TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD.
 

 
 

1934 Act Registration No. 1-14700

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934

For the month of April 2005

Taiwan Semiconductor Manufacturing Company Ltd.

(Translation of Registrant’s Name Into English)

No. 8, Li-Hsin Rd. 6,
Hsinchu Science Park,
Taiwan

(Address of Principal Executive Offices)

     (Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.)

         
  Form 20-F þ   Form 40-F o

     (Indicate by check mark whether the registrant by furnishing the information contained in this form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.)

         
  Yes o   No þ

(If “Yes” is marked, indicated below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82:                     .)

 
 

 


 

Taiwan Semiconductor Manufacturing
Company, Ltd.

Financial Statements for the
Three Months Ended March 31, 2005 and 2004 and
Independent Accountants’ Review Report

 


 

INDEPENDENT ACCOUNTANTS’ REVIEW REPORT

The Board of Directors and Shareholders
Taiwan Semiconductor Manufacturing Company, Ltd.

We have reviewed the accompanying balance sheets of Taiwan Semiconductor Manufacturing Company, Ltd. as of March 31, 2005 and 2004, and the related statements of income and cash flows for the three months then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to issue a report on these financial statements based on our reviews.

We conducted our reviews in accordance with Statement on Auditing Standards No. 36 “Review of Financial Statements” issued by the Auditing Committee of the Accounting Research and Development Foundation of the Republic of China. A review consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the Republic of China, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with Guidelines Governing the Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted in the Republic of China.

April 13, 2005

Notice to Readers

The accompanying financial statements are intended only to present the financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to review such financial statements are those generally accepted and applied in the Republic of China.

For the convenience of readers, the accountants’ report and the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language accountants’ report and financial statements shall prevail.

- 1 -


 

TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD.

BALANCE SHEETS
MARCH 31, 2005 AND 2004
(In Thousands of New Taiwan Dollars, Except Par Value)
(Reviewed, Not Audited)


                                 
    2005     2004  
    Amount     %     Amount     %  
ASSETS
                               
 
                               
CURRENT ASSETS
                               
Cash and cash equivalents (Notes 2, 3 and 4)
  $ 60,218,990       12     $ 106,507,988       25  
Short-term investments, net (Notes 2 and 4)
    51,638,170       11       19,829,168       5  
Receivables from related parties (Note 18)
    14,079,482       3       16,201,278       4  
Notes and accounts receivable
    13,069,620       3       14,707,017       3  
Allowance for doubtful receivables (Note 2)
    (978,577 )           (1,014,509 )      
Allowance for sales returns and others (Note 2)
    (3,741,534 )     (1 )     (2,893,814 )     (1 )
Other receivables from related parties (Note 18)
    2,645,421             249,368        
Other financial assets (Notes 2 and 21)
    1,007,196             1,447,852        
Inventories, net (Notes 2 and 5)
    13,428,985       3       11,014,523       3  
Deferred income taxes assets (Notes 2 and 12)
    7,296,000       2       8,212,000       2  
Prepaid expenses and other current assets
    1,080,644             1,456,034       1  
 
                       
 
                               
Total current assets
    159,744,397       33       175,716,905       42  
 
                       
 
                               
LONG-TERM INVESTMENTS (Notes 2, 6, 18 and 20)
                               
Equity method
    49,157,468       10       37,275,028       9  
Cost method
    779,340             703,434        
Long-term bonds
    16,503,809       3              
Other investments
    10,436,600       3              
 
                       
 
                               
Total long-term investments
    76,877,217       16       37,978,462       9  
 
                       
 
                               
PROPERTY, PLANT, AND EQUIPMENT (Notes 2, 7 and 18)
                               
Cost
                               
Buildings
    87,452,818       18       71,772,658       17  
Machinery and equipment
    424,088,493       88       341,494,302       81  
Office equipment
    7,360,112       2       6,340,506       1  
 
                       
 
    518,901,423       108       419,607,466       99  
Accumulated depreciation
    (315,454,528 )     (65 )     (261,678,445 )     (62 )
Advance payments and construction in progress
    26,406,814       5       38,003,417       9  
 
                       
 
                               
Net property, plant, and equipment
    229,853,709       48       195,932,438       46  
 
                       
 
                               
GOODWILL (Note 2)
    1,829,049             2,177,439       1  
 
                       
 
                               
OTHER ASSETS
                               
Deferred charges, net (Notes 2, 8 and 20)
    8,438,529       2       7,502,506       2  
Deferred income taxes assets (Notes 2 and 12)
    3,751,059       1       1,534,457        
Refundable deposits
    85,542             26,229        
Assets leased to others, net (Note 2)
    77,180             83,622        
Idle assets (Note 2)
    17,130             85,463        
 
                       
 
                               
Total other assets
    12,369,440       3       9,232,277       2  
 
                       
 
                               
TOTAL
  $ 480,673,812       100     $ 421,037,521       100  
 
                       
 
                               
LIABILITIES AND SHAREHOLDERS’ EQUITY
                               
 
                               
CURRENT LIABILITIES
                               
Accounts payable
  $ 5,344,256       1     $ 7,697,360       2  
Payables to related parties (Note 18)
    2,863,489       1       4,926,011       1  
Payable to contractors and equipment suppliers
    10,920,422       2       12,647,943       3  
Accrued expenses and other current liabilities (Notes 2, 10, 20 and 21)
    8,262,691       2       7,810,028       2  
Current portion of bonds payable (Note 9)
    10,500,000       2       5,000,000       1  
 
                       
 
                               
Total current liabilities
    37,890,858       8       38,081,342       9  
 
                       
 
                               
LONG-TERM LIABILITIES
                               
Bonds payable (Note 9)
    19,500,000       4       30,000,000       7  
Other long-term payables (Notes 10 and 20)
    1,911,506       1       2,999,977       1  
Other payables to related parties (Notes 18 and 20)
    1,722,326                    
 
                       
 
                               
Total long-term liabilities
    23,133,832       5       32,999,977       8  
 
                       
 
                               
OTHER LIABILITIES
                               
Accrued pension cost (Notes 2 and 11)
    3,240,343       1       2,714,032       1  
Deferred gain on intercompany sale (Notes 2 and 18)
    684,423                    
Guarantee deposits (Note 20)
    370,876             656,128        
 
                       
 
                               
Total other liabilities
    4,295,642       1       3,370,160       1  
 
                       
 
                               
Total liabilities
    65,320,332       14       74,451,479       18  
 
                       
 
                               
SHAREHOLDERS’ EQUITY (Notes 2, 14, 15 and 16)
                               
Capital stock — $10 par value Authorized: 24,600,000 thousand shares
Issued: 23,252,863 thousand shares in 2005, 20,266,619 thousand shares in 2004
    232,528,635       48       202,666,189       48  
Capital surplus
    56,574,377       12       56,860,879       13  
Retained earnings
                               
Appropriated as legal reserve
    25,528,007       5       20,802,137       5  
Appropriated as special reserve
                68,945        
Unappropriated earnings
    105,020,406       22       69,018,210       16  
Cumulative translation adjustments
    (2,725,918 )     (1 )     (728,208 )      
Treasury stock (at cost) - 45,037 thousand shares in 2005 and 48,518 thousand shares in 2004
    (1,572,027 )           (2,102,110 )      
 
                       
 
                               
Total shareholders’ equity
    415,353,480       86       346,586,042       82  
 
                       
 
                               
TOTAL
  $ 480,673,812       100     $ 421,037,521       100  
 
                       

The accompanying notes are an integral part of the financial statements.

- 2 -


 

TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD.

STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(In Thousands of New Taiwan Dollars, Except Earnings Per Share)
(Reviewed, Not Audited)


                                 
    2005     2004  
    Amount     %     Amount     %  
GROSS SALES (Notes 2 and 18)
  $ 56,413,097             $ 58,785,691          
 
                               
SALES RETURNS AND ALLOWANCES (Note 2)
    (759,880 )             (1,272,486 )        
 
                           
 
                               
NET SALES
    55,653,217       100       57,513,205       100  
 
                               
COST OF SALES (Notes 13 and 18)
    34,004,376       61       34,783,992       60  
 
                       
 
                               
GROSS PROFIT
    21,648,841       39       22,729,213       40  
 
                       
 
                               
OPERATING EXPENSES (Notes 13 and 18)
                               
Research and development
    3,348,555       6       2,860,983       5  
General and administrative
    1,944,834       3       2,031,122       4  
Marketing
    278,876       1       296,459        
 
                       
 
                               
Total operating expenses
    5,572,265       10       5,188,564       9  
 
                       
 
                               
INCOME FROM OPERATIONS
    16,076,576       29       17,540,649       31  
 
                       
 
                               
NON-OPERATING INCOME AND GAINS
                               
Interest (Notes 2 and 21)
    780,062       1       256,296       1  
Settlement income (Note 20)
    569,276       1              
Technical service income (Notes 18 and 20)
    77,111             56,983        
Gain on disposal of property, plant, and equipment (Note 2)
    60,707             59,087        
Investment income recognized by equity method, net (Notes 2 and 6)
                802,676       1  
Gain on sales of investments, net (Note 2)
                94,477        
Other (Note 18)
    68,272             92,135        
 
                       
 
                               
Total non-operating income and gains
    1,555,428       2       1,361,654       2  
 
                       
 
                               
NON-OPERATING EXPENSES AND LOSSES
                               
Interest (Notes 7 and 21)
    583,273       1       330,172       1  
Unrealized valuation loss of short-term investments (Notes 2 and 4)
    257,718       1              
Foreign exchange loss, net (Notes 2 and 21)
    200,614             122,117        
Investment loss recognized by equity method, net (Notes 2 and 6)
    198,178                    
Loss on sales of investments, net (Note 2)
    64,473                    

(Continued)

- 3 -


 

                                 
    2005     2004  
    Amount     %     Amount     %  
Loss on disposal of property, plant and equipment (Note 2)
  $ 37,922           $ 6,749        
Other
    24,485             7,832        
 
                       
 
                               
Total non-operating expenses and losses
    1,366,663       2       466,870       1  
 
                       
 
                               
INCOME BEFORE INCOME TAX
    16,265,341       29       18,435,433       32  
 
                               
INCOME TAX BENEFIT (Notes 2 and 12)
    553,056       1       353,769       1  
 
                       
 
                               
NET INCOME
  $ 16,818,397       30     $ 18,789,202       33  
 
                       
                                 
    2005     2004  
    Before     After     Before     After  
    Income     Income     Income     Income  
    Tax     Tax     Tax     Tax  
EARNINGS PER SHARE (Note 17)
                               
Basic earnings per share
  $ 0.70     $ 0.72     $ 0.79     $ 0.81  
 
                       
Diluted earnings per share
  $ 0.70     $ 0.72     $ 0.79     $ 0.80  
 
                       

The pro forma net income and earnings per share (after income tax) are shown as follows, based on the assumption that the stock of parent company held by its subsidiaries is treated as an investment instead of the treasury stock (Notes 2 and 16):

                 
    2005     2004  
NET INCOME
  $ 16,821,282     $ 18,790,578  
 
           
 
               
EARNINGS PER SHARE (NT$)
               
Basic earnings per share
  $ 0.72     $ 0.80  
 
           
Diluted earnings per share
  $ 0.72     $ 0.80  
 
           
     
The accompanying notes are an integral part of the financial statements.   (Concluded)

- 4 -


 

TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD.

STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(In Thousands of New Taiwan Dollars)
(Reviewed, Not Audited)


                 
    2005     2004  
CASH FLOWS FROM OPERATING ACTIVITIES
               
Net income
  $ 16,818,397     $ 18,789,202  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    16,668,655       15,088,680  
Deferred income taxes
    (553,056 )     (353,861 )
Investment loss (income) recognized by equity method, net
    198,178       (802,676 )
Amortization of premium/discount of long-term bond investments
    28,956        
Gain on disposal of property, plant and equipment, net
    (22,785 )     (52,338 )
Accrued pension cost
    139,147       113,781  
Changes in operating assets and liabilities:
               
Decrease (increase) in:
               
Receivables from related parties
    2,106,601       (1,333,616 )
Notes and accounts receivable
    2,257,261       (789,210 )
Allowance for doubtful receivables
    (1,884 )     (1,513 )
Allowance for sales returns and others
    413,620       767,789  
Other receivables from related parties
    (931,365 )     (116,405 )
Other financial assets
    1,337,974       (758,412 )
Inventories, net
    742,960       (107,365 )
Prepaid expenses and other current assets
    (173,855 )     528,234  
Increase (decrease) in:
               
Accounts payable
    (1,144,361 )     1,613,484  
Payables to related parties
    (901,983 )     425,871  
Accrued expenses and other current liabilities
    (1,026,377 )     (310,038 )
 
           
 
               
Net cash provided by operating activities
    35,956,083       32,701,607  
 
           
 
               
CASH FLOWS FROM INVESTING ACTIVITIES
               
Decrease (increase) in short-term investments
    1,340,925       (7,270,149 )
Acquisitions of:
               
Long-term investments
    (4,276,570 )     (167,902 )
Property, plant and equipment
    (38,161,372 )     (16,351,217 )
Proceeds from disposal of property, plant and equipment
    120,613       67,672  
Increase in deferred charges
    (285,727 )     (326,944 )
Decrease (increase) in refundable deposits
    (129 )     151,150  
 
           
 
               
Net cash used in investing activities
    (41,262,260 )     (23,897,390 )
 
           
 
               
CASH FLOWS FROM FINANCING ACTIVITIES
               
Decrease in guarantee deposits
    (41,517 )     (107,361 )
Proceeds from exercise of stock options
    34,866        
Repurchase of treasury stock
          (476,870 )
 
           
 
               
Net cash used in financing activities
    (6,651 )     (584,231 )
 
           

(Continued)

- 5 -


 

                 
    2005     2004  
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
  $ (5,312,828 )   $ 8,219,986  
 
               
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD
    65,531,818       98,288,002  
 
           
 
               
CASH AND CASH EQUIVALENTS, END OF THE PERIOD
  $ 60,218,990     $ 106,507,988  
 
           
 
               
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
               
Interest paid (excluding the amounts capitalized of NT$51,978 thousand for the three months ended March 31, 2004)
  $ 700,160     $ 372,684  
 
           
Income tax paid
  $ 22,522     $ 92  
 
           
 
               
NON-CASH INVESTING AND FINANCING ACTIVITIES
               
Current portion of bonds payable
  $ 10,500,000     $ 5,000,000  
 
           
Current portion of other payables to related parties (under payables to related parties)
  $ 949,841     $  
 
           
Current portion of other long-term payables (under accrued expenses and other current liabilities)
  $ 1,487,738     $ 1,826,065  
 
           
     
The accompanying notes are an integral part of the financial statements.   (Concluded)

- 6 -


 

TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD.

NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2005 AND 2004
(Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise)
(Reviewed, Not Audited)


1.   GENERAL
 
    Taiwan Semiconductor Manufacturing Company, Ltd. (the Company or TSMC), a Republic of China (R.O.C.) corporation, was incorporated as a venture among the Government of the R.O.C., acting through the Development Fund of the Executive Yuan; Philips Electronics N.V. and certain of its affiliates (Philips); and certain other private investors. On September 5, 1994, its shares were listed on the Taiwan Stock Exchange (TSE). On October 8, 1997, TSMC listed some of its shares of stock on the New York Stock Exchange (NYSE) in the form of American Depositary Shares (ADSs).
 
    The Company is engaged mainly in the manufacturing, selling, packaging, testing and computer-aided designing of integrated circuits and other semiconductor devices and the manufacturing of masks.
 
2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
    The financial statements are presented in conformity with Guidelines Governing the Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted in the R.O.C.
 
    For the convenience of readers, the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the R.O.C. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language financial statements shall prevail.
 
    Significant accounting policies are summarized as follows:
 
    Use of Estimates
 
    The preparation of financial statements in conformity with the aforementioned guidelines and principles requires management to make reasonable assumptions and estimates of matters that are inherently uncertain. The actual results may differ from management’s estimates.
 
    Classification of Current and Non-current Assets and Liabilities
 
    Current assets are those expected to be converted to cash, sold or consumed within one year from the balance sheet date. Current liabilities are obligations due on demand within one year from the balance sheet date. Assets and liabilities that are not classified as current are non-current assets and liabilities, respectively.
 
    Cash Equivalents
 
    Government bonds under repurchase agreements and notes acquired with maturities less than three months from the date of purchase are classified as cash equivalents.

- 7 -


 

    Short-term Investments
 
    Short-term investments primarily consist of corporate bonds, asset-backed securities, agency bonds, bond funds, government bonds and others.
 
    Short-term investments are recorded at historical cost and are carried at the lower of cost or market value as of the balance sheet date. An allowance for decline in value is provided and is charged to current earnings when the aggregate carrying amount of the investments exceeds the aggregate market value. A reversal of the allowance is recorded for a subsequent recovery of the market value.
 
    The costs of funds and listed stocks sold are accounted for using the weighted-average method; whereas the other securities are accounted for using the specific identification method.
 
    The market value of funds is determined using the net asset value of the funds at the end of the period, and the market value of listed stocks is determined using the average-closing price of the listed stocks for the last month of the period. The market value of other short-term investments are determined using the average of bid and ask prices as of the balance sheet date.
 
    Cash dividends are recorded as investment income in the current period.
 
    Allowance for Doubtful Receivables
 
    An allowance for doubtful receivables is provided based on a review of the collectibility of accounts receivables. The Company determines the amount of allowance for doubtful receivables by examining the historical collection experience and current trends in the credit quality of its customers as well as its internal credit policies.
 
    Revenue Recognition and Allowance for Sales Returns and Others
 
    The Company recognizes revenue when evidence of an arrangement exists, the shipment is made, price is fixed or determinable, and the collectibility is reasonably assured. Revenues from the design and manufacturing of photo masks, which are used as manufacturing tools in the fabrication process, are recognized when the photo masks are qualified by our customers. We record a provision for estimated future returns and other allowances in the same period the related revenue is recorded. Provision for estimated sales returns and other allowances are generally made at a specific percentage based on historical experience, our management’s judgment, and any known factors that would significantly affect the allowance.
 
    Sales are determined using the fair value taking into account related sales discounts agreed to by the Company and its customers. Sales agreements typically provide that payment is due 30 days from invoice date for a majority of the customers and 30 to 45 days after the end of the month in which the sales occur for some customers. Since the receivables from sales are collectible within one year and such transactions are frequent, the fair value of receivables is equivalent to the nominal amount of cash received.
 
    Inventories
 
    Inventories are stated at the lower of cost or market value. Inventories are recorded at standard cost and adjusted to the approximate weighted-average cost at the end of the period. Market value represents replacement cost for raw materials, supplies and spare parts and net realizable value for finished goods and work in process. The Company assesses the impact of changing technology on its inventory on hand and writes off inventories that are considered obsolete. Ending inventories are evaluated for estimated excess quantities and obsolescence based on a demand forecast within a specific time horizon, which is generally 180 days or less. Estimated losses on scrap and slow-moving items are recognized in the allowance for losses.

- 8 -


 

    Long-term Investments
 
    Investments in companies wherein the Company exercises significant influence on the operating and financial policy decisions are accounted for using the equity method of accounting. The Company’s proportionate share in the net income or net loss of investee companies is recognized in the “investment income/loss recognized by equity method, net” account. When equity investments are made, the difference, if any, between the cost of investment and the Company’s proportionate share of the investee’s net equity is amortized using the straight-line method over five years and is also recorded in the “investment income/loss recognized by equity method, net” account. When an indication of significant impairment is identified, the impairment loss is charged to current income.
 
    When the Company subscribes to additional investee shares at a percentage different from its existing equity interest, the resulting carrying amount of the investment in the investee differs from the amount of the Company’s proportionate share in the investee’s net equity. The Company records such difference as an adjustment to long-term investments with the corresponding amount charged or credited to capital surplus.
 
    Investments in companies wherein the Company does not exercise significant influence are recorded at historical cost. Cash dividends are recognized as investment income in the year received but are accounted for as reductions in the carrying amount of the long-term investments if the dividends are received in the same year that the related investments are acquired. Stock dividends are recorded as an increase in the number of shares held and do not affect investment income or the carrying amount of the investment. The carrying amounts of investments whose fair market values are not readily ascertainable are reduced to reflect an other-than-temporary decline in their values, with the related impairment loss charged to income.
 
    Investments in foreign mutual funds are stated at the lower of aggregate cost or net asset value. An allowance is recognized when the net asset value of the funds is lower than their cost, with the corresponding amount recorded as a reduction to shareholders’ equity. A reversal of the allowance will result from a subsequent recovery of the net asset value.
 
    The costs of stocks and mutual funds sold are determined using the weighted-average method.
 
    Investments in long-term bonds are stated at amortized cost. The discount or premium is amortized over the duration period using the interest method, and recorded as an adjustment to interest income.
 
    If an investee company recognizes an unrealized loss on its long-term investment using the lower-of-cost-or-market method, the Company also recognizes a corresponding unrealized loss in proportion to its ownership percentage in the investee company and records the amount as a component of its shareholders’ equity.
 
    Gains or losses on sales from the Company to investee companies accounted for using the equity method are deferred in proportion to the Company’s ownership percentage in the investee companies until realized through transactions with third parties. The entire amount of the gains or losses on sales to majority-owned subsidiaries is deferred until such gains or losses are realized through the subsequent sales of the related products to third parties.
 
    Gains or losses on sales from investee companies to the Company are deferred in proportion to the Company’s ownership percentages in the investee companies until realized through transactions with third parties.
 
    Gains and losses on sales by investee companies accounted for using the equity method are deferred in proportion to the Company’s ownership percentages in the investee companies until realized through transactions with third parties.
 
    If an investee’s functional currency is a foreign currency, translation adjustments will result from the process of translating the investee’s financial statements into the reporting currency of the Company. Such adjustments are accumulated and reported as a separate component of shareholders’ equity.

- 9 -


 

    Property, Plant and Equipment, Assets Leased to Others and Idle Assets
 
    Property, plant and equipment and assets leased to others are stated at cost less accumulated depreciation. When an indication of significant impairment is identified, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in the future period, the subsequent reversal of the impairment loss would be recognized as a gain. However, the increased carrying amount of an asset due to a reversal of an impairment loss should not exceed the carrying amount that would have been determined (net of depreciation), had no impairment loss been recognized for the asset in prior years. Idle assets are stated at the lower of net realizable value or book value. Significant additions, renewals and betterments incurred during the construction period are capitalized. Maintenance and repairs are expensed in the period incurred. Interest expense incurred during the purchase and construction period is also capitalized.
 
    Depreciation is computed using the straight-line method over the following estimated service lives: buildings — 10 to 20 years; machinery and equipment — 5 years; and office equipment — 3 to 5 years.
 
    Upon sale or disposal of property, plant and equipment, the related cost and accumulated depreciation are removed from the corresponding accounts, with any gain or loss credited or charged to non-operating income or expenses in the period of sale or disposal.
 
    Goodwill
 
    Goodwill represents the excess of the consideration paid for acquisition over the fair market value of identifiable net assets acquired and acquisition costs. Goodwill is amortized using the straight-line method over the estimated life of 10 years. If an event occurs or circumstances change that more likely than not reduce the fair value of goodwill below its carrying value, the impairement loss is charged to current income. Subsequent recovery in the fair value of the goodwill may not reverse the impairement loss previously recorded.
 
    Deferred Charges
 
    Deferred charges consist of technology license fees, software and system design costs and other charges. The amounts are amortized as follows: technology license fees — the shorter of the estimated life of the technology or the term of the technology transfer contract; software and system design costs and other charges — 3 years. When an indication of significant impairment is identified, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in the future period, the subsequent reversal of the impairment loss would be recognized as a gain. However, the increased carrying amount of an asset due to a reversal of an impairment loss should not exceed the carrying amount that would have been determined (net of amortization), had no impairment loss been recognized for the asset in prior years.
 
    Pension Costs
 
    The Company records net periodic pension costs on the basis of actuarial calculations. Unrecognized net transition obligation and unrecognized net gains or losses are amortized over 25 years.
 
    Income Tax
 
    The Company uses an inter-period tax allocation method for income tax. Deferred income tax assets and liabilities are recognized for the tax effects of temporary differences and unused tax credits. Valuation allowances are provided to the extent, if any, that it is more likely than not that deferred income tax assets will not be realized. A deferred tax asset or liability is classified as current or noncurrent in accordance with the classification of its related asset or liability. However, if a deferred tax asset or liability does not relate to an asset or liability in the financial statements, then it is classified as either current or noncurrent based on the expected length of time before it is realized or settled.

- 10 -


 

    Any tax credits arising from the purchases of machinery, equipment and technology, research and development expenditures, personnel training, and investments in important technology-based enterprises are recognized using the flow-through method.
 
    Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision.
 
    Income taxes on unappropriated earnings of 10% are expensed in the year of shareholder approval which is the year subsequent to the year the earnings are generated.
 
    Stock-based Compensation
 
    Employee stock option plans that are amended or have options granted on or after January 1, 2004 must be accounted for by the interpretations issued by the Accounting Research and Development Foundation. The Company adopted the intrinsic value method and any compensation cost determined using this method is charged to expense over the employee vesting period.
 
    Treasury Stock
 
    When the Company repurchases its outstanding common stock, the cost of the reacquired stock is recorded as treasury stock as a reduction to shareholders’ equity. When the Company retires treasury stock, the treasury stock account is reduced and the common stock as well as the capital surplus — additional paid-in capital are reversed in proportionate to the equity percentage of the retirement. When the book value of the treasury stock exceeds the sum of the par value and additional paid-in capital, the difference is charged to capital surplus - treasury stock and to retained earnings for any remaining amount. The Company’s stock held by its subsidiaries is also treated as treasury stock and reclassified from long-term investments to treasury stock. The cash dividends received by the subsidiaries from the Company are recorded under capital surplus — treasury stock.
 
    Foreign-currency Transactions
 
    Foreign currency transactions are recorded in New Taiwan dollars at the rates of exchange in effect when the transactions occur. Exchange gains or losses derived from foreign currency transactions or monetary assets and liabilities denominated in foreign currencies are recognized in current income. At the end of each period, assets and liabilities denominated in foreign currencies are revalued at the prevailing exchange rates with the resulting gains or losses recognized in current income.
 
    Derivative Financial Instruments
 
    The Company enters into foreign currency forward contracts to manage currency exposures on cash flow and on foreign-currency-denominated assets and liabilities. The contracts are recorded in New Taiwan dollars at the current rate of exchange of the contract date. The differences in the New Taiwan dollar amounts translated using the current rates and the amounts translated using the contracted forward rates on the contract date are amortized over the terms of the forward contracts using the straight-line method. At the end of each period, the receivables or payables arising from forward contracts are restated using the prevailing current rates at the balance sheet date with the resulting differences credited or charged to income. In addition, the receivables and payables related to the forward contracts of the same counter party are netted with the resulting amount presented as either an asset or a liability. Any resulting gain or loss upon settlement is credited or charged to income in the period of settlement.

- 11 -


 

    The Company enters into cross-currency swap contracts to manage currency exposures on foreign currency denominated assets and liabilities. The principal amount is recorded using the current rates at the contract date. The differences in the New Taiwan dollar amounts translated using the current rates and the amounts translated using the contracted rates on the contract date are amortized over the terms of the contracts using the straight-line method. At the end of each period, the receivables or payables arising from cross-currency swap contracts are restated using the prevailing current rate with the resulting differences credited or charged to income. In addition, the receivables and payables related to the contracts of the same counter party are netted with the resulting amount presented as either an asset or a liability. The difference in interest computed pursuant to the contracts on each settlement date or the balance sheet date is recorded as an adjustment to the interest income or expense associated with the hedged items. Any resulting gain or loss upon settlement is credited or charged to income in the period of settlement.
 
    The Company enters into interest rate swap contracts to manage exposures to changes in interest rates on existing assets or liabilities. These transactions are accounted for on an accrual basis, in which the cash settlement receivable or payable is recorded as an adjustment to interest income or expense associated with the hedged items.
 
    Reclassifications
 
    Certain accounts in the financial statements as of and for the three months ended March 31, 2004 have been reclassified to conform to the financial statements as of and for the three months ended March 31, 2005.
 
3.   CASH AND CASH EQUIVALENTS
                 
    March 31  
    2005     2004  
Cash and bank deposits
  $ 33,198,480     $ 96,498,092  
Government bonds acquired under repurchase agreements
    26,670,303       10,009,896  
Corporate issued notes
    350,207        
 
           
 
 
  $ 60,218,990     $ 106,507,988  
 
           

4.   SHORT-TERM INVESTMENTS
                 
    March 31  
    2005     2004  
Government bonds
  $ 14,292,300     $  
Corporate issued asset-backed securities
    12,192,028        
Agency bonds
    10,564,068        
Bond funds
    10,534,374       6,700,000  
Government bonds
    3,451,873       9,762,665  
Money market funds
    677,811        
Corporate issued notes
    157,612        
Commercial papers
    94,506        
Listed stocks
    6,528       11,358  
Government bonds acquired under repurchase agreements
          3,355,145  
 
           
 
    51,971,100       19,829,168  
Allowance for valuation losses
    (332,930 )      
 
           
 
               
 
  $ 51,638,170     $ 19,829,168  
 
           
 
               
Market value
  $ 51,638,170     $ 19,905,368  
 
           

- 12 -


 

    The Company entered into investment management agreements with three well-known financial institutions (fund managers) to manage investment portfolios for the Company. In accordance with the investment guidelines and terms in these agreements, the securities invested by the fund managers cannot be below a pre-defined credit rating. As of March 31, 2005, the Company had investment portfolios with these fund managers that aggregated to an original amount of US$1,200,000 thousand. The investment portfolios included securities such as corporate bonds, asset-backed securities, agency bonds, government bonds and others. Securities acquired with maturities less than three months from the date of purchase were reclassified as cash equivalents.
 
5.   INVENTORIES, NET
                 
    March 31  
    2005     2004  
Finished goods
  $ 2,844,581     $ 1,842,560  
Work in process
    10,359,806       9,313,327  
Raw materials
    896,897       632,825  
Supplies and spare parts
    684,714       782,487  
 
           
 
    14,785,998       12,571,199  
Allowance for losses
    (1,357,013 )     (1,556,676 )
 
           
 
 
  $ 13,428,985     $ 11,014,523  
 
           

6.   LONG-TERM INVESTMENTS
                                 
    March 31  
    2005     2004  
            % of             % of  
    Carrying     Owner-     Carrying     Owner-  
    Amount     ship     Amount     ship  
Equity method
                               
TSMC International Investment Ltd. (TSMC International)
  $ 23,184,094       100     $ 22,383,406       100  
TSMC (Shanghai) Company Limited (TSMC-Shanghai)
    10,732,322       100       1,819,487       100  
Vanguard International Semiconductor Corporation (VIS)
    5,698,410       28       4,375,675       28  
TSMC Partners, Ltd. (TSMC Partners)
    3,871,369       100       4,011,311       100  
Systems on Silicon Manufacturing Company Pte Ltd. (SSMC)
    3,364,490       32       2,824,776       32  
Emerging Alliance Fund, L.P. (Emerging Alliance)
    747,632       99       824,793       99  
TSMC North America (TSMC-North America)
    556,517       100       412,786       100  
Global Unichip Corporation (GUC)
    396,716       47       359,454       47  
VentureTech Alliance Fund II, L.P. (VTAF II)
    321,035       98              
TSMC Japan K. K. (TSMC-Japan)
    97,787       100       104,186       100  
VisEra Technologies Company, Ltd. (VisEra)
    62,638       25       50,499       25  
Chi Cherng Investment Co., Ltd. (Chi Cherng)
    50,629       36       43,138       36  
Hsin Ruey Investment Co., Ltd. (Hsin Ruey)
    49,879       36       42,083       36  
Taiwan Semiconductor Manufacturing Company Europe B.V. (TSMC-Europe)
    23,950       100       23,434       100  
 
                           
 
    49,157,468               37,275,028          
 
                           

(Continued)

- 13 -


 

                                 
    March 31  
    2005     2004  
                            % of  
    Carrying     Owner-     Carrying     Owner-  
    Amount     ship     Amount     ship  
Cost method
                               
Non-publicly traded stocks
  $ 482,500           $ 432,500        
Funds
    296,840             270,934        
 
                           
 
    779,340               703,434          
 
                           
Long-term bonds
                               
Government bonds
    11,819,517                        
Corporate bonds
                               
China Steel Corporation
    2,957,875                        
Taiwan Power Company
    911,967                        
Nan Ya Plastics Corporation
    406,072                        
Formosa Plastics Corporation
    272,336                        
Formosa Petrochemical Corporation
    136,042                        
 
                           
 
    16,503,809                        
 
                           
Other investments
    10,436,600                        
 
                           
 
                               
 
  $ 76,877,217             $ 37,978,462          
 
                           

The Company’s investee, VIS, reduced its capital on August 11, 2004 in order to decrease its accumulated deficit. The number of shares of VIS held by the Company after the capital reduction declined from 787,016 thousand shares to 409,532 thousand shares.

For the three months ended March 31, 2005 and 2004, net investment loss and income recognized from the equity method investees was NT$198,178 thousand and NT$802,676 thousand, respectively. The carrying amounts of investments accounted for under the equity method and the related investment loss or income were determined based on the reviewed financial statements of the investees as of and for the same periods as the Company.

As of March 31, 2005, other investments consisted of the following:

                                 
    Principal     Carrying     Range of        
    Amount     Amount     Interest Rates     Maturity Date  
Step-up callable deposits
                           
 
Domestic bank
  $ 2,000,000     $ 2,007,551       2.05%-2.20 %   Jul. 2007 to Aug. 2007
Foreign bank
    1,500,000       1,507,988       1.44%-2.47 %   Jul. 2006 to Jul. 2007
 
Callable range accrual deposits
                               
 
Foreign bank
    6,936,600       7,028,330     (See below)   Sep. 2009 to Jan.2010
 
                           
 
 
  $ 10,436,600     $ 10,543,869                  
 
                           

-14-


 

    The interest rates of the structured time-deposits are determined as follows:
 
    The interest rate of the step-up callable deposits is determined by the Company and the related banks.
 
    The amount of interest earned by the Company for the callable range accrual deposits is based on a pre-defined range as determined by the 3-month or 6-month LIBOR rate plus an agreed upon rate ranging between 2.1% and 3.45%. Based on the terms of the deposits, if the 3-month or 6-month LIBOR rate moves outside of the pre-defined range, the interest paid to the Company is at a fixed rate between zero and 1.5%. Under the term of the contracts, the bank has the right to cancel the contracts prior to the maturity date.
 
    Deposits that reside in banks located in Hong Kong and Singapore amounted to NT$2,522,400 thousand and NT$630,600 thousand, respectively.
 
7.   PROPERTY, PLANT AND EQUIPMENT
 
    Accumulated depreciation consisted of the following:
                 
    March 31  
    2005     2004  
Buildings
  $ 37,351,006     $ 30,913,778  
Machinery and equipment
    273,182,396       226,723,846  
Office equipment
    4,921,126       4,040,821  
 
           
 
  $ 315,454,528     $ 261,678,445  
 
           

    There was no capitalized interest for the three months ended March 31, 2005. Interest expense for the three months ended March 31, 2004 was NT$382,150 thousand (before deducting the amount capitalized of NT$51,978 thousand for the three months ended March 31, 2004). The interest rate used for purposes of calculating the capitalized amount was 2.80% to 5.283% for the three months ended March 31, 2004.
 
8.   DEFERRED CHARGES, NET
                 
    March 31  
    2005     2004  
Technology license fees
  $ 6,264,489     $ 4,789,827  
Software and system design costs
    2,050,497       2,589,038  
Other
    123,543       123,641  
 
           
 
  $ 8,438,529     $ 7,502,506  
 
           

-15-


 

9. BONDS PAYABLE

                 
    March 31  
    2005     2004  
Domestic unsecured bonds:
               
Issued in October 1999 and repayable in October 2004, 5.95% interest payable annually
  $     $ 5,000,000  
Issued in December 2000 and repayable in December 2005 and 2007 in two equal payments, 5.25% and 5.36% interest payable annually, respectively
    15,000,000       15,000,000  
Issued in January 2002 and repayable in January 2007, 2009 and 2012 in three equal payments, 2.60%, 2.75% and 3% interest payable annually, respectively
    15,000,000       15,000,000  
 
           
 
 
  $ 30,000,000     $ 35,000,000  
 
           

As of March 31, 2005, future principal repayments for the Company’s bonds were as follows:

         
Year of Repayment   Amount  
2005 (2nd to 4th quarter)
  $ 10,500,000  
2007
    7,000,000  
2009
    8,000,000  
2010 and thereafter
    4,500,000  
 
     
 
    30,000,000  
Current portion
    (10,500,000 )
 
     
 
 
  $ 19,500,000  
 
     

10.   OTHER LONG-TERM PAYABLES
 
    The Company entered into several license arrangements for certain semiconductor-related patents. Future payments under the agreements as of March 31, 2005 were as follows:
         
Year of Payment   Amount  
2005 (2nd to 4th quarter)
  $ 1,384,330  
2006
    564,533  
2007
    441,420  
2008
    252,240  
2009
    252,240  
2010 and thereafter
    504,480  
 
     
 
    3,399,243  
Current portion (under accrued expenses and other current liabilities)
    (1,487,737 )
 
     
 
 
  $ 1,911,506  
 
     

-16-


 

11.   PENSION PLAN
 
    The Company has a defined benefit plan for all regular employees that provides benefits based on the employee’s length of service and average monthly salary or wage for the six-month period prior to retirement.
 
    The Company contributes an amount equal to 2% of salaries and wages paid each month to a pension fund (the Fund). The Fund is administered by a pension fund monitoring committee (the Committee) and deposited in the Committee’s name in the Central Trust of China.
 
    For the three months ended March 31, 2005 and 2004, the changes in the Fund and accrued pension cost are summarized as follows:
                 
    Three Months Ended  
    March 31  
    2005     2004  
Pension fund
               
Balance, beginning of period
  $ 1,428,001     $ 1,191,702  
Contribution
    76,474       68,041  
Interest
    15,629       15,562  
Payment
    (8,416 )      
 
           
 
Balance, end of period
  $ 1,511,688     $ 1,275,305  
 
           
 
               
Accrued pension cost
               
Balance, beginning of period
  $ 3,101,196     $ 2,600,251  
Accruals
    139,147       113,781  
 
           
 
Balance, end of period
  $ 3,240,343     $ 2,714,032  
 
           

    The Labor Pension Act will be effective beginning July 1, 2005 and this pension mechanism is deemed a defined contribution plan. The employees who were subject to the Labor Standards Law prior to the enforcement of this Act may choose to be subject to the pension mechanism under this Act or may continue to be subject to the pension mechanism under the Labor Standards Law. For those employees who were subject to the Labor Standards Law prior to July 1, 2005 and still work for the same company after July 1, 2005 and choose to be subject to the pension mechanism under this Act, their seniority as of July 1, 2005 shall be maintained. The rate of contribution by an employer to the Labor Pension Fund per month shall not be less than 6% of each employee’s monthly salary or wage.
 
12.   INCOME TAX
 
  a.   A reconciliation of income tax expense based on income before income tax at statutory rate and income tax credits was as follows:
                 
    Three Months Ended  
    March 31  
    2005     2004  
Income tax expense based on “income before income tax” at statutory rate (25%)
  $ (4,066,335 )   $ (4,608,858 )
Tax-exempt income
    2,236,484       2,774,533  
Temporary and permanent differences
    (303,375 )     (137,367 )
 
           
 
Current income tax expense before income tax credits
  $ (2,133,226 )   $ (1,971,692 )
 
           

-17-


 

     b. Income tax benefit consisted of the following:

                 
    Three Months Ended  
    March 31  
    2005     2004  
Current income tax expense before income tax credits
  $ (2,133,226 )   $ (1,971,692 )
Income tax credits
    2,133,226       1,971,692  
Other income tax
          (92 )
Net change in deferred income tax assets
               
Investment tax credits
    2,557,893       960,679  
Temporary differences
    799,837       807,088  
Net change in valuation allowance of deferred income tax assets
    (2,804,674 )     (1,413,906 )
 
           
 
Income tax benefit
  $ 553,056     $ 353,769  
 
           

     c. Net deferred income tax assets consisted of the following:

                 
    March 31  
    2005     2004  
Current deferred income tax assets
               
Investment tax credits
  $ 7,296,000     $ 8,212,000  
 
           
 
Noncurrent deferred income tax assets, net
               
Investment tax credits
  $ 21,146,477     $ 18,398,573  
Temporary differences
    (1,650,698 )     (2,678,363 )
Valuation allowance
    (15,744,720 )     (14,185,753 )
 
           
 
 
  $ 3,751,059     $ 1,534,457  
 
           

d.   Integrated income tax information:
 
    The balance of the imputation credit account (ICA) as of March 31, 2005 and 2004 was zero and NT$2,932 thousand, respectively.
 
    The expected and actual creditable ratio for distribution of earnings of 2004 and 2003 was zero and 0.03%, respectively.
 
    The imputation credit allocated to the shareholders is based on its balance as of the date of dividend distribution. The expected creditable ratio may be adjusted when the actual distribution of the imputation credits is made.
 
e.   All retained earnings generated prior to December 31, 1997 have been appropriated.

-18-


 

f.   As of March 31, 2005, investment tax credits consisted of the following:
                         
        Total     Remaining      
        Creditable     Creditable     Expiry
Regulation   Item   Amount     Amount     Year
Statute for Upgrading Industries
 
Purchase of machinery and equipment
  $ 108,159     $     2005
 
        4,886,439       4,886,439     2006
 
        4,101,455       4,101,455     2007
 
        10,404,632       10,404,632     2008
 
        164,686       164,686     2009
 
                   
 
 
      $ 19,665,371     $ 19,557,212      
 
                   
Statute for Upgrading Industries
 
Research and development expenditures
  $ 3,127,586     $ 1,102,519     2005
`
        3,346,930       3,346,930     2006
 
        1,976,913       1,976,913     2007
 
        1,843,800       1,843,800     2008
 
        493,528       493,528     2009
 
                   
 
 
      $ 10,788,757     $ 8,763,690      
 
                   
 
Statute for Upgrading Industries
  Personnel training   $ 29,448     $ 29,448     2005
 
        27,311       27,311     2006
 
        26,780       26,780     2007
 
                   
 
 
      $ 83,539     $ 83,539      
 
                   
Statute for Upgrading Industries
 
Investments in important technology-based enterprises
  $ 38,036     $ 38,036     2005

g.   The sales generated from the following expansion and construction of the Company’s manufacturing plants are exempt from income tax:
     
    Tax-Exemption Period
Construction of Fab 8 - module B
  2002 to 2005
Expansion of Fab 2 - modules A and B, Fab 3 and Fab 4, Fab 5 and Fab 6
  2003 to 2006
Construction of Fab 12
  2004 to 2007

h.   The tax authorities have examined income tax returns of the Company through 2001. However, the Company is contesting the assessment by the tax authority for 1992 and 1998. The Company believes that any additional assessment will not have a material adverse effect on the Company.

-19-


 

13.   LABOR COST, DEPRECIATION AND AMORTIZATION
                         
    Three Months Ended March 31, 2005  
            Classified as        
    Classified as     Operating        
    Cost of Sales     Expenses     Total  
Labor cost
                       
Salary
  $ 2,029,905     $ 836,497     $ 2,866,402  
Labor and health insurance
    152,768       72,370       225,138  
Pension
    145,158       68,770       213,928  
Meal
    98,219       31,140       129,359  
Welfare benefit
    34,846       20,295       55,141  
Other
    26,925       5,825       32,750  
 
                 
 
 
  $ 2,487,821     $ 1,034,897     $ 3,522,718  
 
                 
 
Depreciation
  $ 15,164,392     $ 712,831     $ 15,877,223  
 
                 
Amortization
  $ 328,014     $ 448,626     $ 776,640  
 
                 
                         
    Three Months Ended March 31, 2004  
            Classified as        
    Classified as     Operating        
    Cost of Sales     Expenses     Total  
Labor cost
                       
Salary
  $ 2,017,088     $ 918,282     $ 2,935,370  
Labor and health insurance
    130,952       72,039       202,991  
Pension
    118,317       65,074       183,391  
Meal
    81,767       29,169       110,936  
Welfare benefit
    35,383       19,966       55,349  
Other
    30,015       4,009       34,024  
 
                 
 
 
  $ 2,413,522     $ 1,108,539     $ 3,522,061  
 
                 
 
Depreciation
  $ 13,654,587     $ 574,503     $ 14,229,090  
 
                 
Amortization
  $ 287,314     $ 571,552     $ 858,866  
 
                 

14.   SHAREHOLDERS’ EQUITY
 
    The Company has issued a total of 668,351 thousand ADSs which are traded on the NYSE as of March 31, 2005. The number of common shares represented by the ADSs is 3,341,754 thousand shares (one ADS represents five common shares).
 
    Capital surplus can only be used to offset a deficit under the Company Law. However, the capital surplus generated from donations and the excess of the issue price over the par value of capital stock (including the stock issued for new capital, mergers, convertible bonds and the surplus from treasury stock transactions) may be appropriated as stock dividends once a year, which is restricted to a certain percentage of the paid in common stock of the Company.

-20-


 

As of March 31, 2005 and 2004, capital surplus consisted of the following:

                 
    March 31  
    2005     2004  
From merger
  $ 24,003,546     $ 24,132,297  
Additional paid-in capital
    23,077,544       23,172,550  
From convertible bonds
    9,360,424       9,410,632  
From long-term investments
    129,718       90,913  
From treasury stock transactions
    3,090       54,432  
Donations
    55       55  
 
           
 
               
 
  $ 56,574,377     $ 56,860,879  
 
           

The Company’s Articles of Incorporation as revised on December 21, 2004, provide that when allocating the net profits for each fiscal year, the Company shall first offset its losses in previous years and then set aside the following items accordingly:

  a.   Legal capital reserve at 10% of the profits left over, until the accumulated legal capital reserve has equaled the Company’s total capital;
 
  b.   Special capital reserve in accordance with relevant laws or regulations or as requested by the authorities in charge;
 
  c.   Bonus to directors and supervisors and bonus to employees of the Company equal to 0.3% and not less than 1% of the remainder, respectively. The Company may issue stock bonuses to employees of an affiliated company meeting the conditions set by the Board of Directors or, by the person duly authorized by the Board of Directors;
 
  d.   Any balance left over shall be allocated according to the resolution of the shareholders’ meeting.

Profits of this Company may be distributed by way of cash dividend and/or stock dividend. Since the Company is in a capital-intensive industry at the steady growth stage of its business, distribution of profits shall be made preferably by way of cash dividend. Distribution of profits may also be made by way of stock dividend; provided however, the ratio for stock dividend shall not exceed 50% of total distribution.

Any appropriations of net income are recorded in the financial statement in the year of shareholder approval.

The appropriation for legal capital reserve is made until the reserve equals the aggregate par value of the Company’s outstanding capital stock. The reserve can only be used to offset an accumulated deficit or be distributed as a stock dividend up to 50% of the reserve balance when the reserve balance has reached 50% of the aggregate par value of the issued capital stock of the Company.

A special capital reserve equivalent to the net debit balance of the other components of shareholder’s equity (for example, unrealized loss on long-term investments and cumulative translation adjustments, but excluding treasury stock) shall be made from unappropriated earnings pursuant to existing regulations promulgated by the R.O.C. Securities and Futures Bureau (SFB), formerly known as the Securities and Futures Commission. Any special reserve appropriated may be reversed to the extent that the net debit balance reverses.

-21-


 

The appropriations of earnings for 2004 and 2003 were approved in the board of directors’ meeting and the shareholders’ meeting on February 22, 2005 and May 11, 2004, respectively. The appropriations and dividends per share are as follows:

                                 
                    Dividends Per Share  
    Appropriation of Earnings     (NT$)  
    For Fiscal     For Fiscal     For Fiscal     For Fiscal  
    Year 2004     Year 2003     Year 2004     Year 2003  
Legal reserve
  $ 8,820,201     $ 4,725,870                  
Special reserve
    2,226,427       (68,945 )                
Employees’ profit sharing — in cash
    3,086,215       681,628                  
Employees’ profit sharing — in stock
    3,086,215       2,726,514                  
Cash dividends to preferred shareholders
          184,493     $     $ 0.35  
Cash dividends to common shareholders
    46,504,097       12,159,971       2.0       0.60  
Stock dividends to common shareholders
    11,626,024       28,373,267       0.5       1.41  
Bonus to directors and supervisors — in cash
    231,466       127,805                  
 
                           
 
                               
 
  $ 75,580,645     $ 48,910,603                  
 
                           

The amount of the above appropriation of earnings for 2003 is consistent with the resolution of the meeting of the board of directors on February 17, 2004. However, the Company Law prescribes that TSMC, as a holder of treasury stock, shall not participate in the appropriation of earnings. Therefore, the actual cash dividend per share and stock dividend per share are slightly more than those in the aforementioned resolution. The appropriation of earnings for 2004 has not yet been resolved by the shareholders. If the above bonus to employee, directors and supervisors had been paid in cash and charged against income for 2004 and 2003, the after income tax basic earnings per share for the years ended December 31, 2004 and 2003 would have decreased from NT$3.97 to NT$3.70 and NT$2.33 to NT$2.15, respectively. The shares distributed as a bonus to employees represented 1.33% and 1.35% of the Company’s total outstanding common shares as of December 31, 2004 and 2003, respectively.

The above information about the appropriations of bonus to employees, directors and supervisors is available at Market Observation System website.

Under the Integrated Income Tax System that became effective on January 1, 1998, the R.O.C. resident shareholders are allowed a tax credit for their proportionate share of the income tax paid by the Company on earnings generated since January 1, 1998.

15.   STOCK-BASED COMPENSATION PLANS

The Company’s Employee Stock Option Plans under the 2004 Plan, 2003 Plan and 2002 Plan were approved by the SFB of the R.O.C. on January 6, 2005, October 29, 2003 and June 25, 2002, respectively. The maximum number of units authorized to be granted under the 2004 Plan, the 2003 Plan and the 2002 Plan was 11,000 thousand, 120,000 thousand and 100,000 thousand, respectively, with each unit eligible to subscribe to one common share when exercisable. The options may be granted to qualified employees of the Company or any of its domestic or foreign subsidiaries, in which the Company’s shareholding with voting rights, directly or indirectly, is more than fifty percent (50%). The options of all the plans are valid for ten years and exercisable at certain percentages subsequent to the second anniversary of the grant date. Under the terms of the plans, the options are granted at an exercise price equal to the closing price of the Company’s common shares listed on the TSE on the grant date.

Under the 2003 Plan and the 2002 Plan, units that had never been granted, or had been granted and subsequently cancelled were expired as of March 31, 2005.

Information about outstanding stock options for the three months ended March 31, 2005 and 2004 was as

-22-


 

follows:

                 
            Weighted-  
    Number of     Average  
    Outstanding     Exercise  
    Stock Options     Price  
    (In Thousands)     (NT$)  
Three months ended March 31, 2005
               
 
               
Beginning outstanding balance
    64,367       44.1  
Options exercised
    (899 )     41.2  
Options cancelled
    (1,688 )     44.7  
 
             
 
               
Ending outstanding balance
    61,780       44.1  
 
             
 
               
Three months ended March 31, 2004
               
 
               
Beginning outstanding balance
    49,357       43.0  
Options granted
    16       55.2  
Options exercised
           
Options cancelled
    (1,374 )     44.3  
 
             
 
               
Ending outstanding balance
    47,999       42.9  
 
             

The number of outstanding options and exercise prices have been adjusted to reflect the distribution of stock dividends in accordance with the plans.

As of March 31, 2005, information about outstanding and exercisable options was as follows:

                                         
    Options Outstanding     Options Exercisable  
            Weighted-     Weighted-             Weighted-  
    Number of     average     average     Number of     average  
Range of   Outstanding     Remaining     Exercise     Exercisable     Exercise  
Exercise   Options (in     Contractual     Price     Options (in     Price  
Price (NT$)   Thousands)     Life (Years)     (NT$)     Thousands)     (NT$)  
32.8-46.2
    49,754       7.84       42.6       13,153       39.4  
49.9-57.8
    12,026       9.08       50.4              
 
                                   
 
                                       
 
    61,780       8.09       44.1       13,153       39.4  
 
                                   

No compensation cost was recognized for the three months ended March 31, 2005 and 2004 as all options were granted at the closing price on the date of grant. Had the Company used the fair value based method to evaluate the options granted after January 1, 2004, the method, assumptions and pro forma results of the Company would have been as follows:

         
Method:   Black-Scholes Model  
 
Assumptions:
       
Expected dividend yield
    1.00 %
Expected volatility
    43.77%-46.15 %
Risk free interest rate
    3.07%-3.85 %
Expected life
  5 years

-23-


 

         
Net income:
       
Net income as reported
  $ 16,818,397  
Pro forma net income
    16,798,577  
 
       
Earnings per share (EPS) — after income tax (NT$):
       
Basic EPS as reported
    0.72  
Pro forma basic EPS
    0.72  
Diluted EPS as reported
    0.72  
Pro forma diluted EPS
    0.72  

No options were granted during the three months ended March 31, 2005. The estimated weighted average fair value for the options granted during the three months ended March 31, 2004 was NT$24.49 per unit.

16.   TREASURY STOCK
                                 
                    (Shares in Thousands)  
    Beginning                     Ending  
    Shares     Increase     Decrease     Shares  
Three months ended March 31, 2005
                               
 
                               
Reclassification of parent company stock held by subsidiaries from long-term investments
    45,521             484       45,037  
 
                       
 
                               
Three months ended March 31, 2004
                               
 
                               
Reclassification of parent company stock held by subsidiaries from long-term investments
    40,597             146       40,451  
Repurchase under share buyback plan
          8,067             8,067  
 
                       
 
                               
 
    40,597       8,067       146       48,518  
 
                       

Proceeds from the sales of treasury stock for the three months ended March 31, 2005 and 2004 were NT$26,044 thousand and NT$9,364 thousand, respectively. The Company’s capital stock held by a subsidiary as an investment is recorded as treasury stock, with the holder having the same rights as other common shareholders. As of March 31, 2005 and 2004, the book value of the treasury stock was NT$1,572,027 thousand and NT$1,625,240 thousand, respectively; the market value was NT$2,336,080 thousand and NT$2,512,417 thousand, respectively.

The Company held a special meeting of the board of directors and approved a share buyback plan to repurchase the Company’s common shares listed on the TSE during the period from March 24, 2004 to May 23, 2004. The Company repurchased 124,720 thousand common shares for a total cost of NT$7,059,798 thousand. All the treasury stock repurchased under the buyback plan was retired on August 16, 2004.

-24-


 

17.   EARNINGS PER SHARE

EPS is computed as follows:

                                         
                    Number of     EPS (NT$)  
    Amounts (Numerator)     Shares     Before     After  
    Before     After     (Denominator)     Income     Income  
    Income Tax     Income Tax     (in Thousands)     Tax     Tax  
Three months ended March 31, 2005
                                       
 
                                       
Basic EPS
                                       
Income available to common shareholders
  $ 16,265,341     $ 16,818,397       23,206,939     $ 0.70     $ 0.72  
 
                                   
Effect of dilutive potential common stock — stock options
                8,486                  
 
                                 
 
                                       
Diluted EPS
                                       
Income available to common shareholders (including effect of dilutive potential common stock)
  $ 16,265,341     $ 16,818,397       23,215,425     $ 0.70     $ 0.72  
 
                             
 
                                       
Three months ended March 31, 2004
                                       
 
                                       
Basic EPS
                                       
Income available to common shareholders
  $ 18,435,433     $ 18,789,202       23,330,079     $ 0.79     $ 0.81  
 
                                   
Effect of dilutive potential common stock — stock options
                12,034                  
 
                                 
 
                                       
Diluted EPS
                                       
Income available to common shareholders (including effect of dilutive potential common stock)
  $ 18,435,433     $ 18,789,202       23,342,113     $ 0.79     $ 0.80  
 
                             

18.   RELATED PARTY TRANSACTIONS

The Company engages in business transactions with the following related parties:

  a.   Industrial Technology Research Institute (ITRI), the chairman of the Company is one of its directors.
 
  b.   Philips, a major shareholder of the Company.
 
  c.   Subsidiaries
 
      TSMC-Shanghai
TSMC-North America
TSMC-Europe
TSMC-Japan
 
  d.   Investees
 
      GUC (with controlling financial interest)
VisEra (with controlling financial interest)
VIS
SSMC
 
  e.   Indirect subsidiaries
 
      WaferTech, LLC (WaferTech)
TSMC Technology, Inc. (TSMC Technology)

-25-


 

The transactions with the aforementioned parties in addition to those disclosed in other notes are summarized as follows:

                                 
    2005     2004  
    Amount     %     Amount     %  
For the three months ended March 31
                               
 
                               
Sales
                               
TSMC-North America
  $ 31,759,070       56     $ 31,648,127       54  
Philips and its affiliates
    469,031       1       1,344,714       2  
Others
    101,362             76,108        
 
                       
 
                               
 
  $ 32,329,463       57     $ 33,068,949       56  
 
                       
 
                               
Purchases
                               
WaferTech
  $ 2,514,006       32     $ 3,505,826       35  
SSMC
    1,053,623       13       1,390,078       14  
VIS
    1,013,490       13       1,873,410       19  
Others
    73,752       1              
 
                       
 
                               
 
  $ 4,654,871       59     $ 6,769,314       68  
 
                       
 
                               
Manufacturing expenses — technical assistance fees Philips (Note 20a)
  $ 11,391           $ 796,251       3  
 
                       
 
                               
Marketing expenses — commission
                               
TSMC-Japan
  $ 55,692       20     $ 57,523       19  
TSMC-Europe
    44,797       16       39,849       13  
 
                       
 
                               
 
  $ 100,489       36     $ 97,372       32  
 
                       
 
                               
General and administrative expenses — rental expense
                               
GUC
  $ 3,976           $        
 
                       
 
                               
Sales of property, plant and equipment
                               
TSMC-Shanghai
  $ 36,469       30     $        
VIS
                29,399       43  
 
                       
 
                               
 
  $ 36,469       30     $ 29,399       43  
 
                       
 
                               
Non-operating income and gains
                               
SSMC (primarily technical service income, see Note 20f)
  $ 62,342       4     $ 56,983       4  
VIS (primarily technical service income, see Note 20k)
    32,303       2       27,757       2  
Others
    5,411             409        
 
                       
 
                               
 
  $ 100,056       6     $ 85,149       6  
 
                       
At March 31
                               
 
                               
Receivables
                               
TSMC-North America
  $ 13,822,886       98     $ 15,131,221       93  
Philips and its affiliates
    179,348       1       1,021,009       6  
Others
    77,248       1       49,048       1  
 
                       
 
                               
 
  $ 14,079,482       100     $ 16,201,278       100  
 
                       

(Continued)

-26-


 

                                 
    2005     2004  
    Amount     %     Amount     %  
Other receivables
                               
TSMC-Shanghai
  $ 1,553,163       59     $        
TSMC-Technology
    570,601       22       2,418       1  
TSMC-North America
    377,009       14       64,100       26  
VIS
    34,850       1       180,829       73  
Others
    109,798       4       2,021        
 
                       
 
                               
 
  $ 2,645,421       100     $ 249,368       100  
 
                       
 
                               
Payables
                               
Philips and its affiliates
  $ 1,032,341       36     $ 1,892,900       39  
WaferTech
    735,306       26       1,154,689       24  
VIS
    636,782       22       1,294,952       26  
SSMC
    337,355       12       528,454       11  
Others
    121,705       4       55,016        
 
                       
 
                               
 
  $ 2,863,489       100     $ 4,926,011       100  
 
                       
 
                               
Other long-term payables 
                               
Philips and its affiliates
  $ 1,722,326       100     $        
 
                       
 
                               
Deferred gain on intercompany sale
                               
TSMC-Shanghai (disposal of property, plant and equipment)
  $ 684,423       100     $        
 
                       

The terms of sales to related parties are not significantly different from those to third parties. For other related party transactions, prices are determined in accordance with the related contractual agreements.

19.   SIGNIFICANT LONG-TERM LEASES

The Company leases land from the Science-Based Industrial Park Administration. These lease agreements expire on various dates from March 2008 to December 2020 and can be renewed upon their expiration.

As of March 31, 2005, future remaining lease payments were as follows:

         
Year   Amount  
2005 (2nd to 4th quarter)
  $ 182,867  
2006
    243,823  
2007
    243,823  
2008
    225,658  
2009
    219,603  
2010 and thereafter
    1,231,777  
 
     
 
       
 
  $ 2,347,551  
 
     

-27-


 

20.   SIGNIFICANT COMMITMENTS AND CONTINGENCIES

The significant commitments and contingencies of the Company as of March 31, 2005 are as follows:

  a.   On June 20, 2004, the Company and Philips revised the Technical Cooperation Agreement, which was originally signed on May 12, 1997, with an effective date from January 1, 2004 for five years. Upon expiration, this amended Technical Cooperation Agreement will be terminated at the expiration date and will not be automatically renewed. Under this amended Technical Cooperation Agreement, the Company will pay Philips royalties based on a fixed amounts mutually agreed-on, rather than under certain percentage of the Company’s annual net sales. The Company and Philips agree to cross license the patents owned by each party. The Company also obtained through Philips a number of patent cross licenses.
 
  b.   Under a technical cooperation agreement with ITRI, the Company shall reserve and allocate up to 35% of certain of its production capacity for use by the Ministry of Economic Affairs (MOEA) or any other party designated by the MOEA. The term of this agreement is for five years beginning January 1, 1987 and is automatically renewed for successive periods of five years unless otherwise terminated by either party with one year prior notice. The agreement was automatically renewed in 1992 and 1997 and on January 1, 2002.
 
  c.   On October 28, 1992, the Company entered into a letter agreement with Philips under which Philips has an option on up to 30% of the Company’s capacity as agreed in the agreement on most favored terms and conditions for similar orders, as long as Philips’ and its affiliates’ shareholding in the Company remains at 24.8% or higher. As of March 12, 2005, Philips’ and its affiliates’ shareholding in the Company is 18.98%.
 
  d.   Under several foundry agreements, the Company shall reserve a portion of its production capacity for certain major customers that have guarantee deposits with the Company. As of March 31, 2005, the Company had a total of US$11,645 thousand of guarantee deposits.
 
  e.   Under a Shareholders Agreement entered into with Philips and EDB Investments Pte Ltd. on March 30, 1999, the parties formed a joint venture company, SSMC, for the purpose of constructing an integrated circuit foundry in Singapore. As of March 31, 2005, the Company’s equity interest in SSMC was 32%. The Company and Philips committed to buy specific percentages of the production capacity of SSMC. The Company and Philips are required, in the aggregate, to purchase up to 70% of SSMC’s full capacity, but the Company along is not required to purchase more than 28% of the annual installed capacity. If any party defaults on the commitment and the capacity utilization of SSMC falls below a specific percentage of its total capacity, the defaulting party is required to compensate SSMC for all related unavoidable costs.
 
  f.   The Company provides technical services to SSMC under a Technical Cooperation Agreement (the Agreement) entered into on May 12, 1999. The Company receives compensation for such services computed at a specific percentage of net selling price of certain products sold by SSMC. The Agreement shall remain in force for ten years and may be automatically renewed for successive periods of five years each unless pre-terminated by either party under certain conditions.
 
  g.   Under a Technology Transfer Agreement (TTA) with National Semiconductor Corporation (National) entered into on June 27, 2000, the Company shall receive payments for the licensing of certain technology to National. The agreement was to remain in force for ten years and could be automatically renewed for successive periods of two years thereafter unless either party gives notice for early termination under certain conditions. In January 2003, the Company and National entered into a Termination Agreement whereby the TTA was terminated for convenience. Under the Termination Agreement, the Company will be relieved of any further obligation to transfer any additional technology. In addition, the Company granted National an option to request the transfer of certain technologies under the same terms and conditions as the terminated TTA. The option will expire in January 2008.

-28-


 

  h.   Beginning in 2001, the Company entered into several licensing arrangements for certain semiconductor patents. The terms of the contracts range from five to ten years with payments to be made in the form of royalties over the term of the related contracts. The Company has recorded the related amounts as a liability with the corresponding amounts recorded as deferred charges which are amortized and charged to cost of sales on a straight-line basis over the estimated life of the technology or the term of the contract, whichever is shorter.
 
  i.   In November 2002, the Company entered into an Amended and Restated Joint Technology Cooperation Agreement with Philips, Freescale Semiconductor, Inc. and STMicroelectronics to jointly develop 90-nm to 65-nm advanced CMOS Logic and e-DRAM technologies. The Company also agreed to align 0.12 micron CMOS Logic technology to enhance its foundry business opportunities. The Company will contribute process technologies and share a portion of the costs associated with this joint development project.
 
  j.   In December 2003, the Company entered into a Technology Development and License Agreement with Freescale Semiconductor, Inc. to jointly develop 65-nm SOI (silicon on insulator) technology. The Company will also license related 90-nm SOI technology from Freescale Semiconductor, Inc. Any intellectual properties arising out of the co-development project shall be jointly owned by the parties. In accordance with the agreement, the Company will pay royalties to Freescale Semiconductor, Inc. and will share a portion of the costs associated with the joint development project.
 
  k.   The Company provides a technology transfer to VIS under a Manufacturing License and Technology Transfer Agreement entered into in August 2004. The Company receives compensation for such technology transfer in the form of royalty payments from VIS computed at specific percentages of net selling price of certain products sold by VIS. VIS agreed to reserve its certain capacity to manufacture for the Company certain products at prior as agreed by the parties.
 
  l.   Amounts available under unused letters of credit as of March 31, 2005 were NT$6,480 thousand and US$204 thousand.
 
  m.   The Company provided guarantees on loans amounting to US$60,000 thousand and US$40,000 thousand for TSMC Development, Inc. (TSMC Development) and TSMC-North America, respectively.
 
  n.   TSMC, TSMC-North America and WaferTech filed a series of lawsuits in late 2003 and 2004 in both state and federal courts in California and with the U.S. International Trade Commission against Semiconductor Manufacturing International Corporation (“SMIC”), SMIC (Shanghai) and SMIC Americas. The lawsuits alleged that SMIC companies infringed multiple TSMC patents and misappropriated TSMC’s trade secrets. These suits have been settled out of court on January 30, 2005. As part of the settlement, SMIC will pay TSMC US$175 million over six years to resolve TSMC’s patent infringement and trade secret claims.

21.   ADDITIONAL DISCLOSURES

Following are the additional disclosures required by the SFB for the Company and its investees:

  a.   Financing provided: Please see Table 1 attached;
 
  b.   Endorsement/guarantee provided: Please see Table 2 attached;
 
  c.   Marketable securities held: Please see Table 3 attached;
 
  d.   Marketable securities acquired or disposed of at costs or prices of at least NT$100 million or 20% of the paid-in capital: Please see Table 4 attached;

-29-


 

  e.   Acquisition of individual real estate properties at costs of at least NT$100 million or 20% of the paid-in capital: None;
 
  f.   Disposal of individual real estate properties at prices of at least NT$100 million or 20% of the paid-in capital: None;
 
  g.   Total purchases from or sales to related parties of at least NT$100 million or 20% of the paid-in capital: Please see Table 5 attached;
 
  h.   Receivable from related parties amounting to at least NT$100 million or 20% of the paid-in capital: Please see Table 6 attached;
 
  i.   Names, locations, and related information of investees on which the Company exercises significant influence: Please see Table 7 attached;
 
  j.   Financial instrument transactions:

  1)   Derivative financial instruments
 
      The Company entered into derivative financial instrument transactions during the three months ended March 31, 2005 and 2004 to manage exposures related to foreign-exchange rate and interest rate fluctuations. Certain information on these contracts was as follows:

  a)   Outstanding forward exchange contracts as of March 31, 2005 and 2004
                 
            Contract  
Financial           Amount  
Instruments   Currency   Maturity   (In Thousands)  
March 31, 2005
               
Sell
  US$/NT$   Apr. 2005 to Jun. 2005   US$ 708,000  
Buy
  US$/NT$   Apr. 2005   US$ 40,000  
 
               
March 31, 2004
               
 
               
Sell
  US$/NT$   Apr. 2004 to Sep. 2004   US$ 1,755,000  
Buy
  EUR/US$   Apr. 2004   EUR 16,000  
Buy
  JPY/US$   Apr. 2004   JPY 528,225  

As of March 31, 2005 and 2004, receivables from forward exchange contracts (included in the “other financial assets” account) aggregated approximately NT$4,661 thousand and NT$906,882 thousand, respectively; payables from forward exchange contracts (included in the “other current liabilities” account) aggregated approximately NT$280,637 thousand and zero, respectively.

  b)   Cross currency swap contracts
 
      Outstanding cross currency swap contracts as of March 31, 2005 were as follows:
                         
    Contract     Range of     Range of  
    Amount     Interest Rate     Interest Rate  
Maturity Date   (In Thousands)     Paid     Received  
Apr. 2005 to Jun. 2005
  US$ 1,395,000       1.28%-3.07 %     0.49%-1.15 %

      There were no cross currency swap contracts during the three months ended March 31, 2004.

-30-


 

    As of March 31, 2005, receivables and payables from the cross currency swap contracts (included in the “other financial assets” and “other current liabilities” account, respectively) was approximately NT$174,470 thousand and NT$468,220 thousand, respectively.
 
    The net exchange gain or loss arising from forward exchange contracts and cross currency swap contracts for the three months ended March 31, 2005 and 2004 was recognized in the “foreign exchange loss, net” account and the difference in interest was recorded in interest income or expense.
 
c)   Interest rate swap contracts
 
    The contracts, which would have remained outstanding as of March 31, 2005, had been rescinded during the three months ended March 31, 2005. The rescission loss of NT$28,295 thousand was recognized in the “interest expense” account. There was no outstanding contract as of March 31, 2005.
 
    Outstanding contracts as of March 31, 2004 were as follows:
             
        Contract  
        Amount  
Contract Date   Period   (In Thousands)  
Jul. 1999
  Jul. 1999 to Jun. 2004   US$    2,857
Sep. 2003
  Sep. 2003 to Dec. 2005   NT$500,000
Oct. 2003
  Oct. 2003 to Dec. 2005   NT$500,000
Oct. 2003
  Oct. 2003 to Dec. 2005   NT$500,000
Oct. 2003
  Oct. 2003 to Dec. 2005   NT$500,000
Oct. 2003
  Oct. 2003 to Dec. 2005   NT$500,000
Nov. 2003
  Nov. 2003 to Dec. 2005   NT$500,000

d)   Transaction risk

  i)   Credit risk. Credit risk represents the positive net settlement amount of those contracts with positive fair values at the balance sheet date. The positive net settlement amount represents the loss incurred by the Company if the counter-parties breached the contracts. The banks, which are the counter-parties to the foregoing derivative financial instruments, are reputable financial institutions. Management believes its exposure related to the potential default by those counter-parties is low.
 
  ii)   Market price risk. All derivative financial instruments are intended as hedges for fluctuations in foreign exchange rates and interest rates. Gains or losses from these hedging instruments are likely to be offset by gains or losses from the hedged items. Interest rate risks are also controlled as the expected cost of capital is fixed. Thus, market price risks are believed to below.
 
  iii)   Cash flow risk and the amount and period of future cash needs.
 
      As of March 31, 2005, the Company’s future cash needs for outstanding forward exchange contracts and cross currency swap contracts were as follows:
                 
    Inflow     Outflow  
     Term   (In Thousands)     (In Thousands)  
Within one year
  NT$65,770,604   NT$1,261,940
 
  US$ 40,000     US$ 2,103,000  

-31-


 

     The Company has sufficient operating capital to meet the above cash needs. In addition, there will be corresponding cash inflow for the cash outflow. Therefore, the cash flow risk is low.

2)   Fair values of financial instruments were as follows:
                                 
    March 31, 2005     March 31, 2004  
    Carrying             Carrying        
    Amount     Fair Value     Amount     Fair Value  
Non-derivative financial instruments
                               
 
                               
Assets
                               
Short-term investments
  $ 51,638,170     $ 51,638,170     $ 19,829,168     $ 19,905,368  
Long-term investments (securities with market price)
    32,746,088       36,480,721       4,375,675       10,963,129  
Liabilities
                               
Bonds payable (including current portion)
    30,000,000       30,522,754       35,000,000       35,758,784  
 
                               
Derivative financial instruments
                               
 
                               
Forward exchange contracts (sell)
    (243,945 )     (205,815 )     900,111       961,743  
Forward exchange contracts (buy)
    (1,188 )     (1,541 )     6,771       318  
Cross currency swap contracts
    (306,246 )     (331,511 )            
Interest rate swap contracts
                13,954       36,038  

The above financial instruments do not include cash and cash equivalents, receivables, other financial assets, payables, and payable to contractors and equipment suppliers. The carrying amounts of the aforementioned financial instruments reported in the balance sheet approximate their fair values.

The above financial instruments also exclude refundable deposits, guarantee deposits, long-term investments that do not have quoted market prices as well as other long-term payables. The future cash inflow and outflow of the deposits approximate their fair values. Some of long-term investments do not have quoted market prices; therefore, fair values for those long-term investments are not shown above. The fair value of other long-term payables is determined using the discounted value of expected cash flows, which approximates the carrying value.

Fair values of financial instruments were determined as follows:

a)   Fair value of short-term and publicly traded long-term investments is based on quoted market prices.
 
b)   The fair value of bonds payable is the quoted market value.
 
c)   Fair value of derivative financial instruments is the amount receivable from or payable to the counter-party if the contracts were terminated on the balance sheet date.

The fair values of some financial and non-financial instruments were not included in the fair values disclosed above. Accordingly, the sum of the fair values of the financial instruments listed above does not represent the fair value of the Company as a whole.

-32-


 

k.   Information on investment in Mainland China

  1)   The name of the investee company in mainland China, the main businesses and products, its issued capital, method of investment, information on inflow or outflow of capital, ratio of ownership, equity in the net gain or net loss, ending balance, amount received as earnings distributions from the investment, and the limitation on investment: Please see Table 8 attached.
 
  2)   Significant direct or indirect transactions with the investee company, its prices and terms of payment, unrealized gain or loss, and other related information which is helpful to understand the impact of investment in mainland China on financial reports: Please see Note 18.

-33-


 

TABLE 1

TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD. AND INVESTEES

     
FINANCING PROVIDED
   
FOR THE THREE MONTHS ENDED MARCH 31, 2005
   
(Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified)
   
                                                                                                                         
 
 
                          Maximum                                                           Collateral             Financing    
                          Balance for the                                                                               Financing Limit     Company’s    
                          Period       Ending Balance                 Type of               Reasons for                                   for Each     Financing    
                    Financial Statement     (US$ in       (US$ in                 Financing     Transaction       Short-term     Allowance for                           Borrowing     Amount Limits    
  No.     Financing Name     Counter-party     Account     Thousand)       Thousand)       Interest Rate       (Note 1)     Amounts       Financing     Bad Debt       Item       Value       Company     (US$ in Thousand)    
 
1
    TSMC International     TSMC Development     Other receivables     $ 1,891,800       $ 1,891,800         1.50 %     2     $       Operating capital     $               $       N/A     $ 31,150,639    
 
 
                      ( US$60,000 )     (US$60,000 )                                                                         ( US$987,968 )  
 
 
                                                                                                              (Note 2)  
 
2
    TSMC Partners     TSMC Development     Other receivables       2,522,400         2,522,400         1.50 %     2             Operating capital                             N/A     (Note 3)  
 
 
                      ( US$80,000 )     ( US$80,000 )                                                                                
 


Note 1: The No. 2 represents necessary for short-term financing.
 
Note 2: Not exceeding the issued capital of the Company.
 
Note 3: Generally not exceeding the issued capital of the Company, unless approved by all members of the board.

-34-


 

TABLE 2

TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD. AND INVESTEES

ENDORSEMENT/GUARANTEE PROVIDED
FOR THE THREE MONTHS ENDED MARCH 31, 2005
(Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified)


                                                                   
              Counter-party                                           Ratio of Accumulated      
                                                            Amount of Collateral     Maximum
                  Nature of     Limits on Each Counter-party’s     Maximum                 Value of Collateral       to Net Equity of the     Collateral/Guarantee
      Endorsement/           Relationship     Endorsement/     Balance for the Period       Ending Balance       Property, Plant and       Latest Financial     Amounts Allowable
No.     Guarantee Provider     Name     (Note 2)     Guarantee Amounts     (US$ in Thousand)       (US$ in Thousand)       Equipment       Statement     (Note 1)
                                                       
0
    The Company     TSMC Development     3     Not exceed 10% of     $ 1,891,800       $ 1,891,800       $       0.46%     $103,838,370
 
                      the net worth of                          
     
     
 
                      the Company, and     (US$60,000 )     (US$60,000 )                      
 
          TSMC-North America     2     also limiting to                                 0.30%      
 
                      the total capital       1,261,200         1,261,200
                       
 
                      issued of the     (US$40,000     (US$40,000 )                      
 
                      endorsement/guarantee                                          
 
                      company, unless                                          
 
                      otherwise approved                                          
 
                      by Board of                                          
 
                      Directors.                                          

Note 1:  25% of the net worth of the Company as of March 31, 2005.

Note 2:  The No. 2 represents a subsidiary in which the Company holds directly over 50% of the equity interest.
              The No. 3 represents an investee in which the Company holds directly and indirectly over 50% of the equity interest.

- 35 -


 

TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD. AND INVESTEES

MARKETABLE SECURITIES HELD
MARCH 31, 2005
(Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified)


                                                             
                        March 31, 2005        
                                                  Market Value or        
                                  Carrying Value             Net Asset Value        
            Relationship with     Financial Statement     Shares/Units       (US$ in       Percentage of     (US$ in        
Held Company Name     Marketable Securities Type and Name     the Company     Account     (In Thousand)       Thousand)       Ownership     Thousand)       Note
                                                 
The Company
    Government bonds                                                      
 
    United States Treas NTS         Short-term investment             US$ 109,478       N/A     US$ 108,605        
 
    2002 Government Bond Series B         Long-term investment               360,050       N/A       359,305        
 
    2003 Government Bond Series I         Long-term investment               3,394,786       N/A       3,392,545        
 
    2004 Government Bond Series A         Long-term investment               2,349,664       N/A       2,350,862        
 
    2004 Government Bond Series E         Long-term investment               3,895,017       N/A       3,892,177        
 
    2004 Kaohsiung Municipal Bond Series A         Long-term investment               620,000       N/A       619,999        
 
    2005 Government Bond Series A         Long-term investment               1,200,000       N/A       1,201,130        
 
                                                           
 
    Bond funds                                                      
 
    JF Taiwan First Bond Fund         Short-term investment       84,886         1,151,462       N/A       1,166,010        
 
    ABN AMRO Bond Fund         Short-term investment       134,906         1,956,175       N/A       1,985,099        
 
    JF Taiwan Bond Fund         Short-term investment       78,698         1,153,209       N/A       1,172,869        
 
    INVESCO R.O.C. Bond A Fund         Short-term investment       76,705         1,101,911       N/A       1,115,399        
 
    Dresdner Bond DAM Fund         Short-term investment       69,303         771,617       N/A       783,786        
 
    Barits Bond Fund         Short-term investment       76,640         900,000       N/A       910,701        
 
    Shinkong Chi Shin Bond Fund         Short-term investment       151,594         2,100,000       N/A       2,122,634        
 
    NITC Bond Fund         Short-term investment       3,764         600,000       N/A       604,762        
 
    ABN AMRO Select Bond Fund         Short-term investment       18,235         200,000       N/A       201,849        
 
    HSBC NTD Money Management Fund         Short-term investment       41,568         600,000       N/A       603,891        
 
                                                           
 
    Stock                                                      
 
    Taiwan Mask Corp.         Short-term investment       1,787         6,528             28,267        
 
    TSMC International     Subsidiary     Long-term investment       987,968         23,184,094       100       23,184,094        
 
    VIS     Investee     Long-term investment       409,532         5,698,410       28       9,537,998        
 
    TSMC Partners     Subsidiary     Long-term investment       300         3,871,369       100       3,871,369        
 
    SSMC     Investee     Long-term investment       382         3,364,490       32       3,364,490        
 
    TSMC-North America     Subsidiary     Long-term investment       11,000         556,517       100       1,210,469       Treasury stock of
 
                                                          NT$653,952 thousand
 
                                                          is deducted from
 
                                                          the carrying value.
 
    GUC     Investee     Long-term investment       39,040         396,716       47       421,141        
 
    TSMC-Japan     Subsidiary     Long-term investment       6         97,787       100       97,787        
 
    VisEra     Investee     Long-term investment       5,100         62,638       25       62,638        
 
    TSMC-Europe     Subsidiary     Long-term investment               23,950       100       23,950        
 
    United Industrial Gases Co., Ltd.         Long-term investment       16,783         193,584       10       295,359        
 
    Shin-Etsu Handotai Taiwan Co., Ltd.         Long-term investment       10,500         105,000       7       177,511        

(Continued)

- 36 -


 

                                                             
                        March 31, 2005        
                                                  Market Value or        
                                  Carrying Value             Net Asset Value        
            Relationship with     Financial Statement     Shares/Units       (US$ in       Percentage of     (US$ in        
Held Company Name     Marketable Securities Type and Name     the Company     Account     (In Thousand)       Thousand)       Ownership     Thousand)       Note
                                                 
 
    W.K. Technology Fund IV         Long-term investment       5,000       $ 50,000       2     $ 55,266        
 
    Hontung Venture Capital Co., Ltd.         Long-term investment       8,392         83,916       10       54,775        
 
    Globaltop Partner I Venture Capital Corp.         Long-term investment       5,000         50,000       1       49,715        
 
    Corporate bonds                                                      
 
    Taiwan Power Company         Short-term investment               2,754,222       N/A       2,708,522        
 
    Formosa Petrochemical Corporation         Short-term investment               310,868       N/A       304,252        
 
    AIG Sunamerica Global Fing IX         Short-term investment             US$ 1,032       N/A     US$ 1,014        
 
    Anz Cap Tr I         Short-term investment             US$ 1,012       N/A     US$ 979        
 
    Abbott Labs         Short-term investment             US$ 2,732       N/A     US$ 2,648        
 
    Abbott Labs         Short-term investment             US$ 1,581       N/A     US$ 1,551        
 
    Ace Ltd         Short-term investment             US$ 1,046       N/A     US$ 1,025        
 
    Alltel Corp.         Short-term investment             US$ 609       N/A     US$ 604        
 
    Allstate Life Global Fdg Secd         Short-term investment             US$ 2,998       N/A     US$ 2,962        
 
    American Express Co.         Short-term investment             US$ 3,550       N/A     US$ 3,452        
 
    American Gen Fin Corp.         Short-term investment             US$ 1,768       N/A     US$ 1,711        
 
    American Gen Fin Corp. Mtn         Short-term investment             US$ 3,130       N/A     US$ 3,051        
 
    American Gen Fin Corp. Mtn         Short-term investment             US$ 1,058       N/A     US$ 1,026        
 
    American Honda Fin Corp. Mtn         Short-term investment             US$ 3,800       N/A     US$ 3,806        
 
    American Intl Group Inc Mtnf         Short-term investment             US$ 3,795       N/A     US$ 3,785        
 
    Amgen Inc.         Short-term investment             US$ 3,005       N/A     US$ 2,920        
 
    Amsouth Bk Birmingham Ala         Short-term investment             US$ 1,972       N/A     US$ 1,962        
 
    Associates Corp. North Amer         Short-term investment             US$ 2,700       N/A     US$ 2,629        
 
    Bank New York Inc.         Short-term investment             US$ 1,525       N/A     US$ 1,495        
 
    Bank New York Inc.         Short-term investment             US$ 1,972       N/A     US$ 1,968        
 
    Bank Scotland Treas Svcs Plc         Short-term investment             US$ 2,715       N/A     US$ 2,708        
 
    Bank Utd Houston Tx Mtbn         Short-term investment             US$ 580       N/A     US$ 560        
 
    Bear Stearns Cos Inc.         Short-term investment             US$ 3,518       N/A     US$ 3,477        
 
    Bear Stearns Cos Inc. Medium Te         Short-term investment             US$ 3,105       N/A     US$ 3,106        
 
    Beneficial Corp. Mtn Bk Entry         Short-term investment             US$ 2,434       N/A     US$ 2,392        
 
    Berkshire Hathaway Fin Corp.         Short-term investment             US$ 1,498       N/A     US$ 1,474        
 
    British Telecommunications Plc         Short-term investment             US$ 2,104       N/A     US$ 2,061        
 
    Cit Group Hldgs Inc.         Short-term investment             US$ 3,203       N/A     US$ 3,116        
 
    Cit Group Inc.         Short-term investment             US$ 2,000       N/A     US$ 2,003        
 
    Cargill Inc.         Short-term investment             US$ 2,120       N/A     US$ 2,054        
 
    Chase Manhattan Corp. New         Short-term investment             US$ 2,246       N/A     US$ 2,199        
 
    Chase Manhattan Corp. New         Short-term investment             US$ 1,628       N/A     US$ 1,574        
 
    Citicorp.         Short-term investment             US$ 1,473       N/A     US$ 1,446        
 
    Cogentrix Energy Inc.         Short-term investment             US$ 2,885       N/A     US$ 2,827        
 
    Colonial Pipeline Co.         Short-term investment             US$ 1,625       N/A     US$ 1,576        
 
    Compaq Computer Corp.         Short-term investment             US$ 3,719       N/A     US$ 3,551        
 
    Consolidated Edison Co. Ny Inc.         Short-term investment             US$ 3,688       N/A     US$ 3,576        
 
    Corestates Cap Corp.         Short-term investment             US$ 1,062       N/A     US$ 1,044        
 
    Countrywide Fdg Corp. Mtn         Short-term investment             US$ 2,158       N/A     US$ 2,108        
 
    Countrywide Home Lns Inc.         Short-term investment             US$ 5,210       N/A     US$ 5,090        
 
    Countrywide Fdg Corp. Mtn         Short-term investment             US$ 3,500       N/A     US$ 3,499        
 
    Countrywide Finl Corp.         Short-term investment             US$ 3,000       N/A     US$ 2,999        

(Continued)

- 37 -


 

                                                             
                        March 31, 2005        
                                                  Market Value or        
                                  Carrying Value             Net Asset Value        
            Relationship with     Financial Statement     Shares/Units       (US$ in       Percentage of     (US$ in        
Held Company Name     Marketable Securities Type and Name     the Company     Account     (In Thousand)       Thousand)       Ownership     Thousand)       Note
                                                 
 
    Credit Suisse Fb USA Inc.         Short-term investment             US$ 4,141       N/A     US$ 4,106        
 
    Credit Suisse First Boston USA         Short-term investment             US$ 2,249       N/A     US$ 2,185        
 
    Credit Suisse First Boston         Short-term investment             US$ 786       N/A     US$ 763        
 
    Daimlerchrysler North Amer         Short-term investment             US$ 997       N/A     US$ 973        
 
    Daimlerchrysler North Amer Hld         Short-term investment             US$ 749       N/A     US$ 750        
 
    Dell Computer Corp.         Short-term investment             US$ 3,054       N/A     US$ 2,954        
 
    Den Danske Bk Aktieselskab         Short-term investment             US$ 2,192       N/A     US$ 2,125        
 
    Deutsche Telekom Intl Fin Bv         Short-term investment             US$ 1,852       N/A     US$ 1,814        
 
    Diageo Plc         Short-term investment             US$ 3,459       N/A     US$ 3,433        
 
    Dow Chem Co.         Short-term investment             US$ 921       N/A     US$ 896        
 
    European Invt Bk         Short-term investment             US$ 8,315       N/A     US$ 8,137        
 
    Fpl Group Cap Inc.         Short-term investment             US$ 1,001       N/A     US$ 997        
 
    Fpl Group Cap Inc.         Short-term investment             US$ 860       N/A     US$ 851        
 
    Shell Finance (U K ) Plc         Short-term investment             US$ 3,604       N/A     US$ 3,524        
 
    Fifth Third Bk Cincinnati OH         Short-term investment             US$ 2,419       N/A     US$ 2,421        
 
    First Data Corp.         Short-term investment             US$ 3,013       N/A     US$ 2,919        
 
    First Un Corp.         Short-term investment             US$ 970       N/A     US$ 943        
 
    Fleet Finl Group Inc New         Short-term investment             US$ 494       N/A     US$ 486        
 
    Fleet Finl Group Inc New         Short-term investment             US$ 975       N/A     US$ 943        
 
    Fleet Boston Corp.         Short-term investment             US$ 2,850       N/A     US$ 2,776        
 
    Ford Mtr Cr Co.         Short-term investment             US$ 153       N/A     US$ 151        
 
    Ford Mtr Cr Co.         Short-term investment             US$ 1,542       N/A     US$ 1,515        
 
    Ford Mtr Cr Co.         Short-term investment             US$ 616       N/A     US$ 608        
 
    Gte Corp.         Short-term investment             US$ 2,134       N/A     US$ 2,085        
 
    General Elec Cap Corp. Mtn         Short-term investment             US$ 3,315       N/A     US$ 3,303        
 
    General Elec Cap Corp. Mtn         Short-term investment             US$ 1,040       N/A     US$ 1,025        
 
    General Re Corp.         Short-term investment             US$ 3,500       N/A     US$ 3,541        
 
    Genworth Finl Inc.         Short-term investment             US$ 3,412       N/A     US$ 3,409        
 
    Goldman Sachs Group LP         Short-term investment             US$ 1,637       N/A     US$ 1,572        
 
    Greenpoint Finl Corp.         Short-term investment             US$ 974       N/A     US$ 957        
 
    HSBC USA Inc. New         Short-term investment             US$ 1,154       N/A     US$ 1,119        
 
    Hancock John Global Fdg Mtn         Short-term investment             US$ 1,003       N/A     US$ 973        
 
    Hartford Finl Svcs Group Inc.         Short-term investment             US$ 1,435       N/A     US$ 1,397        
 
    Hartford Finl Svcs Group Inc.         Short-term investment             US$ 296       N/A     US$ 295        
 
    Heller Finl Inc.         Short-term investment             US$ 1,171       N/A     US$ 1,133        
 
    Hershey Foods Corp.         Short-term investment             US$ 1,627       N/A     US$ 1,576        
 
    Hewlett Packard Co.         Short-term investment             US$ 3,373       N/A     US$ 3,258        
 
    Honeywell Inc.         Short-term investment             US$ 3,284       N/A     US$ 3,162        
 
    Household Fin Corp.         Short-term investment             US$ 532       N/A     US$ 525        
 
    Household Fin Corp.         Short-term investment             US$ 2,993       N/A     US$ 2,927        
 
    Household Fin Corp. Mtn Bk Ent         Short-term investment             US$ 3,542       N/A     US$ 3,493        
 
    Huntington Natl Bk Columbus OH         Short-term investment             US$ 2,954       N/A     US$ 2,945        
 
    Huntington Natl Bk         Short-term investment             US$ 3,003       N/A     US$ 3,002        
 
    ING Sec Life Instl Fdg         Short-term investment             US$ 2,544       N/A     US$ 2,503        

(Continued)

-38-


 

                                                             
                        March 31, 2005      
                                                  Market Value or        
                                  Carrying Value             Net Asset Value        
            Relationship with     Financial Statement     Shares/Units       (US$ in       Percentage of     (US$ in        
Held Company Name     Marketable Securities Type and Name     the Company     Account     (In Thousand)       Thousand)       Ownership     Thousand)       Note
                                                 
 
    Intl Bk For Recon + Dev         Short-term investment             US$ 5,232       N/A     US$ 5,051        
 
    International Business Machs         Short-term investment             US$ 2,249       N/A     US$ 2,220        
 
    Intl Lease Fin Corp. Mtn         Short-term investment             US$ 3,028       N/A     US$ 2,954        
 
    JP Morgan Chase + Co         Short-term investment             US$ 3,663       N/A     US$ 3,583        
 
    Jackson Natl Life Global Fdg         Short-term investment             US$ 1,036       N/A     US$ 1,020        
 
    Jackson Natl Life Global Fdg S         Short-term investment             US$ 2,998       N/A     US$ 3,003        
 
    KFW Intl Fin Inc.         Short-term investment             US$ 3,062       N/A     US$ 3,002        
 
    Key Bk Na Med Term Nts Bk Entr         Short-term investment             US$ 4,450       N/A     US$ 4,442        
 
    Keycorp Mtn Book Entry         Short-term investment             US$ 3,500       N/A     US$ 3,511        
 
    Kraft Foods Inc.         Short-term investment             US$ 773       N/A     US$ 759        
 
    Kraft Foods Inc.         Short-term investment             US$ 1,037       N/A     US$ 1,023        
 
    ING Bank         Short-term investment             US$ 2,114       N/A     US$ 2,073        
 
    Lehman Brothers Hldgs Inc.         Short-term investment             US$ 1,163       N/A     US$ 1,129        
 
    Lehman Brothers Hldgs Inc.         Short-term investment             US$ 3,705       N/A     US$ 3,589        
 
    Lehman Brothers Hldgs Inc.         Short-term investment             US$ 2,166       N/A     US$ 2,124        
 
    Lilly Eli + Co.         Short-term investment             US$ 3,750       N/A     US$ 3,750        
 
    Lincoln Natl Corp. In         Short-term investment             US$ 519       N/A     US$ 509        
 
    Ameritech Capital Funding Co.         Short-term investment             US$ 510       N/A     US$ 499        
 
    Merita Bk Ltd NY Brh         Short-term investment             US$ 538       N/A     US$ 523        
 
    Merrill Lynch + Co. Inc.         Short-term investment             US$ 3,486       N/A     US$ 3,430        
 
    Metropolitan Life Global Mtn         Short-term investment             US$ 1,907       N/A     US$ 1,879        
 
    Monumental Global Fdg II         Short-term investment             US$ 1,534       N/A     US$ 1,486        
 
    Monumental Global Fdg II 2002A         Short-term investment             US$ 1,045       N/A     US$ 1,019        
 
    Morgan Stanley Group Inc.         Short-term investment             US$ 3,638       N/A     US$ 3,587        
 
    Morgan Stanley Group Inc.         Short-term investment             US$ 1,050       N/A     US$ 1,031        
 
    Morgan Stanley         Short-term investment             US$ 2,136       N/A     US$ 2,075        
 
    National City Corp.         Short-term investment             US$ 3,426       N/A     US$ 3,378        
 
    National Westminster Bk Plc         Short-term investment             US$ 1,433       N/A     US$ 1,391        
 
    Nationwide Bldg Soc         Short-term investment             US$ 3,457       N/A     US$ 3,446        
 
    Nationwide Bldg Soc Mtn         Short-term investment             US$ 3,000       N/A     US$ 3,000        
 
    Nationwide Life Global Mtn         Short-term investment             US$ 1,463       N/A     US$ 1,453        
 
    Northern Rock Plc Medium Term         Short-term investment             US$ 2,002       N/A     US$ 1,994        
 
    Pnc Fdg Corp.         Short-term investment             US$ 1,080       N/A     US$ 1,054        
 
    Ppg Inds Inc.         Short-term investment             US$ 3,571       N/A     US$ 3,546        
 
    Pepsico Inc. Mtn Book Entry         Short-term investment             US$ 3,818       N/A     US$ 3,747        
 
    Popular North Amer Inc. Mtn         Short-term investment             US$ 3,042       N/A     US$ 2,965        
 
    Premark Intl Inc.         Short-term investment             US$ 2,954       N/A     US$ 2,865        
 
    Pricoa Global Fdg I Mtn         Short-term investment             US$ 3,050       N/A     US$ 3,052        
 
    Pricoa Global Fdg 1 Mtn         Short-term investment             US$ 3,500       N/A     US$ 3,499        
 
    Principal Life Global Fdg I Gl         Short-term investment             US$ 3,168       N/A     US$ 3,067        
 
    Protective Life Secd Trs         Short-term investment             US$ 2,920       N/A     US$ 2,913        
 
    Prudential Ins Co. Amer         Short-term investment             US$ 2,648       N/A     US$ 2,574        
 
    Reinsurance Group Amer Inc.         Short-term investment             US$ 2,091       N/A     US$ 2,061        
 
    Royal Bk Scotland Group Plc         Short-term investment             US$ 1,563       N/A     US$ 1,525        
 
    Royal Bk Scotland Group Plc         Short-term investment             US$ 369       N/A     US$ 359        
 
    Sbc Communications Inc.         Short-term investment             US$ 3,681       N/A     US$ 3,576        
 
    Sbc Communications Inc.         Short-term investment             US$ 1,776       N/A     US$ 1,728        

(Continued)

-39-


 

                                                             
                        March 31, 2005      
                                                  Market Value or        
                                  Carrying Value             Net Asset Value        
            Relationship with     Financial Statement     Shares/Units       (US$ in       Percentage of     (US$ in        
Held Company Name     Marketable Securities Type and Name     the Company     Account     (In Thousand)       Thousand)       Ownership     Thousand)       Note
                                                 
 
    Slm Corp Medium Term Nts         Short-term investment             US$ 2,950       N/A     US$ 2,932        
 
    Slm Corp.         Short-term investment             US$ 500       N/A     US$ 497        
 
    Sp Powerassests Ltd Global         Short-term investment             US$ 991       N/A     US$ 974        
 
    Safeco Corp.         Short-term investment             US$ 765       N/A     US$ 748        
 
    St Paul Cos Inc Mtn Bk Ent         Short-term investment             US$ 2,661       N/A     US$ 2,635        
 
    Salomon Smith Barney Hldgs Inc.         Short-term investment             US$ 3,160       N/A     US$ 3,065        
 
    Sara Lee Corp.         Short-term investment             US$ 1,596       N/A     US$ 1,567        
 
    Scotland Intl Fin B V 144A         Short-term investment             US$ 1,533       N/A     US$ 1,502        
 
    Suntrust Bks Inc.         Short-term investment             US$ 1,062       N/A     US$ 1,044        
 
    Swedbank Sparbanken Svenge AB         Short-term investment             US$ 1,084       N/A     US$ 1,050        
 
    Tiaa Global Mkts Inc.         Short-term investment             US$ 519       N/A     US$ 507        
 
    Tribune Co. Med Trm Nts         Short-term investment             US$ 2,943       N/A     US$ 2,898        
 
    US Bk Natl Assn Cincinnati OH         Short-term investment             US$ 2,669       N/A     US$ 2,663        
 
    Unitedhealth Group Inc.         Short-term investment             US$ 3,119       N/A     US$ 3,058        
 
    Virginia Elec + Pwr Co.         Short-term investment             US$ 2,884       N/A     US$ 2,780        
 
    Vodafone Group Plc New         Short-term investment             US$ 2,559       N/A     US$ 2,521        
 
    Wps Resources Corp.         Short-term investment             US$ 1,107       N/A     US$ 1,100        
 
    Wal Mart Cda Venture Corp.         Short-term investment             US$ 3,670       N/A     US$ 3,563        
 
    Washington Mut Inc.         Short-term investment             US$ 4,735       N/A     US$ 4,613        
 
    Washington Mut Fin Corp.         Short-term investment             US$ 4,768       N/A     US$ 4,628        
 
    Washington Post Co.         Short-term investment             US$ 3,182       N/A     US$ 3,108        
 
    Wells Fargo+Co. New         Short-term investment             US$ 3,697       N/A     US$ 3,587        
 
    Westfield Cap Corp. Ltd         Short-term investment             US$ 1,999       N/A     US$ 2,003        
 
    China Steel Corporation         Long-term investment               2,957,874       N/A       2,954,657        
 
    Taiwan Power Company         Long-term investment               911,967       N/A       911,637        
 
    Nan Ya Plastics Corporation         Long-term investment               406,072       N/A       406,068        
 
    Formosa Plastics Corporation         Long-term investment               272,336       N/A       412,830        
 
    Formosa Petrochemical Corporation         Long-term investment               136,042       N/A       200,000        
 
                                                           
 
    Agency bonds                                                      
 
    Fed Hm Ln Pc Pool G11295         Short-term investment             US$ 2,146       N/A     US$ 2,115        
 
    Fed Hm Ln Pc Pool E89857         Short-term investment             US$ 2,467       N/A     US$ 2,431        
 
    Federal Home Ln Mtg Corp.         Short-term investment             US$ 6,096       N/A     US$ 6,027        
 
    Federal Home Ln Mtg Corp.         Short-term investment             US$ 4,227       N/A     US$ 4,197        
 
    Federal Home Ln Mtg Corp         Short-term investment             US$ 3,558       N/A     US$ 3,497        
 
    Federal Home Ln Mtg Corp.         Short-term investment             US$ 3,155       N/A     US$ 3,121        
 
    Federal Natl Mtg Assn Gtd         Short-term investment             US$ 2,595       N/A     US$ 2,547        
 
    Federal Natl Mtg Assn         Short-term investment             US$ 3,624       N/A     US$ 3,589        
 
    Federal Natl Mtg Assn         Short-term investment             US$ 1,609       N/A     US$ 1,594        
 
    Federal Natl Mtg Assn         Short-term investment             US$ 4,165       N/A     US$ 4,111        
 
    Fnma Pool 685116         Short-term investment             US$ 946       N/A     US$ 931        
 
    Fnma Pool 725095         Short-term investment             US$ 1,904       N/A     US$ 1,872        
 
    Fnma Pool 790828         Short-term investment             US$ 4,500       N/A     US$ 4,410        

(Continued)

-40-


 

                                                             
                        March 31, 2005      
                                                  Market Value or        
                                  Carrying Value             Net Asset Value        
            Relationship with     Financial Statement     Shares/Units       (US$ in       Percentage of     (US$ in        
Held Company Name     Marketable Securities Type and Name     the Company     Account     (In Thousand)       Thousand)       Ownership     Thousand)       Note
                                                 
 
    Fnma Pool 793932         Short-term investment             US$ 983       N/A     US$ 968        
 
    Fnma Pool 794040         Short-term investment             US$ 976       N/A     US$ 960        
 
    Fnma Pool 795548         Short-term investment             US$ 938       N/A     US$ 926        
 
    Fnma Pool 806642         Short-term investment             US$ 1,944       N/A     US$ 1,920        
 
    Government Natl Mtg Assn         Short-term investment             US$ 1,007       N/A     US$ 983        
 
    Gnma II Pool 081150         Short-term investment             US$ 978       N/A     US$ 966        
 
    Gnma II Pool 081153         Short-term investment             US$ 3,692       N/A     US$ 3,637        
 
    Federal Home Ln Mtg Corp.         Short-term investment             US$ 6,978       N/A     US$ 6,891        
 
    Federal Home Ln Mtg Corp.         Short-term investment             US$ 3,388       N/A     US$ 3,387        
 
    Federal Home Ln Mtg Corp. Mtn         Short-term investment             US$ 4,930       N/A     US$ 4,877        
 
    Federal Home Loan Mtg Assn         Short-term investment             US$ 4,847       N/A     US$ 4,836        
 
    Federal Home Loan Mtg Corp.         Short-term investment             US$ 4,903       N/A     US$ 4,886        
 
    Federal Home Ln Mtg Corp.         Short-term investment             US$ 6,925       N/A     US$ 6,913        
 
    Federal Home Ln Mtg Corp.         Short-term investment             US$ 4,953       N/A     US$ 4,928        
 
    Federal Home Ln Mtg Corp.         Short-term investment             US$ 9,997       N/A     US$ 9,831        
 
    Federal Home Ln Bks         Short-term investment             US$ 2,532       N/A     US$ 2,470        
 
    Federal Home Ln Bks         Short-term investment             US$ 1,042       N/A     US$ 1,013        
 
    Federal Home Ln Bks         Short-term investment             US$ 7,887       N/A     US$ 7,810        
 
    Federal Home Ln Bks         Short-term investment             US$ 3,379       N/A     US$ 3,347        
 
    Federal Home Ln Bks         Short-term investment             US$ 9,134       N/A     US$ 9,133        
 
    Federal Home Ln Bks         Short-term investment             US$ 4,927       N/A     US$ 4,888        
 
    Federal Home Ln Bks         Short-term investment             US$ 7,961       N/A     US$ 7,912        
 
    Federal Home Ln Bks         Short-term investment             US$ 7,014       N/A     US$ 6,830        
 
    Federal Home Ln Bks         Short-term investment             US$ 4,936       N/A     US$ 4,900        
 
    Federal Home Ln Bks         Short-term investment             US$ 2,454       N/A     US$ 2,462        
 
    Federal Home Ln Bks         Short-term investment             US$ 7,018       N/A     US$ 6,905        
 
    Federal Home Ln Bks         Short-term investment             US$ 4,997       N/A     US$ 4,942        
 
    Federal Home Ln Bks         Short-term investment             US$ 7,042       N/A     US$ 6,938        
 
    Federal Home Ln Bks         Short-term investment             US$ 6,098       N/A     US$ 5,949        
 
    Federal Home Ln Bks         Short-term investment             US$ 3,976       N/A     US$ 3,946        
 
    Federal Home Ln Bks         Short-term investment             US$ 13,953       N/A     US$ 13,836        
 
    Federal Home Ln Bks         Short-term investment             US$ 4,939       N/A     US$ 4,880        
 
    Federal Home Ln Bks         Short-term investment             US$ 13,983       N/A     US$ 13,854        
 
    Federal Home Ln Bks         Short-term investment             US$ 13,981       N/A     US$ 13,855        
 
    Federal Home Ln Bks         Short-term investment             US$ 4,136       N/A     US$ 4,101        
 
    Federal Home Ln Mtg Corp.         Short-term investment             US$ 999       N/A     US$ 992        
 
    Federal Home Ln Mtg Corp.         Short-term investment             US$ 4,933       N/A     US$ 4,925        
 
    Federal Natl Mtg Assn         Short-term investment             US$ 5,270       N/A     US$ 5,210        
 
    Federal Natl Mtg Assn         Short-term investment             US$ 4,430       N/A     US$ 4,351        
 
    Federal Natl Mtg Assn         Short-term investment             US$ 4,921       N/A     US$ 4,885        
 
    Federal Natl Mtg Assn         Short-term investment             US$ 6,940       N/A     US$ 6,914        
 
    Federal Natl Mtg Assn         Short-term investment             US$ 6,903       N/A     US$ 6,894        
 
    Federal Natl Mtg Assn         Short-term investment             US$ 4,981       N/A     US$ 4,927        
 
    Federal Natl Mtg Assn         Short-term investment             US$ 6,997       N/A     US$ 6,942        
 
    Federal Natl Mtg Assn         Short-term investment             US$ 7,892       N/A     US$ 7,877        
 
    Federal Natl Mtg Assn         Short-term investment             US$ 14,952       N/A     US$ 14,888        
 
    Federal Natl Mtg Assn Mtn         Short-term investment             US$ 15,787       N/A     US$ 15,689        

(Continued)

-41-


 

                                                             
                        March 31, 2005        
                                                  Market Value or        
                                  Carrying Value             Net Asset Value        
            Relationship with     Financial Statement     Shares/Units       (US$ in       Percentage of     (US$ in        
Held Company Name     Marketable Securities Type and Name     the Company     Account     (In Thousand)       Thousand)       Ownership     Thousand)       Note
                                                 
 
    Federal Natl Mtg Assn Mtn         Short-term investment             US$ 9,758       N/A     US$ 9,709        
 
    Fed Hm Ln Pc         Short-term investment             US$ 3,466       N/A     US$ 3,454        
 
    Federal Natl Mtg Assn Mtn         Short-term investment             US$ 7,000       N/A     US$ 6,909        
 
                                                           
 
    Corporate issued asset-backed securities                                                      
 
    Americredit Automobile Rec Tr         Short-term investment             US$ 1,055       N/A     US$ 1,041        
 
    Americredit Automobile Receiv         Short-term investment             US$ 1,221       N/A     US$ 1,218        
 
    Americredit Automobile Receivb         Short-term investment             US$ 4,949       N/A     US$ 4,873        
 
    Americredit Automobile Rec Tr         Short-term investment             US$ 2,000       N/A     US$ 1,980        
 
    Bmw Veh Owner Tr         Short-term investment             US$ 4,978       N/A     US$ 4,934        
 
    Capital Auto Receivables Asset         Short-term investment             US$ 3,273       N/A     US$ 3,238        
 
    Capital One Auto Fin Tr         Short-term investment             US$ 781       N/A     US$ 778        
 
    Capital One Auto Fin Tr         Short-term investment             US$ 3,000       N/A     US$ 2,975        
 
    Daimlerchrysler Auto Tr         Short-term investment             US$ 4,991       N/A     US$ 4,941        
 
    Daimlerchrysler Auto Tr         Short-term investment             US$ 2,989       N/A     US$ 2,977        
 
    Daimlerchrysler Auto Tr         Short-term investment             US$ 4,897       N/A     US$ 4,845        
 
    Fifth Third Auto Tr         Short-term investment             US$ 3,000       N/A     US$ 2,980        
 
    Ford Cr Auto Owner Tr         Short-term investment             US$ 10,999       N/A     US$ 10,875        
 
    Gs Auto Ln Tr         Short-term investment             US$ 2,948       N/A     US$ 2,962        
 
    Household Automotive Tr         Short-term investment             US$ 238       N/A     US$ 238        
 
    Hyundai Auto Receivables Tr         Short-term investment             US$ 3,500       N/A     US$ 3,411        
 
    Long Beach Accep Auto Receivab         Short-term investment             US$ 2,526       N/A     US$ 2,489        
 
    National City Auto Receivables         Short-term investment             US$ 1,206       N/A     US$ 1,204        
 
    Navistar Finl 2003 A Owner Tr         Short-term investment             US$ 4,928       N/A     US$ 4,847        
 
    Nissan Auto Receivables         Short-term investment             US$ 7,000       N/A     US$ 6,928        
 
    Onyx Accep Owner Tr     &n