeds as stated in the prospectus.

(b) The Fund hereby undertakes:

(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement;

(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the information
set forth in the registration statement;

(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;

(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment 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.

(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.

(1) For purposes of determining any liability under the
Securities Act of 1933, 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 Securities Act of 1933 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
Securities Act of 1933, 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.
<PAGE> 146
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 New York, the State of
New York on the 30th day of September, 1994.

FIDELITY ADVISOR CHINA FUND, INC.

By: /s/ J. Gary Burkhead
---------------------------------
J. Gary Burkhead
Senior Vice President

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Laurence E. Cranch and Leonard B.
Mackey, Jr., and each of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all
Amendments (including pre-effective and post-effective amendments) to this
Registration Statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or either of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue thereof.

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.

<TABLE>
<CAPTION>
(SIGNATURE) (TITLE) (DATE)
----------- ------- ------

------------------------------------
Edward C. Johnson 3d Director and President

/s/ J. Gary Burkhead
------------------------------------
J. Gary Burkhead Director and Senior Vice President September 30, 1994
(Principal Executive Officer)

/s/ Gary L. French September 30, 1994
------------------------------------
Gary L. French Director and Treasurer (Principal
Financial and Accounting Officer)
</TABLE>

<PAGE> 147
EXHIBIT INDEX

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
------ ---------------------- ----
<S> <C> <C>
(a) Articles of Incorporation

(b) By-Laws
</TABLE>

<PAGE> 1
EXHIBIT (a)

ARTICLES OF INCORPORATION

FIDELITY ADVISOR CHINA FUND, INC.

THE UNDERSIGNED, Andrew Y. Pau, whose post office address is c/o
Rogers & Wells, 200 Park Avenue, New York, New York 10166, being at least
eighteen 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 intent of forming a corporation.

FIRST: The name of the corporation (hereinafter called the
"Corporation") is Fidelity Advisor China Fund, Inc.

SECOND: The Corporation was formed for the following purposes:

(1) To act as a closed-end investment company of the
management type registered as such with the Securities and Exchange Commission
pursuant to the Investment Company Act of 1940, as amended.

(2) To hold, invest and reinvest its assets in securities
and other investments or to hold all or part of its assets in cash.

(3) To issue and sell shares of its capital stock in such
amounts and on such terms and conditions and for such purposes
<PAGE> 2
and for such amount or kind of consideration as may now or hereafter be
permitted by law.

(4) To enter into management, supervisory, advisory,
administrative, custody, underwriting and other contracts and otherwise do
business with other corporations, and subsidiaries or affiliates thereof, or
any other firm or organization, notwithstanding that the Board of Directors of
the Corporation may be composed in part of officers, directors or employees of
such corporation, firm or organization and, in the absence of fraud, the
Corporation and such corporation, firm or organization may deal freely with
each other and neither such management, supervisory, advisory, administrative
or underwriting contract nor any other contract or transaction between the
Corporation and such corporation, firm or organization shall be invalidated or
in any way affected thereby.

(5) To do any and all additional acts and exercise any
and all additional powers or rights as may be necessary, incidental,
appropriate or desirable for the accomplishment of all or any of the foregoing
purposes.

The Corporation shall be authorized to exercise and generally
to 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.

THIRD: The post office address of the place at which the principal
office of the Corporation in the State of Maryland is

2
<PAGE> 3
located is c/o P&M Agent Corp., 36 South Charles Street, Baltimore, Maryland
21201.

The name of the Corporation's resident agent is P&M Agent
Corp., and its post office address is P&M Agent Corp., 36 South Charles Street,
Baltimore, Maryland 21201. Said resident agent is a corporation of the State
of Maryland.

FOURTH: Section 1. (1) The total number of shares of capital stock
that the Corporation has authority to issue is 100,000,000 shares of capital
stock of the par value of $.001 each, having an aggregate par value of
$100,000, all of which 100,000,000 shares are initially classified as "Common
Stock."

(2) The following is a description of the preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption of the Common
Stock of the Corporation:

(a) Each share of Common Stock shall have one vote,
and, except as otherwise provided in respect of any class of
stock hereafter classified or reclassified, the exclusive
voting power for all purposes shall be vested in the holders
of the Common Stock.

(b) Subject to the provisions of law and any preferences
of any class of stock hereafter classified or reclassified,
dividends, including dividends payable in shares of another
class of the Corporation's stock, may be paid on the Common
Stock of the Corporation at such time and in such amounts as
the Board of Directors may deem advisable.

(c) In the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or
involuntary, the holders of the Common Stock shall be
entitled, after payment or provision for payment of the debts
and other liabilities of the Corporation and the amount to
which the holders of any class of stock hereafter classified
or reclassified having a preference on distributions in the
liquidation, dissolution or

3
<PAGE> 4

winding up of the Corporation shall be entitled,
together with the holders of any other class of stock
hereafter classified or reclassified not having a preference
on distributions in the liquidation, dissolution or winding up
of the Corporation, to share ratably in the remaining net
assets of the Corporation.

Section 2. (1) Without the assent or vote of the
stockholders, the Board of Directors shall have the authority by resolution to
classify and reclassify any authorized but unissued shares of capital stock
from time to time by setting or changing in any one or more respects the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications or terms or conditions of
redemption of the capital stock.

(2) The foregoing powers of the Board of Directors to
classify and reclassify any of the shares of capital stock shall include,
without limitation, subject to the provisions of the Charter, authority to
classify or reclassify any unissued shares of such stock into a class or
classes of preferred stock, preference stock, special stock or other stock, and
to divide and classify shares of any class into one or more series of such
class, by determining, fixing, or altering one or more of the following:

(a) The distinctive designation of such class or series
and the number of shares to constitute such class or series;
provided that, unless otherwise prohibited by the terms of
such or any other class or series, the number of shares of any
class or series may be decreased by the Board of Directors in
connection with any classification or reclassification of
unissued shares and the number of shares of such class or
series may be increased by the Board of Directors in
connection with any such classification or reclassification,
and any shares of any class or series which have been
redeemed, purchased, otherwise acquired or converted into
shares of Common Stock or any other class or series shall
become part of the authorized capital stock and be subject to

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classification and reclassification as provided in this
subparagraph;

(b) Whether or not and, if so, the rates, amounts and
times at which, and the conditions under which, dividends
shall be payable on shares of such class or series, whether
any such dividends shall rank senior or junior to or on a
parity with the dividends payable on any other class or series
of stock, and the status of any such dividends as cumulative,
cumulative to a limited extent or non-cumulative and as
participating or non-participating;

(c) Whether or not shares of such class or series shall
have voting rights, in addition to any voting rights provided
by law and, if so, the terms of such voting rights;

(d) Whether or not shares of such class or series shall
have conversion or exchange privileges and, if so, the terms
and conditions thereof, including provisions for adjustment of
the conversion or exchange rate in such events or at such
times as the Board of Directors shall determine;

(e) Whether or not shares of such class or series shall
be subject to redemption and, if so, the terms and conditions
of such redemption, including the date or dates upon or after
which they shall be redeemable and the amount per share
payable in case of redemption, which amount may vary under
different conditions and at different redemption dates; and
whether or not there shall be any sinking fund or purchase
account in respect thereof, and if so, the terms thereof;

(f) The rights of the holders of shares of such class or
series upon the liquidation, dissolution or winding up of the
affairs of, or upon any distribution of the assets of, the
Corporation, which rights may vary depending upon whether such
liquidation, dissolution or winding up is voluntary or
involuntary and, if voluntary, may vary at different dates,
and whether such rights shall rank senior or junior to or on a
parity with such rights of any other class or series of stock;

(g) Whether or not there shall be any limitations
applicable, while shares of such class or series are
outstanding, upon the payment of dividends or making of
distributions on, or the acquisition of, or the use of moneys
for purchase or redemption of, any stock of the Corporation,
or upon any other action of the Corporation, including action
under this subparagraph, and, if so, the terms and conditions
thereof; and

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<PAGE> 6
(h) Any other preferences, rights, restrictions,
including restrictions on transferability, and qualifications
of shares of such class or series, not inconsistent with law
and the Charter of the Corporation.

(3) For the purposes hereof and of any articles
supplementary to the Charter providing for the classification or
reclassification of any shares of capital stock or of any other charter
document of the Corporation (unless otherwise provided in any such articles or
document), any class or series of stock of the Corporation shall be deemed to
rank:

(a) prior to another class or series either as to
dividends or upon liquidation, if the holders of such class or
series shall be entitled to the receipt of dividends or of
amounts distributable on liquidation, dissolution or winding
up, as the case may be, in preference or priority to holders
of such other class or series;

(b) on a parity with another class or series either as to
dividends or upon liquidation, whether or not the dividend
rates, dividend payment dates or redemption or liquidation
price per share thereof be different from those of such
others, if the holders of such class or series of stock shall
be entitled to receipt of dividends or amounts distributable
upon liquidation, dissolution or winding up, as the case may
be, in proportion to their respective dividend rates or
redemption or liquidation prices, without preference or
priority over the holders of such other class or series; and

(c) junior to another class or series either as to
dividends or upon liquidation, if the rights of the holders of
such class or series shall be subject or subordinate to the
rights of the holders of such other class or series in respect
of the receipt of dividends or the amounts distributable upon
liquidation, dissolution or winding up, as the case may be.

(4) The provisions of Section 2 of this Article Fourth
may not be amended, altered or repealed except by vote of three- fourths of the
shares of capital stock of the Corporation outstanding and entitled to vote
thereupon.

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Section 3. The presence in person or by proxy of the holders
of record of a majority of the aggregate number of shares of capital stock
issued and outstanding and entitled to vote thereat shall constitute a quorum
for the transaction of any business at all meetings of the stockholders except
as otherwise provided by law or in these Articles of Incorporation.

Section 4. Notwithstanding any provision of the General Laws
of the State of Maryland requiring action to be taken or authorized by the
affirmative vote of the holders of a designated proportion greater than a
majority of the shares of capital stock of the Corporation outstanding and
entitled to vote thereupon, such action shall, except as otherwise provided in
these Articles of Incorporation, be valid and effective if taken or authorized
by the affirmative vote of the holders of a majority of the total number of
shares of capital stock of the Corporation outstanding and entitled to vote
thereupon voting together as a single class.

Section 5. No holder of shares of capital stock of the
Corporation shall, as such holder, have any preemptive right to purchase or
subscribe for any part of any new or additional issue of stock of any class, or
of rights or options to purchase any stock, or of securities convertible into,
or carrying rights or options to purchase, stock of any class, whether now or
hereafter authorized or whether issued for money, for a consideration other
than money or by way of a dividend or otherwise, and all such rights are hereby
waived by each holder of capital stock and of any other class of stock or
securities which may hereafter be created.

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<PAGE> 8
Section 6. All persons who shall acquire capital stock in the
Corporation shall acquire the same subject to the provisions of these Articles
of Incorporation.

Section 7. (1) In addition to the affirmative vote of
three-fourths of the entire Board of Directors, the affirmative vote of at
least (i) three-fourths of the shares of capital stock of the Corporation
outstanding and entitled to vote thereupon voting together as a single class
and (ii) in the case of a Business Combination (as defined below), 66-2/3% of
the shares of capital stock of the Corporation outstanding and entitled to vote
thereupon voting together as a single class other than votes entitled to be
cast thereon by an Interested Party (as defined below) who is, or whose
Affiliate (as defined below), is a party to a Business Combination (as defined
below) or an Affiliate or associate of the Interested Party, shall be required
to advise, approve, adopt or authorize any of the following:

(i) a merger, consolidation or statutory share exchange
of the Corporation with or into another person;

(ii) issuance or transfer by the Corporation (in one or a
series of transactions in any 12 month period) of any securities of
the Corporation to any person or entity for cash, securities or other
property (or combination thereof) having an aggregate fair market
value of $1,000,000 or more, excluding issuances or transfers of debt
securities of the Corporation, sales of securities of the Corporation
in connection with a public offering, issuances of securities of the
Corporation pursuant to a dividend reinvestment plan adopted by the
Corporation, issuances of securities of the Corporation upon the
exercise of any stock subscription rights distributed by the
Corporation and portfolio transactions effected by the Corporation in
the ordinary course of business;

(iii) sale, lease, exchange, mortgage, pledge, transfer or
other disposition by the Corporation (in one or a series of

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<PAGE> 9
transactions in any 12 month period) to or with any person or entity
of any assets of the Corporation having an aggregate fair market value
of $1,000,000 or more except for portfolio transactions (including
pledges of portfolio securities in connection with borrowings)
effected by the Corporation in the ordinary course of its business
(transactions within clauses (i), (ii) and (iii) above being known
individually as a "Business Combination");

(iv) the voluntary liquidation or dissolution of the
Corporation, or an amendment to these Articles of Incorporation to
terminate the Corporation's existence; or

(v) unless the 1940 Act or federal law requires a lesser
vote, any shareholder proposal as to specific investment decisions
made or to be made with respect to the Corporation's assets as to
which stockholder approval is required under Federal or Maryland law.

However, a three-fourths shareholder vote will not be required with
respect to the foregoing transactions (other than those set forth in (v) above)
if they are approved by a vote of three-fourths of the Continuing Directors (as
defined below). In that case, if Maryland law requires shareholder approval,
the affirmative vote of a majority of the shares of capital stock of the
Corporation outstanding and entitled to vote thereupon voting together as a
single class shall be required.

For purposes of this Article Fourth the following terms shall
have the meanings prescribed thereto:

(i) "Continuing Director" means any member of the Board
of Directors of the Corporation who is not an Interested Party or an
Affiliate of an Interested Party and has been a member of the Board of
Directors for a period of at least 12 months, or has been a member of
the Board of Directors since April 1, 1994, or is a successor of a
Continuing Director who is unaffiliated with an Interested Party and
is recommended to succeed a Continuing Director by a majority of the
Continuing Directors then on the Board of Directors.

(ii) "Interested Party" shall mean any person, other than
an investment company advised by the Corporation's initial investment
manager or any of its Affiliates, which enters, or

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proposes to enter, into a Business Combination with the Corporation.

(iii) "Affiliate" shall have the meaning ascribed to such term
in Rule 12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended.

(2) Notwithstanding any other provisions of these
Articles of Incorporation, the affirmative vote of three-fourths of the entire
Board of Directors shall be required to advise, approve, adopt or authorize the
conversion of the Corporation from a closed-end company to an open-end company,
and any amendments necessary to effect the conversion. Such conversion or any
such amendment shall also require the approval of the holders of three-fourths
of the shares of capital stock of the Corporation outstanding and entitled to
vote thereupon voting together as a single class unless approved by a vote of
three-fourths of the Continuing Directors, in which event such conversion shall
require the approval of the holders of a majority of the votes entitled to be
cast thereon by stockholders of the Corporation.

(3) The provisions of this Section 7 of this Article
Fourth may not be amended, altered or repealed except by the approval of at
least three-fourths of the shares of capital stock of the Corporation
outstanding and entitled to vote thereupon voting together as a single class.

FIFTH: The initial number of directors of the Corporation is three
(3), and the name of the directors who shall act as such until the first annual
meeting or until their successor or successors are duly elected and qualify are
Edward C. Johnson 3d, J. Gary Burkhead and Gary L. French. The By-Laws of the

10
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Corporation may fix the number of directors at a number other than three and
may authorize the Board of Directors, by the vote of a majority of the entire
Board of Directors, to increase or decrease the number of directors within a
limit specified in the By-Laws, provided that in no case shall the number of
directors be less than the number prescribed by law, and to fill the vacancies
created by any such increase in the number of directors. Unless otherwise
provided by the By-Laws of the Corporation, the directors of the Corporation
need not be stockholders.

A director may be removed only with cause, and any such
removal may be made only by the vote of three-fourths of the shares of capital
stock of the Corporation outstanding and entitled to vote thereupon.

The provisions of this Article Fifth may not be amended,
altered or repealed except by a vote of three-fourths of the shares of capital
stock of the Corporation outstanding and entitled to vote thereupon voting
together as a single class.

SIXTH: Section 1. All corporate powers and authority of the
Corporation (except as at the time otherwise provided by statute, by these
Articles of Incorporation or by the By-Laws) shall be vested in and exercised
by the Board of Directors.

Section 2. The Board of Directors shall have the sole power
to adopt, alter or repeal the By-Laws of the Corporation except to the extent
that the By-Laws otherwise provide. The provisions of this Section 2 of this
Article Sixth may not be amended, altered or repealed except by vote of
three-fourths of the

11
<PAGE> 12
shares of capital stock of the Corporation outstanding and entitled to vote
thereupon voting together as a single class.

Section 3. The Board of Directors shall have the power from
time to time to determine whether and to what extent, and at what times and
places and under what conditions and regulations, the accounts and books of the
Corporation (other than the stock ledger) or any of them shall be open to the
inspection of stockholders; and no stockholder shall have any right to inspect
any account, book or document of the Corporation except to the extent permitted
by statute or the By-Laws.

Section 4. The Board of Directors shall have the power to
determine, as provided herein, or if a provision is not made herein, in
accordance with generally accepted accounting principles, what constitutes net
income, total assets and the net asset value of the shares of capital stock of
the Corporation.

Section 5. The Board of Directors shall have the power to
distribute dividends from the funds legally available therefor in such amounts,
if any, and in such manner to the stockholders of record as of a date, as the
Board of Directors may determine.

Section 6. Without the assent or vote of the stockholders,
the Board of Directors shall have the power to authorize the issuance from time
to time of shares of the capital stock of any class of the Corporation, whether
now or hereafter authorized, and securities convertible into shares of capital
stock of the Corporation of any class or classes, whether now or hereafter
authorized, for such consideration as the Board of Directors may deem
advisable.

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<PAGE> 13
Section 7. Without the assent or vote of the stockholders,
the Board of Directors shall have the power to authorize and issue obligations
of the Corporation, secured or unsecured, as the Board of Directors may
determine, and to authorize and cause to be executed mortgages and liens upon
the real or personal property of the Corporation.

Section 8. The provisions of Sections 6 and 7 of this Article
Sixth may not be amended, altered or repealed except by vote of three-fourths
of the shares of capital stock of the Corporation outstanding and entitled to
vote thereupon voting together as a single class.

SEVENTH: Section 1. To the fullest extent permitted by Maryland
statutory or decisional law, 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. This limitation on liability applies to events occurring at the time
a person serves as a director or officer of the Corporation whether or not such
person is a director or officer at the time of any proceeding in which such
liability is asserted. 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.

Section 2. The Corporation shall indemnify, to the fullest
extent permitted by law (including the Investment Company

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<PAGE> 14
Act of 1940) as currently in effect or as the same may hereafter be amended,
any person made or threatened to be made a party to any action, suit or
proceeding, whether criminal, civil, administrative or investigative, by reason
of the fact that such person or such person's testator or intestate is or was a
director or officer of the Corporation or serves or served at the request of
the Corporation as a director or officer of any other enterprise. To the
fullest extent permitted by law (including the Investment Company Act of 1940)
as currently in effect or as the same may hereafter be amended, expenses
incurred by any such person in defending any such action, suit or proceeding
shall be paid or reimbursed by the Corporation promptly upon receipt by it of
an undertaking of such person to repay such expenses if it shall ultimately be
determined that such person is not entitled to be indemnified by the
Corporation. The rights provided to any person by this Section 2 of this
Article Seventh shall be enforceable against the Corporation by such person who
shall be presumed to have relied upon it in serving or continuing to serve as a
director or officer as provided above. No amendment of this Section 2 of this
Article Seventh shall impair the rights of any person arising at any time with
respect to events occurring prior to such amendment. For purposes of this
Section 2 of this Article Seventh, the term "Corporation" shall include any
predecessor of the Corporation and any constituent corporation (including any
constituent of a constituent) absorbed by the Corporation in a consolidation or
merger; the term "other enterprise" shall include any corporation, partnership,
joint venture, trust or employee

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<PAGE> 15
benefit plan; service "at the request of the Corporation" shall include service
as a director or officer of the Corporation which imposes duties on, or
involves services by, such director or officer with respect to any other
enterprise, its participants or beneficiaries; any excise taxes assessed on a
person with respect to an employee benefit plan shall be deemed to be
indemnifiable expenses; and action by a person with respect to any employee
benefit plan which such person reasonably believes to be in the interest of the
participants and beneficiaries of such plan shall be deemed to be action not
opposed to the best interests of the Corporation. The provisions of this
Section 2 of this Article Seventh shall be in addition to the other provisions
of this Article Seventh.

Section 3. Nothing in this Article Seventh protects or
purports to protect any director or officer against any liability to the
Corporation or its security holders to which he or she 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 or her office.

Section 4. Each section or portion thereof of this Article
Seventh shall be deemed severable from the remainder, and the invalidity of any
such section or portion shall not affect the validity of the remainder of this
Article.

EIGHTH: The duration of the Corporation shall be perpetual.

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<PAGE> 16
NINTH: From time to time, any of the provisions of these Articles of
Incorporation may be amended, altered or repealed (including any amendment that
changes the terms of any of the outstanding stock by classification,
reclassification or otherwise), and other provisions that may, under the
statutes of the State of Maryland at the time in force, be lawfully contained
in articles of incorporation may be added or inserted, upon the vote of the
holders of a majority of the shares of capital stock of the Corporation
outstanding and entitled to vote thereupon. If these Articles of Incorporation
specifically so provide, however, any such amendment, alteration, repeal,
addition or insertion may be affected only upon the vote of three-fourths of
the shares of capital stock of the Corporation outstanding and entitled to vote
thereupon. The provisions of the prior sentence may not be amended, altered or
repealed except by vote of three-fourths of the shares of capital stock of the
corporation outstanding and entitled to vote thereupon. All rights at any time
conferred upon the stockholders of the Corporation by these Articles of
Amendment and Restatement are subject to the provisions of this Article Ninth.

IN WITNESS WHEREOF, I have executed these Articles of
Incorporation acknowledging the same to be my act, on this 28th day of
September, 1994.

/s/ Andrew Y. Pau
-------------------
Andrew Y. Pau
Incorporator

Witness:

/s/ Stefanie V. Chang
- ----------------------
Stefanie V. Chang

<PAGE> 1

EXHIBIT (b)

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

FIDELITY ADVISOR CHINA FUND, INC.

A MARYLAND CORPORATION

BY-LAWS

SEPTEMBER 29, 1994

- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS

<TABLE>
<S> <C>
ARTICLE I Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Section 1.1. Place of Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2. Annual Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.3. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.4. Notice of Meetings of Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.5. Record Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.6. Quorum; Adjournment of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.7. Voting and Inspectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.8. Conduct of Stockholders' Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 1.9. Concerning Validity of Proxies, Ballots,
etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 1.10. Action Without Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

ARTICLE II Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Section 2.1. Function of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.2. Number of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.3. Classes of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.4. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.5. Increase or Decrease in Number of
Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.6. Place of Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.7. Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.8. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.9. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.10. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.11. Executive Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.12. Other Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.13. Telephone Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.14. Action Without a Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.15. Compensation of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

ARTICLE III Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11\

Section 3.1. Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.2. Term of Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.3. Powers and Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.4. Surety Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

ARTICLE IV Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Section 4.1. Certificates for Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.2. Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.3. Stock Ledgers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.4. Transfer Agents and Registrars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.5. Lost, Stolen or Destroyed Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>

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TABLE OF CONTENTS
(Continued)

<TABLE>
<S> <C>
ARTICLE V Corporate Seal; Location of Offices;
Books; Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Section 5.1. Corporate Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 5.2. Location of Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 5.3. Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 5.4. Annual Statement of Affairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 5.5. Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

ARTICLE VI Fiscal Year and Accountant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Section 6.1. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 6.2. Accountant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

ARTICLE VII Indemnification and Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Section 7.1. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 7.2. Indemnification of Directors and
Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 7.3. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

ARTICLE VIII Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

ARTICLE IX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

ARTICLE X Amendment of By-Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>

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FIDELITY ADVISOR CHINA FUND, INC.

By-Laws

ARTICLE I

Stockholders

Section 1.1. Place of Meeting. All meetings of the
stockholders should be held at the principal office of the Corporation in the
State of Maryland or at such other place within the United States as may from
time to time be designated by the Board of Directors and stated in the notice
of such meeting.

Section 1.2. Annual Meetings. The annual meeting of the
stockholders of the Corporation shall be held during the month of February of
each year on such date and at such hour as may from time to time be designated
by the Board of Directors and stated in the notice of such meeting, for the
purpose of electing directors for the ensuing year and for the transaction of
such other business as may properly be brought before the meeting.

Section 1.3. Special Meetings. Special meetings of the
stockholders for any purpose or purposes may be called by the Chairman of the
Board, the President, or a majority of the Board of Directors. Special
meetings of stockholders shall also be called by the Secretary upon receipt of
the request in writing signed by stockholders holding not less than 25% of the
votes entitled to be cast thereat. Such request shall state the purpose or
purposes of the proposed meeting and the matters proposed to be acted on at
such proposed meeting. The Secretary shall inform such stockholders of the
reasonably estimated costs of preparing and mailing such notice of meeting and
upon payment to the Corporation
<PAGE> 5
of such costs, the Secretary shall give notice as required in this Article to
all stockholders entitled to notice of such meeting. No special meeting of
stockholders need be called upon the request of the holders of common stock
entitled to cast less than a majority of all votes entitled to be cast at such
meeting to consider any matter which is substantially the same as a matter
voted upon at any special meeting of stockholders held during the preceding
twelve months.

Section 1.4. Notice of Meetings of Stockholders. Not less
than ten days' and not more than ninety days' written or printed notice of
every meeting of stockholders, stating the time and place thereof (and the
purpose of any special meeting), shall be given to each stockholder entitled to
vote thereat and to each other stockholder entitled to notice of the meeting by
leaving the same with such stockholder or at such stockholder's residence or
usual place of business or by mailing it, postage prepaid, and addressed to
such stockholder at such stockholder's address as it appears upon the books of
the Corporation. If mailed, notice shall be deemed to be given when deposited
in the mail addressed to the stockholder as aforesaid.

No notice of the time, place or purpose of any meeting of
stockholders need be given to any stockholder who attends in person or by proxy
or to any stockholder who, in writing executed and filed with the records of
the meeting, either before or after the holding thereof, waives such notice.

Section 1.5. Record Dates. The Board of Directors may fix,
in advance, a record date for the determination of

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<PAGE> 6
stockholders entitled to notice of or to vote at any stockholders meeting or to
receive a dividend or be allotted rights or for the purpose of any other proper
determination with respect to stockholders and only stockholders of record on
such date shall be entitled to notice of and to vote at such meeting or to
receive such dividends or rights or otherwise, as the case may be; provided,
however, that such record date shall not be prior to ninety days preceding the
date of any such meeting of stockholders, dividend payment date, date for the
allotment of rights or other such action requiring the determination of a
record date; and further provided that such record date shall not be prior to
the close of business on the day the record date is fixed, that the transfer
books shall not be closed for a period longer than 20 days, and that in the
case of a meeting of stockholders, the record date or the closing of the
transfer books shall not be less than ten days prior to the date fixed for such
meeting.

Section 1.6. Quorum; Adjournment of Meetings. The presence
in person or by proxy of stockholders entitled to cast a majority of the votes
entitled to be cast thereat shall constitute a quorum at all meetings of the
stockholders, except as otherwise provided in the Articles of Incorporation.
If, however, such quorum shall not be present or represented at any meeting of
the stockholders, the holders of a majority of the stock present in person or
by proxy shall have power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until the requisite amount of
stock entitled to vote at such meeting shall be present, to a date not more
than 120 days

3
<PAGE> 7
after the original record date. At such adjourned meeting at which the
requisite amount of stock entitled to vote thereat shall be represented, any
business may be transacted which might have been transacted at the meeting as
originally notified.

Any meeting of stockholders, annual or special, may adjourn from time
to time to reconvene at the same or some other place, and notice need not be
given of any such adjourned meeting if the time and place thereof are announced
at the meeting at which the adjournment is taken. At the adjourned meeting the
Corporation may transact any business which might have been transacted at the
original meeting.

Section 1.7. Voting and Inspectors. At all meetings,
stockholders of record entitled to vote thereat shall have one vote for each
share of common stock standing in his name on the books of the Corporation (and
such stockholders of record holding fractional shares, if any, shall have
proportionate voting rights) on the date for the determination of stockholders
entitled to vote at such meeting, either in person or by proxy appointed by
instrument in writing subscribed by such stockholder or his duly authorized
attorney.

All elections shall be had and all questions decided by a
majority of the votes cast at a duly constituted meeting, except as otherwise
provided by statute or by the Articles of Incorporation or by these By-Laws.

At any election of Directors, the Chairman of the meeting may,
and upon the request of the holders of ten percent (10%) of the stock entitled
to vote at such election shall, appoint two

4
<PAGE> 8
inspectors of election who shall first subscribe an oath or affirmation to
execute faithfully the duties of inspectors at such election with strict
impartiality and according to the best of their ability, and shall after the
election make a certificate of the result of the vote taken. No candidate for
the office of Director shall be appointed such Inspector.

Section 1.8. Conduct of Stockholders' Meetings. The meetings
of the stockholders shall be presided over by the Chairman of the Board, or if
he is not present, by the President, or if he is not present, by a
Vice-President, or if none of them is present, by a Chairman to be elected at
the meeting. The Secretary of the Corporation, if present, shall act as a
Secretary of such meetings, or if he is not present, an Assistant Secretary
shall so act; if neither the Secretary nor the Assistant Secretary is present,
then the meeting shall elect its Secretary.

Section 1.9. Concerning Validity of Proxies, Ballots, etc.
At every meeting of the stockholders, all proxies shall be received and taken
in charge of and all ballots shall be received and canvassed by the Secretary
of the meeting, who shall decide all questions touching the qualification of
voters, the validity of the proxies and the acceptance or rejection of votes,
unless inspectors of election shall have been appointed by the Chairman of the
meeting, in which event such inspectors of election shall decide all such
questions. Unless a proxy provides otherwise, it is not valid for more than
eleven months after its date.

Section 1.10. Action Without Meeting. Any action to be taken
by stockholders may be taken without a meeting if (1) all

5
<PAGE> 9
stockholders entitled to vote on the matter consent to the action in writing,
(2) all stockholders entitled to notice of the meeting but not entitled to vote
at it sign a written waiver of any right to dissent and (3) said consents and
waivers are filed with the records of the meetings of stockholders. Such
consent shall be treated for all purposes as a vote at the meeting.

ARTICLE II

Board of Directors

Section 2.1. Function of Directors. The business and affairs
of the Corporation shall be conducted and managed under the direction of its
Board of Directors. All powers of the Corporation shall be exercised by or
under authority of the Board of Directors except as conferred on or reserved to
the stockholders by statute.

Section 2.2. Number of Directors. The Board of Directors
shall consist of not more than twelve (12) Directors nor less than such number
of Directors as may be permitted under Maryland law, as may be determined from
time to time by vote of a majority of the Directors then in office. Directors
need not be stockholders.

Section 2.3. Classes of Directors. The Directors shall be
divided into three classes, designated Class I, Class II and Class III. All
classes shall be as nearly equal in number as possible. The Directors as
initially classified shall hold office for terms as follows: the Class I
Directors shall hold office until the date of the annual meeting of
stockholders in 1995 or until their successors shall be elected and qualified;
the Class II Directors shall hold office until the date of the annual meeting
of

6
<PAGE> 10
stockholders in 1996 or until their successors shall be elected and qualified;
and the Class III Directors shall hold office until the date of the annual
meeting of stockholders in 1997 or until their successors shall be elected and
qualified. Upon expiration of the term of office of each class as set forth
above, the Directors in each class shall be elected for a term of three years
to succeed the Directors whose terms of office expire, except that the
Directors elected in 1998 and 1999 shall be elected for a term of two years and
one year, respectively, to succeed the Directors whose terms of office expire.
Commencing on the date of the annual meeting of stockholders in 2000, the
Directors will no longer be divided into classes and will each stand for
election at such meeting and on each annual meeting of stockholders held
thereafter. Each Director shall hold office until the expiration of his term
and until his successor shall have been elected and qualified.

Section 2.4. Vacancies. In case of any vacancy in the Board
of Directors through death, resignation or other cause, other than an increase
in the number of Directors, subject to the provisions of law, a majority of the
remaining Directors, although a majority is less than a quorum, by an
affirmative vote, may elect a successor to hold office until the next annual
meeting of stockholders or until his successor is chosen and qualified.

Section 2.5. Increase or Decrease in Number of Directors.
The Board of Directors, by the vote of a majority of the entire Board, may
increase the number of Directors and may elect Directors to fill the vacancies
created by any such increase in the number of Directors until the next annual
meeting of

7
<PAGE> 11
stockholders or until their successors are duly chosen and qualified. The
Board of Directors, by the vote of a majority of the entire Board, may likewise
decrease the number of Directors to a number not less than that permitted by
law.

Section 2.6. Place of Meeting. The Directors may hold their
meetings within or outside the State of Maryland, at any office or offices of
the Corporation or at any other place as they may from time to time determine.

Section 2.7. Regular Meetings. Regular meetings of the Board
of Directors shall be held at such time and on such notice as the Directors may
from time to time determine.

The annual meeting of the Board of Directors shall be held as
soon as practicable after the annual meeting of the stockholders for the
election of Directors.

Section 2.8. Special Meetings. Special meetings of the Board
of Directors may be held from time to time upon call of the Chairman of the
Board, the President, the Secretary or two or more of the Directors, by oral or
telegraphic or written notice duly served on or sent or mailed to each Director
not less than one day before such meeting.

Section 2.9. Notices. Unless required by statute or
otherwise determined by resolution of the Board of Directors in accordance with
these By-laws, notices to Directors need not be in writing and need not state
the business to be transacted at or the purpose of any meeting, and no notice
need be given to any Director who is present in person or to any Director who,
in writing executed and filed with the records of the meeting either before or

8
<PAGE> 12
after the holding thereof, waives such notice. Waivers of notice need not
state the purpose or purposes of such meeting.

Section 2.10. Quorum. One-third of the Directors then in
office shall constitute a quorum for the transaction of business, provided that
if there is more than one Director, a quorum shall in no case be less than two
Directors. If at any meeting of the Board there shall be less than a quorum
present, a majority of those present may adjourn the meeting from time to time
until a quorum shall have been obtained. The act of the majority of the
Directors present at any meeting at which there is a quorum shall be the act of
the Directors, except as may be otherwise specifically provided by statute or
by the Articles of Incorporation or by these By-Laws.

Section 2.11. Executive Committee. The Board of Directors
may appoint from the Directors an Executive Committee to consist of such number
of Directors (not less than two) as the Board may from time to time determine.
The Chairman of the Committee shall be elected by the Board of Directors. The
Board of Directors shall have power at any time to change the members of such
Committee and may fill vacancies in the Committee by election from the
Directors. When the Board of Directors is not in session, to the extent
permitted by law, the Executive Committee shall have and may exercise any or
all of the powers of the Board of Directors in the management and conduct of
the business and affairs of the Corporation. The Executive Committee may fix
its own rules of procedure, and may meet when and as provided by such rules or
by resolution of the Board of Directors, but in every case the

9
<PAGE> 13
presence of a majority shall be necessary to constitute a quorum. During the
absence of a member of the Executive Committee, the remaining members may
appoint a member of the Board of Directors to act in his place.

Section 2.12. Other Committees. The Board of Directors may
appoint from the Directors other committees which shall in each case consist of
such number of Directors (not less than two) and shall have and may exercise
such powers as the Board may determine in the resolution appointing them. A
majority of all the members of any such committee may determine its action and
fix the time and place of its meetings, unless the Board of Directors shall
otherwise provide. The Board of Directors shall have power at any time to
change the members and powers of any such committee, to fill vacancies and to
discharge any such committee.

Section 2.13. Telephone Meetings. Members of the Board of
Directors or a committee of the Board of Directors 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.
Participation in a meeting by these means, subject to the provisions of the
Investment Company Act of 1940, as amended, constitutes presence in person at
the meeting.

Section 2.14. Action Without a Meeting. Any action required
or permitted to be taken at any meeting of the Board of Directors or any
committee thereof may be taken without a meeting, if a written consent to such
action is signed by all members of the Board or of such committee, as the case
may be, and such written

10
<PAGE> 14
consent is filed with the minutes of the proceedings of the Board or such
committee.

Section 2.15. Compensation of Directors. No Director shall
receive any stated salary or fees from the Corporation for his services as such
if such Director is, otherwise than by reason of being such Director, an
interested person (as such term is defined by the Investment Company Act of
1940, as amended) of the Corporation or of its investment manager or principal
underwriter. Except as provided in the preceding sentence, Directors shall be
entitled to receive such compensation from the Corporation for their services
as may from time to time be voted by the Board of Directors.

ARTICLE III

Officers

Section 3.1. Executive Officers. The executive officers of
the Corporation shall be chosen by the Board of Directors. These may include a
Chairman of the Board of Directors (who shall be a Director) and shall include
a President, a Secretary and a Treasurer. The Board of Directors or the
Executive Committee may also in its discretion appoint one or more
Vice-Presidents, Assistant Secretaries, Assistant Treasurers and other
officers, agents and employees, who shall have such authority and perform such
duties as the Board of Directors or the Executive Committee may determine. The
Board of Directors may fill any vacancy which may occur in any office. Any two
offices, except those of President and Vice-President, may be held by the same
person, but no officer shall execute, acknowledge or verify any instrument in

11
<PAGE> 15
more than one capacity, if such instrument is required by law or these By-Laws
to be executed, acknowledged or verified by two or more officers.

Section 3.2. Term of Office. The term of office of all
officers shall be one year and until their respective successors are chosen and
qualified. Any officer may be removed from office at any time with or without
cause by the vote of a majority of the whole Board of Directors. Any officer
may resign his office at any time by delivering a written resignation to the
Corporation and, unless otherwise specified therein, such resignation shall
take effect upon delivery.

Section 3.3. Powers and Duties. The officers of the
Corporation shall have such powers and duties as shall be stated in a
resolution of the Board of Directors, or the Executive Committee and, to the
extent not so stated, as generally pertain to their respective offices, subject
to the control of the Board of Directors and the Executive Committee.

Section 3.4. Surety Bonds. The Board of Directors may
require any officer or agent of the Corporation to execute a bond (including,
without limitation, any bond required by the Investment Company Act of 1940, as
amended, and the rules and regulations of the Securities and Exchange
Commission) to the Corporation in such sum and with such surety or sureties as
the Board of Directors may determine, conditioned upon the faithful performance
of his duties to the Corporation, including responsibility for negligence and
for the accounting of any of the Corporation's property, funds or securities
that may come into his hands.

12
<PAGE> 16
ARTICLE IV

Capital Stock

Section 4.1. Certificates for Shares. Each stockholder of
the Corporation shall be entitled to a certificate or certificates for the full
number of shares of stock of the Corporation owned by him in such form as the
Board may from time to time prescribe.

Section 4.2. Transfer of Shares. Shares of the Corporation
shall be transferable on the books of the Corporation by the holder thereof in
person or by his duly authorized attorney or legal representative, upon
surrender and cancellation of certificates, if any, for the same number of
shares, duly endorsed or accompanied by proper instruments of assignment and
transfer, with such proof of the authenticity of the signature as the
Corporation or its agents may reasonably require; in the case of shares not
represented by certificates, the same or similar requirements may be imposed by
the Board of Directors.

Section 4.3. Stock Ledgers. The stock ledgers of the
Corporation, containing the names and addresses of the stockholders and the
number of shares held by them respectively, shall be kept at the principal
offices of the Corporation or, if the Corporation employs a Transfer Agent, at
the offices of the Transfer Agent of the Corporation.

Section 4.4. Transfer Agents and Registrars. The Board of
Directors may from time to time appoint or remove transfer agents and/or
registrars of transfers of shares of stock of the Corporation, and it may
appoint the same person as both transfer

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<PAGE> 17
agent and registrar. Upon any such appointment being made, all certificates
representing shares of capital stock thereafter issued shall be countersigned
by one of such transfer agents or by one of such registrars of transfers or by
both and shall not be valid unless so countersigned. If the same person shall
be both transfer agent and registrar, only one countersignature by such person
shall be required.

Section 4.5. Lost, Stolen or Destroyed Certificates. The
Board of Directors or the Executive Committee or any officer or agent
authorized by the Board of Directors or Executive Committee may determine the
conditions upon which a new certificate of stock of the Corporation of any
class may be issued in place of a certificate which is alleged to have been
lost, stolen or destroyed; and may, in its discretion, require the owner of
such certificate or such owner's legal representative to give bond, with
sufficient surety, to the Corporation and each Transfer Agent, if any, to
indemnify it and each such Transfer Agent against any and all loss or claims
which may arise by reason of the issue of a new certificate in the place of the
one so lost, stolen or destroyed.

ARTICLE V

Corporate Seal; Location of
Offices; Books; Net Asset Value

Section 5.1. Corporate Seal. The Board of Directors may
provide for a suitable corporate seal, in such form and bearing such
inscriptions as it may determine. Any officer or director shall have the
authority to affix the corporate seal. If the Corporation is required to place
its corporate seal to a document,

14
<PAGE> 18
it shall be sufficient to place the word "(seal)" adjacent to the signature of
the authorized officer of the Corporation signing the document.

Section 5.2. Location of Offices. The Corporation shall have
a principal office in the State of Maryland. The Corporation may, in addition,
establish and maintain such other offices as the Board of Directors or any
officer may, from time to time, determine.

Section 5.3. Books and Records. The books and records of the
Corporation shall be kept at the places, within or without the State of
Maryland, as the directors or any officer may determine; provided, however,
that the original or a certified copy of the by-laws, including any amendments
to them, shall be kept at the Corporation's principal executive office.

Section 5.4. Annual Statement of Affairs. The President or
any other executive officer of the Corporation shall prepare annually a full
and correct statement of the affairs of the Corporation, to include a balance
sheet and a financial statement of operations for the preceding fiscal year.
The statement of affairs should be submitted at the annual meeting of
stockholders and, within 20 days of the meeting, placed on file at the
Corporation's principal office.

Section 5.5. Net Asset Value. The value of the Corporation's
net assets shall be determined at such times and by such method as shall be
established from time to time by the Board of Directors.

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<PAGE> 19
ARTICLE VI

Fiscal Year and Accountant

Section 6.1. Fiscal Year. The fiscal year of the
Corporation, unless otherwise fixed by resolution of the Board of Directors,
shall begin on the 1st day of November and shall end on the 31st day of October
in each year.

Section 6.2. Accountant. The Corporation shall employ an
independent public accountant or a firm of independent public accountants as
its Accountant to examine the accounts of the Corporation and to sign and
certify financial statements filed by the Corporation. The employment of the
Accountant shall be conditioned upon the right of the Corporation to terminate
the employment forthwith without any penalty by vote of a majority of the
outstanding voting securities at any stockholders' meeting called for that
purpose.

ARTICLE VII

Indemnification and Insurance

Section 7.1. General. The Corporation shall indemnify
directors, officers, employees and agents of the Corporation against judgments,
fines, settlements and expenses to the fullest extent authorized and in the
manner permitted, by applicable federal and state law.

Section 7.2. Indemnification of Directors and Officers. The
Corporation shall indemnify to the fullest extent permitted by law (including
the Investment Company Act of 1940, as amended) as currently in effect or as
the same may hereafter be amended, any person made or threatened to be made a
party to any action, suit or

16
<PAGE> 20
proceeding, whether criminal, civil, administrative or investigative, by reason
of the fact that such person or such person's testator or intestate is or was a
director or officer of the Corporation or serves or served at the request of
the Corporation any other enterprise as a director or officer. To the fullest
extent permitted by law (including the Investment Company Act of 1940, as
amended) as currently in effect or as the same may hereafter be amended,
expenses incurred by any such person in defending any such action, suit or
proceeding shall be paid or reimbursed by the Corporation promptly upon receipt
by it of an undertaking of such person to repay such expenses if it shall
ultimately be determined that such person is not entitled to be indemnified by
the Corporation. The rights provided to any person by this Article VII shall be
enforceable against the Corporation by such person who shall be presumed to
have relied upon it in serving or continuing to serve as a director or officer
as provided above. No amendment of this Article VII shall impair the rights of
any person arising at any time with respect to events occurring prior to such
amendment. For purposes of this Article VII, the term "Corporation" shall
include any predecessor of the Corporation and any constituent corporation
(including any constituent of a constituent) absorbed by the Corporation in a
consolidation or merger; the term "other enterprises" shall include any
corporation, partnership, joint venture, trust or employee benefit plan;
service "at the request of the Corporation" shall include service as a director
or officer of the Corporation which imposes duties on, or involves services by,
such director or officer with respect to an

17
<PAGE> 21
employee benefit plan, its participants or beneficiaries; any excise taxes
assessed on a person with respect to an employee benefit plan shall be deemed
to be indemnifiable expenses; and action by a person with respect to any
employee benefit plan which such person reasonably believes to be in the
interest of the participants and beneficiaries of such plan shall be deemed to
be action not opposed to the best interests of the Corporation.

Section 7.3. Insurance. Subject to the provisions of the
Investment Company Act of 1940, as amended, the Corporation, directly, through
third parties or through affiliates of the Corporation, may purchase, or
provide through a trust fund, letter of credit or surety bond insurance on
behalf of any person who is or was a Director, officer, employee or agent of
the Corporation, or who, while a Director, officer, employee or agent of the
Corporation, is or was serving at the request of the Corporation as a Director,
officer, employee, partner, trustee or agent of another foreign or domestic
corporation, partnership joint venture, trust or other enterprise against any
liability asserted against and incurred by such person in any such capacity or
arising out of such person's position, whether or not the Corporation would
have the power to indemnify such person against such liability.

ARTICLE VIII

Custodian

The Corporation shall have as custodian or custodians one or
more trust companies or banks of good standing, foreign or domestic, as may be
designated by the Board of Directors, subject to the provisions of the
Investment Company Act of 1940, as

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<PAGE> 22
amended, and other applicable laws and regulations; and the funds and
securities held by the Corporation shall be kept in the custody of one or more
such custodians, provided such custodian or custodians can be found ready and
willing to act, and further provided that the Corporation and/or the Custodians
may employ such subcustodians as the Board of Directors may approve and as
shall be permitted by law.

ARTICLE IX

Nothing in these By-Laws protects or purports to protect any
director or officer against any liability to the Corporation or its security
holders to which he or she 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 or her office.

ARTICLE X

Amendment of By-Laws

The By-Laws of the Corporation may be altered, amended, added
to or repealed only by majority vote of the entire Board of Directors.