Edgar Filing: TAIWAN SEMICONDUCTOR MANUFACTURING CO LTD

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 August 2006

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 Limited

Financial Statements for the
Six Months Ended June 30, 2006 and 2005 and
Independent Auditors’ Report

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Shareholders
Taiwan Semiconductor Manufacturing Company Limited

We have audited the accompanying balance sheets of Taiwan Semiconductor Manufacturing Company Limited as of June 30, 2006 and 2005, and the related statements of income, changes in shareholders’ equity and cash flows for the six months then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the Rules Governing the Audit of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Those rules and standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Taiwan Semiconductor Manufacturing Company Limited as of June 30, 2006 and 2005, and the results of its operations and its cash flows for the six months then ended in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted in the Republic of China.

We have also audited, in accordance with the Rules Governing the Audit of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China, the consolidated financial statements of Taiwan Semiconductor Manufacturing Company Limited and subsidiaries as of and for the six months ended June 30, 2006 and 2005, and have expressed an unqualified opinion on the consolidated financial statements.

July 12, 2006

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 audit such financial statements are those generally accepted and applied in the Republic of China.

For the convenience of readers, the auditors’ 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 auditors’ report and financial statements shall prevail.

- 1 -

Taiwan Semiconductor Manufacturing Company Limited

BALANCE SHEETS
JUNE 30, 2006 AND 2005
(In Thousands of New Taiwan Dollars, Except Par Value)


	2006						2005
	Amount			%			Amount			%
ASSETS

CURRENT ASSETS
Cash and cash equivalents (Notes 2 and 4)	$	127,713,018			22		$	78,597,384			16
Financial assets at fair value through profit or loss (Notes 2, 3 and 5)		322,456			—			121,841			—
Available-for-sale financial assets (Notes 2, 3 and 6)		62,102,387			11			48,298,762			10
Held-to-maturity financial assets (Notes 2, 3 and 7)		5,738,737			1			1,109,846			—
Notes and accounts receivable		19,713,819			4			20,040,283			4
Receivables from related parties (Note 23)		22,909,889			4			14,999,678			3
Allowance for doubtful receivables (Note 2)		(975,704	)		—			(978,577	)		—
Allowance for sales returns and others (Note 2)		(5,571,076	)		(1	)		(3,945,057	)		—
Other receivables from related parties (Note 23)		1,659,482			—			1,565,784			—
Other financial assets (Note 3)		872,627			—			1,603,340			—
Inventories, net (Notes 2 and 8)		18,375,580			3			14,113,615			3
Deferred income tax assets (Notes 2 and 16)		6,084,277			1			5,330,000			1
Prepaid expenses and other current assets (Note 3)		954,026			—			969,974			—


Total current assets		259,899,518			45			181,826,873			37


LONG-TERM INVESTMENTS (Notes 2, 3, 6, 7, 9 and 10)
Available-for-sale financial assets		4,873,970			1			—			—
Held-to-maturity financial assets		23,524,067			4			27,297,965			5
Financial assets carried at cost		818,969			—			784,939			—
Investments accounted for using equity method		54,000,233			9			48,351,666			10


Total long-term investments		83,217,239			14			76,434,570			15


PROPERTY, PLANT, AND EQUIPMENT (Notes 2, 11 and 23)
Cost
Buildings		91,815,148			16			88,695,499			18
Machinery and equipment		484,487,876			84			441,034,330			88
Office equipment		8,090,185			1			7,586,253			1

		584,393,209			101			537,316,082			107
Accumulated depreciation		(388,228,761	)		(67	)		(330,854,258	)		(66	)
Advance payments and construction in progress		27,054,673			5			18,601,286			4


Net property, plant, and equipment		223,219,121			39			225,063,110			45


GOODWILL (Note 2)		1,567,756			—			1,741,951			—


OTHER ASSETS
Deferred income tax assets (Notes 2 and 16)		7,394,956			1			6,313,825			1
Deferred charges, net (Notes 2 and 12)		6,163,992			1			7,874,553			2
Refundable deposits		83,655			—			87,542			—
Assets leased to others, net (Note 2)		70,012			—			75,746			—
Idle assets		6,789			—			13,995			—


Total other assets		13,719,404			2			14,365,661			3


TOTAL	$	581,623,038			100		$	499,432,165			100


LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES
Financial liabilities at fair value through profit or loss (Notes 2, 3 and 5)	$	599,909			—		$	836,704			—
Accounts payable		6,772,076			1			5,680,946			1
Payables to related parties (Note 23)		3,281,423			—			2,146,317			—
Income tax payable (Notes 2 and 16)		4,486,901			1			252,800			—
Cash dividends and bonus payable (Note 18)		65,257,190			11			49,590,312			10
Payables to contractors and equipment suppliers		16,952,057			3			10,004,328			2
Accrued expenses and other current liabilities (Notes 3 and 14)		7,385,228			1			7,712,787			2
Current portion of bonds payable (Note 13)		2,500,000			1			10,500,000			2


Total current liabilities		107,234,784			18			86,724,194			17


LONG-TERM LIABILITIES
Bonds payable (Note 13)		17,000,000			3			19,500,000			4
Other long-term payables (Note 14)		1,458,603			—			1,644,136			—
Other payables to related parties (Notes 23 and 26)		1,085,366			—			1,727,133			1


Total long-term liabilities		19,543,969			3			22,871,269			5


OTHER LIABILITIES
Accrued pension cost (Notes 2 and 15)		3,484,350			1			3,410,250			1
Guarantee deposits (Note 26)		3,354,046			1			1,517,584			—
Deferred credits (Notes 2 and 23)		1,173,542			—			708,941			—


Total other liabilities		8,011,938			2			5,636,775			1


Total liabilities		134,790,691			23			115,232,238			23


CAPITAL STOCK — $10 PAR VALUE
Authorized: 27,050,000 thousand shares, Issued: 25,823,357 thousand shares in 2006, 24,726,129 thousand shares in 2005		258,233,569			44			247,261,288			50


CAPITAL SURPLUS (Notes 2 and 18)		53,822,486			9			56,720,875			11


RETAINED EARNINGS (Note 18)
Appropriated as legal capital reserve		43,705,711			8			34,348,208			7
Appropriated as special capital reserve		640,742			—			2,226,427			—
Unappropriated earnings		92,376,976			16			47,808,698			10


		136,723,429			24			84,383,333			17


OTHERS (Notes 2 and 3)
Cumulative translation adjustments		(1,145,616	)		—			(2,612,996	)		(1	)
Unrealized gains on financial instruments		116,554			—			—			—


		(1,029,062	)		—			(2,612,996	)		(1	)


TREASURY STOCK (AT COST, Notes 2 and 20) 33,926 thousand shares in 2006 and 46,862 thousand shares in 2005		(918,075	)		—			(1,552,573	)		—


Total shareholders’ equity		446,832,347			77			384,199,927			77


TOTAL	$	581,623,038			100		$	499,432,165			100

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

- 2 -

Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005
(In Thousands of New Taiwan Dollars, Except Earnings Per Share)


	2006				2005
	Amount		%		Amount		%
GROSS SALES (Notes 2 and 23)	$	161,789,754			$	116,819,058

SALES RETURNS AND ALLOWANCES (Note 2)		3,269,063				2,649,624


NET SALES		158,520,691		100		114,169,434		100

COST OF SALES (Notes 17 and 23)		80,991,942		51		69,315,398		61


GROSS PROFIT		77,528,749		49		44,854,036		39


OPERATING EXPENSES (Notes 17 and 23)
Research and development		7,255,721		4		6,632,293		6
General and administrative		3,379,438		2		3,743,998		3
Marketing		1,053,473		1		617,811		—


Total operating expenses		11,688,632		7		10,994,102		9


INCOME FROM OPERATIONS		65,840,117		42		33,859,934		30


NON-OPERATING INCOME AND GAINS
Equity in earnings of equity method investees, net (Notes 2 and 10)		3,404,382		2		—		—
Interest income (Notes 2 and 3)		1,910,958		1		1,175,969		1
Settlement income (Note 25)		483,734		1		711,324		1
Gain on disposal of financial instruments, net (Notes 2, 3, 5 and 22)		468,482		—		1,394,620		1
Technical service income (Notes 23 and 26)		344,601		—		186,962		—
Gain on disposal of property, plant and equipment and other assets (Notes 2 and 23)		257,239		—		107,395		—
Others (Note 23)		172,551		—		221,233		—


Total non-operating income and gains		7,041,947		4		3,797,503		3


NON-OPERATING EXPENSES AND LOSSES
Foreign exchange loss, net (Note 2)		1,250,047		1		2,035,490		2
Interest expense (Notes 3 and 13)		330,600		—		606,225		—
Valuation loss on financial instruments, net (Notes 2, 3, 5 and 22)		277,453		—		41,467		—
Loss on idle assets		37,283		—		106,972		—

(Continued)

- 3 -


	2006						2005
	Amount			%			Amount		%
Loss on disposal of property, plant, and equipment (Note 2)	$	8,996			—		$	53,599		—
Equity in losses of equity method investees, net (Notes 2 and 10)		—			—			786,018		1
Others		71,630			—			29,942		—


Total non-operating expenses and losses		1,976,009			1			3,659,713		3


INCOME BEFORE INCOME TAX		70,906,055			45			33,997,724		30

INCOME TAX BENEFIT (EXPENSE) (Notes 2 and 16)		(4,051,241	)		(3	)		1,189,610		1


NET INCOME BEFORE CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES		66,854,814			42			35,187,334		31

CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES, NET OF TAX BENEFIT OF NT$82,062 THOUSAND (Note 3)		(246,186	)		—			—		—


NET INCOME	$	66,608,628			42		$	35,187,334		31


	2006				2005
	Before		After		Before		After
	Income		Income		Income		Income
	Tax		Tax		Tax		Tax
EARNINGS PER SHARE (NT$, Note 21)
Basic earnings per share	$	2.74	$	2.58	$	1.32	$	1.37

Diluted earnings per share	$	2.73	$	2.58	$	1.32	$	1.37

Certain pro forma information (after income tax) is shown as follows, based on the assumption that the Company’s stock held by its subsidiaries is treated as an investment instead of treasury stock (Notes 2 and 20):


	2006		2005
NET INCOME BEFORE CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES	$	66,937,134	$	35,278,370


NET INCOME	$	66,690,948	$	35,278,370


EARNINGS PER SHARE (NT$)
Basic earnings per share	$	2.58	$	1.37

Diluted earnings per share	$	2.58	$	1.37


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

- 4 -

Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005
(In Thousands of New Taiwan Dollars, Except Dividend Per Share)


																			Others
								Retained Earnings														Unrealized
	Capital Stock							Legal		Special									Cumulative			Gain on									Total
	Shares (in				Capital			Capital		Capital			Unappropriated						Translation			Financial						Treasury			Shareholders’
	Thousands)		Amount		Surplus			Reserve		Reserve			Earnings			Total			Adjustments			Instruments			Total			Stock			Equity
BALANCE, JANUARY 1, 2006		24,730,025	$	247,300,246	$	57,117,886		$	34,348,208	$	2,226,427		$	106,196,399		$	142,771,034		$	(640,742	)	$	—		$	(640,742	)	$	(918,075	)	$	445,630,349

Appropriations of prior year’s earnings
Legal capital reserve		—		—		—			9,357,503		—			(9,357,503	)		—			—			—			—			—			—
Special capital reserve		—		—		—			—		(1,585,685	)		1,585,685			—			—			—			—			—			—
Employees’ profit sharing — in cash		—		—		—			—		—			(3,432,129	)		(3,432,129	)		—			—			—			—			(3,432,129	)
Employees’ profit sharing — in stock		343,213		3,432,129		—			—		—			(3,432,129	)		(3,432,129	)		—			—			—			—			—
Cash dividends to shareholders — NT$2.50 per share		—		—		—			—		—			(61,825,061	)		(61,825,061	)		—			—			—			—			(61,825,061	)
Stock dividends to shareholders — NT$0.15 per share		370,950		3,709,504		—			—		—			(3,709,504	)		(3,709,504	)		—			—			—			—			—
Bonus to directors and supervisors		—		—		—			—		—			(257,410	)		(257,410	)		—			—			—			—			(257,410	)

Capital surplus transferred to capital stock		370,950		3,709,504		(3,709,504	)		—		—			—			—			—			—			—			—			—

Issuance of stock from exercising stock options		8,219		82,186		243,864			—		—			—			—			—			—			—			—			326,050

Adjustment arising from changes in percentage of ownership in investees		—		—		87,920			—		—			—			—			—			—			—			—			87,920

Cash dividends received by subsidiaries from the Company		—		—		82,320			—		—			—			—			—			—			—			—			82,320

Net income for the six months ended June 30, 2006		—		—		—			—		—			66,608,628			66,608,628			—			—			—			—			66,608,628

Translation adjustments		—		—		—			—		—			—			—			(504,874	)		—			(504,874	)		—			(504,874	)

Valuation loss on available-for-sale financial assets		—		—		—			—		—			—			—			—			(191,469	)		(191,469	)		—			(191,469	)

Equity in the valuation gain on available-for-sale financial assets of equity method investees		—		—		—			—		—			—			—			—			308,023			308,023			—			308,023


BALANCE, JUNE 30, 2006		25,823,357	$	258,233,569	$	53,822,486		$	43,705,711	$	640,742		$	92,376,976		$	136,723,429		$	(1,145,616	)	$	116,554		$	(1,029,062	)	$	(918,075	)	$	446,832,347

(Continued)

- 5 -


																	Others
							Retained Earnings													Unrealized
	Capital Stock						Legal		Special								Cumulative			Gain on								Total
	Shares (in				Capital		Capital		Capital		Unappropriated						Translation			Financial					Treasury			Shareholders’
	Thousands)		Amount		Surplus		Reserve		Reserve		Earnings			Total			Adjustments			Instruments		Total			Stock			Equity
BALANCE, JANUARY 1, 2005		23,251,964	$	232,519,637	$	56,537,259	$	25,528,007	$	—	$	88,202,009		$	113,730,016		$	(2,226,427	)	$	—	$	(2,226,427	)	$	(1,595,186	)	$	398,965,299

Appropriations of prior year’s earnings
Legal capital reserve		—		—		—		8,820,201		—		(8,820,201	)		—			—			—		—			—			—
Special capital reserve		—		—		—		—		2,226,427		(2,226,427	)		—			—			—		—			—			—
Employees’ profit sharing — in cash		—		—		—		—		—		(3,086,215	)		(3,086,215	)		—			—		—			—			(3,086,215	)
Employees’ profit sharing — in stock		308,622		3,086,215		—		—		—		(3,086,215	)		(3,086,215	)		—			—		—			—			—
Cash dividends to shareholders — NT$2.00 per share		—		—		—		—		—		(46,504,097	)		(46,504,097	)		—			—		—			—			(46,504,097	)
Stock dividends to shareholders - NT$0.50 per share		1,162,602		11,626,024		—		—		—		(11,626,024	)		(11,626,024	)		—			—		—			—			—
Bonus to directors and supervisors		—		—		—		—		—		(231,466	)		(231,466	)		—			—		—			—			(231,466	)

Issuance of stock from exercising stock options		2,941		29,412		87,806		—		—		—			—			—			—		—			—			117,218

Adjustment arising from changes in percentage of ownership in investees		—		—		4,774		—		—		—			—			—			—		—			—			4,774

Cash dividends received by subsidiaries from the Company		—		—		84,285		—		—		—			—			—			—		—			—			84,285

Net income for the six months ended June 30, 2005		—		—		—		—		—		35,187,334			35,187,334			—			—		—			—			35,187,334

Translation adjustments		—		—		—		—		—		—			—			(386,569	)		—		(386,569	)		—			(386,569	)

Treasury stock transactions — sales of the Company’s stock held by subsidiaries		—		—		6,751		—		—		—			—			—			—		—			42,613			49,364


BALANCE, JUNE 30, 2005		24,726,129	$	247,261,288	$	56,720,875	$	34,348,208	$	2,226,427	$	47,808,698		$	84,383,333		$	(2,612,996	)	$	—	$	(2,612,996	)	$	(1,552,573	)	$	384,199,927


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

- 6 -

Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005
(In Thousands of New Taiwan Dollars)


	2006			2005
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	66,608,628		$	35,187,334
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		32,154,504			34,330,028
Amortization of premium/ discount of financial assets		43,781			58,771
Loss (gain) on disposal of available-for-sale financial assets, net		(1,116	)		111,808
Gain on disposal of financial assets carried at cost, net		—			(94	)
Gain on disposal of property, plant, and equipment, net		(248,243	)		(53,796	)
Equity in losses (earnings) of equity method investees, net		(3,404,382	)		786,018
Loss on idle assets		37,283			106,972
Deferred income taxes		293,722			(1,149,822	)
Changes in operating assets and liabilities:
Decrease (increase) in:
Financial assets and liabilities at fair value through profit or loss		1,424,079			1,872,228
Notes and accounts receivable		877,999			(4,713,402	)
Receivables from related parties		(1,859,285	)		1,136,361
Allowance for doubtful receivables		(640	)		(1,884	)
Allowance for sales returns and others		1,301,107			617,143
Other receivables from related parties		473,280			(1,095,494	)
Other financial assets		233,403			(768,010	)
Inventories, net		(2,117,625	)		58,330
Prepaid expenses and other current assets		217,747			785,308
Increase (decrease) in:
Accounts payable		(1,280,030	)		(807,671	)
Payables to related parties		24,117			(1,619,155	)
Income tax payable		671,013			(127,103	)
Accrued expenses and other current liabilities		(645,267	)		(1,235,137	)
Accrued pension cost		22,958			309,054
Deferred credits		(47,872	)		—


Net cash provided by operating activities		94,779,161			63,787,787


CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of:
Available-for-sale financial assets		(64,826,510	)		(42,911,838	)
Held-to-maturity financial assets		(7,754,790	)		(3,485,821	)
Financial assets carried at cost		(11,479	)		(14,207	)
Investments accounted for using equity method		(274,687	)		(3,225,972	)
Property, plant, and equipment		(32,170,773	)		(51,194,392	)
Proceeds from disposal of:
Available-for-sale financial assets		44,101,660			43,277,329
Financial assets carried at cost		—			1,996
Property, plant, and equipment and other assets		710,702			1,430,769

(Continued)

- 7 -


	2006			2005
Redemption of held-to-maturity financial assets upon maturity	$	7,837,000		$	4,914,180
Increase in deferred charges		(693,239	)		(503,079	)
Increase in refundable deposits		(13	)		(2,129	)
Proceeds from return of capital by investee		102,662			—


Net cash used in investing activities		(52,979,467	)		(51,713,164	)


CASH FLOWS FROM FINANCING ACTIVITIES
Increase in guarantee deposits		461,101			1,105,191
Proceeds from exercise of employee stock options		326,050			117,218
Bonus to directors and supervisors		(257,410	)		(231,466	)


Net cash provided by financing activities		529,741			990,943


NET INCREASE IN CASH AND CASH EQUIVALENTS		42,329,435			13,065,566

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		85,383,583			65,531,818


CASH AND CASH EQUIVALENTS, END OF PERIOD	$	127,713,018		$	78,597,384


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid	$	420,000		$	420,000

Income tax paid	$	2,994,232		$	87,315


INVESTING ACTIVITIES AFFECTING BOTH CASH AND NON-CASH ITEMS
Acquisition of property, plant, and equipment	$	40,263,600		$	30,044,411
Decrease (increase) in payables to contractors and equipment suppliers		(8,092,827	)		21,149,981

Cash paid	$	32,170,773		$	51,194,392


NON-CASH FINANCING ACTIVITIES
Current portion of bonds payable	$	2,500,000		$	10,500,000

Current portion of other long-term payables (under accrued expenses and other current liabilities)	$	940,123		$	1,417,437


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

- 8 -

Taiwan Semiconductor Manufacturing Company Limited

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006 AND 2005
(Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise)

GENERAL

Taiwan Semiconductor Manufacturing Company Limited (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.

As of June 30, 2006 and 2005, the Company had 20,357 and 18,734 employees, respectively.

SIGNIFICANT ACCOUNTING POLICIES

The financial statements are presented in conformity with the 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 Noncurrent 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 expected to be due within one year from the balance sheet date. Assets and liabilities that are not classified as current are noncurrent assets and liabilities, respectively.

- 9 -

Cash Equivalents

Repurchase agreements collateralized by government bonds, notes and treasury bills acquired with maturities of less than three months from the date of purchase are classified as cash equivalents. The carrying amount approximates fair value.

Financial Assets/Liabilities at Fair Value Through Profit or Loss

Derivatives that do not meet the criteria for hedge accounting are initially recognized at fair value, with transaction costs expensed as incurred. The derivatives are remeasured at fair value subsequently with the changes in fair value recognized in current income. A regular way purchase or sale of financial assets is accounted for using settlement date accounting.

Fair value is estimated using valuation techniques incorporating estimates and assumptions that are consistent with prevailing market conditions. When the fair value is positive, the derivative is recognized as a financial asset; when the fair value is negative, the derivative is recognized as a financial liability.

Available-for-Sale Financial Assets

Investments designated as available-for-sale financial assets include debt securities and equity securities. Available-for-sale financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition. The changes in fair value from subsequent remeasurement are reported as a separate component of shareholders’ equity. The corresponding accumulated gains or losses are recognized in earnings when the financial asset is derecognized from the balance sheet. A regular way purchase or sale of financial assets is accounted for using settlement date accounting.

Fair values for beneficiary certificates of open-end funds and publicly traded stocks are determined using the net assets value and the closing-price at the balance sheet date, respectively. For other debt securities, fair value is determined using the average of bid and asked prices at the balance sheet date.

Cash dividends are recognized as investment income upon resolution of shareholders of an investee but are accounted for as reductions to the original cost of investment if such dividends are declared on the earnings of the investees attributable to periods prior to the purchase of the investments. Stock dividends are recorded as an increase in the number of shares held and do not affect investment income. The cost per share is recalculated based on the new total number of shares. Any difference between the initial carrying amount of a debt security and the amount due at maturity is amortized using the effective interest method, with the amortization recognized in earnings.

If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. If, in a subsequent period, the amount of the impairment loss decreases, for equity securities, the previously recognized impairment loss is reversed to the extent of the decrease and recorded as an adjustment to shareholders’ equity; for debt securities, the amount of the decrease is recognized in earnings, provided that the decrease is clearly attributable to an event which occurred after the impairment loss was recognized.

Held-to-Maturity Financial Assets

Debt securities for which the Company has a positive intention and ability to hold to maturity are categorized as held-to-maturity financial assets and are carried at amortized cost under the effective interest method. Those financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition. Earnings or losses are recognized at the time of derecognition, impairment or amortization. A regular way purchase or sale of financial assets is accounted for using settlement date accounting.

- 10 -

If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. If, in a subsequent period, the amount of the impairment loss decreases and the decrease is clearly attributable to an event which occurred after the impairment loss was recognized, the previously recognized impairment loss is reversed to the extent of the decrease. The reversal may not result in a carrying amount of the financial asset that exceeds the amortized cost that would have been determined as if no impairment loss had been recognized.

Allowance for Doubtful Receivables

An allowance for doubtful receivables is provided based on a review of the collectibility of accounts receivable. The Company determines the amount of allowance for doubtful receivables by examining the aging analysis of outstanding accounts receivable 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, shipment is made, price is fixed or determinable, and 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 customers. Provisions for estimated sales returns and other allowances are generally recorded in the period the related revenue is recognized based on historical experience, management’s judgment, and any known factors that would significantly affect the allowance.

Sales prices are determined using 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 sales occur for some customers. Since the receivables from sales are collectible within one year and such transactions are frequent, fair value of the receivables is equivalent to the nominal amount of the cash to be 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 balance sheet date. Market value represents replacement cost for raw materials, supplies and spare parts and net realizable value for work in process and finished goods. The Company assesses the impact of changing technology on its inventories on hand and writes off inventories that are considered obsolete. Period-end 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 and included in the allowance for losses.

Financial Assets Carried at Cost

Investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are carried at their original cost, such as non-publicly traded stocks and mutual funds. The costs of funds and non-publicly traded stocks are determined using the weighted-average method. If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. A subsequent reversal of such impairment loss is not allowed.

The accounting treatment for cash dividends and stock dividends arising from financial assets carried at cost is the same as that for cash and stock dividends arising from available-for-sale financial assets.

- 11 -

Investments Accounted for Using Equity Method

Investments in companies wherein the Company exercises significant influence over the operating and financial policy decisions are accounted for using the equity method. The Company’s share of the net income or net loss of an investee is recognized in the “equity in earnings/losses of equity method investees, net” account. The difference, if any, between the cost of investment and the Company’s proportionate share of the investee’s equity was previously amortized by the straight-line method over five years and was also recorded in the “equity in earnings/losses of equity method investees, net” account. Effective January 1, 2006, pursuant to the revised Statement of Financial Accounting Standards No. 5, “Long-term Investments in Equity Securities” (SFAS No. 5), investment premiums, representing goodwill, are no longer being amortized; while investment discounts continue to be amortized over the remaining periods. When an indication of impairment is identified, the carrying amount of the investment is reduced, with the related impairment loss charged to current income.

When the Company subscribes for additional investee’s shares at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment in the investee differs from the amount of the Company’s share in the investee’s net equity. The Company records such a difference as an adjustment to long-term investments with the corresponding amount charged or credited to capital surplus.

Gains or losses on sales from the Company to equity method investees are deferred in proportion to the Company’s ownership percentage in the investees until such gains or losses are realized through transactions with third parties. The entire amount of the gains or losses on sales to investees over which the Company has a controlling interest 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 equity method investees to the Company are deferred in proportion to the Company’s ownership percentages in the investees until they are realized through transactions with third parties.

Gains or losses on sales between equity method investees are deferred in proportion to the Company’s weighted-average ownership percentages in the investees until such gains or losses are realized through transactions with third parties.

If an investee’s functional currency is a foreign currency, translation adjustments will result from the translation of 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.

Property, Plant, and Equipment and Assets Leased to Others

Property, plant, and equipment and assets leased to others are stated at cost less accumulated depreciation. When an indication of 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 a future period, the amount previously recognized as impairment would be reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would have been determined, net of depreciation, as if no impairment loss had been recognized. Significant additions, renewals and betterments incurred during the construction period are capitalized. Maintenance and repairs are expensed as incurred.

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 deducted from the corresponding accounts, with any gain or loss credited or charged to non-operating gains or losses in the period of sale or disposal.

- 12 -

Goodwill

Goodwill represents the excess of the consideration paid for acquisition over the fair value of identifiable net assets acquired. Goodwill was previously amortized using the straight-line method over the estimated life of 10 years. Effective January 1, 2006, pursuant to the newly revised SFAS No. 25, “Business Combinations — Accounting Treatment under Purchase Method” (SFAS No. 25), goodwill is no longer amortized and is assessed for impairment at least on an annual basis. If an event occurs or circumstances change which indicated that fair value of goodwill is more likely than not below its carrying amount, an impairment loss is charged to current income. A subsequent recovery in fair value of goodwill is not allowed.

Deferred Charges

Deferred charges consist of technology license fees, software and system design costs and other charges. The amounts are amortized over the following periods: 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 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 a future period, the amount previously recognized as impairment would be reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would have been determined, net of amortization, as if no impairment loss had been recognized.

Pension Costs

For employees under defined contribution pension plans, pension costs are recorded based on the actual contributions made to employees’ individual pension accounts during service periods. For employees under defined benefit pension plans, pension costs are recorded based on actuarial calculations.

Income Tax

The Company applies intra-period and inter-period allocations for its income tax whereby (1) a portion of current income tax expense is allocated to the cumulative effect of changes in accounting principles; and(2) 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.

Any tax credits arising from 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 period’s tax provision.

Income tax on unappropriated earnings of 10% is expensed in the year of shareholder approval which is the year subsequent to the year the earnings are generated.

The R.O.C. government enacted the Alternative Minimum Tax Act (“AMT Act”), which became effective on January 1, 2006. The alternative minimum tax (“AMT”) imposed under the AMT Act is a supplemental tax levied at a rate of 10% which is payable if the income tax payable determined pursuant to the Income Tax Law is below the minimum amount prescribed under the AMT Act. The taxable income for calculating the AMT includes most of the income that is exempted from income tax under various laws and statutes. The Company has considered the impact of the AMT Act in the determination of its tax liabilities.

- 13 -

Stock-based Compensation

Employee stock option plans that are amended or have options granted on or after January 1, 2004 are 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

The Company’s stock held by its subsidiaries is treated as treasury stock and reclassified from investments accounted for using equity method to treasury stock. The gains resulted from disposal of the treasury stock held by the subsidiaries and cash dividends received by the subsidiaries from the Company are recorded under capital surplus — treasury stock transactions.

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 balance sheet date, monetary assets and liabilities denominated in foreign currencies are revalued at the prevailing exchange rates with the resulting gains or losses recognized in current income.

ACCOUNTING CHANGES

On January 1, 2006, the Company adopted the newly released Statements of Financial Accounting Standards No. 34, “Accounting for Financial Instruments” (SFAS No. 34) and No. 36, “Disclosure and Presentation for Financial Instruments” and related revisions of previously released SFASs.

	a.		Effect of adopting the newly released SFASs and related revisions of previously released SFASs

			The Company had properly categorized its financial assets and liabilities upon the initial adoption of the newly released SFASs. The adjustments made to the carrying amounts of the financial instruments categorized as financial assets or financial liabilities at fair value through profit or loss were included in the cumulative effect of changes in accounting principles; on the other hand, the adjustments made to the carrying amounts of those categorized as available-for-sale financial assets were recognized as adjustments to shareholders’ equity.

			The effect of adopting the newly released SFASs is summarized as follows:


	Recognized as
	Cumulative
	Effect of			Recognized as
	Changes in			a Separate
	Accounting			Component of
	Principles			Shareholders’
	(Net of Tax)			Equity
Financial assets or liabilities at fair value through profit or loss	$	(246,186	)	$	—
Available-for-sale financial assets		—			—


	$	(246,186	)	$	—

- 14 -

		The adoption of the newly released SFASs resulted in a decrease in net income before cumulative effect of changes in accounting principles of NT$31,267 thousand, a decrease in net income of NT$277,453 thousand, and a decrease in basic earnings per share (after income tax) of NT$0.01, for the six months ended June 30, 2006.

		Effective January 1, 2006, the Company adopted the newly revised SFAS No. 5 and SFAS No. 25, which prescribe that investment premiums, representing goodwill, be assessed for impairment at least on an annual basis instead of being amortized. Such a change in accounting principle did not have a material effect on the Company’s financial statements as of and for the six months ended June 30, 2006.

b.		Reclassifications

		Upon the adoption of SFAS No. 34, certain accounts in the financial statements as of and for the six months ended June 30, 2005 were reclassified to conform with the financial statements as of and for the six months ended June 30, 2006. The previous issued financial statements as of and for the six months ended June 30, 2005 need not be restated.

		Certain accounting policies prior to the adoption of the newly released SFASs are summarized as follows:

	1)		Short-term investments

			Short-term investments that were publicly-traded, easily converted to cash, and not acquired for the purpose of controlling the investees or establishing close business relationship with the investees were carried at the lower of cost or market value at the balance sheet date, with any temporary decline in value charged to current income. The market value of publicly-traded stocks was determined using the average-closing prices for the last month of the period.

	2)		Derivative financial instruments

			The Company entered into forward exchange contracts to manage foreign exchange exposures on foreign-currency-denominated assets and liabilities. The contracts were recorded in New Taiwan dollars at the current rate of exchange at 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 were 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 were restated using the prevailing exchange rates with the resulting differences credited or charged to income. In addition, the receivables and payables related to the same forward contracts were netted with the resulting amount presented as either an asset or a liability. Any resulting gain or loss upon settlement was credited or charged to income in the period of settlement.

			The Company entered into cross currency swap contracts to manage currency exposures on foreign-currency-denominated assets and liabilities. The principal amount was 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 were 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 were restated using the prevailing exchange 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 were 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 was recorded as an adjustment to the interest income or expense associated with the hedged items. Any resulting gain or loss upon settlement was credited or charged to income in the period of settlement.

- 15 -

			The Company entered into interest rate swap contracts to manage exposures to changes in interest rates on existing assets or liabilities. These transactions were accounted for on an accrual basis, in which the cash settlement receivable or payable was recorded as an adjustment to interest income or expense associated with the hedged items.

			Certain accounts in the financial statements as of and for the six months ended June 30, 2005 have been reclassified to conform to the classifications prescribed by the newly released SFASs. The reclassifications of the whole or a part of the account balances of certain accounts are summarized as follows:


	Before			After
	Reclassification			Reclassification
Balance sheet

Short-term investments	$	49,408,608		$	—
Other financial assets		78,900			—
Prepaid expenses and other current assets		42,941			—
Long-term investments accounted for using cost method		784,939			—
Long-term bonds investment		16,342,005			—
Other long-term investments		10,955,960			—
Accrued expenses and other current liabilities		(836,704	)		—
Financial assets at fair value through profit or loss		—			121,841
Financial liabilities at fair value through profit or loss		—			(836,704	)
Available-for-sale financial assets		—			48,298,762
Held-to-maturity financial assets		—			28,407,811
Financial assets carried at cost		—			784,939


	$	76,776,649		$	76,776,649


Statement of income

Interest income	$	449,756		$	—
Foreign exchange gain, net		1,837,806			—
Interest expense		(781,134	)		—
Unrealized valuation loss on short-term investments		(41,467	)		—
Loss on disposal of investment, net		(111,808	)		—
Valuation loss on financial instruments, net		—			(41,467	)
Gain on disposal of financial instruments, net		—			1,394,620


	$	1,353,153		$	1,353,153

CASH AND CASH EQUIVALENTS


	June 30
	2006		2005
Cash and deposits in banks	$	67,694,314	$	48,158,582
Repurchase agreements collaterized by government bonds		59,351,764		29,804,199
Corporate notes		666,940		172,291
Treasury bills		—		349,892
Agency notes		—		112,420


	$	127,713,018	$	78,597,384

- 16 -

FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS


	June 30
	2006		2005
Derivatives — financial assets

Forward exchange contracts	$	—	$	1,123
Cross currency swap contracts		322,456		120,718


	$	322,456	$	121,841


Derivatives — financial liabilities

Forward exchange contracts	$	8,265	$	41,092
Cross currency swap contracts		591,644		795,612


	$	599,909	$	836,704

		The Company entered into derivative contracts for the six months ended June 30, 2006 and 2005 to manage exposures due to the fluctuations of foreign exchange rates. The derivative contracts entered into by the Company did not meet the criteria for hedge accounting prescribed by SFAS No. 34. Therefore, effective from January 1, 2006, the Company discontinued applying hedge accounting treatment for its derivative financial instruments.

		Outstanding forward contracts as of June 30, 2006 and 2005:

Contract

Amount

Currency

Maturity Date

(in Thousands)

June 30, 2006

Sell

US$/NT$

July 2006

US$

10,000

EUR/US$

July 2006

EUR

10,000

June 30, 2005

Sell

US$/NT$

July 2005 to August 2005

US$

103,000

Outstanding cross currency swap contracts as of June 30, 2006 and 2005:

Contract

Range of

Amount

Interest Rates

Maturity Date

(in Thousands)

Paid

Received

June 30, 2006

July 2006 to September 2006

US$

2,266,000

2.40%-5.57

0.60%-2.78

June 30, 2005

July 2005 to August 2005

US$

2,045,000

3.10%-3.40

1.03%-1.22

- 17 -

		The Company did not enter into any interest rate swap contracts during the six months ended June 30, 2006. The Company rescinded all interest rate swap contracts in the first quarter of 2005 before their original maturities. The rescission loss of NT$28,295 thousand has been reclassified and included in the “losses on disposal of financial instrument” account.

		Net gains arising from derivative financial instruments for the six months ended June 30, 2006 were NT$189,913 thousand (including realized settlement gains of NT$467,366 thousand and valuation losses of NT$277,453 thousand).

6.		AVAILABLE-FOR-SALE FINANCIAL ASSETS


	June 30
	2006			2005
Beneficiary certificates of open-end funds	$	22,157,124		$	10,300,638
Corporate bonds		14,297,001			11,555,183
Agency bonds		13,787,394			11,511,740
Corporate issued asset-backed securities		10,921,185			11,419,169
Government bonds		4,831,843			2,741,122
Structured time deposits		498,190			—
Money market funds		385,937			491,465
Corporate notes		97,683			158,052
Commercial papers		—			94,770
Publicly-traded stocks		—			26,623

		66,976,357			48,298,762
Current portion		(62,102,387	)		(48,298,762	)


	$	4,873,970		$	—

		The Company entered into investment management agreements with three well-known financial institutions (fund managers) to manage its investment portfolios. In accordance with the investment guidelines and terms specified in these agreements, the securities invested by the fund managers cannot be below a pre-defined credit rating. As of June 30, 2006, the Company’s investment portfolios managed by these fund managers aggregated to an original amount of US$1,200,000 thousand. The investment portfolios included securities such as corporate bonds, agency bonds, asset-backed securities, government bonds and others. Securities acquired with maturities of less than three months from the date of purchase were classified as cash equivalents.

		As of June 30, 2006, structured time deposits categorized as available-for-sale financial assets consisted of the following:

Principal

Carrying

Range of

Amount

Interest Rates

Maturity Date

Step-up callable deposits

Domestic deposits

500,000

498,190

1.76

March 2008

The interest rate of the step-up callable deposits is pre-determined by the Company and the banks.

- 18 -

HELD-TO-MATURITY FINANCIAL ASSETS


	June 30
	2006			2005
Government bonds	$	5,239,892		$	11,817,146
Corporate bonds		12,895,132			5,634,705
Structured time deposits		11,127,780			10,955,960

		29,262,804			28,407,811
Current portion		(5,738,737	)		(1,109,846	)


	$	23,524,067		$	27,297,965

Structured time deposits categorized as held-to-maturity financial assets consisted of the following:


	Principal		Interest		Range of
	Amount		Receivable		Interest Rates	Maturity Date
June 30, 2006

Step-up callable deposits
Domestic deposits	$	4,000,000	$	27,016	1.40%-2.01%	June 2007 to March 2009
Callable range accrual deposits
Domestic deposits		3,887,880		4,725	(See below)	September 2009 to December 2009
Foreign deposits		3,239,900		4,914	(See below)	October 2009 to January 2010


	$	11,127,780	$	36,655

June 30, 2005

Step-up callable deposits
Domestic deposits	$	4,000,000	$	18,027	1.40%-2.44%	July 2006 to August 2007
Callable range accrual deposits
Domestic deposits		3,794,160		8,266	(See below)	September 2009 to December 2009
Foreign deposits		3,161,800		11,971	(See below)	October 2009 to January 2010


	$	10,955,960	$	38,264

		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 plus an agreed upon rate ranging between 2.10% and 3.45%. Based on the terms of the deposits, if the 3-month or 6-month LIBOR 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 terms of the contracts, the bank has the right to cancel the contracts prior to the maturity date.

		As of June 30, 2006 and 2005, the principal of the deposits that resided in banks located in Hong Kong amounted to US$80,000 thousand; those resided in banks located in Singapore amounted to US$20,000 thousand.

- 19 -

INVENTORIES, NET


	June 30
	2006			2005
Finished goods	$	4,163,346		$	2,600,225
Work in process		13,243,014			11,380,115
Raw materials		1,236,095			937,820
Supplies and spare parts		537,546			658,803

		19,180,001			15,576,963
Allowance for losses		(804,421	)		(1,463,348	)


	$	18,375,580		$	14,113,615

FINANCIAL ASSETS CARRIED AT COST


	June 30
	2006		2005
Non-publicly traded stocks	$	472,500	$	482,500
Funds		346,469		302,439


	$	818,969	$	784,939

10.

INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD


	June 30
	2006				2005
			% of				% of
	Carrying		Owner-		Carrying		Owner-
	Amount		ship		Amount		ship
TSMC International Investment Ltd. (TSMC International)	$	25,984,419		100	$	23,057,382		100
TSMC (Shanghai) Company Limited (TSMC- Shanghai)		9,093,788		100		9,967,851		100
Systems on Silicon Manufacturing Company Pte Ltd. (SSMC)		5,094,733		32		3,514,280		32
Vanguard International Semiconductor Corporation (VIS)		5,087,101		27		5,115,164		27
TSMC Partners, Ltd. (TSMC Partners)		4,225,071		100		3,873,176		100
TSMC North America (TSMC-North America)		1,790,365		100		794,692		100
Emerging Alliance Fund, L.P. (Emerging Alliance)		1,050,087		99		820,765		99
VentureTech Alliance Fund II, L.P. (VTAF II)		707,835		98		469,749		98
Global UniChip Corporation (GUC)		447,762		45		403,208		46
VentureTech Alliance Fund III, L.P. (VTAF III)		145,055		98		—		—
Chi Cherng Investment Co., Ltd. (Chi Cherng)		113,574		36		77,971		36
Hsin Ruey Investment Co., Ltd. (Hsin Ruey)		113,246		36		77,256		36
TSMC Japan K. K. (TSMC-Japan)		96,536		100		95,013		100
Taiwan Semiconductor Manufacturing Company Europe B.V. (TSMC-Europe)		36,909		100		22,491		100

(Continued)

- 20 -


	June 30
	2006				2005
			% of				% of
	Carrying		Owner-		Carrying		Owner-
	Amount		ship		Amount		ship
Taiwan Semiconductor Manufacturing Company Korea (TSMC-Korea)	$	13,752		100	$	—		—
VisEra Technologies Company, Ltd. (VisEra)		—		—		62,668		25


	$	54,000,233			$	48,351,666

		For the six months ended June 30, 2006 and 2005, net equity in earnings of NT$3,404,382 thousand and net equity in losses of NT$786,018 thousand were recognized, respectively. The carrying amounts of the investments accounted for using the equity method and the related equity in earnings or losses of equity method investees were determined based on the audited financial statements of the investees as of and for the same periods ended as the Company.

		In November 2005, the Company transferred all of its shares in VisEra to VisEra Holding Company, an investee of TSMC Partners accounted for using the equity method, due to changes in investment structure.

11.		PROPERTY, PLANT AND EQUIPMENT

		Accumulated depreciation consisted of the following:


	June 30
	2006		2005
Buildings	$	46,538,174	$	39,229,473
Machinery and equipment		335,618,032		286,453,058
Office equipment		6,072,555		5,171,727


	$	388,228,761	$	330,854,258

		No interest was capitalized during the six months ended June 30, 2006 and 2005.

12.		DEFERRED CHARGES, NET


	June 30
	2006		2005
Technology license fees	$	4,708,484	$	5,836,060
Software and system design costs		1,401,428		1,942,091
Others		54,080		96,402


	$	6,163,992	$	7,874,553

- 21 -

13.

BONDS PAYABLE


	June 30
	2006			2005
Domestic unsecured bonds:
Issued in December 2000 and repayable in December 2005 and 2007 in two installments, 5.25% and 5.36% interest payable annually, respectively	$	4,500,000		$	15,000,000
Issued in January 2002 and repayable in January 2007, 2009 and 2012 in three installments, 2.60%, 2.75% and 3.00% interest payable annually, respectively		15,000,000			15,000,000

		19,500,000			30,000,000
Current portion		(2,500,000	)		(10,500,000	)


	$	17,000,000		$	19,500,000

As of June 30, 2006, future principal repayments for the Company’s bonds were as follows:


Year of Repayment	Amount
2007	$	7,000,000
2009		8,000,000
2010 and thereafter		4,500,000


	$	19,500,000

14.		OTHER LONG-TERM PAYABLES

		Most of the payables resulted from license agreements for certain semiconductor-related patents. As of June 30, 2006, future payments for other long-term payables were as follows:


Year of Payment	Amount
2006 (3^rd to 4^th quarter)	$	493,300
2007		641,216
2008		335,006
2009		335,006
2010		335,006
2011 and thereafter		259,192

		2,398,726

Current portion (classified under accrued expenses and other current liabilities)		(940,123	)


	$	1,458,603

15.		PENSION PLANS

		The Labor Pension Act (the Act) became effective on July 1, 2005. The employees who were subject to the Labor Standards Law prior to July 1, 2005 were allowed to choose to be subject to the pension mechanism under the Act with their seniority as of July 1, 2005 retained or continue to be subject to the pension mechanism under the Labor Standards Law. Employees who joined the Company after July 1, 2005 can only be subject to the pension mechanism under the Act.

- 22 -

		The pension mechanism under the Act is deemed a defined contribution plan. Pursuant to the Act, the Company has made monthly contributions equal to 6% of each employee’s monthly salary to employees’ pension accounts starting from July 1, 2005, and recognized pension costs of NT$309,709 thousand for the six months ended June 30, 2006.

		The Company has a defined benefit plan under the Labor Standards Law that provides benefits based on an employee’s length of service and average monthly salary for the six-month period prior to retirement. The Company contributes an amount equal to 2% of salaries paid each month to a pension fund (the Fund). The Fund is administered by the pension fund monitoring committee (the Committee) and deposited in the Committee’s name in the Central Trust of China.

		Changes in the Fund and accrued pension cost under the defined benefit plan are summarized as follows:


	Six Months Ended June 30
	2006			2005
The Fund
Balance, beginning of period	$	1,658,864		$	1,428,001
Contributions		131,250			122,103
Interest		34,384			15,629
Payment		(4,677	)		(8,419	)


Balance, end of period	$	1,819,821		$	1,557,314


Accrued pension cost
Balance, beginning of period	$	3,461,392		$	3,101,196
Accruals		22,958			309,054


Balance, end of period	$	3,484,350		$	3,410,250

16.

INCOME TAX

A reconciliation of income tax expense based on “income before income tax” at statutory rate and income tax currently payable was as follows:


	Six Months Ended June 30
	2006			2005
Income tax expense based on “income before income tax” at statutory rate (25%)	$	(17,726,514	)	$	(8,499,431	)
Tax effect of the following:
Tax-exempt income		6,411,975			4,734,183
Temporary and permanent differences		721,070			(635,273	)
Additional tax at 10% on unappropriated earnings		(1,156,130	)		(1,489,709	)
Cumulative effect of changes in accounting principles		82,062			—
Income tax credits		7,462,975			5,890,230


Income tax currently payable	$	(4,204,562	)	$	—

(Continued)

- 23 -

Income tax benefit (expense) consisted of the following:


	Six Months Ended June 30
	2006			2005
Income tax currently payable	$	(4,204,562	)	$	—
Other income tax adjustments		447,043			39,788
Net change in deferred income tax assets
Investment tax credits		(2,756,331	)		2,512,133
Temporary differences		1,423,579			1,708,642
Adjustment in valuation allowance		1,039,030			(3,070,953	)


Income tax benefit (expense)	$	(4,051,241	)	$	1,189,610

Net deferred income tax assets consisted of the following:


	June 30
	2006			2005
Current deferred income tax assets
Investment tax credits	$	6,084,277		$	5,330,000


Noncurrent deferred income tax assets, net
Investment tax credits	$	15,025,163		$	23,066,717
Temporary differences		741,309			(741,893	)
Valuation allowance		(8,371,516	)		(16,010,999	)


	$	7,394,956		$	6,313,825

	d.		Integrated income tax information:

			The balance of the imputation credit account as of June 30, 2006 and 2005 was NT$743,590 thousand and NT$15,569 thousand, respectively.

			The expected and actual creditable ratios for distribution of earnings of 2005 and 2004 were 2.88% and 0.11%, 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 change when the actual distribution of imputation credits is made.

	e.		All earnings generated prior to December 31, 1997 have been appropriated.

- 24 -

As of June 30, 2006, 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	$	2,685,805	$	—		2006
			4,113,449		1,144,070		2007
			6,809,054		6,809,054		2008
			6,049,452		6,049,452		2009
			1,722,682		1,722,682		2010


		$	21,380,442	$	15,725,258


Statute for Upgrading Industries	Research and development expenditures	$	1,780,480	$	—		2006
			1,243,821		1,243,821		2007
			1,627,535		1,627,535		2008
			1,534,670		1,534,670		2009
			797,450		797,450		2010


		$	6,983,956	$	5,203,476


Statute for Upgrading Industries	Personnel training	$	27,311	$	—		2006
			26,780		26,780		2007
			37,207		37,207		2008
			36,915		36,915		2009


		$	128,213	$	100,902


Statute for Upgrading Industries	Investments in important technology-based enterprises	$	79,804	$	79,804		2010

The profits generated from the following expansion and construction projects are exempt from income tax:


	Tax-Exemption Period
Construction of Fab 8 - modules B		2002 to 2005
Expansion of Fab 2 - modules A and B, Fab 3, Fab 4, Fab 5 and Fab 6		2003 to 2006
Construction of Fab 12		2004 to 2007

The tax authorities have examined income tax returns of the Company through 2002.

- 25 -

17.

LABOR COST, DEPRECIATION AND AMORTIZATION


	Six Months Ended June 30, 2006
			Classified as
	Classified as		Operating
	Cost of Sales		Expenses		Total
Labor cost
Salary	$	5,183,360	$	2,144,658	$	7,328,018
Labor and health insurance		340,274		167,998		508,272
Pension		309,451		152,942		462,393
Meal		225,304		76,220		301,524
Welfare		94,186		48,784		142,970
Others		103,858		12,901		116,759


	$	6,256,433	$	2,603,503	$	8,859,936


Depreciation	$	29,319,569	$	1,617,095	$	30,936,664

Amortization	$	722,358	$	479,323	$	1,201,681


	Six Months Ended June 30, 2005
			Classified as
	Classified as		Operating
	Cost of Sales		Expenses		Total
Labor cost
Salary	$	4,091,113	$	1,678,438	$	5,769,551
Labor and health insurance		303,436		144,065		447,501
Pension		295,506		140,296		435,802
Meal		208,186		67,904		276,090
Welfare		72,159		40,344		112,503
Others		51,139		45,032		96,171


	$	5,021,539	$	2,116,079	$	7,137,618


Depreciation	$	31,158,607	$	1,489,769	$	32,648,376

Amortization	$	814,069	$	859,118	$	1,673,187

18.		SHAREHOLDERS’ EQUITY

		The Company has issued a total of 863,834 thousand ADSs which are traded on the NYSE as of June 30, 2006. The number of common shares represented by the ADSs is 4,319,169 thousand (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 issuance 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, which is limited to a certain percentage of the Company’s paid-in capital.

- 26 -

Capital surplus consisted of the following:


	June 30
	2006		2005
From merger	$	24,003,546	$	24,003,546
Additional paid-in capital		19,788,594		23,139,481
From convertible bonds		9,360,424		9,360,424
From treasury stock transactions		389,188		91,241
From long-term investments		280,679		126,128
Donations		55		55


	$	53,822,486	$	56,720,875

The Company’s Articles of Incorporation as revised on May 10, 2005 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 paid-in 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 of not more than 0.3% and not less than 1% of the remainder, respectively. Directors who also serve as executive officers of the Company are not entitled to receive the bonus to directors and supervisors. 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.

		The Company’s Articles of Incorporation also stipulate that profits of the Company may be distributed by way of cash dividend and/or stock dividend. However, 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 that the ratio for stock dividend shall not exceed 50% of the total distribution.

		Any appropriations of the profits are recorded in the year of shareholder approval and given effect to in the financial statements of that year.

		The appropriation for legal capital reserve shall be made until the reserve equals the Company’s paid-in capital. The reserve may be used to offset a deficit, or be distributed as dividends and bonuses for the portion in excess of 50% of the paid-in capital if the Company has no unappropriated earnings and the reserve balance has exceeded 50% of the Company’s paid-in capital. The Company Law also prescribes that, when the reserve has reached 50% of the Company’s paid-in capital, up to 50% of the reserve may be transferred to capital.

		A special capital reserve equivalent to the net debit balance of the other components of shareholders’ equity (for example, cumulative translation adjustments and unrealized loss on financial assets, but excluding treasury stock) shall be made from unappropriated earnings pursuant to existing regulations promulgated by the Securities and Futures Bureau (SFB). Any special reserve appropriated may be reversed to the extent that the net debit balance reverses.

- 27 -

The appropriations of earnings for 2005 and 2004 had been approved in the shareholders’ meetings held on May 16, 2006 and May 10, 2005, respectively. The appropriations and dividends per share were as follows:


						Dividends Per Share
	Appropriation of Earnings					(NT$)
	For Fiscal			For Fiscal		For Fiscal		For Fiscal
	Year 2005			Year 2004		Year 2005		Year 2004
Legal capital reserve	$	9,357,503		$	8,820,201
Special capital reserve		(1,585,685	)		2,226,427
Employees’ profit sharing — in cash		3,432,129			3,086,215
Employees’ profit sharing — in stock		3,432,129			3,086,215
Cash dividends to shareholders		61,825,061			46,504,097	$	2.50	$	2.00
Stock dividends to shareholders		3,709,504			11,626,024		0.15		0.50
Bonus to directors and supervisors		257,410			231,466


	$	80,428,051		$	75,580,645

		The amounts of the above appropriations of earnings for 2005 and 2004 are consistent with the resolutions of the meetings of the Board of Directors held on February 14, 2006 and February 22, 2005, respectively. If the above bonus to employees, directors and supervisors had been paid entirely in cash and charged to earnings of 2005 and 2004, the basic earnings per share (after income tax) for the years ended December 31, 2005 and 2004 would have decreased from NT$3.79 to NT$3.50 and NT$3.97 to NT$3.70, respectively.

		The shares distributed as a bonus to employees represented 1.39% and 1.33% of the Company’s total outstanding common shares as of December 31, 2005 and 2004, respectively.

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

19.		STOCK-BASED COMPENSATION PLANS

		The Company’s Employee Stock Option Plans under the 2005 Plan, 2003 Plan and 2002 Plan were approved by the SFB on January 6, 2005, October 29, 2003 and June 25, 2002, respectively. The maximum number of options authorized to be granted under the 2005 Plan, the 2003 Plan and the 2002 Plan was 11,000 thousand, 120,000 thousand and 100,000 thousand, respectively, with each option eligible to subscribe for 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.

		Options of the aforementioned Plans that had never been granted or had been granted but subsequently canceled had expired as of June 30, 2006.

- 28 -

Information about outstanding stock options for the six months ended June 30, 2006 and 2005 was as follows:


				Weighted-
				Average
	Number of			Exercise
	Options			Price
	(in Thousands)			(NT$)
Six months ended June 30, 2006

Balance, beginning of period		67,758		$	39.4
Options granted		2,517			39.7
Options exercised		(8,219	)		39.7
Options canceled		(2,304	)		44.5


Balance, end of period		59,752			39.6


Six months ended June 30, 2005

Balance, beginning of period		64,367			40.5
Options granted		14,864			48.4
Options exercised		(2,941	)		39.9
Options canceled		(2,931	)		42.7


Balance, end of period		73,359			42.1

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

		As of June 30, 2006, information about outstanding and exercisable options was as follows:

Options Outstanding

Options Exercisable

Weighted-

average

Range of

Number of

Remaining

Exercise

Number of

Exercise

Options (in

Contractual

Price

Options (in

Price

Price (NT$)

Thousands)

Life (Years)

(NT$)

Thousands)

(NT$)

$27.6-$39.7

39,415

5.64

35.6

29,458

35.6

$45.1-$52.3

20,337

7.34

47.3

312

45.5

59,752

29,770

- 29 -

No compensation cost was recognized under the intrinsic value method for the six months ended June 30, 2006 and 2005. Had the Company used the fair value based method (based on the Black-Scholes model) to evaluate the options granted after January 1, 2004, the assumptions and pro forma results of the Company for the six months ended June 30, 2006 and 2005 would have been as follows:


	Six Months Ended June 30
	2006			2005
Assumptions:
Expected dividend yield		1.00%-3.44	%		1.00%-3.44	%
Expected volatility		43.77%-46.15	%		43.77%-46.15	%
Risk free interest rate		3.07%-3.85	%		3.07%-3.85	%
Expected life		5 years			5 years

Net income:
Net income as reported	$	66,608,628		$	35,187,334
Pro forma net income		66,552,140			35,140,859

Earnings per share (EPS) — after income tax (NT$):
Basic EPS as reported	$	2.58		$	1.37
Pro forma basic EPS		2.58			1.36
Diluted EPS as reported		2.58			1.37
Pro forma diluted EPS		2.58			1.36

20.

TREASURY STOCK

(Shares in Thousands)


	Beginning		Increase/				Ending
	Shares		Dividend		Disposal		Shares
Six months ended June 30, 2006

Parent company stock held by subsidiaries		32,938		988		—		33,926


Six months ended June 30, 2005

Parent company stock held by subsidiaries		45,521		2,242		901		46,862

Proceeds from sales of treasury stock for the six months ended June 30, 2005 were NT$49,364 thousand. As of June 30, 2006 and 2005, the book value of the treasury stock was NT$918,075 thousand and NT$1,552,573 thousand, respectively; the market value was NT$1,952,452 thousand and NT$2,648,643 thousand, respectively. The Company’s stock held by its subsidiaries is treated as treasury stock and the holders are entitled to the rights of shareholders, except that starting from June 24, 2005, pursuant to the revised Company Law, the holders are no longer entitled to vote in shareholders’ meetings.

- 30 -

21. EARNINGS PER SHARE


	Six Months Ended June 30
	2006						2005
	Before			After			Before		After
	Income			Income			Income		Income
	Tax			Tax			Tax		Tax
Basic EPS (NT$)
Income before cumulative effect of changes in accounting principles	$	2.75		$	2.59		$	1.32	$	1.37
Cumulative effect of changes in accounting principles		(0.01	)		(0.01	)		—		—


Income for the period	$	2.74		$	2.58		$	1.32	$	1.37


Diluted EPS (NT$)
Income before cumulative effect of change in accounting principles	$	2.74		$	2.59		$	1.32	$	1.37
Cumulative effect of changes in accounting principles		(0.01	)		(0.01	)		—		—


Income for the period	$	2.73		$	2.58		$	1.32	$	1.37

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
Six months ended June 30, 2006

Basic EPS
Income available to common shareholders	$	70,577,807	$	66,608,628		25,784,890	$	2.74	$	2.58

Effect of dilutive potential common stock — stock options		—		—		23,529


Diluted EPS
Income available to common shareholders (including effect of dilutive potential common stock)	$	70,577,807	$	66,608,628		25,808,419	$	2.73	$	2.58


Six months ended June 30, 2005

Basic EPS
Income available to common shareholders	$	33,997,724	$	35,187,334		25,759,865	$	1.32	$	1.37

Effect of dilutive potential common stock — stock options		—		—		10,032


Diluted EPS
Income available to common shareholders (including effect of dilutive potential common stock)	$	33,997,724	$	35,187,334		25,769,897	$	1.32	$	1.37

- 31 -

22. DISCLOSURES FOR FINANCIAL INSTRUMENTS

Fair values of financial instruments were as follows:


	June 30
	2006				2005
	Carrying				Carrying
	Amount		Fair Value		Amount		Fair Value
Assets

Available-for-sale financial assets	$	66,976,357	$	66,976,357	$	48,298,762	$	48,298,762
Held-to-maturity financial assets		29,262,804		28,857,510		28,407,811		28,299,261
Long-term investments accounted for using equity method (with market price)		5,087,101		9,567,918		5,115,164		12,449,270

Liabilities

Forward exchange contracts, net		8,265		8,265		39,969		36,560
Cross currency swap contracts, net		269,188		269,188		674,894		452,530
Bonds payable (including current portion)		19,500,000		19,888,147		30,000,000		30,429,929

Methods and assumptions used in the determination of fair values of financial instruments

	1)		The aforementioned financial instruments do not include cash and cash equivalents, receivables, other financial assets, payables, and payables to contractors and equipment suppliers. The carrying amounts of these financial instruments approximate their fair values.

	2)		The aforementioned financial instruments do not include long-term payables either. The fair value was determined using the discounted value of expected cash flows, which approximates their carrying amount.

	3)		Fair values of available-for-sale and held-to-maturity financial assets were based on their quoted market prices; while fair values of structured time deposits were estimated using valuation techniques.

	4)		Fair value of bonds payable was based on their quoted market price.

	5)		Fair values of derivatives were determined using valuation techniques incorporating estimates and assumptions that were consistent with prevailing market conditions.

	c.		Losses recognized for the changes in fair value of derivatives estimated using valuation techniques were NT$277,453 thousand for the six months ended June 30, 2006.

	d.		As of June 30, 2006 and 2005, financial assets exposed to fair value interest rate risk were NT$96,561,617 thousand and NT$76,801,791 thousand, respectively, financial liabilities exposed to fair value interest rate risk were NT$599,909 thousand and NT$836,704 thousand, respectively, and financial assets exposed to cash flow interest rate risk were NT$7,127,780 thousand and NT$6,955,960 thousand, respectively.

	e.		The Company recognized an unrealized loss of NT$191,469 thousand in shareholder’s equity for the changes in fair value of available-for-sale financial assets for the six months ended June 30, 2006. The Company also recognized an unrealized gain of NT$308,023 thousand in shareholders’ equity for the changes in available-for-sale financial assets held by equity method investees for the six months ended June 30, 2006.

- 32 -

Information about financial risks

	1)		Market risk. The derivative financial instruments categorized as financial assets at fair value through profit or loss are mainly used to hedge the exchange rate fluctuations of foreign-currency- denominated assets and liabilities. Therefore, the market risk of derivatives will be offset by the foreign exchange risk of these assets and liabilities. Available-for-sale financial assets held by the Company are mainly fixed-interest-rate debt securities. Therefore, the fluctuations in market interest rates would result in changes in fair values of these debt instruments.

	2)		Credit risk. Credit risk represents the potential loss that would be incurred by the Company if the counter-parties or third-parties breached contracts. Financial instruments with positive fair values at the balance sheet date are evaluated for credit risk. The counter-parties or third-parties to the foregoing financial instruments are reputable financial institutions, business organizations, and government agencies. Management believes its exposure to default by those parties is low.

	3)		Liquidity risk. The Company has sufficient operating capital to meet cash needs upon settlement of derivative financial instruments and bonds payable. Therefore, the cash flow risk is low.

	4)		Cash flow interest rate risk. The Company mainly engages in investments in fixed-interest-rate debt securities. Therefore, cash flows are not expected to fluctuate significantly due to changes in market interest rates.

23. 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 supervisors.

	b.		Philips, a major shareholder of the Company.

	c.		Subsidiaries

			TSMC-North America TSMC-Shanghai TSMC-Europe TSMC-Japan TSMC-Korea

	d.		Investees

			GUC (with a controlling financial interest) VIS (accounted for using equity method) SSMC (accounted for using equity method)

	e.		Indirect subsidiaries

			WaferTech, LLC (WaferTech) TSMC Technology, Inc. (TSMC Technology)

	f.		Indirect investee

			VisEra, originally an investee over which the Company had a controlling interest; beginning in November 2005, VisEra became an indirect investee accounted for using the equity method due to changes in investment structure.

- 33 -

Transactions with the aforementioned parties, other than those disclosed in other notes, are summarized as follows:


	2006				2005
	Amount		%		Amount		%
Six months ended June 30

Sales
TSMC-North America	$	94,075,632		58	$	64,760,945		56
Philips		2,318,898		2		1,147,115		1
Others		406,336		—		186,880		—


	$	96,800,866		60	$	66,094,940		57


Purchases
WaferTech	$	6,505,148		28	$	5,117,622		31
SSMC		3,718,466		16		2,094,617		13
TSMC-Shanghai		1,918,584		8		234,333		1
VIS		1,712,082		7		2,168,998		13


	$	13,854,280		59	$	9,615,570		58


Manufacturing expenses — technical assistance fees
Philips (Note 26a)	$	377,952		1	$	202,334		—


Marketing expenses — commission
TSMC-Japan	$	125,553		12	$	133,765		22
TSMC-Europe		116,934		11		116,034		18
TSMC-Korea		1,118		—		—		—


	$	243,605		23	$	249,799		40


General and administrative expenses — rental expense
GUC	$	7,659		—	$	8,162		—


Research and development expenses
GUC	$	19,582		—	$	3,089		—


Sales of property, plant, and equipment
TSMC-Shanghai	$	173,299		42	$	106,412		38


Non-operating income and gains
SSMC (primarily technical service income, see Note 26e)	$	147,219		2	$	146,655		4
VisEra		140,079		2		10,752		—
TSMC-Shanghai		123,891		2		75,743		2
VIS (primarily technical service income, see Note 26h)		105,937		2		77,504		2


	$	517,126		8	$	310,654		8

(Continued)

- 34 -


	2006				2005
	Amount		%		Amount		%
As of June 30

Receivables
TSMC-North America	$	22,374,338		98	$	14,513,699		97
Philips		382,251		2		467,843		3
Others		153,300		—		18,136		—


	$	22,909,889		100	$	14,999,678		100


Other receivables
VIS	$	688,807		42	$	46,399		3
TSMC Technology		485,449		29		715,306		46
TSMC-North America		205,327		12		415,650		27
TSMC-Shanghai		167,585		10		271,905		17
SSMC		92,700		6		115,460		7
Others		19,614		1		1,064		—


	$	1,659,482		100	$	1,565,784		100


Payables
WaferTech	$	1,155,023		35	$	793,200		37
VIS		943,129		29		883,144		41
SSMC		662,385		20		284,080		13
TSMC-Shanghai		401,379		12		70,080		3
Others		119,507		4		115,813		6


	$	3,281,423		100	$	2,146,317		100


Other long-term payables
Philips (Note 26a)	$	1,085,366		100	$	1,727,133		100


Deferred credits
TSMC-Shanghai	$	635,124		54	$	708,941		100
VisEra		155,437		13		—		—


	$	790,561		67	$	708,941		100

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

The Company deferred the gains (classified under the deferred credits) derived from sales of property, plant, and equipment to TSMC-Shanghai and VisEra, and then recognized such gains (classified under the non-operating income and gains) over the depreciable lives of the disposed assets.

The Company leased part of its office space from GUC with a quarterly rental of NT$4,186 thousand. The Company also leased certain buildings and facilities to VisEra with a monthly rental of NT$7,684 (classified under the non-operating income and gains).

24. SIGNIFICANT LONG-TERM LEASES

The Company leases several parcels of land from the Science Park Administration. These operating leases expire on various dates from March 2008 to December 2020 and can be renewed upon expiration.

- 35 -

As of June 30, 2006, future lease payments were as follows:


Year	Amount
2006 (3^rd to 4^th quarter)	$	132,607
2007		248,185
2008		222,450
2009		213,872
2010		166,803
2011 and thereafter		1,103,708


	$	2,087,625

25. SETTLEMENT INCOME

TSMC, TSMC-North America and WaferTech filed a series of lawsuits in late 2003 and 2004 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 were settled out of court on January 30, 2005. As part of the settlement, SMIC shall pay TSMC US$175,000 thousand over six years to resolve TSMC’s claims. As of June 30, 2006, SMIC has paid US$45,000 thousand in accordance with the terms of this settlement agreement.

26. SIGNIFICANT COMMITMENTS AND CONTINGENCIES

The significant commitments and contingencies of the Company as of June 30, 2006, excluding those disclosed in other notes, were as follows:

	a.		On June 20, 2004, the Company and Philips amended the Technical Cooperation Agreement, which was originally signed on May 12, 1997. The amended Technical Cooperation Agreement is for five years beginning from January 1, 2004. Upon expiration, this amended Technical Cooperation Agreement will be terminated and will not be automatically renewed; however, the patent cross license arrangement between the Company and Philips will survive the expiration of the amended Technical Cooperation Agreement. Under this amended Technical Cooperation Agreement, the Company will pay Philips royalties based on a fixed amount mutually agreed-on, rather than under a certain percentage of the Company’s annual net sales. The Company and Philips agreed to cross license the patents owned by each party. The Company also obtained through Philips a number of cross patent 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 from 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.		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 June 30, 2006, the Company had a total of US$102,966 thousand of guarantee deposits.

- 36 -

	d.		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, which is an integrated circuit foundry in Singapore. 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 alone 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 fall below a specific percentage of its total capacity, the defaulting party is required to compensate SSMC for all related unavoidable costs.

	e.		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 all 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.

	f.		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 written notice for early termination under certain conditions. In January 2003, the Company and National entered into a Termination Agreement whereby the TTA was terminated. 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.

	g.		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.

	h.		The Company provides a technology transfer to VIS under a Manufacturing License and Technology Transfer Agreement entered into on April 1, 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 prices as agreed by the parties.

	i.		Amounts available under unused letters of credit as of June 30, 2006 were NT$6,480 thousand.

27. 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;

- 37 -

	e.		Acquisition of individual real estate properties at costs of at least NT$100 million or 20% of the paid-in capital: Please see Table 5 attached;

	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 6 attached;

	h.		Receivable from related parties amounting to at least NT$100 million or 20% of the paid-in capital: Please see Table 7 attached;

	i.		Names, locations, and related information of investees on which the Company exercises significant influence: Please see Table 8 attached;

	j.		Information about derivatives of investees over which the Company has a controlling interest:

			TSMC-Shanghai entered into forward exchange contracts during the six months ended June 30, 2006 to manage exposures related to foreign exchange rate fluctuations.

			Outstanding forward exchange contracts as of June 30, 2006:


			Contract
			Amount
	Currency	Maturity Date	(in Thousands)
Sell	US$/JPY	Jul 2006	JPY	13,500
	US$/EUR	Jul 2006	EUR	1,134

Valuation losses arising from forward transactions for the six months ended June 30, 2006 were NT$1,177 thousand.

Information on investment in Mainland China

	1)		The name of the investee in mainland China, the main businesses and products, its issued capital, method of investment, information on inflow or outflow of capital, percentage of ownership, equity in the net gain or net loss, ending balance, amount received as dividends from the investee, and the limitation on investee: Please see Table 9 attached.

	2)		Significant direct or indirect transactions with the investee, 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 23.

- 38 -

TABLE 1

Taiwan Semiconductor Manufacturing Company Limited and Investees

FINANCING PROVIDED
FOR THE SIX MONTHS ENDED JUNE 30, 2006
(Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise)

Financing

Company’s

Maximum

Financing

Balance for

Ending

Limit for

Amount

Financial

the Period

Balance

Type of

Reasons for

Allowance for

Each

Limits

Statement

(US$ in

Interest

Financing

Transaction

Short-term

Doubtful

Collateral

Borrowing

(US$ in

No.

Financing Name

Counter-party

Account

Thousands)

Rate

(Note 1)

Amounts

Financing

Accounts

Item

Value

Company

Thousands)

TSMC International

TSMC Development

Other receivables

$1,133,965(US$35,000 )

—

1.50

—

Operating capital

—

N/A

$32,009,175
( US$987,968 )
(Note 2)


Note 1:		The type No. 2 represents necessary for short-term financing.

Note 2:		Not exceeding the issued capital of the Company.

- 39 -

TABLE 2

Taiwan Semiconductor Manufacturing Company Limited

ENDORSEMENT/GUARANTEE PROVIDED
FOR THE SIX MONTHS ENDED JUNE 30, 2006
(Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise)

Ratio of Accumulated

Counter-party

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 Thousands)

Equipment

Statement

(Note 1)

TSMC

TSMC-North America

Not exceed 10% of the net worth of the Company, and be also limited to the paid-in capital of the endorsement/guarantee company, unless otherwise approved by Board of Directors.

1,314,000

—

111,708,087

(US$

40,000

)

TSMC Development

1,943,940

—

0.44

(US$

60,000

)

(US$

60,000

)


Note 1:		25% of the net worth of the Company as of June 30, 2006.

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.

- 40 -

TABLE 3

Taiwan Semiconductor Manufacturing Company Limited and Investees

MARKETABLE SECURITIES HELD
JUNE 30, 2006
(Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified)


				June 30, 2006
										Market Value or
Held Company		Relationship with the	Financial Statement	Shares/Units (in		Carrying Value		Percentage of		Net Asset Value
Name	Marketable Securities Type and Name	Company	Account	Thousands)		(US$ in Thousands)		Ownership		(US$ in Thousands)		Note
The Company	Government bond
	United States Treas NTS	—	Available-for-sale financial assets		—	US$	118,345		N/A	US$	118,345
	2004 Government Bond Series B	—	²		—	$	997,583		N/A	$	997,583
	2005 Government Bond Series A	—	Held-to-maturity financial assets		—		2,749,071		N/A		2,744,234
	2006 Government Bond Series D	—	²		—		999,583		N/A		1,000,562
	2004 Kaohsiung Municipal Series A	—	²		—		620,000		N/A		618,140
	European Investment Bank Bonds	—	²		—		368,482		N/A		400,000
	2002 Government Bond Series B	—	²		—		353,208		N/A		352,496
	2003 Government Bond Series F	—	²		—		149,548		N/A		148,514

	Beneficiary certificates of open-end funds
	NITC Bond Fund	—	Available-for-sale financial assets		22,219		3,630,743		N/A		3,630,743
	ABN AMRO Bond Fund	—	²		175,156		2,620,910		N/A		2,620,910
	Prudential Financial Bond Fund	—	²		103,751		1,505,992		N/A		1,505,992
	Cathay Bond	—	²		122,762		1,406,342		N/A		1,406,342
	NITC Taiwan Bond	—	²		93,312		1,305,711		N/A		1,305,711
	ABN AMRO Select Bond Fund	—	²		111,974		1,260,332		N/A		1,260,332
	Dresdner Bond DAM Fund	—	²		104,217		1,199,200		N/A		1,199,200
	JF Taiwan Bond Fund	—	²		75,286		1,140,778		N/A		1,140,778
	President James Bond	—	²		72,002		1,103,437		N/A		1,103,437
	JF Taiwan First Bond Fund	—	²		77,530		1,082,117		N/A		1,082,117
	Shinkong Chi Shin Bond Fund	—	²		72,680		1,034,238		N/A		1,034,238
	ABN AMRO Income	—	²		63,947		1,004,697		N/A		1,004,697
	Fuhwa Albatross Fund	—	²		89,510		1,003,570		N/A		1,003,570
	Fuh Hwa Bond	—	²		60,642		802,844		N/A		802,844
	HSBC Taiwan Money Management	—	²		40,864		602,784		N/A		602,784
	Taishin Lucky Fund	—	²		54,132		551,429		N/A		551,429
	TIIM High Yield	—	²		40,639		500,864		N/A		500,864
	INVESCO Income Fund	—	²		35,359		401,136		N/A		401,136

(Continued)

- 41 -


				June 30, 2006
										Market Value or
Held Company		Relationship with the	Financial Statement	Shares/Units (in		Carrying Value		Percentage of		Net Asset Value
Name	Marketable Securities Type and Name	Company	Account	Thousands)		(US$ in Thousands)		Ownership		(US$ in Thousands)		Note
	Stock
	TSMC International	Subsidiary	Investments accounted for using equity method		987,968	$	25,984,419		100	$	25,984,419
	SSMC	Equity method investee	²		382		5,094,733		32		5,094,733
	VIS	Equity method investee	²		437,891		5,087,101		27		9,567,918
	TSMC Partners	Subsidiary	²		300		4,225,071		100		4,225,071
	TSMC-North America	Subsidiary	²		11,000		1,790,365		100		1,790,365
	GUC	Investee over which the company had a controlling interest	²		40,147		447,762		45		462,618
	TSMC-Japan	Subsidiary	²		6		96,536		100		96,536
	TSMC-Europe	Subsidiary	²		—		36,909		100		36,909
	TSMC-Korea	Subsidiary	²		80		13,752		100		13,752
	United Industrial Gases Co., Ltd.	—	Financial assets carried at cost		16,783		193,584		10		285,173
	Shin-Etsu Handotai Taiwan Co., Ltd.	—	²		10,500		105,000		7		194,038
	Hontung Venture Capital Co., Ltd.	—	²		8,392		83,916		10		53,129
	Gobaltop Partner I Venture Capital Corp.	—	²		5,000		50,000		1		50,092
	W.K. Technology Fund IV	—	²		4,000		40,000		2		50,392

	Capital
	TSMC-Shanghai	Subsidiary	Investments accounted for using equity method		—		9,093,788		100		9,093,788

	Emerging Alliance	Subsidiary	²		—		1,050,087		100		1,050,087
	VTAF II	Subsidiary	²		—		707,835		98		707,002
	VTAF III	Subsidiary	²		—		145,055		98		143,575
	Chi Cheng	Subsidiary	²		—		113,574		36		572,138	Treasury stock of NT$458,564 thousand is deducted from the carrying value
	Hsin Ruey	Subsidiary	²		—		113,246		36		572,757	Treasury stock of NT$459,511 thousand is deducted from the carrying value

	Agency bond
	Fed Hm Ln Pc Pool 1h2520	—	Available-for-sale financial assets		—	US$	3,348		N/A	US$	3,348
	Fed Hm Ln Pc Pool 1h2524	—	²		—	US$	2,575		N/A	US$	2,575
	Fed Hm Ln Pc Pool 781959	—	²		—	US$	6,640		N/A	US$	6,640
	Fed Hm Ln Pc Pool E89857	—	²		—	US$	1,680		N/A	US$	1,680
	Fed Hm Ln Pc Pool G11295	—	²		—	US$	1,492		N/A	US$	1,492
	Fed Hm Ln Pc Pool M80855	—	²		—	US$	3,520		N/A	US$	3,520

(Continued)

- 42 -


						June 30, 2006
												Market Value or
Held Company		Relationship with the		Financial Statement		Shares/Units (in		Carrying Value		Percentage of		Net Asset Value
Name	Marketable Securities Type and Name	Company		Account		Thousands)		(US$ in Thousands)		Ownership		(US$ in Thousands)		Note
	Federal Home Ln Mtg		—	Available-for-sale financial assets			—	US$	3,420		N/A	US$	3,420
	Federal Home Ln Mtg Corp.		—		²		—	US$	2,786		N/A	US$	2,786
	Federal Home Ln Mtg Corp.		—		²		—	US$	3,916		N/A	US$	3,916
	Federal Home Ln Mtg Corp.		—		²		—	US$	4,665		N/A	US$	4,665
	Federal Home Ln Mtg Corp.		—		²		—	US$	4,897		N/A	US$	4,897
	Federal Home Ln Mtg Corp.		—		²		—	US$	2,278		N/A	US$	2,278
	Federal Home Ln Mtg Corp.		—		²		—	US$	4,117		N/A	US$	4,117
	Federal Home Ln Mtg Corp.		—		²		—	US$	3,671		N/A	US$	3,671
	Federal Home Ln Mtg Corp.		—		²		—	US$	1,426		N/A	US$	1,426
	Federal Home Ln Mtg Corp.		—		²		—	US$	9,168		N/A	US$	9,168
	Federal Home Ln Mtg Corp.		—		²		—	US$	4,182		N/A	US$	4,182
	Federal Home Ln Mtg Corp.		—		²		—	US$	3,358		N/A	US$	3,358
	Federal Home Ln Mtg Corp.		—		²		—	US$	3,347		N/A	US$	3,347
	Federal Home Ln Mtg Corp.		—		²		—	US$	3,834		N/A	US$	3,834
	Federal Home Ln Mtg Corp.		—		²		—	US$	4,956		N/A	US$	4,956
	Federal Home Loan Mtg		—		²		—	US$	5,009		N/A	US$	5,009
	Federal Natl Mtg Assn		—		²		—	US$	3,193		N/A	US$	3,193
	Federal Natl Mtg Assn		—		²		—	US$	1,035		N/A	US$	1,035
	Federal Natl Mtg Assn		—		²		—	US$	3,673		N/A	US$	3,673
	Federal Natl Mtg Assn		—		²		—	US$	3,256		N/A	US$	3,256
	Federal Natl Mtg Assn		—		²		—	US$	1,976		N/A	US$	1,976
	Federal Natl Mtg Assn		—		²		—	US$	1,085		N/A	US$	1,085
	Federal Natl Mtg Assn Gtd		—		²		—	US$	2,403		N/A	US$	2,403
	Federal Natl Mtg Assn Gtd		—		²		—	US$	2,915		N/A	US$	2,915
	Fnma Pool 254507		—		²		—	US$	1,867		N/A	US$	1,867
	Fnma Pool 254834		—		²		—	US$	1,527		N/A	US$	1,527
	Fnma Pool 255883		—		²		—	US$	3,538		N/A	US$	3,538
	Fnma Pool 685116		—		²		—	US$	635		N/A	US$	635
	Fnma Pool 687863		—		²		—	US$	2,979		N/A	US$	2,979
	Fnma Pool 696485		—		²		—	US$	3,533		N/A	US$	3,533
	Fnma Pool 725095		—		²		—	US$	1,315		N/A	US$	1,315
	Fnma Pool 730033		—		²		—	US$	1,581		N/A	US$	1,581
	Fnma Pool 740934		—		²		—	US$	1,540		N/A	US$	1,540
	Fnma Pool 790828		—		²		—	US$	2,965		N/A	US$	2,965
	Fnma Pool 793025		—		²		—	US$	2,761		N/A	US$	2,761
	Fnma Pool 793932		—		²		—	US$	664		N/A	US$	664
	Fnma Pool 794040		—		²		—	US$	832		N/A	US$	832
	Fnma Pool 795548		—		²		—	US$	501		N/A	US$	501
	Fnma Pool 806642		—		²		—	US$	1,401		N/A	US$	1,401
	Fnma Pool 815626		—		²		—	US$	3,272		N/A	US$	3,272

(Continued)

- 43 -


						June 30, 2006
												Market Value or
Held Company		Relationship with the		Financial Statement		Shares/Units (in		Carrying Value		Percentage of		Net Asset Value
Name	Marketable Securities Type and Name	Company		Account		Thousands)		(US$ in Thousands)		Ownership		(US$ in Thousands)		Note
	Fnma Pool 816594		—	Available-for-sale financial assets			—	US$	2,298		N/A	US$	2,298
	Fnma Pool 825395		—		²		—	US$	2,910		N/A	US$	2,910
	Fnma Pool 825398		—		²		—	US$	4,541		N/A	US$	4,541
	Fnma Pool 841069		—		²		—	US$	3,281		N/A	US$	3,281
	Fnma Pool 879906		—		²		—	US$	1,815		N/A	US$	1,815
	Gnma II Pool 081150		—		²		—	US$	699		N/A	US$	699
	Gnma II Pool 081153		—		²		—	US$	2,485		N/A	US$	2,485
	Federal Farm Cr Bks		—		²		—	US$	3,919		N/A	US$	3,919
	Federal Home Ln Bank		—		²		—	US$	3,938		N/A	US$	3,938
	Federal Home Ln Bks		—		²		—	US$	3,965		N/A	US$	3,965
	Federal Home Ln Bks		—		²		—	US$	4,916		N/A	US$	4,916
	Federal Home Ln Bks		—		²		—	US$	8,650		N/A	US$	8,650
	Federal Home Ln Bks		—		²		—	US$	4,123		N/A	US$	4,123
	Federal Home Ln Bks		—		²		—	US$	4,855		N/A	US$	4,855
	Federal Home Ln Bks		—		²		—	US$	8,609		N/A	US$	8,609
	Federal Home Ln Bks		—		²		—	US$	4,779		N/A	US$	4,779
	Federal Home Ln Bks		—		²		—	US$	5,772		N/A	US$	5,772
	Federal Home Ln Bks		—		²		—	US$	7,482		N/A	US$	7,482
	Federal Home Ln Bks		—		²		—	US$	4,818		N/A	US$	4,818
	Federal Home Ln Bks		—		²		—	US$	2,963		N/A	US$	2,963
	Federal Home Ln Bks		—		²		—	US$	7,960		N/A	US$	7,960
	Federal Home Ln Bks		—		²		—	US$	6,034		N/A	US$	6,034
	Federal Home Ln Bks		—		²		—	US$	12,145		N/A	US$	12,145
	Federal Home Ln Bks		—		²		—	US$	3,936		N/A	US$	3,936
	Federal Home Ln Bks		—		²		—	US$	6,817		N/A	US$	6,817
	Federal Home Ln Bks		—		²		—	US$	5,800		N/A	US$	5,800
	Federal Home Ln Bks		—		²		—	US$	3,292		N/A	US$	3,292
	Federal Home Ln Bks		—		²		—	US$	7,475		N/A	US$	7,475
	Federal Home Ln Bks		—		²		—	US$	2,378		N/A	US$	2,378
	Federal Home Ln Mtg Corp.		—		²		—	US$	3,442		N/A	US$	3,442
	Federal Home Ln Mtg Corp.		—		²		—	US$	9,759		N/A	US$	9,759
	Federal Home Ln Mtg Corp.		—		²		—	US$	5,876		N/A	US$	5,876
	Federal Home Ln Mtg Corp.		—		²		—	US$	6,398		N/A	US$	6,398
	Federal Home Ln Mtg Corp.		—		²		—	US$	14,166		N/A	US$	14,166
	Federal Home Ln Mtg Corp.		—		²		—	US$	9,887		N/A	US$	9,887
	Federal Home Ln Mtg Corp. Mtn		—		²		—	US$	4,898		N/A	US$	4,898
	Federal Home Loan Bank		—		²		—	US$	3,442		N/A	US$	3,442
	Federal Home Loan Mtg Assn		—		²		—	US$	4,885		N/A	US$	4,885
	Federal Home Loan Mtg Corp.		—		²		—	US$	4,912		N/A	US$	4,912
	Federal Natl Mtg Assn		—		²		—	US$	4,292		N/A	US$	4,292

(Continued)

- 44 -


						June 30, 2006
												Market Value or
Held Company		Relationship with the		Financial Statement		Shares/Units (in		Carrying Value		Percentage of		Net Asset Value
Name	Marketable Securities Type and Name	Company		Account		Thousands)		(US$ in Thousands)		Ownership		(US$ in Thousands)		Note
	Federal Natl Mtg Assn		—	Available-for-sale financial assets			—	US$	5,847		N/A	US$	5,847
	Federal Natl Mtg Assn		—		²		—	US$	7,763		N/A	US$	7,763
	Federal Natl Mtg Assn		—		²		—	US$	19,565		N/A	US$	19,565
	Federal Natl Mtg Assn		—		²		—	US$	4,104		N/A	US$	4,104
	Federal Natl Mtg Assn		—		²		—	US$	10,413		N/A	US$	10,413
	Federal Natl Mtg Assn		—		²		—	US$	7,963		N/A	US$	7,963
	Federal Natl Mtg Assn Mtn		—		²		—	US$	2,873		N/A	US$	2,873
	Federal Natl Mtg Assn Mtn		—		²		—	US$	2,852		N/A	US$	2,852
	Federal Natl Mtg Assn Mtn		—		²		—	US$	5,553		N/A	US$	5,553
	Freddie Mac		—		²		—	US$	9,273		N/A	US$	9,273

	Corporate issued asset-backed securities
	American Home Mtg Invt Tr		—	Available-for-sale financial assets			—	US$	266		N/A	US$	266
	Americredit Auto Rec Tr		—		²		—	US$	996		N/A	US$	996
	Americredit Automobile Rec Tr		—		²		—	US$	690		N/A	US$	690
	Americredit Automobile Rec Tr		—		²		—	US$	1,983		N/A	US$	1,983
	Americredit Automobile Rec Tr		—		²		—	US$	2,591		N/A	US$	2,591
	Americredit Automobile Receiva		—		²		—	US$	4,942		N/A	US$	4,942
	Americredit Automobile Receivb		—		²		—	US$	4,021		N/A	US$	4,021
	Atlantic City Elc Trns Fdgllc		—		²		—	US$	548		N/A	US$	548
	Banc Amer Coml Mtg Inc.		—		²		—	US$	3,327		N/A	US$	3,327
	Banc Amer Mtg Secs Inc.		—		²		—	US$	1,840		N/A	US$	1,840
	Bank Of Amer Lease Equip Tr		—		²		—	US$	1,943		N/A	US$	1,943
	Bear Stearns Alt A Tr		—		²		—	US$	788		N/A	US$	788
	Bear Stearns Arm Tr		—		²		—	US$	3,635		N/A	US$	3,635
	Bear Stearns Arm Tr		—		²		—	US$	1,906		N/A	US$	1,906
	Bear Stearns Coml Mtg Secs Inc.		—		²		—	US$	6,362		N/A	US$	6,362
	California Infrastructure Dev		—		²		—	US$	180		N/A	US$	180
	Capital Auto Receivables Asset		—		²		—	US$	3,217		N/A	US$	3,217
	Capital One Auto Fin Tr		—		²		—	US$	2,599		N/A	US$	2,599
	Capital One Auto Fin Tr		—		²		—	US$	2,968		N/A	US$	2,968
	Capital One Auto Fin Tr		—		²		—	US$	4,979		N/A	US$	4,979
	Capital One Multi Asset Execut		—		²		—	US$	4,815		N/A	US$	4,815
	Capital One Multi Asset Execut		—		²		—	US$	3,904		N/A	US$	3,904
	Capital One Multi Asset Execut		—		²		—	US$	2,933		N/A	US$	2,933
	Capitial One Prime Auto Receiv		—		²		—	US$	2,767		N/A	US$	2,767
	Caterpillar Finl Asset Tr		—		²		—	US$	2,783		N/A	US$	2,783
	Caterpillar Finl Asset Tr		—		²		—	US$	8,059		N/A	US$	8,059
	Cendant Rent Car Fdg Aesop LLC		—		²		—	US$	9,186		N/A	US$	9,186
	Centex Home Equity Ln Tr		—		²		—	US$	336		N/A	US$	336

(Continued)

- 45 -


						June 30, 2006
												Market Value or
Held Company		Relationship with the		Financial Statement		Shares/Units (in		Carrying Value		Percentage of		Net Asset Value
Name	Marketable Securities Type and Name	Company		Account		Thousands)		(US$ in Thousands)		Ownership		(US$ in Thousands)		Note
	Cit Equip Coll Tr		—	Available-for-sale financial assets			—	US$	3,291		N/A	US$	3,291
	Cit Equip Coll Tr		—		²		—	US$	3,941		N/A	US$	3,941
	Citibank Cr Card Issuance Tr		—		²		—	US$	9,739		N/A	US$	9,739
	Citicorp Mtg Secs		—		²		—	US$	682		N/A	US$	682
	Cnh Equip Tr		—		²		—	US$	3,778		N/A	US$	3,778
	Credit Suisse First Boston Mtg		—		²		—	US$	4,752		N/A	US$	4,752
	Credit Suisse First Boston Mtg		—		²		—	US$	953		N/A	US$	953
	Credit Suisse First Boston Mtg		—		²		—	US$	3,715		N/A	US$	3,715
	Credit Suisse First Boston Mtg		—		²		—	US$	3,554		N/A	US$	3,554
	Cwabs Inc.		—		²		—	US$	414		N/A	US$	414
	Cwabs Inc.		—		²		—	US$	1,280		N/A	US$	1,280
	Cwabs Inc.		—		²		—	US$	2,175		N/A	US$	2,175
	Cwalt Inc.		—		²		—	US$	243		N/A	US$	243
	Cwmbs Inc.		—		²		—	US$	1,054		N/A	US$	1,054
	Daimlerchrysler Auto Tr		—		²		—	US$	2,933		N/A	US$	2,933
	Deere John Owner Tr		—		²		—	US$	2,425		N/A	US$	2,425
	Drive Auto Receivables Tr		—		²		—	US$	3,174		N/A	US$	3,174
	Fifth Third Auto Tr		—		²		—	US$	1,543		N/A	US$	1,543
	First Horizon Abs Tr		—		²		—	US$	712		N/A	US$	712
	First Union Lehman Bros Mtg Tr		—		²		—	US$	2,180		N/A	US$	2,180
	Ford Cr Auto Owner Tr		—		²		—	US$	2,826		N/A	US$	2,826
	Granite Mtgs Plc		—		²		—	US$	2,398		N/A	US$	2,398
	Gs Auto Ln Tr		—		²		—	US$	746		N/A	US$	746
	Gs Mtg Secs Corp.		—		²		—	US$	4,124		N/A	US$	4,124
	Gsamp Tr		—		²		—	US$	4,232		N/A	US$	4,232
	Harley Davidson Motorcycle Tr		—		²		—	US$	781		N/A	US$	781
	Harley Davidson Motorcycle Tr		—		²		—	US$	5,783		N/A	US$	5,783
	Hertz Veh Fing LLC		—		²		—	US$	5,256		N/A	US$	5,256
	Holmes Fing No 8 Plc		—		²		—	US$	5,002		N/A	US$	5,002
	HSBC Automotive Tr		—		²		—	US$	2,962		N/A	US$	2,962
	Hyundai Auto Receivables Tr		—		²		—	US$	6,328		N/A	US$	6,328
	Hyundai Auto Receivables Tr		—		²		—	US$	3,186		N/A	US$	3,186
	Hyundai Auto Receivables Tr		—		²		—	US$	3,886		N/A	US$	3,886
	Impac Cmb Tr		—		²		—	US$	494		N/A	US$	494
	Impac Cmb Tr		—		²		—	US$	371		N/A	US$	371
	Impac Secd Assets Corp.		—		²		—	US$	43		N/A	US$	43
	Lb Ubs Coml Mtg Tr		—		²		—	US$	3,747		N/A	US$	3,747
	Long Beach Accep Auto Receivab		—		²		—	US$	1,858		N/A	US$	1,858
	Long Beach Mtg Ln Tr		—		²		—	US$	3,188		N/A	US$	3,188
	Massachusetts Rrb Spl Purp Tr		—		²		—	US$	3,820		N/A	US$	3,820

(Continued)

- 46 -


						June 30, 2006
												Market Value or
Held Company		Relationship with the		Financial Statement		Shares/Units (in		Carrying Value		Percentage of		Net Asset Value
Name	Marketable Securities Type and Name	Company		Account		Thousands)		(US$ in Thousands)		Ownership		(US$ in Thousands)		Note
	Mastr Asset Backed Secs Tr		—	Available-for-sale financial assets			—	US$	3,504		N/A	US$	3,504
	Mbna Master Cr Card Tr II		—		²		—	US$	7,567		N/A	US$	7,567
	Merrill Lynch Mtg Invs Inc.		—		²		—	US$	6,635		N/A	US$	6,635
	Monumentl Global Fdg II		—		²		—	US$	1,002		N/A	US$	1,002
	National City Auto Receivables		—		²		—	US$	457		N/A	US$	457
	Navistar Finl 2003 A Owner Tr		—		²		—	US$	4,242		N/A	US$	4,242
	Nissan Auto Receivables		—		²		—	US$	1,437		N/A	US$	1,437
	Nomura Asset Accep Corp.		—		²		—	US$	4,131		N/A	US$	4,131
	Onyx Accep Owner Tr		—		²		—	US$	4,875		N/A	US$	4,875
	Pg+E Energy Recovery Fdg LLC		—		²		—	US$	4,628		N/A	US$	4,628
	Providian Gateway Owner Tr		—		²		—	US$	3,899		N/A	US$	3,899
	Reliant Energy Transition Bd		—		²		—	US$	3,989		N/A	US$	3,989
	Residential Asset Mtg Prods		—		²		—	US$	2,626		N/A	US$	2,626
	Residential Asset Sec Mtg Pass		—		²		—	US$	2,918		N/A	US$	2,918
	Residential Asset Sec Mtg Pass		—		²		—	US$	3,692		N/A	US$	3,692
	Residential Fdg Mtg Secs I Inc.		—		²		—	US$	2,217		N/A	US$	2,217
	Residential Fdg Mtg Secs I Inc.		—		²		—	US$	4,358		N/A	US$	4,358
	Revolving Home Equity Ln Tr		—		²		—	US$	2,096		N/A	US$	2,096
	Sequoia Mtg Tr		—		²		—	US$	948		N/A	US$	948
	Sequoia Mtg Tr		—		²		—	US$	735		N/A	US$	735
	Sequoia Mtg Tr		—		²		—	US$	794		N/A	US$	794
	Structured Adj Rate Mtg Ln Tr		—		²		—	US$	1,641		N/A	US$	1,641
	Structured Adj Rate Mtg Ln Tr		—		²		—	US$	555		N/A	US$	555
	Structured Asset Invt Ln Tr		—		²		—	US$	93		N/A	US$	93
	Terwin Mtg Tr		—		²		—	US$	4,014		N/A	US$	4,014
	Toyota Auto Receivables 2003 B		—		²		—	US$	4,898		N/A	US$	4,898
	TW Hotel Fdg 2005 LLC		—		²		—	US$	4,097		N/A	US$	4,097
	Txu Elec Delivery Transition		—		²		—	US$	2,619		N/A	US$	2,619
	Usaa Auto Owner Tr		—		²		—	US$	3,678		N/A	US$	3,678
	Wachovia Auto Owner Tr		—		²		—	US$	2,768		N/A	US$	2,768
	Washington Mut Mtg Secs Corp.		—		²		—	US$	3,354		N/A	US$	3,354
	Wells Fargo Finl Auto Owner Tr		—		²		—	US$	5,230		N/A	US$	5,230
	Wells Fargo Finl Auto Owner Tr		—		²		—	US$	4,885		N/A	US$	4,885
	Wells Fargo Mtg Backed Secs		—		²		—	US$	777		N/A	US$	777
	Wells Fargo Mtg Bkd Secs		—		²		—	US$	3,128		N/A	US$	3,128
	Wells Fargo Mtg Bkd Secs		—		²		—	US$	3,519		N/A	US$	3,519
	WFS Financial Owner Trust		—		²		—	US$	2,723		N/A	US$	2,723
	WFS Finl		—		²		—	US$	916		N/A	US$	916
	WFS Finl 2004 2 Owner Tr		—		²		—	US$	4,880		N/A	US$	4,880
	WFS Finl 2004 4 Owner Tr		—		²		—	US$	1,672		N/A	US$	1,672

(Continued)

- 47 -


						June 30, 2006
												Market Value or
Held Company		Relationship with the		Financial Statement		Shares/Units (in		Carrying Value		Percentage of		Net Asset Value
Name	Marketable Securities Type and Name	Company		Account		Thousands)		(US$ in Thousands)		Ownership		(US$ in Thousands)		Note
	WFS Finl 2005 2 Oner Tr		—	Available-for-sale financial assets			—	US$	2,205		N/A	US$	2,205
	Whole Auto Ln Tr		—		²		—	US$	1,978		N/A	US$	1,978
	Whole Auto Ln Tr		—		²		—	US$	3,803		N/A	US$	3,803
	Whole Auto Ln Tr		—		²		—	US$	2,920		N/A	US$	2,920
	World Omni Auto Receivables Tr		—		²		—	US$	5,848		N/A	US$	5,848

	Corporate bond
	Hua Nan Bank		—	Available-for-sale financial assets			—	$	1,532,448		N/A	$	1,532,448
	Cathay United Bank		—		²		—		1,149,382		N/A		1,149,382
	Formosa Petrochemical Corporation		—		²		—		397,332		N/A		397,332
	Taiwan Power Company		—		²		—		299,034		N/A		299,034
	Taiwan Power Company		—	Held-to-maturity financial assets			—		4,217,617		N/A		4,219,522
	Formosa Petrochemical Corporation		—		²		—		2,488,834		N/A		2,485,390
	Nan Ya Plastics Corporation		—		²		—		2,379,459		N/A		2,381,576
	Chinese Petroleum Corporation		—		²		—		1,703,676		N/A		1,702,082
	China Steel Corporation		—		²		—		1,602,604		N/A		1,602,685
	Far Eastone Telecommunications Co. Ltd.		—		²		—		300,012		N/A		299,989
	Formosa Plastic Corporation		—		²		—		135,306		N/A		137,054
	Formosa Chemicals & Fiber Corporation		—		²		—		67,624		N/A		69,791
	Abbott Labs		—	Available-for-sale financial assets			—	US$	1,496		N/A	US$	1,496
	Abbott Labs		—		²		—	US$	2,541		N/A	US$	2,541
	Ace Ltd.		—		²		—	US$	1,001		N/A	US$	1,001
	AIG Sunamerica Global Fing Ix		—		²		—	US$	996		N/A	US$	996
	Allstate Life Global Fdg Secd		—		²		—	US$	2,927		N/A	US$	2,927
	Alltel Corp.		—		²		—	US$	595		N/A	US$	595
	American Express Co.		—		²		—	US$	3,420		N/A	US$	3,420
	American Gen Fin Corp.		—		²		—	US$	1,616		N/A	US$	1,616
	American Gen Fin Corp. Mtn		—		²		—	US$	1,001		N/A	US$	1,001
	American Honda Fin Corp. Mtn		—		²		—	US$	3,046		N/A	US$	3,046
	American Honda Fin Corp. Mtn		—		²		—	US$	802		N/A	US$	802
	Ameritech Capital Funding Co.		—		²		—	US$	481		N/A	US$	481
	Amgen Inc.		—		²		—	US$	2,851		N/A	US$	2,851
	Amsouth Bk Birmingham Ala		—		²		—	US$	1,982		N/A	US$	1,982
	Anz Cap Tr I		—		²		—	US$	944		N/A	US$	944
	Associates Corp. North Amer		—		²		—	US$	2,529		N/A	US$	2,529
	Bank New York Inc.		—		²		—	US$	1,475		N/A	US$	1,475
	Bank One Corp.		—		²		—	US$	3,303		N/A	US$	3,303
	Bank Utd Houston Tx Mtbn		—		²		—	US$	528		N/A	US$	528
	Bear Stearns Cos Inc.		—		²		—	US$	3,319		N/A	US$	3,319

(Continued)

- 48 -


						June 30, 2006
												Market Value or
Held Company		Relationship with the		Financial Statement		Shares/Units (in		Carrying Value		Percentage of		Net Asset Value
Name	Marketable Securities Type and Name	Company		Account		Thousands)		(US$ in Thousands)		Ownership		(US$ in Thousands)		Note
	Bear Stearns Cos Inc.		—	Available-for-sale financial assets			—	US$	3,585		N/A	US$	3,585
	Beneficial Corp. Mtn Bk Entry		—		²		—	US$	2,289		N/A	US$	2,289
	Berkshire Hathaway Fin Corp.		—		²		—	US$	1,470		N/A	US$	1,470
	Caterpillar Finl Svcs Mtn		—		²		—	US$	5,752		N/A	US$	5,752
	Chase Manhattan Corp. New		—		²		—	US$	1,512		N/A	US$	1,512
	Chase Manhattan Corp. New		—		²		—	US$	2,106		N/A	US$	2,106
	Chubb Corp.		—		²		—	US$	2,103		N/A	US$	2,103
	Cit Group Hldgs Inc.		—		²		—	US$	3,011		N/A	US$	3,011
	Citicorp		—		²		—	US$	1,382		N/A	US$	1,382
	Cogentrix Energy Inc.		—		²		—	US$	3,777		N/A	US$	3,777
	Colonial Pipeline Co.		—		²		—	US$	1,506		N/A	US$	1,506
	Consolidated Edison Inc.		—		²		—	US$	2,866		N/A	US$	2,866
	Corestates Cap Corp.		—		²		—	US$	1,006		N/A	US$	1,006
	Countrywide Fdg Corp. Mtn		—		²		—	US$	2,019		N/A	US$	2,019
	Credit Suisse Fincl Products		—		²		—	US$	1,508		N/A	US$	1,508
	Credit Suisse First Boston		—		²		—	US$	734		N/A	US$	734
	Credit Suisse First Boston USA		—		²		—	US$	2,135		N/A	US$	2,135
	Daimlerchrysler North Amer		—		²		—	US$	966		N/A	US$	966
	Daimlerchrysler North Amer Hld		—		²		—	US$	753		N/A	US$	753
	Dayton Hudson Corp.		—		²		—	US$	2,013		N/A	US$	2,013
	Deere John Cap Corp.		—		²		—	US$	4,880		N/A	US$	4,880
	Dell Computer Corp.		—		²		—	US$	2,822		N/A	US$	2,822
	Den Danske Bk Aktieselskab		—		²		—	US$	2,034		N/A	US$	2,034
	Diageo Plc		—		²		—	US$	3,405		N/A	US$	3,405
	European Invt Bk		—		²		—	US$	3,918		N/A	US$	3,918
	European Invt Bk		—		²		—	US$	5,945		N/A	US$	5,945
	Federal Home Ln Bks		—		²		—	US$	7,937		N/A	US$	7,937
	Fifth Third Bk Cincinnati Oh		—		²		—	US$	2,393		N/A	US$	2,393
	First Data Corp.		—		²		—	US$	2,827		N/A	US$	2,827
	Fleet Boston Corp.		—		²		—	US$	2,634		N/A	US$	2,634