TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD.
Table of Contents

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 2004

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:                               .)

 


TABLE OF CONTENTS

Financial Statements for the Six Months Ended June 30, 2004 and 2003
INDEPENDENT AUDITORS’ REPORT
BALANCE SHEETS
STATEMENTS OF INCOME
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
STATEMENTS OF CASH FLOWS
NOTES TO FINANCIAL STATEMENTS
SIGNATURES


Table of Contents

Taiwan Semiconductor Manufacturing
Company Ltd.

Financial Statements for the Six Months Ended
June 30, 2004 and 2003
Together with Independent Auditors’ Report

Readers are advised that the original version of these financial statements is in Chinese. This English translation is solely for the readers’ convenience. If there is any conflict between these financial statements and the Chinese version or any difference in the interpretation of the two versions, the Chinese-language financial statements shall prevail.

 


Table of Contents

English Translation of a Report Originally Issued in Chinese

INDEPENDENT AUDITORS’ REPORT

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

We have audited the accompanying balance sheets of Taiwan Semiconductor Manufacturing Company Ltd. as of June 30, 2004 and 2003, and the related statements of income, changes in shareholders’ equity and cash flows for the periods 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 Regulations for Auditing of Financial Statement by Certified Public Accountants, and auditing standards generally accepted in the Republic of China. Those 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 Ltd. as of June 30, 2004 and 2003, and the results of its operations and its cash flows for the periods then ended in conformity with the Guidelines for Securities Issuers’ Financial Reporting and accounting principles generally accepted in the Republic of China.

 

July 13, 2004

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.

1


Table of Contents

English Translation of Financial Statements Originally Issued in Chinese

TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD.

BALANCE SHEETS
JUNE 30, 2004 AND 2003
(In Thousand New Taiwan Dollars, Except Par Value)

                                 
    2004
  2003
ASSETS   Amount
  %
  Amount
  %
CURRENT ASSETS
                               
Cash and cash equivalents (Notes 2, 3 and 4)
  $ 82,142,400       19     $ 66,546,050       18  
Short-term investments (Notes 2 and 4)
    41,199,013       9       3,054,050       1  
Receivables from related parties (Note 18)
    18,130,742       4       15,186,990       4  
Notes receivable
    50,168             13,459        
Accounts receivable
    16,662,695       4       12,834,737       4  
Allowance for doubtful receivables (Note 2)
    (983,077 )           (975,547 )      
Allowance for sales returns and others (Note 2)
    (3,019,657 )           (2,069,722 )     (1 )
Other financial assets (Notes 2 and 21)
    1,148,887             798,672        
Inventories—net (Notes 2 and 5)
    11,725,188       3       11,355,534       3  
Deferred income taxes assets (Notes 2 and 12)
    6,144,000       1       3,320,000       1  
Prepaid expenses and other current assets
    614,990             955,192        
 
   
 
     
 
     
 
     
 
 
Total current assets
    173,815,349       40       111,019,415       30  
 
   
 
     
 
     
 
     
 
 
FUNDS AND LONG-TERM INVESTMENTS (Notes 2, 6, 16 and 20)
                               
Equity method
    39,606,640       9       34,029,484       10  
Cost method
    716,377             1,092,503        
Long-term bonds
    8,893,477       2              
 
   
 
     
 
     
 
     
 
 
Total funds and long-term investments
    49,216,494       11       35,121,987       10  
 
   
 
     
 
     
 
     
 
 
PROPERTY, PLANT, AND EQUIPMENT (Notes 2 and 7)
                               
Cost
                               
Buildings
    72,030,258       16       70,341,223       19  
Machinery and equipment
    353,594,669       81       320,043,036       88  
Office equipment
    6,486,523       2       5,948,653       2  
 
   
 
     
 
     
 
     
 
 
 
    432,111,450       99       396,332,912       109  
Accumulated depreciation
    (275,065,953 )     (63 )     (218,915,472 )     (60 )
Advance payments and construction in progress
    43,236,290       10       18,376,849       5  
 
   
 
     
 
     
 
     
 
 
Net property, plant, and equipment
    200,281,787       46       195,794,289       54  
 
   
 
     
 
     
 
     
 
 
GOODWILL (Note 2)
    2,090,341             2,438,731       1  
 
   
 
     
 
     
 
     
 
 
OTHER ASSETS
                               
Deferred charges—net (Notes 2, 8 and 20)
    10,066,618       2       8,731,444       2  
Deferred income taxes assets (Notes 2 and 12)
    4,169,929       1       9,177,560       3  
Assets leased to others—net (Note 2)
    81,480             85,796        
Idle assets (Note 2)
    78,609             107,552        
Refundable deposits (Note 18)
    26,241             375,715        
 
   
 
     
 
     
 
     
 
 
Total other assets
    14,422,877       3       18,478,067       5  
 
   
 
     
 
     
 
     
 
 
TOTAL ASSETS
  $ 439,826,848       100     $ 362,852,489       100  
 
   
 
     
 
     
 
     
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY  
CURRENT LIABILITIES
                               
Payables to related parties (Notes 18 and 20)
  $ 4,662,001       1     $ 3,591,017       1  
Accounts payable
    7,308,388       2       5,154,006       1  
Payables to contractors and equipment suppliers
    8,658,321       2       6,559,597       2  
Accrued expenses and other current liabilities (Notes 2, 10, 20 and 21)
    23,418,048       5       6,669,201       2  
Current portion of long-term bonds payable (Note 9)
    5,000,000       1              
 
   
 
     
 
     
 
     
 
 
Total current liabilities
    49,046,758       11       21,973,821       6  
 
   
 
     
 
     
 
     
 
 
LONG-TERM LIABILITIES
                               
Bonds payable (Note 9)
    30,000,000       7       35,000,000       10  
Other payables to related parties (Notes 18 and 20)
    3,622,369       1              
Other long-term payable (Notes 10 and 20)
    2,637,827             3,921,540       1  
 
   
 
     
 
     
 
     
 
 
Total long-term liabilities
    36,260,196       8       38,921,540       11  
 
   
 
     
 
     
 
     
 
 
OTHER LIABILITIES
                               
Guarantee deposits (Note 20)
    599,091             1,225,310        
Accrued pension cost (Notes 2 and 11)
    2,847,049       1       2,431,939       1  
Deferred gain on sale and leaseback (Note 2)
                38,309        
 
   
 
     
 
     
 
     
 
 
Total other liabilities
    3,446,140       1       3,695,558       1  
 
   
 
     
 
     
 
     
 
 
Total liabilities
    88,753,094       20       64,590,919       18  
 
   
 
     
 
     
 
     
 
 
SHAREHOLDERS’ EQUITY (Notes 2, 14, 15 and 16)
                               
Capital stock—$10 par value
                               
Authorized: 24,600,000 thousand shares
                               
Issued: Common—23,376,597 thousand shares in 2004 and 18,622,887 thousand shares in 2003
    233,765,970       53       186,228,867       51  
To be issued
                16,437,322       5  
Capital surplus
    56,885,914       13       56,840,751       16  
Retained earnings:
                               
Appropriated as legal reserve
    25,528,007       6       20,802,137       6  
Appropriated as special reserve
                68,945        
Unappropriated earnings
    43,517,207       10       19,058,142       5  
Others:
                               
Unrealized loss on long-term investments
    (9 )           (7,981 )      
Cumulative translation adjustments
    53,132             755,436        
Treasury stock (at cost)—170,690 thousand shares in 2004 and 41,961 thousand shares in 2003
    (8,676,467 )     (2 )     (1,922,049 )     (1 )
 
   
 
     
 
     
 
     
 
 
Total shareholders’ equity
    351,073,754       80       298,261,570       82  
 
   
 
     
 
     
 
     
 
 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
  $ 439,826,848       100     $ 362,852,489       100  
 
   
 
     
 
     
 
     
 
 

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

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Table of Contents

English Translation of Financial Statements Originally Issued in Chinese

TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD.

STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(In Thousand New Taiwan Dollars, Except Earnings Per Share)

                                 
    2004
  2003
    Amount
  %
  Amount
  %
GROSS SALES (Notes 2 and 18)
  $ 124,982,265             $ 91,227,434          
SALES RETURNS AND ALLOWANCES (Note 2)
    (2,599,819 )             (1,979,969 )        
 
   
 
             
 
         
NET SALES
    122,382,446       100       89,247,465       100  
COST OF SALES (Notes 13 and 18)
    71,514,061       59       60,510,165       68  
 
   
 
     
 
     
 
     
 
 
GROSS PROFIT
    50,868,385       41       28,737,300       32  
 
   
 
     
 
     
 
     
 
 
OPERATING EXPENSES (Notes 13 and 18)
                               
Research and development
    5,825,173       5       5,589,164       6  
General and administrative
    4,635,566       3       2,958,075       3  
Marketing
    733,496       1       655,343       1  
 
   
 
     
 
     
 
     
 
 
Total operating expenses
    11,194,235       9       9,202,582       10  
 
   
 
     
 
     
 
     
 
 
INCOME FROM OPERATIONS
    39,674,150       32       19,534,718       22  
 
   
 
     
 
     
 
     
 
 
NON-OPERATING INCOME AND GAINS
                               
Investment income recognized by equity method—net (Notes 2 and 6)
    2,053,966       2              
Interest (Notes 2 and 21)
    558,592             370,789       1  
Gain on disposal of property, plant and equipment (Notes 2 and 18)
    114,102             295,796        
Technical service income (Notes 18 and 20)
    111,096             76,527        
Gain on sales of short-term investments (Note 2)
    98,644             19,192        
Other (Note 18)
    138,298             125,878        
 
   
 
     
 
     
 
     
 
 
Total non-operating income and gains
    3,074,698       2       888,182       1  
 
   
 
     
 
     
 
     
 
 
NON-OPERATING EXPENSES AND LOSSES
                               
Interest (Notes 2, 7 and 21)
    602,981             946,124       1  
Foreign exchange loss—net (Notes 2 and 21)
    542,591             246,919        
Loss on disposal of property, plant, and equipment (Note 2)
    32,913             262,208        
Loss on property, plant, and equipment, and idle assets (Note 2)
                1,401,585       2  
Investment loss recognized by equity method—net (Notes 2 and 6)
                705,431       1  
Other (Notes 2 and 21)
    14,405             108,188        
 
   
 
     
 
     
 
     
 
 
Total non-operating expenses and losses
    1,192,890             3,670,455       4  
 
   
 
     
 
     
 
     
 
 

(Continued)

3


Table of Contents

English Translation of Financial Statements Originally Issued in Chinese

                                 
    2004
  2003
    Amount
  %
  Amount
  %
INCOME BEFORE INCOME TAX
  $ 41,555,958       34     $ 16,752,445       19  
INCOME TAX BENEFIT (EXPENSE) (Notes 2 and 12)
    642,844             (664,611 )     (1 )
 
   
 
     
 
     
 
     
 
 
NET INCOME
  $ 42,198,802       34     $ 16,087,834       18  
 
   
 
     
 
     
 
     
 
 
                                 
    2004
  2003
    Before   After   Before   After
    Income   Income   Income   Income
    Tax
  Tax
  Tax
  Tax
EARNINGS PER SHARE (Note 17)
                               
Basic earnings per share
  $ 1.78     $ 1.81     $ 0.71     $ 0.68  
 
   
 
     
 
     
 
     
 
 
Diluted earnings per share
  $ 1.78     $ 1.81     $ 0.71     $ 0.68  
 
   
 
     
 
     
 
     
 
 

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

                 
    2004
  2003
NET INCOME
  $ 42,200,461     $ 16,342,850  
 
   
 
     
 
 
EARNINGS PER SHARE
               
Basic earnings per share
  $ 1.81     $ 0.69  
 
   
 
     
 
 
Diluted earnings per share
  $ 1.81     $ 0.69  
 
   
 
     
 
 
The accompanying notes are an integral part of the financial statements.   (Concluded)

4


Table of Contents

English Translation of Financial Statements Originally Issued in Chinese

TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD.

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(In Thousand New Taiwan Dollars)

                                                         
    Capital Stock
   
    Preferred stocks   Common stocks   To be issued    
   
 
 
   
    Shares           Shares           Shares           Capital
    (thousand)
  Amount
  (thousand)
  Amount
  (thousand)
  Amount
  Surplus
BALANCE, JANUARY 1, 2004
        $       20,266,619     $ 202,666,189           $     $ 56,855,885  
Appropriations of prior year’s earnings
                                                       
Legal reserve
                                         
Reversal of special reserve
                                         
Bonus to employees—cash
                                         
Bonus to employees—stock
                272,651       2,726,514                    
Cash dividends paid for preferred stocks
                                         
Cash dividends—6%
                                         
Stock dividends—14%
                2,837,327       28,373,267                    
Remuneration to directors and supervisors
                                         
Net income for the six months ended June 30, 2004
                                         
Reversal of unrealized loss on long term investment of investees
                                         
Adjustment arising from changes in ownership percentage in investees
                                        28,370  
Translation adjustments
                                         
Treasury stock transaction
                                        1,659  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
BALANCE, JUNE 30, 2004
        $       23,376,597     $ 233,765,970           $     $ 56,885,914  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
BALANCE, JANUARY 1, 2003
    1,300,000     $ 13,000,000       18,622,887     $ 186,228,867           $     $ 57,004,789  
Appropriations of prior year’s earnings
                                                       
Legal reserve
                                         
Special reserve
                                         
Bonus to employees—stock
                            153,901       1,539,013        
Cash dividends paid for preferred stocks
                                         
Stock dividends—8%
                            1,489,831       14,898,309        
Remuneration to directors and supervisors
                                         
Net income for the six months ended June 30, 2003
                                         
Redemption and retirement of preferred stocks
    (1,300,000 )     (13,000,000 )                              
Reversal of unrealized loss on long term investment of subsidiaries
                                         
Reversal of unrealized loss on long term investment of investees
                                         
Adjustment arising from changes in ownership percentage in investees
                                        (164,473 )
Translation adjustments
                                         
Treasury stock transaction
                                        435  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
BALANCE, JUNE 30, 2003
        $       18,622,887     $ 186,228,867       1,643,732     $ 16,437,322     $ 56,840,751  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 

     

[Additional columns below]

[Continued from above table, first column(s) repeated]

                                                                 
    Retained Earnings   Unrealized                
   
  Loss on   Cumulative           Total
    Legal   Special   Unappropriated           Long-term   Translation   Treasury   Shareholders’
    reserve
  reserve
  earnings
  Total
  Investments
  Adjustments
  Stock
  Equity
BALANCE, JANUARY 1, 2004
  $ 20,802,137     $ 68,945     $ 50,229,008     $ 71,100,090     $ (35 )   $ 225,408     $ (1,633,228 )   $ 329,214,309  
Appropriations of prior year’s earnings
                                                               
Legal reserve
    4,725,870             (4,725,870 )                              
Reversal of special reserve
          (68,945 )     68,945                                
Bonus to employees—cash
                (681,628 )     (681,628 )                       (681,628 )
Bonus to employees—stock
                (2,726,514 )     (2,726,514 )                        
Cash dividends paid for preferred stocks
                (184,493 )     (184,493 )                       (184,493 )
Cash dividends—6%
                (12,159,971 )     (12,159,971 )                       (12,159,971 )
Stock dividends—14%
                (28,373,267 )     (28,373,267 )                        
Remuneration to directors and supervisors
                (127,805 )     (127,805 )                       (127,805 )
Net income for the six months ended June 30, 2004
                42,198,802       42,198,802                         42,198,802  
Reversal of unrealized loss on long term investment of investees
                            26                   26  
Adjustment arising from changes in ownership percentage in investees
                                              28,370  
Translation adjustments
                                  (172,276 )           (172,276 )
Treasury stock transaction
                                        (7,043,239 )     (7,041,580 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
BALANCE, JUNE 30, 2004
  $ 25,528,007     $     $ 43,517,207     $ 69,045,214     $ (9 )   $ 53,132     $ (8,676,467 )   $ 351,073,754  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
BALANCE, JANUARY 1, 2003
  $ 18,641,108     $     $ 22,151,089     $ 40,792,197     $ (194,283 )   $ 945,129     $ (1,923,492 )   $ 295,853,207  
Appropriations of prior year’s earnings
                                                               
Legal reserve
    2,161,029             (2,161,029 )                              
Special reserve
          68,945       (68,945 )                              
Bonus to employees—stock
                (1,539,013 )     (1,539,013 )                        
Cash dividends paid for preferred stocks
                (455,000 )     (455,000 )                       (455,000 )
Stock dividends—8%
                (14,898,309 )     (14,898,309 )                        
Remuneration to directors and supervisors
                (58,485 )     (58,485 )                       (58,485 )
Net income for the six months ended June 30, 2003
                16,087,834       16,087,834                         16,087,834  
Redemption and retirement of preferred stocks
                                              (13,000,000 )
Reversal of unrealized loss on long term investment of subsidiaries
                            20,647                   20,647  
Reversal of unrealized loss on long term investment of investees
                            165,655                   165,655  
Adjustment arising from changes in ownership percentage in investees
                                              (164,473 )
Translation adjustments
                                  (189,693 )           (189,693 )
Treasury stock transaction
                                        1,443       1,878  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
BALANCE, JUNE 30, 2003
  $ 20,802,137     $ 68,945     $ 19,058,142     $ 39,929,224     $ (7,981 )   $ 755,436     $ (1,922,049 )   $ 298,261,570  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 

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

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Table of Contents

English Translation of Financial Statements Originally Issued in Chinese

TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD.

STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(In Thousand New Taiwan Dollars)

                 
    2004
  2003
CASH FLOWS FROM OPERATING ACTIVITIES
               
Net income
  $ 42,198,802     $ 16,087,834  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    31,086,443       30,840,186  
Deferred income taxes
    (921,333 )     535,007  
Investment loss (income) recognized by equity method—net
    (2,053,966 )     705,431  
Loss on property, plant, and equipment, and idle assets
          1,401,585  
Gain on sales of long-term investments—net
    (2,150 )     (200 )
Amortization of discount of long-term bond investments
    327        
Gain on disposal of property, plant and equipment—net
    (81,189 )     (33,588 )
Pension cost accrued
    246,798       221,397  
Allowance for doubtful receivables
    (32,945 )     45,683  
Allowance for sales returns and others
    893,632       (293,345 )
Changes in operating assets and liabilities:
               
Decrease (increase) in:
               
Receivables from related parties
    (3,130,117 )     (5,003,502 )
Notes receivable
    (40,275 )     46,781  
Accounts receivable
    (2,754,781 )     (3,339,290 )
Inventories—net
    (818,030 )     (1,015,198 )
Other financial assets
    (67,145 )     170,997  
Prepaid expenses and other current assets
    976,976       1,059,169  
Increase (decrease) in:
               
Payables to related parties
    161,861       1,124,019  
Accounts payable
    1,224,512       304,772  
Accrued expenses and other current liabilities
    1,900,027       392,969  
 
   
 
     
 
 
Net cash provided by operating activities
    68,787,447       43,250,707  
 
   
 
     
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Increase in short-term investments—net
    (32,042,407 )     (3,054,050 )
Acquisitions of:
               
Long-term investments
    (5,943,022 )     (1,015,301 )
Property, plant and equipment
    (39,179,243 )     (16,207,787 )
Proceeds from disposal of:
               
Property, plant and equipment
    250,080       132,387  
Long-term investments
    7,552       592  
Increase in deferred charges
    (640,653 )     (711,056 )
Decrease in refundable deposits
    151,138       167,754  
Decrease in other assets—miscellaneous
          9,250  
 
   
 
     
 
 
Net cash used in investing activities
    (77,396,555 )     (20,678,211 )
 
   
 
     
 
 

(Continued)

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Table of Contents

English Translation of Financial Statements Originally Issued in Chinese

                 
    2004
  2003
CASH FLOWS FROM FINANCING ACTIVITIES
               
Purchase of treasury stock
    ($7,059,798 )   $  
Decrease in guarantee deposits
    (164,398 )     (169,756 )
Repayment on long-term bonds
          (4,000,000 )
Redemption of preferred stock
          (13,000,000 )
Remuneration to directors and supervisors
    (127,805 )     (58,485 )
Cash dividend paid for preferred stocks
    (184,493 )     (455,000 )
 
   
 
     
 
 
Net cash used in financing activities
    (7,536,494 )     (17,683,241 )
 
   
 
     
 
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    (16,145,602 )     4,889,255  
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD
    98,288,002       61,656,795  
 
   
 
     
 
 
CASH AND CASH EQUIVALENTS, END OF THE PERIOD
  $ 82,142,400     $ 66,546,050  
 
   
 
     
 
 
SUPPLEMENTAL INFORMATION
               
Interest paid (excluding the amounts capitalized of NT$157,109 thousand and NT$2,932 thousand in 2004 and 2003, respectively)
  $ 268,006     $ 688,371  
 
   
 
     
 
 
Income tax paid
  $ 11,689     $ 2,500  
 
   
 
     
 
 
Non-cash investing and financing activities:
               
Current portion of long-term bonds payable
  $ 5,000,000     $  
 
   
 
     
 
 
Current portion of other payables to related parties (under payables to related parties)
  $ 177,161     $  
 
   
 
     
 
 
Current portion of other long-term payables (under accrued expense and other current liabilities)
  $ 1,757,476     $  
 
   
 
     
 
 
Reclassification of short-term investments to long-term investments
  $ 3,402,413     $  
 
   
 
     
 
 
The accompanying notes are an integral part of the financial statements.   (Concluded)

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TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD.

NOTES TO FINANCIAL STATEMENTS
(Amounts in Thousand New Taiwan Dollars, Unless Specified Otherwise)

1.   GENERAL
 
    Taiwan Semiconductor Manufacturing Company Ltd. (the Company or TSMC), a Republic of China corporation (R.O.C.), 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. In September 1994, its shares were listed on the Taiwan Stock Exchange (TSE). On October 8, 1997, TSMC listed 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 designing of integrated circuits and other semiconductor devices, and the manufacturing of masks.
 
2.   SIGNIFICANT ACCOUNTING POLICIES
 
    The financial statements are presented in conformity with Guidelines Governing in Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted in the R.O.C. Significant accounting policies are summarized as follows:
 
    Use of Estimates
 
    The preparation of financial statements in conformity with the aforementioned guidelines and principles requires management to make reasonable assumptions and estimates of matters that are inherently uncertain. The actual results may differ from management’s estimates.
 
    Classification of Current and Non-current Assets and Liabilities
 
    Current assets are those expected to be converted to cash, sold or consumed within one year from the balance sheet date. Current liabilities are obligations due on demand within one year from the balance sheet date. Assets and liabilities that are not classified as current are non-current assets and liabilities, respectively.
 
    Cash Equivalents
 
    Government bonds under repurchase agreements, notes, treasury bill and commercial papers acquired with maturities less than three months from the date of purchase are classified as cash equivalents.
 
    Short-term Investments
 
    Short-term investments consist of bond funds, corporate bonds, government bonds, agency bonds, asset-backed securities, government bonds acquired under repurchase agreements and listed stocks. Cost of short-term investments are recorded at historical cost. Cash dividends are recorded as investment income in the current period.
 
    The investments are carried at the lower of cost or market value. An allowance for decline in value is provided and is charged to current period earnings when the aggregate carrying value of the investments exceeds the aggregate market value. A reversal of the allowance is recorded for a subsequent recovery of the market value.

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Table of Contents

    The cost of the asset-backed securities and the bonds sold is accounted for using the specific identification method, whereas the cost of bond funds and listed stocks sold is accounted for using the weighted-average method.
 
    The market values of asset-backed securities and the bonds are determined using the average of bid and ask prices as of the balance sheet date. The market value of bond funds is determined using the net asset value of the funds at the end of the period, and the market value of listed stocks is determined using the average-closing price of the listed stocks for the last month of the period.
 
    Allowance for Doubtful Receivables
 
    Allowance for doubtful receivables are provided based on a review of the collectibility of accounts receivables. The Company determines the amount of allowance for doubtful accounts by examining the historical collection experience and current trends in the credit quality of it’s customers as well as its internal credit policies.
 
    Revenue Recognition and Allowance for Sales Returns and Others
 
    The Company recognizes net sales when the earnings process is complete, as evidenced by an agreement with the customer, transfer of title and acceptance, if applicable, have occurred, as well as the price is fixed or determinable and the collectibility is reasonably assured. An allowance is provided for any sales return and pricing discounts. Allowance for sales returns and pricing discounts is estimated based on historical experience and any known factors that would affect the allowance. Such provisions are deducted from sales in the year the products are sold and the estimated related costs are deducted from cost of sales.
 
    Sales are determined using the fair value taking into account related sales discounts agreed to by the Company and its customers. Sales agreements typically provide that payment is due 30 days from invoice date for majority of the customers and 30 to 45 days after the end of the month in which the sales occur for some customers. Since the receivables from sales are collectible within one year and such transactions are frequent, the fair value of receivables is equivalent to the nominal amount of cash received.
 
    Inventories
 
    Inventories are stated at the lower of cost or market value. Inventories are recorded at standard cost and adjusted to the approximate weighted-average cost at the end of each period. Market value represents net realizable value for finished goods and work in process. Replacement value represents net realizable value for raw materials, supplies and spare parts. The Company assesses the impact of changing technology on its inventory on-hand and writes off inventories that are considered obsolete. Ending inventories are evaluated for estimated excess quantities and obsolescence based on demand forecast within a specific time horizon, generally 180 days or less, and the estimated scrap and slow-moving items are recognized in the allowance for losses.
 
    Long-term Investments
 
    Investments in companies wherein the Company exercises significant influence on the operating and financial policy decisions are accounted for using the equity method of accounting. The Company’s proportionate share in the net income or net loss of investee companies is recognized as components of the “investment income/loss recognized by equity method—net” account. When equity investments are made, the difference, if any, between the cost of investment and the Company’s proportionate share of investee’s net book value is amortized using the straight-line method over five years and is recorded as a component of the “investment income/loss recognized by equity method—net” account.

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Table of Contents

    When the Company subscribes to additional investee shares at a percentage different from its existing equity interest, the resulting carrying amount of the investment in the equity investee differs from the amount of Company’s proportionate share in the investee’s net equity. The Company records such difference as an adjustment to long-term investments with the corresponding amount charged to capital surplus. If investee’s functional currency is a foreign currency, “cumulative translation adjustments” will result from the process of translating the investee’s financial statements into the reporting currency of the Company.
 
    Investments in companies wherein the Company does not exercise significant influence are recorded at historical cost. Cash dividends are recognized as income in the year received but are accounted for as reduction in the carrying values of the long-term investments if the dividends are received in the same year that the related investments are acquired. Stock dividends are recorded as an increase in the number of shares held and do not affect investment income or the carrying amount of the investment. An allowance is recognized for any decline in the market value of investments with readily ascertainable fair market value with the corresponding amount recorded as an unrealized loss, a component of shareholders’ equity. A reversal of the allowance will result from a subsequent recovery of the market value of such investments. The market value of such investment is determined using the average-closing price of the listed stocks for the last month of the period. The carrying values of investments whose fair market values are not readily ascertainable are reduced to reflect an other-than-temporary decline in their values, with the related impairment loss charged to income.
 
    Investments in foreign mutual funds are stated at the lower of aggregate cost or net asset value. An allowance is recognized when the cost of the funds is lower than their net asset values, with the corresponding amount recorded as a reduction to shareholders’ equity. A reversal of the allowance will result from a subsequent recovery of the net asset value.
 
    The costs of stocks and mutual funds sold are determined using the weighted-average method.
 
    Investments in long-term bonds are stated at amortized cost. The discount or premium is amortized over the duration period using the interest method, and recorded as an adjustment to the interest income.
 
    If an investee company recognizes an unrealized loss on its long-term investment using the lower-of-cost-or-market method, the Company also recognizes a corresponding unrealized loss in proportion to its equity interest in the investee company and records the amount as a component of its shareholders’ equity.
 
    Gains or losses on sales from the Company to investee companies accounted for using the equity method are deferred in proportion to the Company’s ownership percentage in the investee companies until realized through transactions with third parties. The entire amount of the gains or losses on sales to majority-owned subsidiaries is deferred until such gains or losses are realized through the subsequent sale of the related products to third parties.
 
    Gains or losses on sales from investee companies to the Company are deferred in proportion to the Company’s ownership percentages in the investee companies until realized through transactions with third parties.
 
    Property, Plant and Equipment, Assets Leased to Others and Idle Assets
 
    Property, plant and equipment and assets leased to others are stated at cost less accumulated depreciation. When an impairment is determined, the related assets are stated at the lower of fair value or book value. Idle assets are stated at the lower of net realizable value or book value. Significant additions, renewals, and betterments incurred during the construction period are capitalized. Maintenance and repairs are expensed in the period incurred. Interest expense incurred for the project during the purchase and construction period is also capitalized.

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Table of Contents

    Depreciation is computed using the straight-line method over the following estimated service lives: buildings—10 to 20 years; machinery and equipment—5 years; and office equipment—3 to 5 years.
 
    Upon sale or disposal of property, plant and equipment, the related cost and accumulated depreciation are removed from the corresponding accounts, with any gain or loss charged to income in the period of sale or disposal.
 
    Goodwill
 
    Goodwill represents the excess of the consideration paid for acquisitions over the fair market value of identifiable net assets acquired and acquisition costs. Goodwill is amortized using the straight-line method over the estimated life of 10 years.
 
    Deferred Charges
 
    Deferred charges consist of technology license fees and software and system design costs and other charges. The amounts are amortized as follows: technology license fees—the shorter of the estimated life of the technology or the term of the technology transfer contract, software and system design costs—3 or 5 years.
 
    Pension Costs
 
    The Company records net periodic pension costs on the basis of actuarial calculations. Unrecognized net transition obligation and unrecognized net gains or losses are amortized over 25 years.
 
    Deferred Gain on Sale and Leaseback
 
    The gain on the sale of property that is simultaneously leased back is deferred by the Company and amortized as an adjustment of rental expenses over the term of the lease.
 
    Income Tax
 
    The Company uses an inter-period tax allocation method for income tax. Deferred income tax assets and liabilities are recognized for the tax effects of temporary differences, unused tax credits, and net operating loss carry forwards. 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 non-current 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 non-current based on the expected length of time before it is realized.
 
    Any tax credit arising from the purchases of machinery, equipment and technology, research and development expenditures, personnel training, and investments in important technology-based enterprise are recognized using the current method.
 
    Adjustments to prior years’ tax liabilities are added to or deducted from the current year’s tax provision.
 
    As of January 1, 1998, income taxes on unappropriated earnings (excluding earnings from foreign consolidating subsidiaries) of 10% are expensed in the year of shareholder approval which is usually the year subsequent to the year incurred.
 
    Stock-Based Compensation
 
    Compensatory employee stock option plans that are amended or have options granted on or after January 1, 2004 must be accounted for following the interpretations issued by Accounting Research and Development Foundation. The Company adopted the intrinsic value method and any compensation cost is charged to expense over the employee vesting period as specified in the stock option plans.

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Table of Contents

    Treasury Stock
 
    When the Company purchases its outstanding common stock, the cost of the reacquired stock is recorded as treasury stock which is a reduction to shareholders’ equity. The Company’s stock held by its subsidiaries is also treated as treasury stock and reclassified from long-term investments to treasury stock.
 
    Foreign Currency Transactions
 
    Foreign currency transactions are recorded in New Taiwan dollars at the current rate of exchange in effect when the transactions occur. Exchange gains or losses derived from foreign currency transactions or monetary assets and liabilities denominated in a foreign currency are recognized in current operations. At the end of each period, assets and liabilities denominated in foreign currencies are revalued at the prevailing exchange rate with the resulting gains or losses recognized in current operations.
 
    Derivative Financial Instruments
 
    The Company enters into foreign currency forward contracts to manage its currency exposures in cash flow and in foreign currency-denominated assets and liabilities. The differences in the New Taiwan dollar amounts translated using the spot rate and the amounts translated using the contracted forward rates on the contract date are amortized over the terms of the forward contracts using the straight-line method. At the end of each period, the receivables or payables arising from forward contracts are restated using the prevailing spot rate at the balance sheet date with the resulting differences charged to income. In addition, the receivables and payables related to forward contracts are netted with the resulting amount presented as either an asset or a liability. Any resulting gains or losses upon settlement are charged to income in the period of settlement.
 
    The Company enters into interest rate swap transactions to manage its exposures to changes in interest rates on existing liabilities. These transactions are accounted for on an accrual basis, in which the cash settlement receivable or payable is recorded as an adjustment to interest income or expense.
 
    The notional amount of foreign currency option contracts entered into for hedging purposes are not recognized as an asset or liability on the contract dates. The premiums paid or received for the call or put options are amortized and charged to income on a straight-line basis over the term of the related contract. Any resulting gains or losses upon settlement are charged to income in the period of settlement.
 
3.   CASH AND CASH EQUIVALENTS
                 
    June 30
    2004
  2003
Cash and bank deposits
  $ 69,712,977     $ 63,513,247  
Government bonds acquired under repurchase agreements
    10,165,256       3,032,803  
Corporate issued notes
    884,533        
Treasury bills
    842,873        
Agency notes
    435,526        
Commercial papers
    101,235        
 
   
 
     
 
 
 
  $ 82,142,400     $ 66,546,050  
 
   
 
     
 
 

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4.   SHORT-TERM INVESTMENTS
                 
    June 30
    2004
  2003
Bond funds
  $ 9,900,000     $  
Corporate bonds
    7,190,519        
Government bonds
    7,052,471       3,054,050  
Agency bonds
    6,974,162        
Corporate issued asset-backed securities
    6,720,188        
Government bonds acquired under repurchase agreements
    3,355,145        
Listed stocks
    6,528        
 
   
 
     
 
 
 
  $ 41,199,013     $ 3,054,050  
 
   
 
     
 
 
Market value
  $ 41,491,242     $ 3,057,705  
 
   
 
     
 
 

    The Company entered into investment management agreements with two well-known financial institutions (fund managers) to manage investment portfolios for the Company. In accordance with the investment guidelines and terms in these agreements, the securities invested by fund managers should reach specific level of credit rating. As of June 30, 2004, the Company invested these investment portfolios in the aggregate amount of US$800,000 thousand. The investment portfolios included securities such as notes, treasury bills, asset-backed securities, agency bonds, commercial papers, corporate bonds and government bonds. The securities acquired with maturities less than three months from the date of purchase had been reclassified to cash equivalents.
 
5.   INVENTORIES—NET
                 
    June 30
    2004
  2003
Finished goods
  $ 2,392,871     $ 1,872,790  
Work in process
    9,192,283       10,522,974  
Raw materials
    785,848       374,667  
Supplies and spare parts
    755,052       677,276  
 
   
 
     
 
 
 
    13,126,054       13,447,707  
Allowance for losses
    (1,400,866 )     (2,092,173 )
 
   
 
     
 
 
 
  $ 11,725,188     $ 11,355,534  
 
   
 
     
 
 

6.   LONG-TERM INVESTMENTS
                                 
    June 30
    2004
  2003
            % of           % of
    Carrying   Owner-   Carrying   Owner-
    Value
  ship
  Value
  ship
Equity method:
                               
TSMC International Investment Ltd. (TSMC International)
  $ 23,708,232       100     $ 21,954,303       100  
Vanguard International Semiconductor Corporation (VIS)
    4,667,952       28       3,848,018       28  
TSMC Partners, Ltd. (TSMC Partners)
    4,113,671       100       3,931,378       100  
Systems on Silicon Manufacturing Company Pte Ltd. (SSMC)
    3,181,111       32       2,609,934       32  

(Continued)

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Table of Contents

                                 
    June 30
    2004
  2003
            % of           % of
    Carrying   Owner-   Carrying   Owner-
    Value
  ship
  Value
  ship
TSMC (Shanghai) Company Limited (TSMC—Shanghai)
  $ 1,758,405       100     $        
Emerging Alliance Fund, L.P. (Emerging Alliance)
    912,982       99       879,128       99  
TSMC North America (TSMC—North America)
    474,695       100       240,294       100  
Global Unichip Corporation (GUC)
    362,629       47       387,376       47  
VentureTech Alliance Fund II, L.P., (VTAF II)
    165,190       98              
TSMC Japan K. K. (TSMC—Japan)
    100,521       100       91,333       100  
VisEra Technology Company, Ltd. (VisEra)
    51,825       25              
Chi Cherng Investment Co., Ltd. (Chi Cherng)
    42,990       36       38,514       36  
Hsin Ruey Investment Co., Ltd. (Hsin Ruey)
    42,673       36       38,216       36  
Taiwan Semiconductor Manufacturing Company Europe B.V. (TSMC—Europe)
    23,764       100       10,990       100  
 
   
 
             
 
         
 
    39,606,640               34,029,484          
 
   
 
             
 
         
Cost method:
                               
Publicly traded stock
                               
Amkor Technology
                280,748        
Monolithic System Technology Inc.
                104,289       2  
Taiwan Mask Co., Ltd.
                32,129       2  
Non-publicly traded stock
                               
United Industrial Gases Co., Ltd.
    193,584       11       193,584       11  
Shin-Etsu Handotai Taiwan Co., Ltd.
    105,000       7       105,000       7  
Hontung Venture Capital Co., Ltd.
    83,916       10       83,916       10  
W.K. Technology Fund IV
    50,000       2       50,000       2  
Funds
                               
Horizon Venture Fund I, L.P.
    246,485             195,452        
Crimson Asia Capital Ltd., L.P.
    37,392             47,385        
 
   
 
             
 
         
 
    716,377               1,092,503          
 
   
 
             
 
         
Long-term bonds—government bonds
    8,893,477                    
 
   
 
             
 
         
 
  $ 49,216,494             $ 35,121,987          
 
   
 
             
 
         

    In August, November, 2003 and May 2004, the Company established TSMC—Shanghai, invested in VisEra and VTAF II, respectively.
 
    For the six months ended June 30, 2004 and 2003, net investment income and losses recognized by equity method were NT$2,053,966 thousand and NT$705,431 thousand for the six months ended June 30, 2004 and 2003, respectively. The carrying value of investments accounts accounted for under the equity method and the related investment income or losses were determined based on the audited financial statements of the investees for the same periods as the Company.

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7.   PROPERTY, PLANT AND EQUIPMENT
 
    Accumulated depreciation consisted of the following:
                 
    June 30
    2004
  2003
Buildings
  $ 32,452,205     $ 26,377,185  
Machinery and equipment
    238,344,951       189,172,205  
Office equipment
    4,268,797       3,366,082  
 
   
 
     
 
 
 
  $ 275,065,953     $ 218,915,472  
 
   
 
     
 
 

    Information on the status of the expansion or construction plans of the Company’s manufacturing facilities as of June 30, 2004 is as follows:
                         
    Estimated   Accumulated    
Construction/Expansion Plan
  Complete Cost
  Expenditures
  Expected Date of Commencement
Fab 14 construction
  $ 67,047,200     $ 59,076,700     Fourth quarter of 2004
Fab 12 expansion
    59,235,000       864,000     First quarter of 2005

    Interest expense for the six months ended June 30, 2004 and 2003 was NT$760,090 thousand and NT$949,056 thousand, respectively (before deducting capitalized amounts of NT$157,109 thousand in 2004 and NT$2,932 thousand in 2003, respectively). The interest rate used for purposes of calculating the capitalized amount was 2.80% and 5.283% for the six months ended June 30, 2004 and 2003, respectively.

8.   DEFERRED CHARGES—NET
                 
    June 30
    2004
  2003
Technology license fee
  $ 7,518,432     $ 5,711,412  
Software and system design costs
    2,444,985       2,955,771  
Others
    103,201       64,261  
 
   
 
     
 
 
 
  $ 10,066,618     $ 8,731,444  
 
   
 
     
 
 

9.   BONDS
                 
    June 30
    2004
  2003
Domestic unsecured bonds:
               
Issued in October, 1999 and payable in October, 2004, 5.95% interest payable annually
  $ 5,000,000     $ 5,000,000  
Issued in December, 2000 and payable in December 2005 and 2007 in two equal payments, 5.25% and 5.36% interest payable annually, respectively
    15,000,000       15,000,000  
Issued in January, 2002 and payable in January 2007, 2009 and 2012 in three equal payments, 2.6%, 2.75% and 3% interest payable annually, respectively
    15,000,000       15,000,000  
 
   
 
     
 
 
 
  $ 35,000,000     $ 35,000,000  
 
   
 
     
 
 

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    As of June 30, 2004 future principal payments for the Company’s bonds arrangements are as follows:
         
Year of Repayment
  Amount
2004 3rd to 4th quarter
  $ 5,000,000  
2005
    10,500,000  
2007
    7,000,000  
2008 and thereafter
    12,500,000  
 
   
 
 
 
    35,000,000  
Less: Current portion
    5,000,000  
 
   
 
 
 
  $ 30,000,000  
 
   
 
 

10.   OTHER LONG-TERM PAYABLES
 
    The Company entered into several license arrangements for certain semiconductor-related patents. Future payments under the agreements as of June 30, 2004 are as follows:
         
Year
  Amount
2004 3rd to 4th quarter
  $ 1,114,196  
2005
    1,271,495  
2006
    455,962  
2007
    472,850  
2008
    270,200  
2009 and thereafter
    810,600  
 
   
 
 
 
    4,395,303  
Less: Current portion (under accrued expenses and other current liabilities)
    1,757,476  
 
   
 
 
 
  $ 2,637,827  
 
   
 
 

11.   PENSION PLAN
 
    The Company has a defined benefit pension plan for all regular employees that provides benefits based on length of service and average monthly salaries and wages for the six-month period prior to retirement.
 
    The Company contributes at an amount equal to 2% of salaries paid every month to a Pension Fund (the Fund). The Fund is administered by a pension fund monitoring committee (the Committee) and the amounts in the Fund are deposited in the Committee’s name in the Central Trust of China.
 
    Accrued pension costs based on actuarial calculation for the six months ended June 30, 2004 and 2003 were NT$365,228 thousand and NT$311,022 thousand, respectively. The balances of the Fund were NT$1,324,108 thousand and NT$1,101,623 thousand as of June 30, 2004 and 2003, respectively.

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12.   INCOME TAX

  a.   A reconciliation of income tax expense on income before income tax at the statutory rate and current income tax expense before income tax credits is as follows:
                 
    Six Months Ended
    June 30
    2004
  2003
Income tax expense based on “income before income tax” at statutory rate (25%)
  $ (10,388,989 )   $ (4,188,111 )
Tax-exempt income
    6,233,394       2,027,750  
Temporary and permanent differences
    (294,984 )     162,898  
 
   
 
     
 
 
Current income tax expense before income tax credits
  $ (4,450,579 )   $ (1,997,463 )
 
   
 
     
 
 

  b.   Income tax benefit (expense) consists of the following:
                 
    Six Months Ended
    June 30
    2004
  2003
Current income tax expense before tax credits
  $ (4,450,579 )   $ (1,997,463 )
Additional 10% on the unappropriated earnings
    (821,767 )     (1,271,759 )
Income tax credits
    5,272,346       3,269,222  
Other income tax
    (278,489 )     (2,500 )
Net change in deferred income tax assets and liabilities
               
Investment tax credits
    (883,812 )     2,573,210  
Temporary differences
    528,349       (476,739 )
Valuation allowances
    1,276,796       (2,758,582 )
 
   
 
     
 
 
Income tax benefit (expense)
  $ 642,844     $ (664,611 )
 
   
 
     
 
 

  c.   Deferred income tax assets (liabilities) consist of the following:
                 
    June 30
    2004
  2003
Current:
               
Investment tax credits
  $ 6,144,000     $ 3,320,000  
 
   
 
     
 
 
Noncurrent:
               
Investment tax credits
  $ 18,622,082     $ 25,820,863  
Temporary differences
    (2,957,102 )     (4,042,580 )
Valuation allowances
    (11,495,051 )     (12,600,723 )
 
   
 
     
 
 
 
  $ 4,169,929     $ 9,177,560  
 
   
 
     
 
 

  d.   Integrated income tax information:
 
      The balances of the imputation credit account (ICA) as of June 30, 2004 and 2003 were NT$347,422 thousand and NT$14,748 thousand, respectively.
 
      The actual creditable ratio for 2003 and 2002 were 0.03% and 0.08%, respectively.
 
  e.   All retained earnings generated prior to December 31, 1997 had been appropriated.

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  f.   As of June 30, 2004, investment tax credits consist of the following:
                             
        Total   Remaining    
        Creditable   Creditable   Expire
Regulation
  Items
  Amounts
  Amounts
  Year
Statute for Upgrading
  Purchase of machinery   $ 4,461,519     $ 20,936       2004  
Industries
  and equipment     3,820,225       3,820,225       2005  
 
        4,917,933       4,917,933       2006  
 
        4,146,862       4,146,862       2007  
 
        867,205       867,205       2008  
 
       
 
     
 
         
 
      $ 18,213,744     $ 13,773,161          
 
       
 
     
 
         
Statute for Upgrading
  Research and development   $ 2,270,013     $ 1,438,251       2004  
Industries
  expenditures     3,147,071       3,147,071       2005  
 
        3,342,952       3,342,952       2006  
 
        1,976,913       1,976,913       2007  
 
        917,500       917,500       2008  
 
       
 
     
 
         
 
      $ 11,654,449     $ 10,822,687          
 
       
 
     
 
         
Statute for Upgrading
  Personnel training   $ 48,659     $ 48,659       2004  
Industries
        29,448       29,448       2005  
 
        27,311       27,311       2006  
 
        26,780       26,780       2007  
 
       
 
     
 
         
 
      $ 132,198     $ 132,198          
 
       
 
     
 
         
Statute for Upgrading
Industries
  Investments in important
technology-based enterprise
  $ 38,036     $ 38,036       2005  
     
 
     
 
         

  g.   The sales generated from the following expansion and construction of the Company’s manufacturing plants are exempt from income tax:
         
    Tax-Exemption Period
Construction of Fab 6
    2001 to 2004  
Construction of Fab 8—module 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  

  h.   The tax authorities have examined income tax returns of the Company through 2000. However, the Company is contesting the assessment by the tax authority for 1992, 1997 and 1998. The Company believes that any additional assessment will not have a material adverse effect on the Company.

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13.   LABOR COST, DEPRECIATION AND AMORTIZATION EXPENSE
                                                 
    Six Months Ended June 30, 2004
  Six Months Ended June 30, 2003
            Classified as                   Classified as    
    Classified as   Operating           Classified as   Operating    
    Cost of Sales
  Expense
  Total
  Cost of Sales
  Expense
  Total
Labor cost
                                               
Salary
  $ 4,302,502     $ 2,063,433     $ 6,365,935     $ 3,421,909     $ 1,469,436     $ 4,891,345  
Labor and health insurance
    269,132       148,662       417,794       223,533       112,100       335,633  
Pension
    235,293       129,935       365,228       207,039       103,983       311,022  
Other
    174,500       311,136       485,636       88,871       47,921       136,792  
Depreciation
    27,377,787       1,193,473       28,571,260       27,768,264       1,152,407       28,920,671  
Amortization
    1,381,976       1,123,581       2,505,557       755,793       1,190,504       1,946,297  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
 
  $ 33,741,190     $ 4,970,220     $ 38,711,410     $ 32,465,409     $ 4,076,351     $ 36,541,760  
 
   
 
     
 
     
 
     
 
     
 
     
 
 

14.   SHAREHOLDERS’ EQUITY
 
    The Company has issued 668,395 thousand ADSs which are traded on the NYSE as of June 30, 2004. The number of common shares represented by the ADSs is 3,341,973 thousand shares (one ADS represents five common shares).
 
    Capital surplus can only be used to offset a deficit under the ROC Company Law. However, the components of capital surplus generated from donated capital and the excess of the issue price over the par value of capital stock (including the stock issued for new capital, mergers, convertible bonds and the purchase of treasury stock) can be transferred to capital as stock dividends.
 
    As of June 30, 2004 and 2003, the capital surplus consisted of the following:
                 
    2004
  2003
From merger
  $ 24,132,297     $ 24,132,297  
Additional paid-in capital
    23,172,550       23,172,550  
From long-term investments
    115,665       81,746  
From convertible bonds
    9,410,632       9,410,632  
Donation
    55       55  
Treasury stock
    54,715       43,471  
 
   
 
     
 
 
Total
  $ 56,885,914     $ 56,840,751  
 
   
 
     
 
 

    The Company’s Articles of Incorporation provide that the following shall be appropriated from annual earnings to the extent that the annual earnings exceed any accumulated deficit:

  a.   10% legal reserve; until the amount of total legal reserve equals to the Company’s total paid-in capital;
 
  b.   Special reserve in accordance with relevant laws or regulations;
 
  c.   Remuneration to directors and supervisors and bonuses to employees equals to 0.3% and at least 1% of the remainder, respectively. Individuals eligible for the employee bonuses may include employees of affiliated companies as approved by the board of directors or a representative of the board of directors;
 
  d.   Dividends to holders of preferred shares at a 3.5% annual rate are based on the period which the preferred shares have been outstanding. Following the redemption of all its issued and outstanding preferred shares on May 29, 2003, the Company amended its Article of Incorporation on June 3, 2003 to remove the provision for issuance of any future dividends to preferred shareholders as of that date; and

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  e.   The appropriation of any remaining balance shall be approved by the shareholders.

    Dividends may be distributed in shares of common stock or a combination of cash and common stock. Distributions of profits are preferably made in the form of stock dividend. The total of cash dividends paid in any given year may not exceed 50% of total dividends distributed in that year.
 
    Any appropriations of net income are recorded in the financial statement in the year of shareholder approval.
 
    The appropriation for legal reserve shall be made until the reserve equals the aggregate par value of the Company’s outstanding capital stock. The reserve can only be used to offset an accumulated deficit or be distributed as a stock dividend up to 50% of the reserve balance when the reserve balance has reached 50% of the aggregate par value of the outstanding capital stock of the Company.
 
    A special reserve equivalent to the debit balance of any account shown in the shareholder’s equity section of the balance sheet (for example, unrealized loss on long-term investments and cumulative translation adjustments), shall be made from unappropriated retained earnings pursuant to existing regulations promulgated by the R.O.C Securities and Futures Commission (SFC). The special reserve is allowed to be appropriated to the extent that the debit balance of such accounts is reversed.
 
    The appropriations of earnings for 2003 and 2002 were approved in the shareholders’ meeting on May 11, 2004 and June 3, 2003, respectively. The appropriations and dividend per share are as follows:
                                 
                    Dividend Per Share
    Appropriation of Earnings
  (NT$)
    For Fiscal   For Fiscal   For Fiscal   For Fiscal
    Year 2003
  Year 2002
  Year 2003
  Year 2002
Legal reserve
  $ 4,725,870     $ 2,161,029              
Special reserve
    (68,945 )     68,945              
Bonus paid to employees—in cash
    681,628                    
Bonus paid to employees—in stock
    2,726,514       1,539,013              
Preferred stock dividend—in cash
    184,493       455,000       0.35       0.35  
Common stock dividend—in cash
    12,159,971             0.60        
Common stock dividend—in stock
    28,373,267       14,898,309       1.41       0.80  
Remuneration to directors and supervisors—in cash
    127,805       58,485              
 
   
 
     
 
                 
 
  $ 48,910,603     $ 19,180,781                  
 
   
 
     
 
                 

    The amount of above appropriation of earnings for 2003 and 2002 is consistent with the resolution of the meetings of board of directors on February 17, 2004 and March 4, 2003, respectively. However, the Company Law of R.O.C. states that treasury stock shall not participate in the appropriation of earnings. Therefore, the actual cash dividend per share and stock dividend per share are slightly more than those in the aforementioned resolution. If the above employee bonus and remuneration to directors and supervisors had been paid in cash and charged against income for 2003 and 2002, the basic earnings per share for the years ended December 31, 2003 and 2002 would decrease from NT$2.33 to NT$2.15 and NT$1.14 to NT$1.05, respectively. The shares distributed as a bonus to employees represented 1.35 % and 0.83 % of the Company’s total outstanding common shares as of December 31, 2003 and 2002, respectively.
 
    The above information associated with the appropriations of bonus to employees and remuneration to directors and supervisors is available at Market Observation System website.

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    Under the Integrated Income Tax System that became effective on January 1, 1998, ROC resident shareholders are allowed a tax credit for their proportionate share of the income tax paid by the Company on earnings generated as of January 1, 1998. An imputation credit account is maintained by the Company for such income tax and the tax credit allocated to each shareholder.
 
    Preferred Shareholders
 
    The Company issued 1,300,000 thousand shares of unlisted Series A—preferred stock to certain investors on November 29, 2000. All of the preferred stock was redeemed at par value and retired on May 29, 2003. Under the Company’s Articles of Incorporation, as amended on June 3, 2003, the Company is no longer authorized to issue preferred stock.
 
    The preferred shareholders had the following rights and related terms and conditions prior to redemption:
 
    Preferred shareholders

  a.   Are entitled to receive cumulative cash dividends at an annual rate of 3.5%.
 
  b.   Are not entitled to receive any common stock dividends (whether declared out of unappropriated earnings or capital surplus).
 
  c.   Have priority over the holders of common shares to the assets of TSMC available for distribution to shareholders upon liquidation or dissolution; however, the pre-emptive rights to the assets shall not exceed the issue value of the shares.
 
  d.   Have voting rights similar to that of the holders of common shares.
 
  e.   Have no right to convert their shares into common shares. The preferred shares are to be redeemed within thirty months from their issuance. The preferred shareholders have the aforementioned rights and the Company’s related obligations remain the same until the preferred shares are redeemed by the Company.

15.   STOCK-BASED COMPENSATION PLANS
 
    On October 29, 2003 and June 25, 2002, the SFC approved The Company’s Employee Stock Option Plans (the 2003 Plan and the 2002 Plan, respectively). The maximum number of units authorized to be granted under the 2003 Plan and the 2002 Plan was 120,000 thousand and 100,000 thousand, respectively, with each unit representing one common share of stock. The option rights may be granted to qualified employees of the Company, TSMC—North America, and WaferTech, LLC, (WaferTech, an indirectly owned subsidiary of the Company). The option rights of both plans are valid for ten years and exercisable at certain percentages subsequent to the second anniversary of the grant date. Under the terms of both plans, stock option rights are granted at an exercise price equal to the closing price of the Company’s common shares listed on the TSE on the date of grant. Under the 2002 Plan, there were 57,239 thousand option rights had never been granted, or had been granted and subsequently cancelled. These un-granted or cancelled option rights expired as of June 30, 2004.

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      Information of outstanding stock option rights for the six months ended June 30, 2004 and 2003 under the 2003 Plan and the 2002 Plan is as follows:
                                 
    2003 Plan
  2002 Plan
    Number of   Weighted-   Number of   Weighted-
    Outstanding   Average   Outstanding   Average
    Stock Option   Exercise   Stock Option   Exercise
    Rights   Price   Rights   Prices
    (In Thousands)
  (NT$)
  (In Thousands)
  (NT$)
Six months ended June 30, 2004
                               
Beginning balance
    842       57.8       48,515       42.7  
Options granted
    12,891       50.0       7,200       42.6  
Options cancelled
    (377 )     51.5       (2,133 )     44.0  
 
   
 
             
 
         
Ending balance
    13,356               53,582          
 
   
 
             
 
         
Six months ended June 30, 2003
                               
Beginning balance
                    19,369       52.9  
Options granted
                    21,792       54.6  
Options cancelled
                    (600 )     52.8  
 
                   
 
         
Ending balance
                    40,561          
 
                   
 
         

    The number of outstanding option rights and exercise prices have been adjusted to reflect the appropriations of dividends in accordance with the plans.
 
    As of June 30, 2004, there are no exercisable stock option rights. Information on outstanding option rights is as follows:
                         
    Option Outstanding
    Number of   Weighted-Average    
    Outstanding   Remaining   Weighted-Average
    Options   Contractual Life   Exercise Price
Range of Exercise Prices (NT$)
  (In Thousands)
  (Years)
  (NT$)
2003 Plan (49.9-57.8)
    13,356       9.84       50.4  
2002 Plan (32.8-46.2)
    53,582       8.59       42.6  
 
   
 
                 
Total (32.8-57.8)
    66,938       8.84       44.2  
 
   
 
                 

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    The compensation cost recognized for the six months ended June 30, 2004 was zero. If the Company uses fair-value based method to evaluate the options granted, the method, assumptions and pro forma results of the Company for the six months ended June 30, 2004 would be as follows:
         
Method:
  Black-Scholes model
Assumptions:
       
Expected dividend yield
    1.00 %
Expected volatility
    43.19%-43.25 %
Risk free interest rate
    3.07%-3.85 %
Expected life
  5 years
Net income:
       
Net income as reported
  $ 42,198,802  
Pro forma net income
    42,184,898  
Earnings per share (EPS) (NT$):
       
Basic EPS as reported
    1.81  
Pro forma basic EPS
    1.81  
Diluted EPS as reported
    1.81  
Pro forma diluted EPS
    1.81  

    The estimated weighted average fair value for the options granted under the 2003 Plan during the six-month period ended June 30, 2004 was NT$19.75 per option.
 
16.   TREASURY STOCK (COMMON STOCK)
                                 
    (Shares in Thousand)
    Beginning   Increase/           Ending
    Shares
  Dividend
  Decrease
  Shares
Six months ended June 30, 2004
                               
Reclassification of parent company stock held by subsidiaries from long-term investment
    40,597       5,676       303       45,970  
Maintaining the shareholders’ equity
          124,720             124,720  
 
   
 
     
 
     
 
     
 
 
 
    40,597       130,396       303       170,690  
 
   
 
     
 
     
 
     
 
 
Six months ended June 30, 2003
                               
Reclassification of parent company stock held by subsidiaries from long-term investment
    42,001             40       41,961  
 
   
 
     
 
     
 
     
 
 

    Proceeds from sale of treasury stock held by subsidiaries for the six months ended June 30, 2004 and 2003 were NT$18,218 thousand and NT$1,876 thousand, respectively. As of June 30, 2004 and 2003, the book value of the stock held by subsidiaries was NT$1,616,669 thousand and NT$1,922,049 thousand, respectively; the market value was NT$2,247,024 thousand and NT$2,463,723 thousand, respectively. Capital stock held by subsidiaries as an investment is recorded as treasury stock with the holder having the same rights as other common shareholders.
 
    In order to maintain the shareholders’ equity, the Company held a special meeting of the Board of Directors and approved a share buyback plan to purchase the Company’s common shares listed on the TSE from its shareholders during the period from March 24, 2004 to May 23, 2004. The purchased shares will be cancelled and deducted from the Company’s current outstanding common shares. The maximum number of shares of treasury stock that the Company can hold is 300,000 thousand shares while the prices of the range from NT$38.5 to NT$95 per share. As of June 30, 2004, the share buyback plan has ended and the Company has purchased 124,720 thousand common shares for a total of NT$7,059,798 thousand. As of July 13, 2004, the treasury stock has not been retired.

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17.   EARNINGS PER SHARE
 
    EPS is computed as follows:
                                         
                            EPS (NT$)
    Amounts (Numerator)          
   
  Shares   Before   After
    Before   After   (Denominator)   Income   Income
    Income Tax
  Income Tax
  (Thousand)
  Tax
  Tax
Six months ended June 30, 2004
                                       
Basic EPS
                                       
Income available to common shareholders
  $ 41,555,958     $ 42,198,802       23,291,848     $ 1.78     $ 1.81  
 
                           
 
     
 
 
Effect of diluted securities—stock option
                9,321                  
 
   
 
     
 
     
 
                 
Diluted EPS
                                       
Income available to common shareholders
  $ 41,555,958     $ 42,198,802       23,301,169     $ 1.78     $ 1.81  
 
   
 
     
 
     
 
     
 
     
 
 
Six months ended June 30, 2003
                                       
Net income
  $ 16,752,445     $ 16,087,834                          
Less—preferred stock dividends
    (184,493 )     (184,493 )                        
 
   
 
     
 
                         
Basic and diluted EPS
                                       
Income available to common shareholders
  $ 16,567,952     $ 15,903,341       23,324,860     $ 0.71     $ 0.68  
 
   
 
     
 
     
 
     
 
     
 
 

    The potential common shares issuable under the employee stock option plans (see Note 15) are included in the denominator of the diluted EPS computation by using the treasury stock method under the Statement of Financial Accounting Statement No. 24 “Earning Per Share”, however, such shares resulted in a non-dilutive per share amount for the six months ended June 30, 2003.
 
18.   RELATED PARTY TRANSACTIONS
 
    The Company engages in business transactions with the following related parties:

  a.   Industrial Technology Research Institute (ITRI), the Chairman of the Company is one of its directors
 
  b.   Philips, a major shareholder of the Company
 
  c.   Subsidiaries
 
      TSMC—North America
TSMC—Europe
TSMC—Japan
 
  d.   Investees
 
      VIS
GUC
SSMC
 
  e.   Indirect subsidiaries
 
      WaferTech
TSMC Technology Inc. (TSMC Technology)

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    The significant transactions with the aforementioned parties in addition to those disclosed in other Notes are summarized as follows:
                                 
    Six Months Ended June 30
    2004
  2003
    Amount
  %
  Amount
  %
For the period
                               
Sales
                               
TSMC—North America
  $ 68,191,878       55     $ 52,570,870       58  
Philips and its affiliates
    2,712,508       2       1,396,502       2  
Others
    205,544             369,015        
 
   
 
     
 
     
 
     
 
 
 
  $ 71,109,930       57     $ 54,336,387       60  
 
   
 
     
 
     
 
     
 
 
Purchases
                               
WaferTech
  $ 7,505,754       35     $ 4,669,299       32  
VIS
    4,247,055       19       2,286,535       16  
SSMC
    3,050,439       14       2,676,309       19  
 
   
 
     
 
     
 
     
 
 
 
  $ 14,803,248       68     $ 9,632,143       67  
 
   
 
     
 
     
 
     
 
 
Manufacturing expenses—technical assistance fee (see Note 20a)
                               
Philips
  $ 808,072       1     $ 1,493,877       3  
 
   
 
     
 
     
 
     
 
 
Marketing expenses—commission
                               
TSMC—Japan
  $ 139,243       14     $ 63,642       10  
TSMC—Europe
    105,175       11       47,577       7  
 
   
 
     
 
     
 
     
 
 
 
  $ 244,418       25     $ 111,219       17  
 
   
 
     
 
     
 
     
 
 
Sale of property, plant, and equipment
                               
VIS
  $ 32,960       13     $ 8,098       6  
 
   
 
     
 
     
 
     
 
 
Non-operating income and gain
                               
SSMC (mainly technical service income, see Note 20e)
  $ 149,362       5     $ 54,811       6  
VIS
    29,763       1       271        
WaferTech
    2,076             81        
 
   
 
     
 
     
 
     
 
 
 
  $ 181,201       6     $ 55,163       6  
 
   
 
     
 
     
 
     
 
 
At end of the period
                               
Receivables
                               
TSMC—North America
  $ 17,029,287       94     $ 14,490,662       96  
Philips and its affiliates
    922,713       5       508,535       3  
Others
    178,742       1       187,793       1  
 
   
 
     
 
     
 
     
 
 
 
  $ 18,130,742       100     $ 15,186,990       100  
 
   
 
     
 
     
 
     
 
 

(Continued)

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Table of Contents

                                 
    Six Months Ended June 30
    2004
  2003
    Amount
  %
  Amount
  %
Payables
                               
VIS
  $ 1,844,800       40     $ 996,832       28  
WaferTech
    1,296,351       28       930,867       26  
Philips and its affiliates
    745,428       16       1,160,377       32  
SSMC
    685,240       15       395,253       11  
Others
    90,182       1       107,688       3  
 
   
 
     
 
     
 
     
 
 
 
  $ 4,662,001       100     $ 3,591,017       100  
 
   
 
     
 
     
 
     
 
 
Other payables to related parties (excluding current portion which is under payables to related parties. See Note 20a) Philips and its affiliates
  $ 3,622,369       100              
 
   
 
     
 
     
 
     
 
 
Refundable deposits
                               
VIS
  $           $ 349,204       93  
 
   
 
     
 
     
 
     
 
 

    The terms of sales to related parties and the terms of the sales of property, plant and equipment to related parties are not significantly different from those to third parties. For other related parties transactions, since no other similar transactions to follow, the prices are determined in accordance with the related contractual agreements.
 
19.   SIGNIFICANT LONG-TERM OPERATING LEASES
 
    The Company leases land from the Science-Based Industrial Park Administration. These agreements expire on various dates from March 2008 to December 2020. The agreements can be renewed upon their expiration.
 
    As of June 30, 2004, future remaining lease payments are as follows:
         
Year
  Amount
2004 (3rd to 4th quarter)
  $ 117,674  
2005
    235,348  
2006
    235,348  
2007
    235,348  
2008
    210,687  
2009 and thereafter
    1,617,858  
 
   
 
 
 
  $ 2,652,263  
 
   
 
 

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20.   SIGNIFICANT COMMITMENTS AND CONTINGENCIES
 
    The significant commitments and contingencies of the Company as of June 30, 2004 are as follows:

  a.   On June 20, 2004, the Company and Philips revised the Technical Cooperation Agreement, which was originally signed on May 12, 1997, with effective date from January 1, 2004 for five years. Upon expiration, this amended Technical Cooperation Agreement will be terminated at the expiration date and will not be automatically renewed. Under this amended Technical Cooperation Agreement, the Company will pay Philips royalties based on fixed amounts mutually agreed-on, rather than under certain percentage of the Company’s annual net sales. The Company and Philips also agree to cross license the patents owned by each party.
 
  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.
 
  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, 2004, the Company had a total of US$17,616 thousand of guarantee deposits.
 
  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, for the purpose of constructing an integrated circuit foundry in Singapore. As of June 30, 2004, the Company’s equity interest in SSMC was 32%. The Company and Philips committed to buy specific percentages of the production capacity of SSMC. If any party defaults on the commitment and the capacity utilization of SSMC falls below a specific percentage of its total capacity, the defaulting party is required to compensate SSMC for all related unavoidable costs.
 
  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 certain products sold by SSMC. The Agreement shall remain in force for ten years and may be automatically renewed for successive periods of five years unless pre-terminated by either party under certain conditions.
 
  f.   The Company provided guarantees on loans amounting to US$60,000 thousand, US$40,000 thousand and US$440,000 thousand for TSMC Development, Inc. (TSMC Development), TSMC—North America and WaferTech, respectively.
 
  g.   Under a Technology Transfer Agreement (TTA) with National Semiconductor Corporation (National) entered into on June 27, 2000, the Company shall receive payments for the licensing of certain technology to National. The agreement was to remain in force for ten years and could be automatically renewed for successive periods of two years thereafter unless either party gives notice for early termination under certain conditions. In January 2003, the Company and National entered into a Termination Agreement whereby the TTA was terminated for convenience. Under the termination agreement, the Company is relieved of further obligation to transfer 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.
 
  h.   Beginning in 2001, the Company entered into several licensing arrangements for certain semiconductor patents. The terms of the contracts range from five to ten years with payments to be made in the form of royalties over the term of the related contracts. The Company has recorded the related amounts as a liability with the corresponding amounts recorded as deferred charges which are amortized and charged to cost of sales on a straight-line basis over the estimated life of the technology or the term of the contract, whichever is shorter.

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  i.   In November 2002, the Company entered into an Amended and Restated Joint Technology Cooperation Agreement with Philips, Motorola, Inc. and STMicroelectronics to jointly develop 90-nanometer to 65-nanometer advanced CMOS Logic and e-DRAM technologies. The Company also agreed to align 0.12 micron CMOS Logic technology to enhance its foundry business opportunities. The Company will contribute process technologies and share a portion of the costs associated with this joint development project.
 
  j.   In December 2003, the Company entered into a Technology Development and License Agreement with Motorola Inc. to jointly develop 65nm SOI (silicon on insulator) technology. The Company will also license related 90nm SOI technology from Motorola. 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 royalty to Motorola, Inc. and will share a portion of the costs associated with the joint development project.
 
  k.   In December 2003, the Company filed a lawsuit in the US District Court for the Northern District of California against Semiconductor Manufacturing International Corporation (SMIC) and certain of its subsidiaries for patent infringement seeking injunctive relief and monetary damages. In May 2004, the Company filed a separate suit against SMIC and certain of its subsidiaries in Alameda County of California for trade secret misappropriation seeking injunctive relief and monetary damages. The probable outcome in either forum cannot be reasonably estimated.
 
  l.   Amounts available under unused letters of credit as of June 30, 2004 were NT$6,480 thousand, US$15 thousand and SG$85 thousand.

21.   ADDITIONAL DISCLOSURES
 
    Following are the additional disclosures required by the SFC 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;
 
  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 capital: Please see Table 6 attached;
 
  h.   Receivable from related parties amounting to at least NT$100 million or 20% of the capital: Please see Table 7 attached;
 
  i.   Names, locations, and related information of investee on which the Company exercises significant influence: Please see Table 8 attached;

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Table of Contents

  j.   Financial instrument transactions:

  1)   Derivative financial instruments
 
      The Company entered into derivative financial instrument transactions for the six-month period ended June 30, 2004 to manage exposures related to foreign-currency denominated receivables or payables, and interest rate fluctuations. Certain information on these contracts is as follows:

  a)   Outstanding forward exchange contracts as of June 30, 2004 are as follows:
                   
  Financial           Contract Amount (Nominal)
  Instruments
  Period
    Amount) (In Thousand)
 
Sell
  July 2004 to April 2005   US$ 2,158,000 (US$/NT$)
 
Sell
  August 2004   EUR 20,000 (EUR/US$)

      As of June 30, 2004, payables to forward exchange contracts (included in the “other current liabilities” account) aggregate approximately NT$903,322 thousand. Net exchange losses for the six months ended June 30, 2004 was NT$69,938 thousand.
 
  b)   Interest rate swaps
 
      The Company entered into interest rate swap contracts to manage related interest rates on its long-term loans. Net interest income on these transactions for the six months ended June 30, 2004 was NT$9,292 thousand. Outstanding contracts as of June 30, 2004 were as follows:
               
          Contract
          Amount
          (Nominal)
  Contract Date
  Period
  (In Thousand)
 
September 19, 2003
  September 22, 2003 to December 15, 2005   $ 500,000  
 
October 16, 2003
  October 20, 2003 to December 15, 2005     500,000  
 
October 16, 2003
  October 20, 2003 to December 15, 2005     500,000  
 
October 17, 2003
  October 21, 2003 to December 15, 2005     500,000  
 
October 17, 2003
  October 20, 2003 to December 15, 2005     500,000  
 
November 7, 2003
  November 11, 2003 to December 15, 2005     500,000  

  c)   Transaction risk

  i)   Credit risk. Credit risk represents the positive net settlement amount of those contracts with positive fair values at the balance sheet date. The positive net settlement amount represents the loss incurred by the Company if the counter-parties breached the contracts. The banks, which are the counter-parties to the foregoing derivative financial instruments, are reputable financial institutions. Management believes its exposures related to the potential default by those counter-parties are low.
 
  ii)   Market price risk. All derivative financial instruments are intended as hedges for fluctuations in currency exchange rates on the Company’s foreign currency denominated receivables or payables and interest rate fluctuations on its floating rate long-term loans. Gains or losses from forward exchange contracts are likely to be offset by gains or losses from the hedged receivables and payables. Interest rate risks are also controlled as the expected cost of capital is fixed. Thus, market price risks are believed to be minimal.

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Table of Contents

  iii)   Liquidity and cash flow risk and uncertainty of amount and term of future cash demand.
 
      As of June 30, 2004, the Company’s future cash demand for outstanding forward exchange contracts, interest rate swaps and option contracts are as follows:
                       
      Forward Exchange Contracts
      Inflow   Outflow
  Term
  (In Thousand)
  (In Thousand)
 
Within one year
    NT$ 71,986,263       US$2,158,000  
 
      US$ 24,132       EUR  20,000  

      The Company has sufficient operating capital to meet the above cash demand. The interest rate of the interest rate swaps has taken the Company’s cost of capital into account. In addition, the exchange rates of forward foreign exchange contracts and interest swap contracts are fixed. Therefore, there is no material fund raising risk and cash flow risk.

  2)   The fair values of financial instruments were as follows:
                                 
    June 30
    2004
  2003
    Carrying           Carrying    
    Amount
  Fair Value
  Amount
  Fair Value
Non-derivative financial instruments
                               
Assets
                               
Short-term investments
  $ 41,199,013     $ 41,491,242     $ 3,054,050     $ 3,057,705  
Long-term investments
    49,216,494       57,269,033       35,121,987       38,358,044  
Liabilities
 
Bonds payable (includes current portion)
    35,000,000       35,729,923       35,000,000       35,838,341  
Derivative financial instruments
                               
Forward exchange contracts (buy)
                (39,769 )     (39,560 )
Forward exchange contracts (sell)
    (903,322 )     (538,407 )     (104,205 )     (65,798 )
Interest rate swaps
          (26,956 )     986       (22,130 )
Foreign currency options
                772       (87,415 )

      The above financial instruments do not include cash and cash equivalents, receivables, other financial assets, payables, and payable to contractors and equipment suppliers. The carrying amounts of aforementioned instruments reported in the balance sheet are approximate to their fair values.
 
      The above financial instruments also exclude refundable deposits, guarantee deposits and other long-term payables. The future cash inflow and outflow of the deposits approximate to their fair values and fair value of other long-term payables approximates to the carrying value.
 
      Fair values of financial instruments were determined as follows:

  a)   Fair value of short-term and long-term investments is based on quoted market prices. If quoted market prices are unavailable, fair value is based on net asset value or book value of investment.
 
  b)   The fair value of bonds payable is the quoted market value.

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  c)   Fair value of derivative financial instruments is the estimated net receivable or (payable) if the contracts are terminated on the relevant balance sheet date.

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

  k.   Information on investment in Mainland China

  1)   The name of the investee company in Mainland China, the main businesses and products, its issued capital, method of investment, information on inflow or outflow of capital, ratio of ownership, equity in the net gain or net loss, ending balance, amount received as earnings distributions from the investment, and the limitation on investment: Please see Table 9 attached.
 
  2)   Significant direct or indirect transactions with the investee company, its prices and terms of payment, unrealized gain or loss, and other related information which is helpful to understand the impact of investment in Mainland China on financial reports: None.

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TABLE 1

TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD. AND INVESTEES

FINANCING PROVIDED
FOR THE SIX MONTHS ENDED JUNE 30, 2004
(Amounts in Thousand New Taiwan Dollars, Unless Otherwise Specified)

                                             
                Maximum                
                Balance for the                
                Period   Ending Balance           Type of
            Financial Statement   (US$ in   (US$ in           Financing
No.
  Financing Name
  Counter-party
  Account
  Thousand)
  Thousand)
  Interest Rate
  (Note 1)
1  
TSMC International
  TSMC Technology   Other receivables   $ 337,750     $ 337,750       4.00 %     2  
   
 
          US$ (10,000 )   US$ (10,000 )                
   
 
  TSMC Development   Other receivables     2,026,500       2,026,500       1.50 %     2  
   
 
          US$ (60,000 )   US$ (60,000 )                
2  
TSMC Partners
  TSMC Development   Other receivables     2,702,000       2,702,000       1.50 %     2  
   
 
          US$ (80,000 )   US$ (80,000 )                


[Additional columns below]

[Continued from above table, first column(s) repeated]

                                                         
                                                    Financing
                                                    Company’s
                                            Financing Limit   Financing
                Reasons for           Collateral   for Each   Amount Limits
        Transaction   Short-term   Allowance for  
  Borrowing   (US$ in
No.
  Financing Name
  Amounts
  Financing
  Bad Debt
  Item
  Value
  Company
  Thousand)
1  
TSMC International
  $     Operating capital   $           $       N/A     $ 33,368,627  
   
 
                                              US$ (987,968)
   
 
                                              (Note 2)
   
 
        Operating capital                                  
2  
TSMC Partners
        Operating capital                       N/A     (Note 3)

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

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TABLE 2

TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD. AND INVESTEES

ENDORSEMENT/GUARANTEE PROVIDED
FOR THE SIX MONTHS ENDED JUNE 30, 2004
(Amounts in Thousand New Taiwan Dollars, Unless Otherwise Specified)

                         
        Counter-party
      Maximum
            Nature of   Limits on Each Counter-party’s   Balance for the
    Endorsement/       Relationship   Endorsement/   Period
No.
  Guarantee Provider
  Name
  (Note 2)
  Guarantee Amounts
  (US$ in Thousand)
0
  The Company   TSMC Development     3     Not exceed 10% of the net worth of the Company, and also limiting to the total capital issued of the endorsement/guarantee company, unless otherwise approved by Board of Directors.   $2,026,500
US$(60,000)
      TSMC-North America     2         1,351,000
US$(40,000)
      WaferTech     3         14,861,000
US$(440,000)

     

[Additional columns below]

[Continued from above table, first column(s) repeated]

                             
                Ratio of Accumulated    
                Amount of Collateral   Maximum
            Value of Collateral   to Net Equity of the   Collateral/Guarantee
    Endorsement/   Ending Balance   Property, Plant and   Latest Financial   Amounts Allowable
No.
  Guarantee Provider
  (US$ in Thousand)
  Equipment
  Statement
  (Note 1)
0
  The Company   $2,026,500
US$(60,000)
  $—     0.58 %   $ 87,768,438  
      1,351,000
US$(40,000)
      0.38 %        
      14,861,000
US$(440,000)
      4.23 %        

Note 1:   25% of the net worth of the Company as of June 30, 2004.
 
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.

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TABLE 3

TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD. AND INVESTEES

MARKETABLE SECURITIES HELD
JUNE 30, 2004
(Amounts in Thousand New Taiwan Dollars, Unless Otherwise Specified)

                                                 
                June 30, 2004
   
                            Market Value or    
                        Carrying Value           Net Asset Value    
        Relationship with   Financial Statement   Shares/Units   (US$ in   Percentage of   (US$ in    
Held Company Name
  Marketable Securities Type and Name
  the Company
  Account
  (In Thousand)
  Thousand)
  Ownership
  Thousand)
  Note
The Company
  Government bonds                                            
 
  2003 Government Bond Series A     Short-term investment         $ 1,207,409       N/A     $ 1,211,054      
 
  2002 Government Bond Series J     Short-term investment           2,023,206       N/A       2,009,878      
 
  2003 Government Bond Series I     Long-term investment           3,401,654       N/A       3,430,432      
 
  2004 Government Bond Series A     Long-term investment           3,891,458       N/A       3,898,408      
 
  2004 Government Bond Series E     Long-term investment           1,600,365       N/A       1,610,748      
 
  United States Treas NTS     Short-term investment         US$ 114,396       N/A     US$ 114,087      
 
                                               
 
  Bonds under repurchase agreement     Short-term investment           3,355,145       N/A       3,371,419      
 
                                               
 
  Bond funds                                            
 
  JF Taiwan Bond Fund     Short-term investment     102,364       1,500,000       N/A       1,510,964      
 
  ABN AMRO Bond Fund     Short-term investment     186,363       2,700,000       N/A       2,714,860      
 
  JF Taiwan First Bond Fund     Short-term investment     110,580       1,500,000       N/A       1,504,797      
 
  INVESCO R.O.C. Bond A Fund     Short-term investment     69,692       1,000,000       N/A       1,003,512      
 
  Dresdner Bond DAM Fund     Short-term investment     80,833       900,000       N/A       902,368      
 
  Barits Bond Fund     Short-term investment     59,679       700,000       N/A       701,952      
 
  Shinkong Chi Shin Bond Fund     Short-term investment     115,606       1,600,000       N/A       1,601,928      
 
                                               
 
  Stock                                            
 
  Taiwan Mask Corp.     Short-term investment     1,787       6,528             30,136      
 
  TSMC-North America   Subsidiary   Long-term investment     11,000       474,695       100       1,173,288     Treasury stock of
 
                                              NT$698,593 thousand
 
                                              is deducted from
 
                                              the carrying value.
 
  TSMC—Europe   Subsidiary   Long-term investment           23,764       100       23,764      
 
  TSMC—Japan   Subsidiary   Long-term investment     6       100,521       100       100,521      
 
  VIS   Investee   Long-term investment     787,016       4,667,952       28       10,884,427      
 
  TSMC International   Subsidiary   Long-term investment     987,968       23,708,232       100       23,708,232      
 
  TSMC Partners   Subsidiary   Long-term investment     300       4,113,671       100       4,113,671      
 
  SSMC   Investee   Long-term investment     382       3,181,111       32       3,181,111      
 
  GUC   Investee   Long-term investment     39,040       362,629       47       393,717      
 
  VisEra   Investee   Long-term investment     5,100       51,825       25       51,825      
 
  United Industrial Gases Co., Ltd.     Long-term investment     16,783       193,584       11       303,367      
 
  Shin-Etsu Handotai Taiwan Co., Ltd.     Long-term investment     10,500       105,000       7       152,570      
 
  W.K. Technology Fund IV     Long-term investment     5,000       50,000       2       58,433      
 
  Hontung Ventures Capital Co., Ltd.     Long-term investment     8,392       83,916       10       60,326      

(Continued)

51


Table of Contents

                                                 
                June 30, 2004
   
                            Market Value or    
                        Carrying Value           Net Asset Value    
        Relationship with   Financial Statement   Shares/Units   (US$ in   Percentage of   (US$ in    
Held Company Name
  Marketable Securities Type and Name
  the Company
  Account
  (In Thousand)
  Thousand)
  Ownership
  Thousand)
  Note
 
  Certificate                                            
 
  Chi Cherng   Investee   Long-term investment           42,990       36       501,554     Treasury stock of
 
                                              NT$458,564 thousand
 
                                              is deducted from
 
                                              the carrying value.
 
  Hsin Ruey   Investee   Long-term investment           42,673       36       502,185     Treasury stock of
 
                                              NT$459,512 thousand
 
                                              is deducted from
 
                                              the carrying value.
 
                                               
 
  Corporate bonds                                            
 
  Allstate Finl Global Fdg LLC     Short-term investment         US$ 3,171       N/A     US$ 3,151      
 
  American Express Cr Corp. Mtn     Short-term investment         US$ 3,503       N/A     US$ 3,506      
 
  American Gen Fin Corp. Mtn     Short-term investment         US$ 6,832       N/A     US$ 6,809      
 
  American Honda Fin Corp. Mtn     Short-term investment         US$ 7,258       N/A     US$ 7,253      
 
  American Intl Group Inc. Mtnf     Short-term investment         US$ 3,795       N/A     US$ 3,810      
 
  Amsouth Bk Birmingham Ala     Short-term investment         US$ 1,972       N/A     US$ 1,964      
 
  Bank New York Inc.     Short-term investment         US$ 3,945       N/A     US$ 3,933      
 
  Bank One Corp.     Short-term investment         US$ 3,693       N/A     US$ 3,691      
 
  Bear Stearns Cos Inc.     Short-term investment         US$ 3,805       N/A     US$ 3,791      
 
  Bristol Myers Squibb Co.     Short-term investment         US$ 3,819       N/A     US$ 3,819      
 
  Cardinal Health Inc.     Short-term investment         US$ 3,837       N/A     US$ 3,816      
 
  Cargill Inc.     Short-term investment         US$ 2,120       N/A     US$ 2,110      
 
  Citigroup Inc.     Short-term investment         US$ 3,583       N/A     US$ 3,560      
 
  Compaq Computer Corp.     Short-term investment         US$ 3,719       N/A     US$ 3,690      
 
  Consolidated Edison Co NY Inc.     Short-term investment         US$ 3,688       N/A     US$ 3,691      
 
  Countrywide Fdg Corp. Mtn     Short-term investment         US$ 3,534       N/A     US$ 3,523      
 
  Credit Suisse Fb USA Inc.     Short-term investment         US$ 2,645       N/A     US$ 2,627      
 
  Credit Suisse First Boston USA     Short-term investment         US$ 3,177       N/A     US$ 3,164      
 
  Diageo PLC     Short-term investment         US$ 3,459       N/A     US$ 3,458      
 
  Fifth Third Bk Cincinnati OH     Short-term investment         US$ 2,419       N/A     US$ 2,447      
 
  General Elec Cap Corp. Mtn     Short-term investment         US$ 3,507       N/A     US$ 3,502      
 
  Genworth Finl Inc.     Short-term investment         US$ 2,000       N/A     US$ 1,998      
 
  Goldman Sachs Group LP     Short-term investment         US$ 3,820       N/A     US$ 3,790      
 
  Goldman Sachs Group LP     Short-term investment         US$ 1,100       N/A     US$ 1,089      
 
  Hershey Foods Corp.     Short-term investment         US$ 1,627       N/A     US$ 1,622      
 
  Hewlett Packard Co.     Short-term investment         US$ 3,373       N/A     US$ 3,345      
 
  Honeywell Inc.     Short-term investment         US$ 3,284       N/A     US$ 3,266      
 
  Household Fin Corp.     Short-term investment         US$ 7,254       N/A     US$ 7,218      
 
  Huntington Natl Bk     Short-term investment         US$ 3,003       N/A     US$ 3,002      
 
  Huntington Natl Bk Columbus     Short-term investment         US$ 2,954       N/A     US$ 2,959      
 
  ING Sec Life Ins Ingslf     Short-term investment         US$ 3,012       N/A     US$ 3,008      
 
  Intl Bk For Recon + Dev     Short-term investment         US$ 5,232       N/A     US$ 5,218      
 
  JP Morgan Chase + Co.     Short-term investment         US$ 6,766       N/A     US$ 6,755      
 
  KFW Intl Fin Inc.     Short-term investment         US$ 5,104       N/A     US$ 5,088      
 
  Lehman Brothers Hldgs Inc.     Short-term investment         US$ 3,417       N/A     US$ 3,383      
 
  Monumental Global Fdg II 2002A     Short-term investment         US$ 2,084       N/A     US$ 2,086      

(Continued)

52


Table of Contents

                                                 
                June 30, 2004    
               
   
                            Market Value or    
                        Carrying Value           Net Asset Value    
        Relationship with   Financial Statement   Shares/Units   (US$ in   Percentage of   (US$ in    
Held Company Name
  Marketable Securities Type and Name
  the Company
  Account
  (In Thousand)
  Thousand)
  Ownership
  Thousand)
  Note
 
  Morgan Stanley Group Inc.     Short-term investment         US$ 3,712       N/A     US$ 3,697      
 
  Morgan Stanley Group Inc.     Short-term investment         US$ 2,104       N/A     US$ 2,104      
 
  Nationsbank Corp.     Short-term investment         US$ 3,644       N/A     US$ 3,622      
 
  Nationalwide Bldg Soc     Short-term investment         US$ 3,457       N/A     US$ 3,468      
 
  Nationwide Life Global Mtn     Short-term investment         US$ 3,413       N/A     US$ 3,413      
 
  Pepsico Inc Mtn Book Entry     Short-term investment         US$ 3,818       N/A     US$ 3,837      
 
  Premark Intl Inc.     Short-term investment         US$ 2,954       N/A     US$ 2,922      
 
  Pricoa Global Fdg I Mtn     Short-term investment         US$ 3,507       N/A     US$ 3,505      
 
  Principal Life Global Fdg I Gl     Short-term investment         US$ 3,168       N/A     US$ 3,157      
 
  Protective Life Secd Trs     Short-term investment         US$ 2,920       N/A     US$ 2,942      
 
  Prudential Ins Co. Amer     Short-term investment         US$ 2,648       N/A     US$ 2,647      
 
  Salomon Smith Barney Hldgs Inc.     Short-term investment         US$ 3,160       N/A     US$ 3,143      
 
  SBC Communications Inc.     Short-term investment         US$ 3,681       N/A     US$ 3,667      
 
  SLM Corp.     Short-term investment         US$ 2,498       N/A     US$ 2,508      
 
  SLM Corp. Medium Term NTS     Short-term investment         US$ 2,950       N/A     US$ 2,961      
 
  TIAA Global Mkts Inc.     Short-term investment         US$ 3,631       N/A     US$ 3,627      
 
  Tribune Co. Med Trm NTS     Short-term investment         US$ 2,943       N/A     US$ 2,959      
 
  Unitedhealth Group Inc.     Short-term investment         US$ 3,119       N/A     US$ 3,124      
 
  US Bk Natl Assn Cincinnati OH     Short-term investment         US$ 2,669       N/A     US$ 2,674      
 
  Viacom Inc.     Short-term investment         US$ 6,349       N/A     US$ 6,315      
 
  Vodafone Group PLC New     Short-term investment         US$ 2,559       N/A     US$ 2,553      
 
  Wachovia Corp.     Short-term investment         US$ 3,720       N/A     US$ 3,697      
 
  Wal Mart Cda Venture Corp.     Short-term investment         US$ 3,670       N/A     US$ 3,649      
 
  Washington Mut Fin Corp.     Short-term investment         US$ 3,725       N/A     US$ 3,698      
 
  Wells Fargo + Co. New     Short-term investment         US$ 3,697       N/A     US$ 3,683      
 
                                               
 
  Agency bonds                                            
 
  Federal Home Ln Mtg Corp.     Short-term investment         US$ 58,487       N/A     US$ 58,522      
 
  Federal Natl Mtg Assn     Short-term investment         US$ 78,423       N/A     US$ 78,149      
 
  Federal Home Ln Bks     Short-term investment         US$ 66,912       N/A     US$ 66,850      
 
  Freddie Mac     Short-term investment         US$ 4,929       N/A     US$ 4,942      
 
                                               
 
  Corporate issued asset-backed securities                                            
 
  Americredit Automobile     Short-term investment         US$ 6,949       N/A     US$ 6,893      
 
  BMW Veh Owner Tr     Short-term investment         US$ 4,978       N/A     US$ 4,967      
 
  Capital One Auto Fin Tr     Short-term investment         US$ 3,000       N/A     US$ 2,996      
 
  Daimlerchrysler Auto Tr     Short-term investment         US$ 9,879       N/A     US$ 9,868      
 
  Fifth Third Auto Tr     Short-term investment         US$ 3,000       N/A     US$ 3,006      
 
  Ford Cr Auto Owner Tr     Short-term investment         US$ 10,999       N/A     US$ 10,979      
 
  GS Auto Ln Tr     Short-term investment         US$ 2,948       N/A     US$ 2,970      
 
  Honda Auto Receivables     Short-term investment         US$ 5,000       N/A     US$ 5,012      
 
  National City Auto Receivables     Short-term investment         US$ 1,206       N/A     US$ 1,204      
 
  Navistar Finl 2003 A Owner Tr     Short-term investment         US$ 4,928       N/A     US$ 4,908      
 
  Nissan Auto Receivables Own Tr     Short-term investment         US$ 9,852       N/A     US$ 9,861      

(Continued)

53


Table of Contents

                                                 
                June 30, 2004    
               
   
                            Market Value or    
                        Carrying Value           Net Asset Value    
        Relationship with   Financial Statement   Shares/Units   (US$ in   Percentage of   (US$ in    
Held Company Name
  Marketable Securities Type and Name
  the Company
  Account
  (In Thousand)
  Thousand)
  Ownership
  Thousand)
  Note
 
  ONYX Accep Owner Tr     Short-term investment         US$ 4,913       N/A     US$ 4,872      
 
  Toyota Auto Receivables 2003 B     Short-term investment         US$ 4,970       N/A     US$ 4,935      
 
  Triad Auto Receivables Tr     Short-term investment         US$ 5,042       N/A     US$ 5,027      
 
  Wachovia Auto Owner Tr     Short-term investment         US$ 10,999       N/A     US$ 10,998      
 
  WFS Financial Owner Trust     Short-term investment         US$ 5,008       N/A     US$ 5,002      
 
  Capital One Master Tr     Short-term investment         US$ 3,093       N/A     US$ 3,087      
 
  Capital One Secd NT Tr     Short-term investment         US$ 5,032       N/A     US$ 5,031      
 
  Citibank Cr Card Issuance Tr     Short-term investment         US$ 4,959       N/A     US$ 4,968      
 
  First USA Credit Cr Master Tr     Short-term investment         US$ 5,011       N/A     US$ 5,009      
 
  GE Cap Cr Card Master NT Tr     Short-term investment         US$ 4,000       N/A     US$ 4,000      
 
  Aesop Fdg II LLC     Short-term investment         US$ 4,955       N/A     US$ 4,962      
 
  Atlantic City Elc Trns Fdg LLC     Short-term investment         US$ 1,045       N/A     US$ 1,045      
 
  California Infr + Economic Dev     Short-term investment         US$ 8,016       N/A     US$ 8,042      
 
  California Infras + Economic Dev     Short-term investment         US$ 1,079       N/A     US$ 1,077      
 
  California Infrastructure Dev     Short-term investment         US$ 6,701       N/A     US$ 6,717      
 
  Caterpillar Finl Asset Tr     Short-term investment         US$ 4,999       N/A     US$ 4,967      
 
  Centex Home Equity Ln Tr     Short-term investment         US$ 3,500       N/A     US$ 3,492      
 
  CIT Equip Coll Tr     Short-term investment         US$ 4,999       N/A     US$ 5,004      
 
  GS Mtg Secs Corp     Short-term investment         US$ 4,000       N/A     US$ 4,000      
 
  Monumentl Global Fdg II     Short-term investment         US$ 3,500       N/A     US$ 3,500      
 
  Permanent Fing No 1 PLC     Short-term investment         US$ 5,102       N/A     US$ 5,076      
 
  Providian Gateway Owner Tr     Short-term investment         US$ 4,204       N/A     US$ 4,199      
 
  Reliant Energy Transition Bd     Short-term investment         US$ 5,185       N/A     US$ 5,141      
 
  TXU Elec Delivery Transition     Short-term investment         US$ 3,982       N/A     US$ 3,930      
 
  World Omni Auto Receivables Tr     Short-term investment         US$ 5,000       N/A     US$ 5,000      
 
  Banc Amer Mtg Secs Inc.     Short-term investment         US$ 4,030       N/A     US$ 4,019      
 
  Citicorp Mtg Secs     Short-term investment         US$ 2,941       N/A     US$ 2,952      
 
  Cwmbs Inc.     Short-term investment         US$ 2,968       N/A     US$ 2,915      
 
  First Union Lehman Bros Mtg Tr     Short-term investment         US$ 4,177       N/A     US$ 4,137      
 
  Holmes Fing No 8 PLC     Short-term investment         US$ 5,001       N/A     US$ 5,044      
 
                                               
 
  Equity                                            
 
  Crimson Asia Capital Ltd., L.P.     Long-term investment           37,392       N/A       37,392      
 
  Horizon Venture Fund I, L.P.     Long-term investment           246,485       N/A       246,485      
 
                                               
TSMC—North America
  Stock                                            
 
  TSMC   Parent company   Short-term investment     14,600       698,593             713,655      
 
                                               
Chi Cherng
  Stock                                            
 
  TSMC   Parent company   Short-term investment     15,670       458,564             765,967      
 
                                               
 
  Certificate                                            
 
  Hsin Ruey   Major shareholder   Long-term investment           903,612       64       903,612      
 
                                               
Hsin Ruey
  Stock                                            
 
  TSMC   Parent company   Short-term investment     15,700       459,512             767,402      

(Continued)

54


Table of Contents

                                                 
                June 30, 2004

   
                          Market Value or    
                        Carrying Value           Net Asset Value    
        Relationship with   Financial Statement   Shares/Units   (US$ in   Percentage of   (US$ in    
Held Company Name
  Marketable Securities Type and Name
  the Company
  Account
  (In Thousand)
  Thousand)
  Ownership
  Thousand)
  Note
 
  Certificate                                            
 
  Chi Cherng   Major shareholder   Long-term investment         $ 902,821       64     $ 902,821      
 
                                               
TSMC International
  Stock                                            
 
  InveStar   Subsidiary   Long-term investment     45,000     US$ 51,447       97     US$ 51,447      
 
  InveStar II   Subsidiary   Long-term investment     51,300     US$ 36,923       97     US$ 36,923      
 
  TSMC Development   Subsidiary   Long-term investment     1     US$ 567,256       100     US$ 567,256      
 
  TSMC Technology   Subsidiary   Long-term investment     1     US$ (8,029 )     100     US$ (8,029 )    
 
  3DFX Interactive Inc.     Long-term investment     68                        
 
                                               
 
  Money market fund                                            
 
  BOA Fund     Short-term investment     30,300     US$ 30,300       N/A     US$ 30,300      
 
                                               
TSMC Development
  Stock                                            
 
  WaferTech   Subsidiary   Long-term investment         US$ 410,009       99     US$ 410,009      
 
                                               
InveStar
  Common stock                                            
 
  PLX Technology, Inc.     Short-term investment     40     US$ 77           US$ 620      
 
  RichTek Technology Corp.     Short-term investment     619     US$ 79       2     US$ 2,158      
 
  Atheros Communications, Inc.     Short-term investment     1,205     US$ 3,593           US$ 14,576      
 
  Advanced Power Electronics Corp.     Short-term investment     843     US$ 439           US$ 908      
 
  Broadtek Electronics Corp.     Short-term investment     869     US$ 275       1     US$ 321      
 
  Programmable Microelectronics (Taiwan), Corp.     Long-term investment     575     US$ 204       1     US$ 204      
 
  Broadtek Electronics Corp.     Long-term investment     145     US$ 44       2     US$ 54      
 
  Global Testing Corp.     Long-term investment     13,268     US$ 5,328       9     US$ 5,328      
 
  RichTek Technology Corp.     Long-term investment     1,053     US$ 129           US$ 3,672      
 
  Signia Technologies, Inc.     Long-term investment     701     US$ 208       3     US$ 208      
 
  Incentia Design Systems, Inc.     Long-term investment     365     US$ 91       1     US$ 91      
 
  Advanced Power Electronics Corp.     Long-term investment     1,123     US$ 533           US$ 1,208      
 
  Capella Microsystems (Taiwan), Inc.     Long-term investment     530     US$ 157       4     US$ 157      
 
                                               
 
  Preferred stock                                            
 
  SiRF Technology Holdings, Inc.     Short-term investment     306     US$ 1,333       1     US$ 4,275      
 
  Integrated Memory Logic, Inc.     Long-term investment     1,831     US$ 1,221       12     US$ 1,221      
 
  Sensory, Inc.     Long-term investment     1,404     US$ 125       5     US$ 125      
 
  Sonics, Inc.     Long-term investment     2,686     US$ 3,530       4     US$ 3,530      
 
  NanoAmp Solutions, Inc.     Long-term investment     541     US$ 853       2     US$ 853      
 
  Monolithic Power Systems, Inc.     Long-term investment     2,521     US$ 2,000       11     US$ 2,000      
 
  Memsic, Inc.     Long-term investment     2,727     US$ 1,500       10     US$ 1,500      
 
  Reflectivity, Inc.     Long-term investment     1,064     US$ 741       3     US$ 741      
 
  Match Lab, Inc.     Long-term investment     1,875     US$ 150       9     US$ 150      
 
  Oridus, Inc. (CreOsys, Inc.)     Long-term investment     1,500     US$ 300       8     US$ 300      
 
  IP Unity     Long-term investment     1,008     US$ 494       2     US$ 494      
 
  Tropian, Inc.     Long-term investment     1,758     US$ 940       3     US$ 940      

(Continued)

55


Table of Contents

                                                 
                June 30, 2004    
               
   
                  Market Value or    
                        Carrying Value           Net Asset Value    
        Relationship with   Financial Statement   Shares/Units   (US$ in   Percentage of   (US$ in    
Held Company Name
  Marketable Securities Type and Name
  the Company
  Account
  (In Thousand)
  Thousand)
  Ownership
  Thousand)
  Note
InveStar II
  Common stock                                            
 
  RichTek Technology Corp.     Short-term investment     290     US$ 216           US$ 1,013      
 
  eChannel Option Holding, Inc.     Long-term investment     358     US$ 251           US$ 251      
 
  eLCOS Microdisplay Technology, Ltd.     Long-term investment     270     US$ 27           US$ 27      
 
  Signia Technologies (Taiwan), Inc.     Long-term investment     351     US$ 101       1     US$ 101      
 
  Procoat Technology, Inc.     Long-term investment     4,165     US$ 1,940       10     US$ 1,940      
 
  RichTek Technology Corp.     Long-term investment     494     US$ 367           US$ 1,387      
 
  Programmable Microelectronics (Taiwan), Inc.     Long-term investment     177     US$ 50           US$ 50      
 
  Auden Technology MFG. Co., Ltd.     Long-term investment     953     US$ 738       4     US$ 738      
 
  GeoVision, Inc.     Long-term investment     287     US$ 132       1     US$ 132      
 
  EoNex Technologies, Inc.     Long-term investment     55     US$ 3,048       6     US$ 3,048      
 
  Conwise Technology Corporation, Ltd.     Long-term investment     2,800     US$ 979       14     US$ 979      
 
  EON Technology, Corp.     Long-term investment     3,276     US$ 1,179       8     US$ 1,179      
 
  Goya Technology, Corp.     Long-term investment     2,088     US$ 545       8     US$ 545      
 
  Trendchip Technologies Corp.     Long-term investment     2,000     US$ 861       5     US$ 861      
 
  Ralink Technology (Taiwan), Inc.     Long-term investment     1,833     US$ 791       4     US$ 791      
 
  Silicon Data, Inc.     Long-term investment     2,000     US$ 204       5     US$ 204      
 
  Capella Microsystems (Taiwan), Inc.     Long-term investment     419     US$ 122       3     US$ 122      
 
                                               
 
  Preferred stock                                            
 
  SiRF Technology Holding, Inc.     Short-term investment     20     US$ 131           US$ 282      
 
  Memsic, Inc.     Long-term investment     2,289     US$ 1,560       8     US$ 1,560      
 
  OEpic, Inc.     Long-term investment     4,997     US$ 1,317       8     US$ 1,317      
 
  NanoAmp Solutions, Inc.     Long-term investment     375     US$ 1,500       2     US$ 1,500      
 
  Advanced Analogic Technology, Inc.     Long-term investment     948     US$ 1,261       2     US$ 1,261      
 
  Monolithic Power Systems, Inc.     Long-term investment     804     US$ 1,946       4     US$ 1,946      
 
  Sonics, Inc.     Long-term investment     3,082     US$ 3,082       5     US$ 3,082      
 
  Newport Opticom, Inc.     Long-term investment     1,157     US$ 241       9     US$ 241      
 
  Reflectivity, Inc.     Long-term investment     4,255     US$ 2,205       8     US$ 2,205      
 
  Tropian, Inc.     Long-term investment     1,464     US$ 783       2     US$ 783      
 
  Match Lab, Inc.     Long-term investment     313     US$ 25       2     US$ 25      
 
  Kilopass Technology, Inc.     Long-term investment     3,887     US$ 2,000       19     US$ 2,000      
 
  eLCOS Microdisplay Technology, Ltd.     Long-term investment     2,667     US$ 3,500       15     US$ 3,500      
 
  FangTek, Inc.     Long-term investment     6,806     US$ 3,250       34     US$ 3,250      
 
  Alchip Technologies, Ltd.     Long-term investment     2,125     US$ 1,700       23     US$ 1,700      
 
                                               
Emerging Alliance
  Common stock                                            
 
  Global Investment Holding, Inc.     Long-term investment     10,000       100,000       6       100,000      
 
  RichWave Technology Corp.     Long-term investment     2,600     US$ 867       13     US$ 867      
 
                                               
 
  Preferred stock                                            
 
  Quake Technologies, Inc.     Long-term investment     601     US$ 450       1     US$ 450      
 
  Pixim, Inc.     Long-term investment     1,721     US$ 2,382       3     US$ 2,382      
 
  Newport Opticom, Inc.     Long-term investment     962     US$ 250       6     US$ 250      
 
  NetLogic Microsystems, Inc.     Long-term investment     602     US$ 1,850       1     US$ 1,850      
 
  Ikanos Communication, Inc.     Long-term investment     7,446     US$ 3,125       3     US$ 3,125      

(Continued)

56


Table of Contents

                                                 
                June 30, 2004    
               
   
                            Market Value or    
                        Carrying Value           Net Asset Value    
        Relationship with   Financial Statement   Shares/Units   (US$ in   Percentage of   (US$ in    
Held Company Name
  Marketable Securities Type and Name
  the Company
  Account
  (In Thousand)
  Thousand)
  Ownership
  Thousand)
  Note
 
  Quicksilver Technology, Inc.     Long-term investment     1,049     US$ 2,011       4     US$ 2,011      
 
  Mosaic Systems, Inc.     Long-term investment     2,481     US$ 12       6     US$ 12      
 
  Zenesis Technologies, Inc.     Long-term investment     861     US$ 500       4     US$ 500      
 
  Reflectivity, Inc.     Long-term investment     4,848     US$ 2,479       6     US$ 2,479      
 
  Iridigm Display, Co.     Long-term investment     254     US$ 500       1     US$ 500      
 
  Miriadia, Inc. (formerly XHP                                            
 
  Microsystems, Inc.)     Long-term investment     3,040     US$ 1,000       7     US$ 1,000      
 
  Axiom Microdevices, Inc.     Long-term investment     1,000     US$ 1,000       5     US$ 1,000      
 
  Optichron, Inc.     Long-term investment     714     US$ 1,000       6     US$ 1,000      
 
  Audience, Inc.     Long-term investment     1,654     US$ 250       2     US$ 250      
 
  Next IO, Inc.     Long-term investment     800     US$ 500       3     US$ 500      
 
  NuCORE Technology Inc.     Long-term investment     1,821     US$ 1,000       2     US$ 1,000      
 
  Centrality Communications, Inc.     Long-term investment     809     US$ 1,000       2     US$ 1,000      
 
  Layer N Networks, Inc.     Long-term investment     1,905     US$ 1,000       2     US$ 1,000      
 
                                               
VTAF II
  Preferred stock                                            
 
  Powerprecise Solutions, Inc.     Long-term investment     258     US$ 250       3     US$ 250      
 
  Iridigm Display, Co.     Long-term investment     163     US$ 325           US$ 325      
 
                                               
GUC
  Bond funds                                            
 
  Grand Cathay     Short-term investment     3,213       40,271       N/A       40,274      
 
  TIIM     Short-term investment     2,595       35,519       N/A       35,523      
 
  Polaris Fu-Li     Short-term investment     2,204       22,640       N/A       22,642      
 
  EnTrust Kirin     Short-term investment     2,106       22,516       N/A       22,518      
 
  E. Sun New Era     Short-term investment     1,920       20,144       N/A       20,146      
 
  Jih Sun     Short-term investment     1,525       20,116       N/A       20,118      
 
  EnTrust Phoenix     Short-term investment     1,399       20,382       N/A       20,383      
 
  Mega Diamond     Short-term investment     1,281       14,220       N/A       14,221      
 
  Sheng Hua 1699     Short-term investment     1,009       12,107       N/A       12,108      
 
  Sheng Hua 5599     Short-term investment     931       10,086       N/A       10,087      
 
  Ta-Hua GC Dollar     Short-term investment     39       13,691       N/A       13,819      
 
  Taiwan Security Argent     Short-term investment     22       102,694       N/A       105,016      
 
                                               
 
  Stock funds                                            
 
  TIIM DaLi     Short-term investment     296       5,000       N/A       4,559      
 
  President Tung Hsin     Short-term investment     211       3,005       N/A       2,830      
 
                                               
 
  Stock                                            
 
  Global Unichip Corporation-North America   Subsidiary   Long-term investment     100       3,444       100       3,444      

57


Table of Contents

TABLE 4

TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD. AND INVESTEES

MARKETABLE SECURITIES ACQUIRED AND DISPOSED OF AT COSTS OR PRICES OF AT LEAST
NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL
FOR THE SIX MONTHS ENDED JUNE 30, 2004
(Amounts in Thousand New Taiwan Dollars, Unless Otherwise Specified)

                                 
                    Beginning Balance
                            Amount
    Marketable Securities   Financial Statement       Nature of   Shares/Units   (US$ in
Company Name
  Type and Name
  Account
  Counter-party
  Relationship
  (Thousand)
  Thousand)
The Company
  Money market funds                            
  BOA Fund   Short-term investment   BOA       40,000     $
US$
1,359,120
(40,000

)
  GS Fund   Short-term investment   Goldman Sachs       20,000    
US$
679,560
(20,000

)
 
                               
  Bond funds                            
  JF Taiwan Bond Fund   Short-term investment   JF Asset Management (Taiwan) Ltd.       34,343       500,000  
  ABN AMRO Bond Fund   Short-term investment   ABN AMRO       34,794       500,000  
  JF Taiwan First Bond Fund   Short-term investment   JF Asset Management (Taiwan) Ltd.              
  INVESCO R.O.C Bond A Fund   Short-term investment   INVESCO Asset Management Taiwan              
  Dresdner Bond DAM Fund   Short-term investment   Allianz Dresdner Securities Investment Consulting Co., Ltd.              
  Barits Bond Fund   Short-term investment   Barits Securities Investment Trust Co., Ltd.              
  Shinkong Chi Shin Bond Fund   Short-term investment   Shinkong Investment Trust Co., Ltd.              
 
                               
  Bonds under repurchase agreement   Short-term investment   Chung Shing Bills Finance Corp. and several financial institutions             1,800,000  
 
                               
  Government bonds                            
  1994 Government Bond Series C   Short-term investment   Chung Shing Bills Finance Corp. and several financial institutions             1,422,197  
  2002 Government Bond Series A   Short-term investment   BNP and several financial institutions             3,157,331  
  2002 Government Bond Series E   Short-term investment   BNP and several financial institutions             3,113,066  
  2002 Government Bond Series J   Short-term investment   BNP and several financial institutions              
  2003 Government Bond Series A   Short-term investment   BNP and several financial institutions              
  2003 Government Bond Series I   Long-term investment   FCB and several financial institutions              
  2004 Government Bond Series A   Long-term investment   China Bills Finance Corp. and several financial institutions              
  2004 Government Bond Series E   Long-term investment   BNP and several financial institutions              
  United States Treas NTS   Short-term investment                
 
                               
  Corporate bonds                            
  Allstate Finl Global Fdg LLC   Short-term investment                
  American Express Cr Corp. Mtn   Short-term investment                
  American Gen Fin Corp. Mtn   Short-term investment                
  American Honda Fin Corp. Mtn   Short-term investment                
  American Intl Group Inc. Mtnf   Short-term investment                
  Bank New York Inc.   Short-term investment                
  Bank One Corp.   Short-term investment                
  Bear Stearns Cos Inc.   Short-term investment                
  Bristol Myers Squibb Co.   Short-term investment                
  Cardinal Health Inc.   Short-term investment                
  Citigroup Inc.   Short-term investment                
  Compaq Computer Corp.   Short-term investment                
  Consolidated Edison Co. NY Inc.   Short-term investment                
  Countrywide Fdg Corp. Mtn   Short-term investment                

     

[Additional columns below]

[Continued from above table, first column(s) repeated]

                                                                     
        Acquisition
  Disposal
  Ending Balance
                                        Carrying   Gain (Loss)           Amount
                Amount           Amount   Value   on Disposal           (US$ in
    Marketable Securities   Shares/Units   (US$ in   Shares/Units   (US$ in   (US$ in   (US$ in   Shares/Units   Thousand)
Company Name
  Type and Name
  (Thousand)
  Thousand)
  (Thousand)
  Thousand)
  Thousand)
  Thousand)
  (Thousand)
  (Note 1)
The Company
  Money market funds                                                                
  BOA Fund         $       40,000     $
US$
1,359,120
(40,000

)
  $
US$
1,359,120
(40,000

)
  $           $  
  GS Fund                 20,000    
US$
679,560
(20,000

)
 
US$
679,560
(20,000

)
                 
                                                                   
  Bond funds                                                                
  JF Taiwan Bond Fund     68,021       1,000,000                               102,364       1,500,000  
  ABN AMRO Bond Fund     151,569       2,200,000                               186,363       2,700,000  
  JF Taiwan First Bond Fund     110,580       1,500,000                               110,580       1,500,000  
  INVESCO R.O.C Bond A Fund     69,692       1,000,000                               69,692       1,000,000  
  Dresdner Bond DAM Fund     80,833       900,000                               80,833       900,000  
  Barits Bond Fund     59,679       700,000                               59,679       700,000  
  Shinkong Chi Shin Bond Fund     115,606       1,600,000                               115,606       1,600,000  
                                                                   
  Bonds under repurchase agreement           2,577,163             1,022,018       1,022,018                   3,355,145  
                                                                   
  Government bonds                                                                
  1994 Government Bond Series C                       1,427,762       1,422,197       5,565              
  2002 Government Bond Series A                       3,169,750       3,157,331       12,419              
  2002 Government Bond Series E                       3,133,875       3,113,066       20,809              
  2002 Government Bond Series J           2,023,206                                     2,023,206  
  2003 Government Bond Series A           1,207,409                                     1,207,409  
  2003 Government Bond Series I           3,418,984                                     3,401,654  
  2004 Government Bond Series A           1,600,467                                     1,600,365  
  2004 Government Bond Series E           3,890,925                                     3,891,458  
  United States Treas NTS         US$ 269,539           US$ 154,304     US$ 155,123       (US$819 )         US$ 114,396  
                                                                   
  Corporate bonds                                                                
  Allstate Finl Global Fdg LLC         US$ 3,171                                   US$ 3,171  
  American Express Cr Corp. Mtn         US$ 3,503                                   US$ 3,503  
  American Gen Fin Corp. Mtn         US$ 6,832                                   US$ 6,832  
  American Honda Fin Corp. Mtn         US$ 7,258                                   US$ 7,258  
  American Intl Group Inc. Mtnf         US$ 3,795                                   US$ 3,795  
  Bank New York Inc.         US$ 3,945                                   US$ 3,945  
  Bank One Corp.         US$ 3,693                                   US$ 3,693  
  Bear Stearns Cos Inc.         US$ 3,805                                   US$ 3,805  
  Bristol Myers Squibb Co.         US$ 3,819                                   US$ 3,819  
  Cardinal Health Inc.         US$ 3,837                                   US$ 3,837  
  Citigroup Inc.         US$ 3,583                                   US$ 3,583  
  Compaq Computer Corp.         US$ 3,719                                   US$ 3,719  
  Consolidated Edison Co. NY Inc.         US$ 3,688                                   US$ 3,688  
  Countrywide Fdg Corp. Mtn         US$ 3,534                                   US$ 3,534  

(Continued)

58


Table of Contents

                                 
                    Beginning Balance
                            Amount
    Marketable Securities   Financial Statement       Nature of   Shares/Units   (US$ in
Company Name
  Type and Name
  Account
  Counter-party
  Relationship
  (Thousand)
  Thousand)
 
  Credit Suisse First Boston USA   Short-term investment             $  
 
  Diageo PLC   Short-term investment                
 
  Wachovia Corp.   Short-term investment                
 
  General Elec Cap Corp. Mtn   Short-term investment                
 
  Goldman Sachs Group LP   Short-term investment                
 
  Hewlett Packard Co.   Short-term investment                
 
  Honeywell Inc.   Short-term investment                
 
  Household Fin Corp.   Short-term investment                
 
  Huntington Natl Bk   Short-term investment                
 
  ING Sec Life Ins Ingslf   Short-term investment                
 
  Intl Bk For Recon + Dev   Short-term investment                
 
  JP Morgan Chase + Co.   Short-term investment                
 
  KFW Intl Fin Inc   Short-term investment                
 
  Lehman Brothers Hldgs Inc.   Short-term investment                
 
  Morgan Stanley Group Inc.   Short-term investment                
 
  Nationsbank Corp.   Short-term investment                
 
  Nationwide Bldg Soc   Short-term investment                
 
  Nationwide Life Global Mtn   Short-term investment                
 
  Pepsico Inc Mtn Book Entry   Short-term investment                
 
  Pricoa Global Fdg I Mtn   Short-term investment                
 
  Principal Life Global Fdg I Gl   Short-term investment                
 
  SBC Communications Inc   Short-term investment                
 
  Salomon Smith Barney Hldgs Inc.   Short-term investment                
 
  TIAA Global Mkts Inc.   Short-term investment                
 
  Unitedhealth Group Inc.   Short-term investment                
 
  Viacom Inc.   Short-term investment                
 
  Walmart Cda Venture Corp.   Short-term investment                
 
  Washington Mut Fin Corp.   Short-term investment                
 
  Wells Fargo + Co. New   Short-term investment                
 
                               
 
  Agency bonds                            
 
  Federal Home Ln Mtg Corp.   Short-term investment                
 
  Federal Home Ln Bks   Short-term investment                
 
  Freddie Mac   Short-term investment                
 
  Federal Natl Mtg Assn   Short-term investment                
 
  Student Ln Marketing Assn   Short-term investment                
 
                               
 
  Corporate issued asset-backed securities                            
 
  Aesop Fdg II LLC   Short-term investment                
 
  Americredit Automobile   Short-term investment                
 
  BMW Veh Owner Tr   Short-term investment                
 
  CIT Equip Coll Tr   Short-term investment                
 
  California Infrastructure Dev   Short-term investment                
 
  California Infras + Economic   Short-term investment                
 
  Capital One Master Tr   Short-term investment                
 
  Capital One Secd NT Tr   Short-term investment                
 
  Caterpillar Finl Asset Tr   Short-term investment                
 
  Centex Home Equity Ln Tr   Short-term investment                
 
  Citibank Cr Card Issuance Tr   Short-term investment                
 
  Daimlerchrysler Auto Tr   Short-term investment                
 
  First USA Credit Cr Master Tr   Short-term investment                
 
  Ford Cr Auto Owner Tr   Short-term investment                
 
  GE Cap Cr Card Master NT Tr   Short-term investment                
 
  GS Mtg Secs Corp.   Short-term investment                
 
  Honda Auto Receivables   Short-term investment                
 
  Monumentl Global Fdg II   Short-term investment                
 
  Navistar Finl 2003 A Owner Tr   Short-term investment                


[Additional columns below]

[Continued from above table, first column(s) repeated]

                                                                             
        Acquisition
  Disposal
  Ending Balance
       
                                        Carrying   Gain (Loss)           Amount        
                Amount           Amount   Value   on Disposal           (US$ in        
    Marketable Securities   Shares/Units   (US$ in   Shares/Units   (US$ in   (US$ in   (US$ in   Shares/Units   Thousand)        
Company Name
  Type and Name
  (Thousand)
  Thousand)
  (Thousand)
  Thousand)
  Thousand)
  Thousand)
  (Thousand)
  (Note 1)
       
   
Credit Suisse First Boston USA
        US$ 3,177           $     $     $           US$ 3,177          
   
Diageo PLC
        US$ 3,459                                   US$ 3,459          
   
Wachovia Corp.
        US$ 3,720                                   US$ 3,720          
   
General Elec Cap Corp. Mtn
        US$ 3,507                                   US$ 3,507          
   
Goldman Sachs Group LP
        US$ 3,820                                   US$ 3,820          
   
Hewlett Packard Co.
        US$ 3,373                                   US$ 3,373          
   
Honeywell Inc.
        US$ 3,284                                   US$ 3,284          
   
Household Fin Corp.
        US$ 7,254                                   US$ 7,254          
   
Huntington Natl Bk
        US$ 3,003                                   US$ 3,003          
   
ING Sec Life Ins Ingslf
        US$ 3,012                                   US$ 3,012          
   
Intl Bk For Recon + Dev
        US$ 5,232                                   US$ 5,232          
   
JP Morgan Chase + Co.
        US$ 6,766                                   US$ 6,766          
   
KFW Intl Fin Inc
        US$ 5,104                                   US$ 5,104          
   
Lehman Brothers Hldgs Inc.
        US$ 3,417                                   US$ 3,417          
   
Morgan Stanley Group Inc.
        US$ 3,712                                   US$ 3,712          
   
Nationsbank Corp.
        US$ 3,644                                   US$ 3,644          
   
Nationwide Bldg Soc
        US$ 3,457                                   US$ 3,457          
   
Nationwide Life Global Mtn
        US$ 3,413                                   US$ 3,413          
   
Pepsico Inc Mtn Book Entry
        US$ 3,818                                   US$ 3,818          
   
Pricoa Global Fdg I Mtn
        US$ 3,507                                   US$ 3,507          
   
Principal Life Global Fdg I Gl
        US$ 3,168                                   US$ 3,168          
   
SBC Communications Inc
        US$ 3,681                                   US$ 3,681          
   
Salomon Smith Barney Hldgs Inc.
        US$ 3,160                                   US$ 3,160          
   
TIAA Global Mkts Inc.
        US$ 3,631                                   US$ 3,631          
   
Unitedhealth Group Inc.
        US$ 3,119                                   US$ 3,119          
   
Viacom Inc.
        US$ 6,349                                   US$ 6,349          
   
Walmart Cda Venture Corp.
        US$ 3,670                                   US$ 3,670          
   
Washington Mut Fin Corp.
        US$ 3,725                                   US$ 3,725          
   
Wells Fargo + Co. New
        US$ 3,697                                   US$ 3,697          
 
                               
   
Agency bonds
                                                                       
   
Federal Home Ln Mtg Corp.
        US$ 64,469           US$ 5,950     US$ 5,982     (US$32)         US$ 58,487          
   
Federal Home Ln Bks
        US$ 66,912                                   US$ 66,912          
   
Freddie Mac
        US$ 4,929                                   US$ 4,929          
   
Federal Natl Mtg Assn
        US$ 88,423           US$ 9,890     US$ 10,000     (US$110)         US$ 78,423          
   
Student Ln Marketing Assn
        US$ 16,000           US$ 16,000     US$ 16,000                            
 
                               
   
Corporate issued asset-backed securities
                                                                       
   
Aesop Fdg II LLC
        US$ 4,955                                   US$ 4,955          
   
Americredit Automobile
        US$ 6,949                                   US$ 6,949          
   
BMW Veh Owner Tr
        US$ 4,978                                   US$ 4,978          
   
CIT Equip Coll Tr
        US$ 4,999                                   US$ 4,999          
   
California Infrastructure Dev
        US$ 7,419           US$ 690     US$ 718     (US$28)         US$ 6,701          
   
California Infras + Economic
        US$ 8,383           US$ 352     US$ 367     (US$15)         US$ 8,016          
   
Capital One Master Tr
        US$ 3,093                                   US$ 3,093          
   
Capital One Secd NT Tr
        US$ 5,032                                   US$ 5,032          
   
Caterpillar Finl Asset Tr
        US$ 4,999                                   US$ 4,999          
   
Centex Home Equity Ln Tr
        US$ 3,500                                   US$ 3,500          
   
Citibank Cr Card Issuance Tr
        US$ 4,959                                   US$ 4,959          
   
Daimlerchrysler Auto Tr
        US$ 9,879                                   US$ 9,879          
   
First USA Credit Cr Master Tr
        US$ 5,011                                   US$ 5,011          
   
Ford Cr Auto Owner Tr
        US$ 10,999                                   US$ 10,999          
   
GE Cap Cr Card Master NT Tr
        US$ 4,000                                   US$ 4,000          
   
GS Mtg Secs Corp.
        US$ 4,000                                   US$ 4,000          
   
Honda Auto Receivables
        US$ 5,000                                   US$ 5,000          
   
Monumentl Global Fdg II
        US$ 3,500                                   US$ 3,500          
   
Navistar Finl 2003 A Owner Tr
        US$ 4,928                                   US$ 4,928          

(Continued)

59


Table of Contents

                                             
                        Beginning Balance
       
                                Amount        
    Marketable Securities   Financial Statement       Nature of   Shares/Units   (US$ in        
Company Name
  Type and Name
  Account
  Counter-party
  Relationship
  (Thousand)
  Thousand)
       
 
  Nissan Auto Receivables Owner   Short-term investment                 $          
 
  ONYX Accep Owner Tr   Short-term investment                            
 
  Permanent Fing No 1 PLC   Short-term investment                            
 
  Providian Gateway Owner Tr   Short-term investment                            
 
  Reliant Energy Transition Bd   Short-term investment                            
 
  TXU Elec Delivery Transition   Short-term investment                            
 
  Toyota Auto Receivables 2003 B   Short-term investment                            
 
  Triad Auto Receivables Tr   Short-term investment                            
 
  WFS Financial Owner Trust   Short-term investment                            
 
  Wachovia Auto Owner Tr   Short-term investment                            
 
  World Omni Auto Receivables Tr   Short-term investment                            
 
  Banc Amer Mtg Secs Inc.   Short-term investment                            
 
  Cwmbs Inc.   Short-term investment                            
 
  First Union Lehman Bros Mtg   Short-term investment                            
 
  Holmes Fing No 8 PLC   Short-term investment                            
 
                                           
InveStar
  Common stock                                        
 
  RichTek Technology Corp.   Short-term investment             947     US$ 121          
 
                                           
InveStar II
  Common stock                                        
 
  RichTek Technology Corp.   Short-term investment             465     US$ 346          

     

[Additional columns below]

[Continued from above table, first column(s) repeated]

                                                                                     
        Acquisition
  Disposal
  Ending Balance
               
                                        Carrying   Gain (Loss)           Amount                
                Amount           Amount   Value   on Disposal           (US$ in                
    Marketable Securities   Shares/Units   (US$ in   Shares/Units   (US$ in   (US$ in   (US$ in   Shares/Units   Thousand)                
Company Name
  Type and Name
  (Thousand)
  Thousand)
  (Thousand)
  Thousand)
  Thousand)
  Thousand)
  (Thousand)
  (Note 1)
               
 
  Nissan Auto Receivables Owner         US$ 9,852           $     $     $           US$ 9,852                  
 
  ONYX Accep Owner Tr         US$ 4,913                                   US$ 4,913                  
 
  Permanent Fing No 1 PLC         US$ 5,102                                   US$ 5,102                  
 
  Providian Gateway Owner Tr         US$ 4,204                                   US$ 4,204                  
 
  Reliant Energy Transition Bd         US$ 5,185                                   US$ 5,185                  
 
  TXU Elec Delivery Transition         US$ 3,982                                   US$ 3,982                  
 
  Toyota Auto Receivables 2003 B         US$ 4,970                                   US$ 4,970                  
 
  Triad Auto Receivables Tr         US$ 5,042                                   US$ 5,042                  
 
  WFS Financial Owner Trust         US$ 5,008                                   US$ 5,008                  
 
  Wachovia Auto Owner Tr         US$ 10,999                                   US$ 10,999