PART I 13 Risks Relating to Ownership of Our ADSs and Common Shares  The value of your investment may be reduced by future sales of our ADSs or common shares by us, by the  Republic of China government or by other stockholders.  The government may continue to sell our common shares. Sales of substantial amounts of ADSs or common  shares by the government or any other stockholder in the public market, or the perception that future sales may  occur, could depress the prevailing market price of our ADSs and common shares.  The market value of your investment may fluctuate due to the volatility of, and government intervention in, the  Taiwan securities market.  Our common shares are traded on the Taiwan Stock Exchange, which has a smaller market capitalization  and is more volatile than the securities markets in the United States and many European countries. The market  value of our ADSs may fluctuate in response to the fluctuation of the trading price of our common shares on  the Taiwan Stock Exchange. The Taiwan Stock Exchange has experienced substantial fluctuations in the prices  and trading volumes of listed securities, and there are currently limits on the range of daily price movements. In  recent years, the Taiwan Stock Exchange Index reached a peak of 10,202.20 in February 2000 and subsequently  fell to a low of 3,446.26 in October 2001. During 2010, the Taiwan Stock Exchange Index peaked at 8972.5 on  December 31, 2010, and reached a low of 7071.67 on January 9, 2010. On April 18, 2011, the Taiwan Stock  Exchange Index closed at 8,714.48. The Taiwan Stock Exchange has experienced certain problems, including  market manipulation, insider trading and payment defaults. The recurrence of these or similar problems could  have a material adverse effect on the market price and liquidity of the securities of Taiwan companies, including  our ADSs and common shares, in both the domestic and the international markets.  In response to declines and volatility in the securities markets in Taiwan, the Republic of China government  formed the National Financial Stabilization Fund to support these markets through open market purchases  of shares in Taiwan companies from time to time. The details of the transactions of the National Financial  Stabilization Fund have not been made public. In addition, the government’s Labor Insurance Fund and other  funds associated with the government have in the past purchased, and may from time to time purchase, shares  of Taiwan companies listed on the Taiwan Stock Exchange or other markets. As a result of these activities, the  market price of common shares of Taiwan companies may have been and may currently be higher than the prices  that would otherwise prevail in the open market. Market intervention by government entities, or the perception  that such activity is taking place, may take place or has ceased, may cause sudden movements in the market  prices of the securities of Taiwan companies, which may affect the market price and liquidity of our common  shares and ADSs.  We may be sanctioned or lose our licenses for violations of limits on foreign ownership of our common shares,  and these limits may materially and adversely affect our ability to obtain financing.  The laws of the Republic of China limit foreign ownership of our common shares. Prior to March 1, 2006,  the Ministry of Transportation and Communications, as the competent authority under the Telecommunications  Act, had the power to prescribe the limits on foreign ownership of our common shares. After the formation of the  National Communications Commission on March 1, 2006, the National Communications Commission replaced  the Ministry of Transportation and Communications as the competent authority under the Telecommunications  Act pursuant to the NCC Organization Law. The National Communications Commission and the Ministry of  Transportation and Communications reached an agreement on foreign ownership of Chunghwa Telecom. An  announcement issued by the Ministry of Transportation and Communications on December 28, 2007 stipulated  that direct holdings by foreign investors in Chunghwa Telecom cannot exceed 49% of our outstanding share  capital and the total direct and indirect holdings by foreign investors cannot exceed 55% of our outstanding share  capital. As of April 18, 2011, foreign direct holdings of our outstanding share capital is at 26.46%. If we fail to  comply with the applicable foreign ownership limitations, our licenses to operate some of our businesses could  be revoked. Moreover, we cannot predict the manner in which the National Communications Commission will  exercise its authority over us, and the National Communications Commission could decline to raise, or determine  to reduce, this foreign ownership limitation. 