TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD.
 

1934 Act Registration No. 1-14700

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 6-K

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

For the month of October 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 Nine Months Ended September 30, 2004 and 2003
INDEPENDENT ACCOUNTANTS’ REVIEW REPORT
BALANCE SHEETS
STATEMENTS OF INCOME
STATEMENTS OF CASH FLOWS
NOTES TO FINANCIAL STATEMENTS
SIGNATURES

Taiwan Semiconductor Manufacturing Company Ltd.

Financial Statements for the Nine Months Ended
September 30, 2004 and 2003
Together with Independent Accountants’ Review 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.

 


 

English Translation of a Report Originally Issued in Chinese

INDEPENDENT ACCOUNTANTS’ REVIEW REPORT

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

We have reviewed the accompanying balance sheets of Taiwan Semiconductor Manufacturing Company Ltd. as of September 30, 2004 and 2003 and the related statements of income and cash flows for the nine months then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to issue a report on these financial statements based on our reviews.

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

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

October 12, 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 review such financial statements are those generally accepted and applied in the Republic of China.

-1-


 

English Translation of Financial Statements Originally Issued in Chinese

TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD.

BALANCE SHEETS
SEPTEMBER 30, 2004 AND 2003
(In Thousand New Taiwan Dollars, Except Par Value)
(Reviewed, Not Audited)

                                 
    2004
  2003
ASSETS
  Amount
  %
  Amount
  %
CURRENT ASSETS
                               
Cash and cash equivalents (Notes 2, 3 and 4)
  $ 78,289,897       17     $ 82,730,782       22  
Short-term investments (Notes 2 and 4)
    46,128,381       10       11,664,302       3  
Receivables from related parties (Note 18)
    19,974,807       4       15,186,373       4  
Notes receivable
    76,183             43,709        
Accounts receivable
    17,689,511       4       12,704,943       3  
Allowance for doubtful receivables (Note 2)
    (983,077 )           (1,021,399 )      
Allowance for sales returns and others (Note 2)
    (3,342,566 )     (1 )     (2,055,142 )     (1 )
Other receivables from related parties (Note 18)
    3,004,113       1       108,692        
Other financial assets (Notes 2 and 21)
    1,307,965             1,192,351        
Inventories—net (Notes 2 and 5)
    12,628,465       3       11,813,455       3  
Deferred income taxes assets (Notes 2 and 12)
    2,471,000             2,117,000       1  
Prepaid expenses and other current assets
    437,243             688,212        
 
   
 
     
 
     
 
     
 
 
Total current assets
    177,681,922       38       135,173,278       35  
 
   
 
     
 
     
 
     
 
 
FUNDS AND LONG-TERM INVESTMENTS (Notes 2, 6, 16 and 21)
                               
Equity method
    45,792,238       10       33,932,303       9  
Cost method
    717,299             736,653        
Long-term bonds
    11,676,396       3              
 
   
 
     
 
     
 
     
 
 
Total funds and long-term investments
    58,185,933       13       34,668,956       9  
 
   
 
     
 
     
 
     
 
 
PROPERTY, PLANT AND EQUIPMENT (Notes 2, 7 and 18)
                               
Cost
                               
Buildings
    82,012,404       18       70,767,593       18  
Machinery and equipment
    374,207,513       81       324,426,114       85  
Office equipment
    6,853,204       1       6,077,495       2  
 
   
 
     
 
     
 
     
 
 
 
    463,073,121       100       401,271,202       105  
Accumulated depreciation
    (285,808,476 )     (61 )     (233,609,935 )     (61 )
Advance payments and construction in progress
    29,891,273       6       24,632,558       6  
 
   
 
     
 
     
 
     
 
 
Net property, plant and equipment
    207,155,918       45       192,293,825       50  
 
   
 
     
 
     
 
     
 
 
GOODWILL (Note 2)
    2,003,244             2,351,634       1  
 
   
 
     
 
     
 
     
 
 
OTHER ASSETS
                               
Deferred charges—net (Notes 2, 8 and 20)
    9,520,310       2       8,415,357       2  
Deferred income taxes assets (Notes 2 and 12)
    7,796,174       2       8,841,310       3  
Assets leased to others—net (Note 2)
    80,047             85,072        
Idle assets (Note 2)
    54,791             74,644        
Refundable deposits (Note 18)
    29,353             287,403        
 
   
 
     
 
     
 
     
 
 
Total other assets
    17,480,675       4       17,703,786       5  
 
   
 
     
 
     
 
     
 
 
TOTAL ASSETS
  $ 462,507,692       100     $ 382,191,479       100  
 
   
 
     
 
     
 
     
 
 
                                 
    2004
  2003
LIABILITIES AND SHAREHOLDERS’ EQUITY
  Amount
  %
  Amount
  %
CURRENT LIABILITIES
                               
Payables to related parties (Notes 18 and 20)
  $ 5,639,023       1     $ 3,790,399       1  
Accounts payable
    7,357,718       2       5,596,631       1  
Payables to contractors and equipment suppliers
    15,260,860       3       9,480,795       3  
Accrued expenses and other current liabilities (Notes 2, 10, 20 and 21)
    10,974,741       2       8,319,012       2  
Current portion of long-term bonds payable (Note 9)
    5,000,000       1              
 
   
 
     
 
     
 
     
 
 
Total current liabilities
    44,232,342       9       27,186,837       7  
 
   
 
     
 
     
 
     
 
 
LONG-TERM LIABILITIES
                               
Bonds payable (Note 9)
    30,000,000       6       35,000,000       9  
Other long-term payable (Notes 10 and 20)
    2,446,848       1       3,660,493       1  
Other payables to related parties (Notes 18 and 20)
    2,468,088       1              
 
   
 
     
 
     
 
     
 
 
Total long-term liabilities
    34,914,936       8       38,660,493       10  
 
   
 
     
 
     
 
     
 
 
OTHER LIABILITIES
                               
Accrued pension cost (Notes 2 and 11)
    2,975,006       1       2,533,864       1  
Deferred credits—gain on intercompany (Notes 2 and 18)
    598,350                    
Guarantee deposits (Note 20)
    524,268             838,864        
 
   
 
     
 
     
 
     
 
 
Total other liabilities
    4,097,624       1       3,372,728       1  
 
   
 
     
 
     
 
     
 
 
Total liabilities
    83,244,902       18       69,220,058       18  
 
   
 
     
 
     
 
     
 
 
SHAREHOLDERS’ EQUITY (Notes 2, 14, 15 and 16)
                               
Capital stock—$10 par value
                               
Authorized: 24,600,000 thousand shares
                               
Issued: 23,251,877 thousand shares in 2004 and 20,266,619 thousand shares in 2003
    232,518,770       50       202,666,189       53  
Capital surplus
    56,529,100       12       56,847,417       15  
Retained earnings:
                               
Appropriated as legal reserve
    25,528,007       6       20,802,137       5  
Appropriated as special reserve
                68,945        
Unappropriated earnings
    66,007,204       14       34,226,657       9  
Others:
                               
Unrealized loss on long-term investments
    (3,967 )           (2,441 )      
Cumulative translation adjustments
    300,345             5,921        
Treasury stock (at cost)—45,970 thousand shares in 2004 and 40,784 thousand shares in 2003
    (1,616,669 )           (1,643,404 )      
 
   
 
     
 
     
 
     
 
 
Total shareholders’ equity
    379,262,790       82       312,971,421       82  
 
   
 
     
 
     
 
     
 
 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
  $ 462,507,692       100     $ 382,191,479       100  
 
   
 
     
 
     
 
     
 
 

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

-2-


 

English Translation of Financial Statements Originally Issued in Chinese

TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD.

STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(In Thousand New Taiwan Dollars, Except Earnings Per Share)
(Reviewed, Not Audited)

                                 
    2004
  2003
    Amount
  %
  Amount
  %
GROSS SALES (Notes 2 and 18)
  $ 195,779,620             $ 147,294,673          
SALES RETURNS AND ALLOWANCES (Note 2)
    (3,662,137 )             (3,169,937 )        
 
   
 
             
 
         
NET SALES
    192,117,483       100       144,124,736       100  
COST OF SALES (Notes 13 and 18)
    109,109,645       57       93,940,362       65  
 
   
 
     
 
     
 
     
 
 
GROSS PROFIT
    83,007,838       43       50,184,374       35  
 
   
 
     
 
     
 
     
 
 
OPERATING EXPENSES (Notes 13 and 18)
                               
Research and development
    8,947,939       4       8,657,300       6  
General and administrative
    7,214,420       4       4,572,503       3  
Marketing
    1,050,619       1       932,482       1  
 
   
 
     
 
     
 
     
 
 
Total operating expenses
    17,212,978       9       14,162,285       10  
 
   
 
     
 
     
 
     
 
 
INCOME FROM OPERATIONS
    65,794,860       34       36,022,089       25  
 
   
 
     
 
     
 
     
 
 
NON-OPERATING INCOME AND GAINS
                               
Investment income recognized by equity method—net (Notes 2 and 6)
    3,431,747       2              
Interest
    1,060,412       1       580,879       1  
Technical service income (Notes 18 and 20)
    327,583             158,925        
Gain on disposal of property, plant and equipment (Notes 2 and 18)
    144,899             347,656        
Gain on sales of investments (Note 2)
    111,771             66,428        
Other (Note 18)
    322,958             273,013        
 
   
 
     
 
     
 
     
 
 
Total non-operating income and gains
    5,399,370       3       1,426,901       1  
 
   
 
     
 
     
 
     
 
 
NON-OPERATING EXPENSES AND LOSSES
                               
Interest (Notes 2, 7 and 21)
    877,772       1       1,323,510       1  
Foreign exchange loss—net (Notes 2 and 21)
    538,765             426,256       1  
Loss on disposal of property, plant and equipment (Note 2)
    63,476             291,077        
Loss on property, plant and equipment and idle assets (Note 2)
                1,430,763       1  
Investment loss recognized by equity method—net (Notes 2 and 6)
                343,951        
Other
    29,262             173,223        
 
   
 
     
 
     
 
     
 
 
Total non-operating expenses and losses
    1,509,275       1       3,988,780       3  
 
   
 
     
 
     
 
     
 
 

(Continued)

-3-


 

English Translation of Financial Statements Originally Issued in Chinese

                                 
    2004
  2003
    Amount
  %
  Amount
  %
INCOME BEFORE INCOME TAX
  $ 69,684,955       36     $ 33,460,210       23  
INCOME TAX BENEFIT (EXPENSE) (Notes 2 and 12)
    447,026             (2,203,861 )     (1 )
 
   
 
     
 
     
 
     
 
 
NET INCOME
  $ 70,131,981       36     $ 31,256,349       22  
 
   
 
     
 
     
 
     
 
 
                                 
    2004
  2003
    Before   After   Before   After
    Income   Income   Income   Income
    Tax
  Tax
  Tax
  Tax
EARNINGS PER SHARE (NT$, Note 17)
                               
Basic earnings per share
  $ 3.00     $ 3.01     $ 1.43     $ 1.33  
 
   
 
     
 
     
 
     
 
 
Diluted earnings per share
  $ 2.99     $ 3.01     $ 1.43     $ 1.33  
 
   
 
     
 
     
 
     
 
 

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
  $ 70,145,749     $ 31,332,102  
 
   
 
     
 
 
EARNINGS PER SHARE (NT$)
               
Basic earnings per share
  $ 3.01     $ 1.33  
 
   
 
     
 
 
Diluted earnings per share
  $ 3.01     $ 1.33  
 
   
 
     
 
 

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

(Concluded)

-4-


 

English Translation of Financial Statements Originally Issued in Chinese

TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD.

STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(In Thousand New Taiwan Dollars)
(Reviewed, Not Audited)

                 
    2004
  2003
CASH FLOWS FROM OPERATING ACTIVITIES
               
Net income
  $ 70,131,981     $ 31,256,349  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    46,456,739       46,290,739  
Deferred income taxes
    (874,578 )     2,074,257  
Investment loss (income) recognized by equity method—net
    (3,431,747 )     343,951  
Gain on sales of long-term investments—net
    (2,150 )     (66,428 )
Amortization of discount of long-term bond investments
    3,347        
Loss on property, plant, and equipment, and idle assets
          1,430,763  
Gain on disposal of property, plant and equipment—net
    (81,423 )     (56,579 )
Pension cost accrued
    374,755       323,322  
Allowance for doubtful receivables
    (32,945 )     91,535  
Allowance for sales returns and others
    1,216,541       (307,925 )
Changes in operating assets and liabilities:
               
Decrease (increase) in:
               
Receivables from related parties
    (5,107,145 )     (5,071,409 )
Notes receivable
    (66,290 )     16,531  
Accounts receivable
    (3,781,597 )     (3,209,496 )
Other receivables from related parties
    (64,688 )     (40,168 )
Other financial assets
    (226,223 )     (222,682 )
Inventories—net
    (1,721,307 )     (1,473,119 )
Prepaid expenses and other current assets
    1,154,723       1,326,149  
Increase (decrease) in:
               
Payables to related parties
    (224,782 )     1,323,401  
Accounts payable
    1,273,842       747,397  
Accrued expenses and other current liabilities
    1,949,179       2,408,255  
 
   
 
     
 
 
Net cash provided by operating activities
    106,946,232       77,184,843  
 
   
 
     
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Increase in short-term investments—net
    (36,971,775 )     (11,664,302 )
Acquisitions of:
               
Long-term investments
    (13,281,844 )     (1,050,942 )
Property, plant and equipment
    (55,650,076 )     (24,415,743 )
Proceeds from disposal of:
               
Long-term investments
    7,552       458,308  
Property, plant and equipment
    310,038       158,858  
Increase in deferred charges
    (1,053,342 )     (1,792,664 )
Decrease in refundable deposits
    148,026       256,066  
Decrease in other assets—miscellaneous
          9,250  
 
   
 
     
 
 
Net cash used in investing activities
    (106,491,421 )     (38,041,169 )
 
   
 
     
 
 

(Continued)

-5-


 

English Translation of Financial Statements Originally Issued in Chinese

                 
    2004
  2003
CASH FLOWS FROM FINANCING ACTIVITIES
               
Cash dividends paid for common stock
  $ (12,159,971 )   $  
Purchase of treasury stock
    (7,059,798 )      
Cash bonus paid to employees
    (681,628 )      
Decrease in guarantee deposits
    (239,221 )     (556,202 )
Remuneration to directors and supervisors
    (127,805 )     (58,485 )
Cash dividends paid for preferred stock
    (184,493 )     (455,000 )
Repayment on long-term bonds
          (4,000,000 )
Redemption of preferred stock
          (13,000,000 )
 
   
 
     
 
 
Cash used in financing activities
    (20,452,916 )     (18,069,687 )
 
   
 
     
 
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    (19,998,105 )     21,073,987  
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD
    98,288,002       61,656,795  
 
   
 
     
 
 
CASH AND CASH EQUIVALENTS, END OF THE PERIOD
  $ 78,289,897     $ 82,730,782  
 
   
 
     
 
 
SUPPLEMENTAL INFORMATION
               
Interest paid (excluding the amounts capitalized of NT$262,109 thousand and NT$4,020 thousand in 2004 and 2003, respectively, Note 7)
  $ 169,670     $ 687,283  
 
   
 
     
 
 
Income tax paid
  $ 309,552     $ 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)
  $ 1,914,915     $  
 
   
 
     
 
 
Current portion of other long-term payable (under accrued expenses and other current liabilities)
  $ 1,817,542     $ 1,228,568  
 
   
 
     
 
 
Reclassification of short-term investments to long-term investments
  $ 3,402,413     $  
 
   
 
     
 
 

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

-6-


 

English Translation of Financial Statements Originally Issued in Chinese

TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD.

NOTES TO FINANCIAL STATEMENTS
(Amounts in Thousand New Taiwan Dollars, Unless Specified Otherwise)
(Reviewed, Not Audited)

1.   GENERAL
 
    Taiwan Semiconductor Manufacturing Company Ltd. (The Company or TSMC), a Republic of China (R.O.C.) corporation, was incorporated as a venture among the Government of the R.O.C., acting through the Development Fund of the Executive Yuan; Philips Electronics N.V. and certain of its affiliates (Philips); and certain other private investors. 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 and notes 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 corporate bonds, bond funds, asset-backed securities, agency bonds, government bonds, government bonds acquired under repurchase agreements, commercial papers, notes, listed stocks and money market funds.

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English Translation of Financial Statements Originally Issued in Chinese

    Short-term investments are recorded at historical cost and 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. Cash dividends are recorded as investment income when earned.
 
    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 its 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

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English Translation of Financial Statements Originally Issued in Chinese

    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.

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English Translation of Financial Statements Originally Issued in Chinese

    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.
 
    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

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English Translation of Financial Statements Originally Issued in Chinese

    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 net asset value of the funds is lower than their cost, with the corresponding amount recorded as a reduction to shareholders’ equity. A reversal of the allowance will result from a subsequent recovery of the net asset value.
 
    The costs of stocks and mutual funds sold are determined using the weighted-average method.
 
    Investments in long-term bonds are stated at amortized cost. The discount or premium is amortized over the duration period using the interest method, and recorded as an adjustment to the interest income.
 
    When investments in publicly-traded stocks are reclassified from short-term investments to long-term investments or from long-term investments to short-term investments, the Company recognizes a loss to the extent, if any, that the market value of such investments is lower than the carrying value.
 
    If an investee company recognizes an unrealized loss on its long-term investment using the lower-of-cost-or-market

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English Translation of Financial Statements Originally Issued in Chinese

    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.

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English Translation of Financial Statements Originally Issued in Chinese

    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 book value or net realizable 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.
 
    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.

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English Translation of Financial Statements Originally Issued in Chinese

    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.
 
    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.

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English Translation of Financial Statements Originally Issued in Chinese

    Adjustments to prior years’ tax liabilities are added to or deducted from the current year’s tax provision.

-15-


 

English Translation of Financial Statements Originally Issued in Chinese

    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 by 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.
 
    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

-16-


 

English Translation of Financial Statements Originally Issued in Chinese

    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.
 
    Reclassifications
 
    Certain accounts in the financial statements as of and for the nine months ended September 30, 2003 have been

-17-


 

English Translation of Financial Statements Originally Issued in Chinese

    reclassified to conform to the financial statements as of and for the nine months ended September 30, 2004.

-18-


 

English Translation of Financial Statements Originally Issued in Chinese

3.   CASH AND CASH EQUIVALENTS
                 
    September 30
    2004
  2003
Cash and bank deposits
  $ 66,556,701     $ 79,403,491  
Government bonds acquired under repurchase agreements
    11,534,485       3,327,291  
Corporate issued notes
    112,077        
Agency notes
    86,634        
 
   
 
     
 
 
 
  $ 78,289,897     $ 82,730,782  
 
   
 
     
 
 

4.   SHORT-TERM INVESTMENTS
                 
    September 30
    2004
  2003
Corporate bonds
  $ 11,237,187     $  
Bond funds
    10,407,891       1,000,000  
Corporate issued asset-backed securities
    10,398,842        
Agency bonds
    6,170,661        
Government bonds
    5,160,321       7,437,502  
Government bonds acquired under repurchase agreements
    2,577,163       1,200,000  
Commercial papers
    101,861        
Corporate issued notes
    67,927        
Listed stocks
    6,528        
Money market funds
          2,026,800  
 
   
 
     
 
 
 
  $ 46,128,381     $ 11,664,302  
 
   
 
     
 
 
Market value
  $ 46,201,834     $ 11,664,302  
 
   
 
     
 
 

    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 the fund managers should reach certain level of credit rating. As of September 30, 2004, the Company invested these investment portfolios in an aggregate amount of

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English Translation of Financial Statements Originally Issued in Chinese

    US$800,000 thousand. The investment portfolios included securities such as corporate bonds, asset-backed securities, agency bonds, government bonds, commercial papers and notes. The securities acquired with maturities less than three months from the date of purchase had been reclassified to cash equivalents.

5.   INVENTORIES—NET
                 
    September 30
    2004
  2003
Finished goods
  $ 2,463,121     $ 2,535,207  
Work in process
    10,324,213       9,891,487  
Raw materials
    721,880       373,404  
Supplies and spare parts
    851,071       712,492  
 
   
 
     
 
 
 
    14,360,285       13,512,590  
Allowance for losses
    (1,731,820 )     (1,699,135 )
 
   
 
     
 
 
 
  $ 12,628,465     $ 11,813,455  
 
   
 
     
 
 

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English Translation of Financial Statements Originally Issued in Chinese

6.   FUNDS AND LONG-TERM INVESTMENTS
                                 
    September 30
    2004
  2003
            %of           %of
    Carrying   Owner-   Carrying   Owner-
    Value
  ship
  Value
  ship
Equity method:
                               
TSMC International Investment Ltd. (TSMC International)
  $ 24,904,849       100     $ 21,646,213       100  
TSMC (Shanghai) Company Limited (TSMC— Shanghai)
    5,947,953       100              
Vanguard International Semiconductor Corporation (VIS)
    4,993,394       28       3,968,395       28  
TSMC Partners, Ltd. (TSMC Partners)
    4,150,226       100       4,089,066       100  
Systems on Silicon Manufacturing Company Pte Ltd. (SSMC)
    3,469,018       32       2,616,143       32  
Emerging Alliance Fund, L.P. (Emerging Alliance)
    865,937       99       755,364       99  
TSMC North America (TSMC—North America)
    473,629       100       286,061       100  
Global Unichip Corporation (GUC)
    375,466       47       377,758       47  
VentureTech Alliance Fund II, L.P. (VTAF II)
    327,876       98              
TSMC Japan K. K. (TSMC—Japan)
    100,901       100       97,567       100  
VisEra Technology Company, Limited (VisEra)
    56,212       25              
Chi Cherng Investment Co., Ltd. (Chi Cherng)
    51,314       36       43,028       36  
Hsin Ruey Investment Co., Ltd. (Hsin Ruey)
    50,999       36       41,787       36  
Taiwan Semiconductor Manufacturing Company Europe B.V. (TSMC—Europe)
    24,464       100       10,921       100  
 
   
 
             
 
         
 
    45,792,238               33,932,303          
 
   
 
             
 
         
Cost method:
                               
Publicly traded stock
                               
Taiwan Mask Co., Ltd.
                32,129       2  
Non-publicly traded stock
                               
United Industrial Gases Co., Ltd.
    193,584       10       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             229,669        
Crimson Asia Capital Ltd., L.P.
    38,314             42,355        
 
   
 
             
 
         

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English Translation of Financial Statements Originally Issued in Chinese

                                 
    September 30
    2004
  2003
            %of           %of
    Carrying   Owner-   Carrying   Owner-
    Value
  ship
  Value
  ship
 
    717,299               736,653          
 
   
 
             
 
         
Long-term bonds
                               
Government bonds
                               
2004 Government Bond Series E
    3,892,641                    
2003 Government Bond Series I
    3,399,371                    
2004 Government Bond Series A
    1,750,231                    
2004 Kaohsiung Municipal Bond Series A
    620,000                    
 
   
 
             
 
         
 
    9,662,243                        
 
   
 
             
 
         
Corporate bonds
                               
China Steel Corporation
    1,095,503                    
Taiwan Power Company
    918,650                    
 
   
 
             
 
         
 
    2,014,153                        
 
   
 
             
 
         
 
  $ 58,185,933             $ 34,668,956          
 
   
 
             
 
         

    In August 2003, November 2003 and May 2004, the Company established TSMC—Shanghai and invested in VisEra and VTAF II, respectively.

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English Translation of Financial Statements Originally Issued in Chinese

    The Company’s investee, VIS, reduced its capital on August 11, 2004 in order to decrease its accumulated deficits and improve the financial structure. The number of shares of VIS held by the Company after the capital reduction decreases from 787,016 thousand shares to 409,532 thousand shares. The ownership percentage remains the same.
 
    For the nine months ended September 30, 2004 and 2003, net investment income and losses recognized by equity method were NT$3,431,747 thousand and NT$343,951 thousand, respectively. The carrying value of investments accounted for under the equity method and the related investment income or losses were determined based on the reviewed financial statements of the investees for the same periods as the Company.
 
7.   PROPERTY, PLANT AND EQUIPMENT
 
    Accumulated depreciation consisted of the following:
                 
    September 30
    2004
  2003
Buildings
  $ 33,972,806     $ 27,881,029  
Machinery and equipment
    247,397,596       202,126,641  
Office equipment
    4,438,074       3,602,265  
 
   
 
     
 
 
 
  $ 285,808,476     $ 233,609,935  
 
   
 
     
 
 

    Information on the status of the expansion or construction plans of the Company’s manufacturing facilities as of September 30, 2004 is as follows:

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English Translation of Financial Statements Originally Issued in Chinese

                         
    Estimated   Accumulated    
Construction/Expansion Plan
  Complete Cost
  Expenditures
  Expected Date of Commencement
Fab 14 construction
  $ 69,516,200     $ 62,572,308     Fourth quarter of 2004
Fab 12 expansion
    58,744,200       37,529,881     First quarter of 2005

    Interest expense for the nine months ended September 30, 2004 and 2003 was NT$1,139,881 thousand and NT$1,327,530 thousand, respectively (before deducting capitalized amounts of NT$262,109 thousand in 2004 and NT$4,020 thousand in 2003, respectively). The interest rate used for purposes of calculating the capitalized amount was 2.80% and 5.283% for the nine months ended September 30, 2004 and 2003, respectively.

8.   DEFERRED CHARGES—NET
                 
    September 30
    2004
  2003
Technology license fees
  $ 7,024,803     $ 5,396,897  
Software and system design costs
    2,248,598       2,844,212  
Others
    246,909       174,248  
 
   
 
     
 
 
 
  $ 9,520,310     $ 8,415,357  
 
   
 
     
 
 

-24-


 

English Translation of Financial Statements Originally Issued in Chinese

9.   BONDS
                 
    September 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, 2.60%, 2.75% and 3.00% interest payable annually, respectively
    15,000,000       15,000,000  
 
   
 
     
 
 
 
  $ 35,000,000     $ 35,000,000  
 
   
 
     
 
 

    As of September 30, 2004, future principal payments arrangements for the Company’s bonds are as follows:
         
Year of Repayment
  Amount
2004 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 PAYABLE
 
    The Company entered into several license agreements for certain semiconductor-related patents. Future payments under the agreements as of September 30, 2004 are as follows:

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English Translation of Financial Statements Originally Issued in Chinese

         
Year
  Amount
2004 4th quarter
  $ 945,986  
2005
    1,296,356  
2006
    458,784  
2007
    475,776  
2008 and thereafter
    1,087,488  
 
   
 
 
 
    4,264,390  
Less: Current portion (under accrued expenses and other current liabilities)
    1,817,542  
 
   
 
 
 
  $ 2,446,848  
 
   
 
 

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 nine months ended September 30, 2004 and 2003 were NT$547,934 thousand and NT$459,287 thousand, respectively. The balances of the Fund were NT$1,376,527 thousand and NT$1,146,853 thousand as of September 30, 2004 and 2003, respectively.
 
12.   INCOME TAX

  a.   A reconciliation of income tax expense on income

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English Translation of Financial Statements Originally Issued in Chinese

      before income tax at the statutory rate and current income tax expense before income tax credits is as follows:
                 
    Nine Months Ended
    September 30
    2004
  2003
Income tax expense based on “income before income tax” at statutory rate (25%)
  $ (17,421,239 )   $ (8,365,053 )
Tax-exempt income
    10,261,110       3,598,750  
Temporary and permanent differences
    83,509       334,828  
 
   
 
     
 
 
Current income tax expense before income tax credits
  $ (7,076,620 )   $ (4,431,475 )
 
   
 
     
 
 
b. Income tax benefit (expense) consists of the following:
               
Current income tax expense before income tax credits
  $ (7,076,620 )   $ (4,431,475 )
Additional 10% tax on the unappropriated earnings
    (821,767 )     (1,271,759 )
Income tax credits
    7,898,387       5,703,234  
Other income tax
    (427,552 )     (2,500 )
Net change in deferred income tax assets and liabilities
               
Investment tax credits
    266,173       1,351,106  
Temporary differences
    755,306       (340,310 )
Valuation allowances
    (146,901 )     (3,212,157 )
 
   
 
     
 
 
Income tax benefit (expense)
  $ 447,026     $ (2,203,861 )
 
   
 
     
 
 

  c.   Deferred income tax assets (liabilities) consist of the following:
                 
    September 30
    2004
  2003
Current:
               
Investment tax credits
  $ 2,471,000     $ 2,117,000  
 
   
 
     
 
 
Non-current:
               
Investment tax credits
  $ 23,445,067     $ 25,801,759  

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English Translation of Financial Statements Originally Issued in Chinese

                 
    September 30
    2004
  2003
Temporary differences
    (2,730,145 )     (3,906,151 )
Valuation allowances
    (12,918,748 )     (13,054,298 )
 
   
 
     
 
 
 
  $ 7,796,174     $ 8,841,310  
 
   
 
     
 
 

  d.   Integrated income tax information:
 
      The balances of the imputation credit account (ICA) as of September 30, 2004 and 2003 were zero 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.
 
  f.   As of September 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 and   $ 4,448,442     $ 20,936       2004  
Industries
  equipment     3,819,936       2,665,518       2005  
 
        4,925,775       4,925,775       2006  
 
        4,140,462       4,140,462       2007  
 
        4,200,106       4,200,106       2008  
 
       
 
     
 
         
 
      $ 21,534,721     $ 15,952,797          
 
       
 
     
 
         
Statute for Upgrading
  Research and development   $ 2,270,013     $       2004  
Industries
  expenditures     3,147,071       3,147,071       2005  
 
        3,342,952       3,342,952       2006  
 
        1,976,913       1,976,913       2007  
 
        1,372,550       1,372,550       2008  
 
       
 
     
 
         

-28-


 

English Translation of Financial Statements Originally Issued in Chinese

                             
        Total   Remaining    
        Creditable   Creditable   Expire
Regulation
  Items
  Amounts
  Amounts
  Year
 
      $ 12,109,499     $ 9,839,486          
 
       
 
     
 
         
Statute for Upgrading
  Personnel training   $ 48,659     $ 2,209       2004  
Industries
        29,448       29,448       2005  
 
        27,311       27,311       2006  
 
        26,780       26,780       2007  
 
       
 
     
 
         
 
      $ 132,198     $ 85,748          
 
       
 
     
 
         
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 and 1998. The Company believes that any additional assessment will not have a material adverse effect on the Company.

-29-


 

English Translation of Financial Statements Originally Issued in Chinese

13.   LABOR COST, DEPRECIATION AND AMORTIZATION EXPENSE
                                                 
    Nine Months Ended September 30, 2004
  Nine Months Ended September 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
  $ 6,597,662     $ 3,148,152     $ 9,745,814     $ 5,437,931     $ 2,273,059     $ 7,710,990  
Labor and health insurance
    418,441       230,945       649,386       349,560       174,175       523,735  
Pension
    353,123       194,811       547,934       306,331       152,956       459,287  
Other
    283,701       302,580       586,281       160,399       84,203       244,602  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
 
  $ 7,652,927     $ 3,876,488     $ 11,529,415     $ 6,254,221     $ 2,684,393     $ 8,938,614  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Depreciation
  $ 41,070,901     $ 1,823,129     $ 42,894,030     $ 41,815,245     $ 1,735,170     $ 43,550,415  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Amortization
  $ 1,904,560     $ 1,653,849     $ 3,558,409     $ 1,074,049     $ 1,807,137     $ 2,881,186  
 
   
 
     
 
     
 
     
 
     
 
     
 
 

14.   SHAREHOLDERS’ EQUITY
 
    The Company has issued 668,351 thousand ADSs which are traded on the NYSE as of September 30, 2004. The number of common shares represented by the ADSs is 3,341,754 thousand shares (one ADS represents five common shares).
 
    Capital surplus can only be used to offset a deficit under the ROC Company Law. However, the 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 transaction of treasury stock) is allowed to be appropriated under the restriction of certain percentage as stock dividends based on shareholders’ ownerships.
 
    As of September 30, 2004 and 2003, the capital surplus consisted of the following:

-30-


 

English Translation of Financial Statements Originally Issued in Chinese

                 
    2004
  2003
From merger
  $ 24,003,546     $ 24,132,297  
Additional paid-in capital
    23,048,918       23,172,550  
From long-term investments
    116,157       81,746  
From convertible bonds
    9,360,424       9,410,632  
Donation
    55       55  
Treasury stock
          50,137  
 
   
 
     
 
 
Total
  $ 56,529,100     $ 56,847,417  
 
   
 
     
 
 

    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;

-31-


 

English Translation of Financial Statements Originally Issued in Chinese

  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
 
  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 issued capital stock. The reserve can only be used to offset an accumulated deficit or be distributed as a stock dividend up to 50% of the reserve balance when the reserve balance has reached 50% of the aggregate par value of the issued capital stock of the Company.
 
    A special 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 Bureau (SFB). The special reserve is allowed to be appropriated to the extent that the debit balance of

-32-


 

English Translation of Financial Statements Originally Issued in Chinese

    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 have 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

-33-


 

English Translation of Financial Statements Originally Issued in Chinese

    to employees represented 1.35% and 0.83% of the Company’s total outstanding common shares as of December 31, 2003 and 2002, respectively.

-34-


 

English Translation of Financial Statements Originally Issued in Chinese

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

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

-35-


 

English Translation of Financial Statements Originally Issued in Chinese

      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
 
    The Company’s Employee Stock Option Plans the 2003 Plan and the 2002 Plan, were approved on October 29, 2003 and June 25, 2002, respectively. The maximum number of units authorized to be granted under the 2003 Plan and the 2002 Plan is 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 58,271 thousand option rights that were never granted, or had been granted and subsequently cancelled. These un-granted or cancelled option rights were expired as of September 30, 2004.

-36-


 

English Translation of Financial Statements Originally Issued in Chinese

    Information of outstanding stock options for the nine months ended September 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$)
  (in Thousands)
  (NT$)
Nine months ended September 30, 2004
                               
Beginning balance
    842       57.8       48,515       42.7  
Options granted
    13,199       49.9       7,200       42.6  
Options cancelled
    (1,090 )     51.1       (3,165 )     44.1  
 
   
 
             
 
         
Ending balance
    12,951               52,550          
 
   
 
             
 
         
Nine months ended September 30, 2003
                               
Beginning balance
                    19,369       48.6  
Options granted
                    32,031       50.3  
Options cancelled
                    (1,778 )     48.0  
 
                   
 
         
Ending balance
                    49,622          
 
                   
 
         

    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 September 30, 2004, information on outstanding option rights is as follows:
                                                 
    Option Outstanding
  Option Exercisable
                    Weighted-            
            Number of   Average   Weighted-   Number of   Weighted-
    Range of   Outstanding   Remaining   Average   Exercisable   Average
    Exercise   Options (in   Contractual   Exercise   Option (in   Exercise
    Price (NT$)
  Thousands)
  Life (Years)
  Price (NT$)
  Thousands)
  Price (NT$)
2003 plan
    (43.8-57.8 )     12,951       9.59       50.3              
2002 plan
    (32.8-46.2 )     52,550       8.34       42.6       9,811       41.8  
 
           
 
                     
 
         
Total
    (32.8-57.8 )     65,501       8.59       44.1       9,811       41.8  
 
           
 
                     
 
         

-37-


 

English Translation of Financial Statements Originally Issued in Chinese

    The compensation cost recognized for the nine months ended September 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 nine months ended September 30, 2004 would be as follows:
         
    Black—
    Scholes Model
Method
       
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
  $ 70,131,981  
Pro forma net income
    70,092,754  
         
    NT$
Earnings per share (EPS):
       
Basic EPS as reported
    3.01  
Pro forma basic EPS
    3.01  
Diluted EPS as reported
    3.01  
Pro forma diluted EPS
    3.01  

    The estimated weighted average fair value for the options granted under the 2003 Plan during the nine-month period ended September 30, 2004 was NT$19.73 per option.

16.   TREASURY STOCK (COMMON STOCK)

(Shares in Thousand)

                                 
    Beginning   Increase/           Ending
Purpose
  Shares
  Dividend
  Decrease
  Shares
Nine months ended September 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       125,023       45,970  
 
   
 
     
 
     
 
     
 
 
Nine months ended September 30, 2003
                               
Reclassification of parent company stock held by subsidiaries from long-term investment
    42,001       3,357       4,574       40,784  
 
   
 
     
 
     
 
     
 
 

    Proceeds from the sales of treasury stock for the nine months ended September 30, 2004 and 2003 were NT$18,218 thousand and NT$318,850 thousand, respectively. As of September 30, 2004 and 2003, the book value of the treasury stock was NT$1,616,669 thousand and NT$1,643,404 thousand, respectively; the market value was NT$2,056,707 thousand and NT$2,776,198 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.

-38-


 

English Translation of Financial Statements Originally Issued in Chinese

    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 repurchase the Company’s common shares listed on the TSE from its shareholders during the period from March 24, 2004 to May 23, 2004. The Company has repurchased 124,720 thousand common shares for a total of NT$7,059,798 thousand. All the treasury stock repurchased under the buyback plan was retired on August 16, 2004.

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
Nine months ended September 30, 2004
                                       
Basic EPS
                                       
Income available to common shareholders
  $ 69,684,955     $ 70,131,981       23,262,992     $ 3.00     $ 3.01  
 
                           
 
     
 
 
Effect of diluted securities—stock option
                7,032                  
 
   
 
     
 
     
 
                 
Diluted EPS
                                       
Income available to common shareholders (including effect of diluted securities)
  $ 69,684,955     $ 70,131,981       23,270,024     $ 2.99     $ 3.01  
 
   
 
     
 
     
 
     
 
     
 
 
Nine months ended September 30, 2003
                                       
Net income
  $ 33,460,210     $ 31,256,349                          
Less—preferred stock dividends
    (184,493 )     (184,493 )                        
 
   
 
     
 
                         
Basic EPS
                                       
Income available to common shareholders
  $ 33,275,717     $ 31,071,856       23,326,379     $ 1.43     $ 1.33  
 
                           
 
     
 
 
Effect of diluted securities—stock options
                4,913                  
 
   
 
     
 
     
 
                 
Diluted EPS
                                       
Income available to common shareholders (including effect of diluted securities)
  $ 33,275,717     $ 31,071,856       23,331,292     $ 1.43     $ 1.33  
 
   
 
     
 
     
 
     
 
     
 
 

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
TSMC—Shanghai
 
  d.   Investees
 
      VIS
GUC
SSMC
VisEra

-39-


 

English Translation of Financial Statements Originally Issued in Chinese

  e.   Indirect subsidiaries
 
      WaferTech
TSMC Technology Inc. (TSMC Technology)

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

                                 
    Nine Months Ended September 30
    2004
  2003
    Amount
  %
  Amount
  %
For the period
                               
Sales
                               
TSMC—North America
  $ 107,409,697       55     $ 84,777,377       58  
Philips and its affiliates
    3,980,051       2       2,370,142       2  
Others
    325,335             496,652        
 
   
 
     
 
     
 
     
 
 
 
  $ 111,715,083       57     $ 87,644,171       60  
 
   
 
     
 
     
 
     
 
 
Purchases
                               
WaferTech
  $ 11,576,543       34     $ 7,815,373       35  
VIS
    6,912,218       21       3,454,704       16  
SSMC
    4,604,370       14       3,805,999       17  
 
   
 
     
 
     
 
     
 
 
 
  $ 23,093,131       69     $ 15,076,076       68  
 
   
 
     
 
     
 
     
 
 
Manufacturing expenses—technical assistance fee (see Note 20a)
                               
Philips
  $ 1,022,446       1     $ 2,250,285       3  
 
   
 
     
 
     
 
     
 
 
Marketing expenses—commission
                               
TSMC—Japan
  $ 193,748       18     $ 158,717       17  
TSMC—Europe
    157,833       15       111,780       12  
 
   
 
     
 
     
 
     
 
 
 
  $ 351,581       33     $ 270,497       29  
 
   
 
     
 
     
 
     
 
 
Sale of property, plant, and equipment
                               
TSMC—Shanghai
  $ 2,806,462       90     $        
VIS
    32,960       1       8,098       5  
 
   
 
     
 
     
 
     
 
 
 
  $ 2,839,422       91     $ 8,098       5  
 
   
 
     
 
     
 
     
 
 
Non-operating income and gain
                               
SSMC (technical service income mainly, see Note 20e)
  $ 293,727       5     $ 119,041       8  
VIS (technical service income mainly, see Note 20n)
    111,983       2       271        
VisEra
    22,876       1              
WaferTech
    2,901             1,528        
 
   
 
     
 
     
 
     
 
 
 
  $ 431,487       8     $ 120,840       8  
 
   
 
     
 
     
 
     
 
 

-40-


 

English Translation of Financial Statements Originally Issued in Chinese

                                 
    Nine Months Ended September 30
    2004
  2003
    Amount
  %
  Amount
  %
At end of the period
                               
Receivables
                               
TSMC—North America
  $ 19,481,557       98     $ 14,337,121       94  
Philips and its affiliates
    432,040       2       752,568       5  
Others
    61,210             96,684       1  
 
   
 
     
 
     
 
     
 
 
 
  $ 19,974,807       100     $ 15,186,373       100  
 
   
 
     
 
     
 
     
 
 
Other receivables
                               
TSMC—Shanghai
  $ 2,807,784       94     $        
VIS (technical service income mainly, see Note 20n)
    101,707       3       95,092       88  
TSMC Technology
    3,039             12,103       11  
Others
    91,583       3       1,497       1  
 
   
 
     
 
     
 
     
 
 
 
  $ 3,004,113       100     $ 108,692       100  
 
   
 
     
 
     
 
     
 
 
Payables
                               
Philips and its affiliates
  $ 1,923,537       34     $ 1,481,653       39  
VIS
    1,916,758       34       796,865       21  
WaferTech
    1,104,866       20       964,659       26  
SSMC
    637,115       11       501,281       14  
Others
    56,747       1       45,941        
 
   
 
     
 
     
 
     
 
 
 
  $ 5,639,023       100     $ 3,790,399       100  
 
   
 
     
 
     
 
     
 
 
Other payables to related parties (excluding current portion which is under payables to related parties. See Note 20a)
                               
Philips and its affiliates
  $ 2,468,088       100     $        
 
   
 
     
 
     
 
     
 
 
Deferred credits—gain on intercompany
TSMC—Shanghai
  $ 598,350       100     $        
 
   
 
     
 
     
 
     
 
 
Refundable deposits—VIS
  $           $ 260,992       91  
 
   
 
     
 
     
 
     
 
 

    The terms of sales 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.

-41-


 

English Translation of Financial Statements Originally Issued in Chinese

    As of September 30, 2004, future remaining lease payments are as follows:
         
Year
  Amount
2004 4th quarter
  $ 58,837  
2005
    235,348  
2006
    235,348  
2007
    235,348  
2008
    210,687  
2009 and thereafter
    1,617,858  
 
   
 
 
 
  $ 2,593,426  
 
   
 
 

20.   SIGNIFICANT COMMITMENTS AND CONTINGENCIES
 
    The significant commitments and contingencies as of September 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 September 30, 2004, the Company had a total of US$15,314 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 September 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.

-42-


 

English Translation of Financial Statements Originally Issued in Chinese

  g.   Under a Technology Transfer Agreement (TTA) with National Semiconductor Corporation (National) entered into on June 27, 2000, the Company shall receive payments for the licensing of certain technology to National. The agreement was to remain in force for ten years and could be automatically renewed for successive periods of two years thereafter unless either party gives notice for early termination under certain conditions. In January 2003, the Company and National entered into a Termination Agreement whereby the TTA was terminated for convenience. Under the termination agreement, the Company will be relieved of any further obligation to transfer any additional technology. In addition, the Company granted National an option to request the transfer of certain technologies under the same terms and conditions as the terminated TTA. The option will expire in January 2008.
 
  h.   Beginning in 2001, the Company entered into several licensing arrangements for certain semiconductor patents. The terms of the contracts range from five to ten years with payments to be made in the form of royalties over the term of the related contracts. The Company has recorded the related amounts as a liability with the corresponding amounts recorded as deferred charges which are amortized and charged to cost of sales on a straight-line basis over the estimated life of the technology or the term of the contract, whichever is shorter.
 
  i.   In November 2002, the Company entered into an Amended and Restated Joint Technology Cooperation Agreement with Philips, Motorola, Inc. and STMicroelectronics to jointly develop 90-nm to 65-nm advanced CMOS Logic and e-DRAM technologies. The Company also agreed to align 0.12 micron CMOS Logic technology to enhance its foundry business opportunities. The Company will contribute process technologies and share a portion of the costs associated with this joint development project.
 
  j.   In December 2003, the Company entered into a Technology Development and License Agreement with Motorola, Inc. to jointly develop 65-nm SOI (silicon on insulator) technology. The Company will also license related 90-nm SOI technology from Motorola, Inc. Any intellectual properties arising out of the co-development project shall be jointly owned by the parties. In accordance with the agreement, the Company will pay 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 and certain of its subsidiaries (SMIC) for patent infringement seeking injunctive relief and monetary damages. The probable outcome in the above forum cannot be reasonably estimated.
 
  l.   In May 2004, the Company filed a separate suit against SMIC in Alameda County of California for trade secret misappropriation seeking injunctive relief and monetary damages. The probable outcome in the above forum cannot be reasonably estimated.
 
  m.   In August 2004, the Company and certain of its subsidiaries filed a Complaint with the United States International Trade Commission (ITC) against SMIC for infringing the Company’s U.S. patents, and misappropriation the Company’s trade secrets. The Company requested the ITC to institute an immediate investigation and issue a permanent exclusion order from entry into the United States all unlicensed semiconductor devices and products containing the same fabricated by SMIC that infringing the Company’s patents or were fabricated using TSMC’s trade secrets. The Company subsequently filed a patent infringement lawsuit in the U.S. District Court of Northern California on the patents alleged in the ITC action, and sought injunctive relief as well as treble damages and associated costs for SMIC’s willful infringement of the asserted patents. The probable outcome in the above forum cannot be reasonably estimated.
 
  n.   The Company provides technology transfer to VIS under a Manufacturing License and Technology Transfer Agreement entered into in August 2004. The Company receives compensation for such technology transfer in the forum royalty payments from VIS computed at a specific percentage of net selling price of certain products sold by VIS.

-43-


 

English Translation of Financial Statements Originally Issued in Chinese

  o.   Amounts available under unused letters of credit as of September 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 SFB for the Company and its investees:

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

  1)   Derivative financial instruments
 
      The Company entered into derivative financial instrument transactions for the nine-month period ended September 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 September 30, 2004 are as follows:
               
Financial       Contract Amount (Nominal)
Instruments
  Maturity Period
  (in Thousand)
Sell
  October 2004   US$  33,723   (US$/EUR)
Sell
  October 2004 to April 2005   US$  2,351,000   (US$/NT$)
Sell
  November 2004   EUR 58,500   (EUR/US$)

      As of September 30, 2004, receivables from forward exchange contracts (included in the “other financial assets” account) aggregate approximately NT$27,881 thousand, and payables from forward exchange contracts (included in the “other current liabilities” account) aggregate approximately NT$887,272 thousand. Net exchange loss for the nine months ended September 30, 2004 was NT$190,846 thousand.

-44-


 

English Translation of Financial Statements Originally Issued in Chinese

  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 nine months ended September 30, 2004 was NT$6,966 thousand.
 
      Outstanding contracts as of September 30, 2004 are as follows:
             
        Contract Amount
Contract Date
  Period
  (Nominal)
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.
 
  iii)   Liquidity and cash flow risk and uncertainty of amount and term of future cash demand.
 
      As of September 30, 2004, the Company’s future cash demand for outstanding forward exchange contracts are as follows:
                 
    Inflow   Outflow
Term
  (In Thousand)
  (In Thousand)
Within one year
  NT$ 79,033,789     US$ 2,384,723  
 
  US$ 72,065     EUR 58,500  
 
  EUR 27,500          

      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.

-45-


 

English Translation of Financial Statements Originally Issued in Chinese

  2)   The fair value of financial instruments were as follows:
                                 
    September 30, 2004
  September 30, 2003
    Carrying           Carrying    
    Amount
  Fair Value
  Amount
  Fair Value
Non-derivative financial instruments
                               
Assets
                               
Short-term investments
  $ 46,128,381     $ 46,201,834     $ 11,664,302     $ 11,664,302  
Long-term investments
    58,185,933       62,904,359       34,668,956       39,200,246  
Liabilities
                               
Bonds payable (includes current portion)
    35,000,000       35,655,089       35,000,000       35,641,304  
Derivative financial instruments
                               
Forward exchange contracts (buy)
                45,189       52,376  
Forward exchange contracts (sell)
    (787,029 )     (349,631 )     334,407       540,975  
Interest rate swaps
    4,361       1,391             (5,812 )

      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. The fair value of other long-term payables is determined using the expected discounted cash flows, which approximate 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.
 
  c)   Fair value of derivative financial instruments is the estimated net receivable (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: Please see Note 18.

-46-


 

TABLE 1

TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD. AND INVESTEES

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

                                                                                                                 
                                                                                                            Financing
                            Maximum                                                                           Company’s
                            Balance for                                                                   Financing   Financing
                    Financial   the Period   Ending Balance           Type of           Reasons for           Collateral   Limit for   Amount Limits
                    Statement   (US$ in   (US$ in   Interest   Financing   Transaction   Short-term   Allowance for  
  Each Borrowing   (US$ in
No.
  Financing Name
  Counter-party
  Account
  Thousand)
  Thousand)
  Rate
  (Note 1)
  Amounts
  Financing
  Bad Debt
  Item
  Value
  Company
  Thousand)
  1    
TSMC International
  TSMC Development   Other receivables   $ 2,039,040     $ 2,039,040       1.50 %     2     $     Operating capital   $           $       N/A     $ 33,575,113  
       
 
                  US$ (60,000 )   US$ (60,000 )                                                                   US$ (987,968 )
       
 
                                                                                                  (Note 2)
       
 
  TSMC Technology   Other receivables     339,840                                                                  
       
 
                  US$ (10,000 )                                                                                
  2    
TSMC Partners
  TSMC Development   Other receivables     2,718,720       2,718,720       1.50 %     2           Operating capital                       N/A     (Note 3)
       
 
                  US$ (80,000 )   US$ (80,000 )                                                                        

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

-47-


 

TABLE 2

TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD. AND INVESTEES

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

                                                             
                                                Ratio of    
                                                Accumulated   Maximum
        Counter-party       Maximum                   Amount of   Collateral/
       
  Limits on Each   Balance for   Ending   Value of   Collateral to   Guarantee
            Nature of   Counter-party's   the Period   Balance   Collateral   Net Equity   Amounts
    Endorsement/       Relationship   Endorsement/   (US$ in   (US$ in   Property, Plant   of the Latest   Allowable
No.
  Guarantee Provider
  Name
  (Note 2)
  Guarantee Amounts
  Thousand)
  Thousand)
  and Equipment
  Financial Statement
  (Note 1)
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   $ 2,039,040     $ 2,039,040                          
   
 
              Directors.   US$ (60,000 )   US$ (60,000 )   $       0.54 %   $ 94,815,698  
   
 
  TSMC—North America     2           1,359,360       1,359,360                          
   
 
                  US$ (40,000 )   US$ (40,000 )           0.36 %        
   
 
  WaferTech     3           14,952,960       14,952,960                          
   
 
                  US$ (440,000 )   US$ (440,000 )           3.94 %        

Note 1:   25% of the net worth of the Company as of September 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.

-48-


 

TABLE 3

TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD. AND INVESTEES

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

                                                 
                September 30, 2004
       
                                        Market Value    
                        Carrying           or Net Asset    
        Relationship   Financial           Value       Value    
        with the   Statement   Shares/Units   (US$ in   Percentage of   (US$ in    
Held Company Name
  Marketable Securities Type and Name
  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     $ 1,201,300      
  2002 Government Bond Series J     Short-term investment           2,023,206       N/A       2,002,100      
  United States Treas NTS     Short-term investment         US$ 56,783       N/A     US$ 56,744      
  2003 Government Bond Series I     Long-term investment           3,399,371       N/A       3,392,501      
  2004 Government Bond Series A     Long-term investment           1,750,231       N/A       1,748,432      
  2004 Government Bond Series E     Long-term investment           3,892,641       N/A       3,889,287      
  2004 Kaohsiung Municipal Bond Series A     Long-term investment           620,000       N/A       620,000      
  Bonds under repurchase agreement     Short-term investment           2,577,163       N/A       2,594,896      
  Bond funds                                            
  JF Taiwan Bond Fund     Short-term investment     85,441       1,252,019       N/A       1,265,366      
  ABN AMRO Bond Fund     Short-term investment     134,906       1,954,409       N/A       1,972,094      
  JF Taiwan First Bond Fund     Short-term investment     84,886       1,151,463       N/A       1,158,727      
  INVESCO R.O.C. Bond A Fund     Short-term investment     93,975       1,350,000       N/A       1,357,721      
  Dresdner Bond DAM Fund     Short-term investment     80,833       900,000       N/A       906,183      
  Barits Bond Fund     Short-term investment     76,640       900,000       N/A       904,539      
  Shinkong Chi Shin Bond Fund     Short-term investment     151,594       2,100,000       N/A       2,108,050      
  ABN AMRO Select Bond Fund     Short-term investment     18,235       200,000       N/A       200,476      
  NITC Bond Fund     Short-term investment     3,764       600,000       N/A       600,407      
  Stock                                            
  Taiwan Mask Corp.     Short-term investment     1,787       6,528             27,570      
  TSMC—North America   Subsidiary   Long-term investment     11,000       473,629       100       1,172,222     Treasury stock of NT$698,593 thousand is deducted from the carrying value.
  TSMC—Europe   Subsidiary   Long-term investment           24,464       100       24,464      
  TSMC—Japan   Subsidiary   Long-term investment     6       100,901       100       100,901      
  VIS   Investee   Long-term investment     409,532       4,993,394       28       7,964,599      
  TSMC International   Subsidiary   Long-term investment     987,968       24,904,849       100       24,904,849      
  TSMC Partners   Subsidiary   Long-term investment     300       4,150,226       100       4,150,226      
  SSMC   Investee   Long-term investment     382       3,469,018       32       3,469,018      
  GUC   Investee   Long-term investment     39,040       375,466       47       404,333      
  VisEra   Investee   Long-term investment     5,100       56,212       25       56,212      
  United Industrial Gases Co., Ltd.     Long-term investment     16,783       193,584       10       272,001      
  Shin-Etsu Handotai Taiwan Co., Ltd.     Long-term investment     10,500       105,000       7       161,712      

(Continued)

-49-


 

                                                 
                September 30, 2004
       
                                        Market Value    
                                        or Net Asset    
        Relationship   Financial           Carrying Value       Value    
        with the   Statement   Shares/Units   (US$ in   Percentage of   (US$ in    
Held Company Name
  Marketable Securities Type and Name
  Company
  Account
  (In Thousand)
  Thousand)
  Ownership
  Thousand)
  Note
  W.K. Technology Fund IV     Long-term investment     5,000     $ 50,000       2     $ 56,507      
  Hontung Ventures Capital Co., Ltd.     Long-term investment     8,392       83,916       10       57,819      
  Certificate                                            
  Chi Cherng   Investee   Long-term investment           51,314       36       509,878     Treasury stock of NT$458,564 thousand is deducted from the carrying value.
  Hsin Ruey   Investee   Long-term investment           50,999       36       510,511     Treasury stock of NT$459,512 thousand is deducted from the carrying value.
  Corporate bonds                                            
  Taiwan Power Company     Short-term investment           2,777,798       N/A       2,743,519      
  Abbott Labs     Short-term investment         US$ 2,732       N/A     US$ 2,744      
  Abbott Labs     Short-term investment         US$ 1,581       N/A     US$ 1,604      
  Allstate Finl Global Fdg LLC     Short-term investment         US$ 3,171       N/A     US$ 3,134      
  American Express Co.     Short-term investment         US$ 3,550       N/A     US$ 3,536      
  American Gen Fin Corp. Mtn     Short-term investment         US$ 3,130       N/A     US$ 3,123      
  American Gen Fin Corp. Mtn     Short-term investment         US$ 3,702       N/A     US$ 3,694      
  American Honda Fin Corp. Mtn     Short-term investment         US$ 3,800       N/A     US$ 3,795      
  American Intl Group Inc. Mtnf     Short-term investment         US$ 3,795       N/A     US$ 3,812      
  Amsouth Bk Birmingham Ala     Short-term investment         US$ 1,972       N/A     US$ 1,979      
  Bank New York Inc.     Short-term investment         US$ 3,945       N/A     US$ 3,957      
  Bear Stearns Cos Inc.     Short-term investment         US$ 3,518       N/A     US$ 3,509      
  Bear Stearns Cos Inc. Medium Te     Short-term investment         US$ 3,105       N/A     US$ 3,096      
  Berkshire Hathaway Fin Corp.     Short-term investment         US$ 1,498       N/A     US$ 1,506      
  Bristol Myers Squibb Co.     Short-term investment         US$ 3,819       N/A     US$ 3,827      
  Cargill Inc.     Short-term investment         US$ 2,120       N/A     US$ 2,103      
  Citigroup Inc.     Short-term investment         US$ 2,000       N/A     US$ 1,992      
  Citigroup Inc.     Short-term investment         US$ 3,583       N/A     US$ 3,545      
  Colonial Pipeline Co.     Short-term investment         US$ 1,625       N/A     US$ 1,637      
  Compaq Computer Corp.     Short-term investment         US$ 3,719       N/A     US$ 3,647      
  Consolidated Edison Co. NY Inc.     Short-term investment         US$ 3,687       N/A     US$ 3,666      
  Countrywide Home Lns Inc.     Short-term investment         US$ 3,662       N/A     US$ 3,640      
  Credit Suisse Fb USA Inc.     Short-term investment         US$ 2,645       N/A     US$ 2,629      
  Dell Computer Corp.     Short-term investment         US$ 3,054       N/A     US$ 3,062      
  Diageo PLC     Short-term investment         US$ 3,459       N/A     US$ 3,506      
  Fifth Third Bk Cincinnati OH     Short-term investment         US$ 2,419       N/A     US$ 2,488      
  First Data Corp.     Short-term investment         US$ 3,013       N/A     US$ 2,995      
  General Elec Cap Corp. Mtn     Short-term investment         US$ 3,507       N/A     US$ 3,510      
  Genworth Finl Inc.     Short-term investment         US$ 3,412       N/A     US$ 3,400      
  Goldman Sachs Group LP     Short-term investment         US$ 1,637       N/A     US$ 1,622      
  Goldman Sachs Group LP     Short-term investment         US$ 1,100       N/A     US$ 1,090      
  Hershey Foods Corp.     Short-term investment         US$ 1,627       N/A     US$ 1,623      
  Hewlett Packard Co.     Short-term investment         US$ 3,373       N/A     US$ 3,347      
  Honeywell Inc.     Short-term investment         US$ 3,284       N/A     US$ 3,266      
  Household Fin Corp.     Short-term investment         US$ 3,712       N/A     US$ 3,671      
  Household Fin Corp. Mtn Bk Ent     Short-term investment         US$ 3,542       N/A     US$ 3,530      

(Continued)

-50-


 

                                                 
                September 30, 2004
       
                                        Market Value    
                                        or Net Asset    
        Relationship   Financial           Carrying Value       Value    
        with the   Statement   Shares/Units   (US$ in   Percentage of   (US$ in    
Held Company Name
  Marketable Securities Type and Name
  Company
  Account
  (In Thousand)
  Thousand)
  Ownership
  Thousand)
  Note
  Huntington Natl Bk     Short-term investment         US$ 3,003       N/A     US$ 2,998      
  Huntington Natl Bk Columbus OH     Short-term investment         US$ 2,954       N/A     US$ 2,981      
  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$ 5,167      
  JP Morgan Chase + Co.     Short-term investment         US$ 3,638       N/A     US$ 3,605      
  JP Morgan Chase + Co.     Short-term investment         US$ 3,128       N/A     US$ 3,149      
  Jackson Natl Life Global Fdg S     Short-term investment         US$ 2,998       N/A     US$ 2,980      
  Keycorp Mtn Book Entry     Short-term investment         US$ 3,500       N/A     US$ 3,497      
  KFW Intl Fin Inc.     Short-term investment         US$ 5,104       N/A     US$ 5,059      
  Lehman Brothers Hldgs Inc.     Short-term investment         US$ 3,417       N/A     US$ 3,381      
  Lehman Brothers Hldgs Inc.     Short-term investment         US$ 3,705       N/A     US$ 3,679      
  Lilly Eli + Co.     Short-term investment         US$ 3,750       N/A     US$ 3,743      
  Metropolitan Life Global Mtn     Short-term investment         US$ 1,907       N/A     US$ 1,935      
  Monumental Global FDG II     Short-term investment         US$ 2,500       N/A     US$ 2,498      
  Monumental Global FDG II     Short-term investment         US$ 1,534       N/A     US$ 1,530      
  Monumental Global FDG II 2002A     Short-term investment         US$ 2,084       N/A     US$ 2,092      
  Morgan Stanley Group Inc.     Short-term investment         US$ 2,652       N/A     US$ 2,652      
  Nationsbank Corp.     Short-term investment         US$ 3,644       N/A     US$ 3,586      
  Nationwide Bldg Soc     Short-term investment         US$ 3,457       N/A     US$ 3,498      
  Nationwide Life Global Mtn     Short-term investment         US$ 3,413       N/A     US$ 3,451      
  Pepsico Inc. Mtn Book Entry     Short-term investment         US$ 3,818       N/A     US$ 3,867      
  Premark Intl Inc.     Short-term investment         US$ 2,954       N/A     US$ 2,955      
  Pricoa Global Fdg I Mtn     Short-term investment         US$ 3,507       N/A     US$ 3,506      
  Pricoa Global Fdg I Mtn     Short-term investment         US$ 3,050       N/A     US$ 3,050      
  Principal Life Global Fdg I Gl     Short-term investment         US$ 3,168       N/A     US$ 3,141      
  Protective Life Secd Trs     Short-term investment         US$ 2,920       N/A     US$ 2,995      
  Prudential Ins Co. Amer     Short-term investment         US$ 2,648       N/A     US$ 2,644      
  Salomon Smith Barney Hldgs Inc.     Short-term investment         US$ 3,160       N/A     US$ 3,133      
  SBC Communications Inc.     Short-term investment         US$ 3,681       N/A     US$ 3,658      
  Shell Finance (UK) PLC     Short-term investment         US$ 3,604       N/A     US$ 3,586      
  SLM Corp.     Short-term investment         US$ 500       N/A     US$ 505      
  SLM Corp. Medium Term NTS     Short-term investment         US$ 2,950       N/A     US$ 3,013      
  TIAA Global Mkts Inc.     Short-term investment         US$ 519       N/A     US$ 520      
  Tribune Co. Med Trm NTS     Short-term investment         US$ 2,943       N/A     US$ 3,001      
  Union Planters     Short-term investment         US$ 2,104       N/A     US$ 2,084      
  Unitedhealth Group Inc.     Short-term investment         US$ 3,119       N/A     US$ 3,133      
  US Bk Natl Assn Cincinnati OH     Short-term investment         US$ 2,669       N/A     US$ 2,701      
  Viacom Inc.     Short-term investment         US$ 3,177       N/A     US$ 3,140      
  Viacom Inc.     Short-term investment         US$ 3,172       N/A     US$ 3,164      
  Virginia Elec + Pwr Co.     Short-term investment         US$ 2,884       N/A     US$ 2,884      
  Vodafone Group PLC New     Short-term investment         US$ 2,559       N/A     US$ 2,585      
  Wachovia Corp.     Short-term investment         US$ 3,720       N/A     US$ 3,655      
  Wal Mart Cda Venture Corp.     Short-term investment         US$ 3,670       N/A     US$ 3,642      
  Washington Mut Fin Corp.     Short-term investment         US$ 3,725       N/A     US$ 3,689      
  Washington Mut Inc.     Short-term investment         US$ 3,692       N/A     US$ 3,682      
  Washington Post Co.     Short-term investment         US$ 3,182       N/A     US$ 3,227      
  Wells Fargo + Co. New     Short-term investment         US$ 3,697       N/A     US$ 3,675      

(Continued)

-51-


 

                                                 
                September 30, 2004
       
                                        Market Value    
                                        or Net Asset    
        Relationship   Financial           Carrying Value       Value    
        with the   Statement   Shares/Units   (US$ in   Percentage of   (US$ in    
Held Company Name
  Marketable Securities Type and Name
  Company
  Account
  (In Thousand)
  Thousand)
  Ownership
  Thousand)
  Note
  China Steel Corporation     Long-term investment         $ 1,095,503       N/A     $ 1,094,593      
  Taiwan Power Company     Long-term investment           918,650       N/A       917,729      
  Agency bonds                                      
  Fed Hm Ln Pc     Short-term investment         US$ 3,466       N/A     US$ 3,480      
  Federal Home Ln Bks     Short-term investment         US$ 2,532       N/A     US$ 2,574      
  Federal Home Ln Bks     Short-term investment         US$ 1,042       N/A     US$ 1,036      
  Federal Home Ln Bks     Short-term investment         US$ 4,927       N/A     US$ 4,992      
  Federal Home Ln Bks     Short-term investment         US$ 7,961       N/A     US$ 7,985      
  Federal Home Ln Bks     Short-term investment         US$ 4,936       N/A     US$ 4,987      
  Federal Home Ln Bks     Short-term investment         US$ 5,264       N/A     US$ 5,281      
  Federal Home Ln Bks     Short-term investment         US$ 4,948       N/A     US$ 4,958      
  Federal Home Ln Bks     Short-term investment         US$ 2,454       N/A     US$ 2,482      
  Federal Home Ln Bks     Short-term investment         US$ 7,018       N/A     US$ 7,090      
  Federal Home Ln Bks     Short-term investment         US$ 4,997       N/A     US$ 5,009      
  Federal Home Ln Mtg Corp.     Short-term investment         US$ 3,388       N/A     US$ 3,441      
  Federal Home Ln Mtg Corp.     Short-term investment         US$ 4,953       N/A     US$ 4,986      
  Federal Home Ln Mtg Corp.     Short-term investment         US$ 9,997       N/A     US$ 10,002      
  Federal Home Ln Mtg Corp.     Short-term investment         US$ 999       N/A     US$ 998      
  Federal Home Ln Mtg Corp.     Short-term investment         US$ 4,933       N/A     US$ 4,955      
  Federal Home Ln Mtg Corp. Mtn     Short-term investment         US$ 4,930       N/A     US$ 4,997      
  Federal Home Loan Mtg Assn     Short-term investment         US$ 4,847       N/A     US$ 4,955      
  Federal Home Loan Mtg Corp.     Short-term investment         US$ 4,903       N/A     US$ 4,988      
  Federal Natl Mtg Assn     Short-term investment         US$ 6,940       N/A     US$ 6,987      
  Federal Natl Mtg Assn     Short-term investment         US$ 4,867       N/A     US$ 4,933      
  Federal Natl Mtg Assn     Short-term investment         US$ 6,903       N/A     US$ 6,962      
  Federal Natl Mtg Assn     Short-term investment         US$ 4,981       N/A     US$ 4,984      
  Federal Natl Mtg Assn     Short-term investment         US$ 6,997       N/A     US$ 7,019      
  Federal Natl Mtg Assn     Short-term investment         US$ 1,498       N/A     US$ 1,500      
  Federal Natl Mtg Assn Mtn     Short-term investment         US$ 7,000       N/A     US$ 7,001      
  Freddie Mac     Short-term investment         US$ 4,929       N/A     US$ 4,988      
  Fed Hm Ln Pc Pool     Short-term investment         US$ 2,739       N/A     US$ 2,737      
  Fed Hm Ln Pc Pool     Short-term investment         US$ 2,445       N/A     US$ 2,443      
  Federal Home Ln Mtg Corp.     Short-term investment         US$ 6,096       N/A     US$ 6,124      
  Federal Home Ln Mtg Corp.     Short-term investment         US$ 4,618       N/A     US$ 4,660      
  Federal Home Ln Mtg Corp.     Short-term investment         US$ 3,558       N/A     US$ 3,571      
  Federal Home Ln Mtg Corp.     Short-term investment         US$ 4,060       N/A     US$ 4,067      
  Federal Natl Mtg Assn     Short-term investment         US$ 5,028       N/A     US$ 4,989      
  Federal Natl Mtg Assn     Short-term investment         US$ 2,736       N/A     US$ 2,732      
  Federal Natl Mtg Assn     Short-term investment         US$ 5,379       N/A     US$ 5,369      
  Federal Natl Mtg Assn Gtd     Short-term investment         US$ 4,462       N/A     US$ 4,429      
  Fnma Pool     Short-term investment         US$ 1,033       N/A     US$ 1,031      
  Fnma Pool     Short-term investment         US$ 2,114       N/A     US$ 2,109      
  Fnma Pool     Short-term investment         US$ 1,005       N/A     US$ 1,004      
  Fnma Pool     Short-term investment         US$ 1,034       N/A     US$ 1,031      
  Government Natl Mtg Assn     Short-term investment         US$ 2,661       N/A     US$ 2,619      

(Continued)

-52-


 

                                                 
                                 
                                             
                September 30, 2004
   
        Relationship
with the
  Financial
Statement
  Shares/Units   Carrying Value
(US$ in
  Percentage of   Market Value
or Net Asset Value
(US$ in
   
Held Company Name
  Marketable Securities Type and Name
  Company
  Account
  (In Thousand)
  Thousand)
  Ownership
  Thousand)
  Note
  Corporate issued asset—backed securities                                            
  Aesop Fed II LLC     Short-term investment         US$ 4,955       N/A     US$ 4,992      
  Aesop Fed II LLC     Short-term investment         US$ 2,295       N/A     US$ 2,284      
  Americredit Automobile Receiv     Short-term investment         US$ 2,002       N/A     US$ 1,999      
  Americredit Automobile Rec Tr     Short-term investment         US$ 1,055       N/A     US$ 1,055      
  Americredit Automobile Rec Tr     Short-term investment         US$ 2,000       N/A     US$ 1,984      
  Americredit Automobile Receivb     Short-term investment         US$ 4,949       N/A     US$ 4,945      
  Atlantic City Elc Trns Fdg LLC     Short-term investment         US$ 995       N/A     US$ 1,000      
  Banc Amer Mtg Secs Inc.     Short-term investment         US$ 4,030       N/A     US$ 4,018      
  Bank Of Amer Lease Equip Tr     Short-term investment         US$ 4,023       N/A     US$ 4,048      
  BMW Veh Owner Tr     Short-term investment         US$ 4,978       N/A     US$ 4,977      
  California Infr + Economic Dev     Short-term investment         US$ 4,298       N/A     US$ 4,290      
  California Infras + Economic     Short-term investment         US$ 7,129       N/A     US$ 7,117      
  California Infrastructure Dev     Short-term investment         US$ 5,915       N/A     US$ 5,905      
  Capital One Auto Fin Tr     Short-term investment         US$ 1,233       N/A     US$ 1,232      
  Capital One Auto Fin Tr     Short-term investment         US$ 1,562       N/A     US$ 1,561      
  Capital One Auto Fin Tr     Short-term investment         US$ 3,000       N/A     US$ 3,003      
  Capital One Master Tr     Short-term investment         US$ 3,093       N/A     US$ 3,092      
  Capital One Multi Asset Execut     Short-term investment         US$ 4,957       N/A     US$ 4,995      
  Capital One Secd Nt Tr     Short-term investment         US$ 5,032       N/A     US$ 5,003      
  Caterpillar Finl Asset Tr     Short-term investment         US$ 10,008       N/A     US$ 9,986      
  Centex Home Equity Ln Tr     Short-term investment         US$ 3,500       N/A     US$ 3,507      
  Cit Equip Coll Tr     Short-term investment         US$ 4,999       N/A     US$ 5,026      
  Citibank Cr Card Issuance Tr     Short-term investment         US$ 4,959       N/A     US$ 4,984      
  Citicorp Mtg Secs     Short-term investment         US$ 2,557       N/A     US$ 2,571      
  Cnh Equip Tr     Short-term investment         US$ 5,000       N/A     US$ 4,973      
  Comm     Short-term investment         US$ 4,600       N/A     US$ 4,599      
  Credit Suisse First Boston Mtg     Short-term investment         US$ 4,768       N/A     US$ 4,761      
  Cwmbs Inc.     Short-term investment         US$ 2,635       N/A     US$ 2,625      
  Daimlerchrysler Auto Tr     Short-term investment         US$ 4,991       N/A     US$ 5,001      
  Daimlerchrysler Auto Tr     Short-term investment         US$ 4,982       N/A     US$ 4,987      
  Daimlerchrysler Auto Tr     Short-term investment         US$ 4,897       N/A     US$ 4,926      
  Detroit Edison Securitization     Short-term investment         US$ 674       N/A     US$ 676      
  Fifth Third Auto Tr     Short-term investment         US$ 3,000       N/A     US$ 3,016      
  First Union Lehman Bros Mtg Tr     Short-term investment         US$ 3,860       N/A     US$ 3,869      
  First USA Credit Cr Master Tr     Short-term investment         US$ 5,011       N/A     US$ 5,009      
  Ford Cr Auto Owner Tr     Short-term investment         US$ 10,999       N/A     US$ 10,998      
  GE Cap Cr Card Master Nt Tr     Short-term investment         US$ 4,000       N/A     US$ 4,001      
  Granite Mtgs PLC     Short-term investment         US$ 5,000       N/A     US$ 5,000      
  GS Auto Ln Tr     Short-term investment         US$ 2,948       N/A     US$ 2,980      
  GS Mtg Secs Corp.     Short-term investment         US$ 3,509       N/A     US$ 3,510      
  Harley Davidson Motorcycle Tr     Short-term investment         US$ 3,901       N/A     US$ 3,897      
  Harley Davidson Motorcycle Tr     Short-term investment         US$ 5,999       N/A     US$ 5,964      
  Holmes Fing No 8 PLC     Short-term investment         US$ 5,001       N/A     US$ 5,062      
  Honda Auto Receivables     Short-term investment         US$ 5,000       N/A     US$ 5,022      
  Household Automotive Tr     Short-term investment         US$ 817       N/A     US$ 816      

(Continued)

-53-


 

                                                 
                September 30, 2004
   
                                        Market Value    
        Relationship   Financial           Carrying Value       or Net Asset Value    
        with the   Statement   Shares/Units   (US$ in   Percentage of   (US$ in    
Held Company Name
  Marketable Securities Type and Name
  Company
  Account
  (In Thousand)
  Thousand)
  Ownership
  Thousand)
  Note
  Hyundai Auto Receivables Tr     Short-term investment         US$ 3,500       N/A     US$ 3480      
  Impac Secd Assets Corp.     Short-term investment         US$ 3,966       N/A     US$ 3,962      
  Long Beach Accep Auto Receivab     Short-term investment         US$ 2,526       N/A     US$ 2,518      
  Monumentl Global Fdg II     Short-term investment         US$ 1,000       N/A     US$ 1,000      
  National City Auto Receivables     Short-term investment         US$ 1,206       N/A     US$ 1,212      
  Navistar Finl 2003 A Owner Tr     Short-term investment         US$ 4,928       N/A     US$ 4,941      
  Nissan Auto Receivables     Short-term investment         US$ 7,000       N/A     US$ 6,987      
  Nissan Auto Receivables Own Tr     Short-term investment         US$ 4,999       N/A     US$ 5,027      
  Nissan Auto Receivables Owner     Short-term investment         US$ 4,853       N/A     US$ 4,899      
  ONYX Accep Owner Tr     Short-term investment         US$ 1,589       N/A     US$ 1,589      
  ONYX Accep Owner Tr     Short-term investment         US$ 4,913       N/A     US$ 4,966      
  Permanent Fing No 1 PLC     Short-term investment         US$ 5,102       N/A     US$ 5,102      
  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$ 5,165      
  Residential Asset Sec Mtg Pass     Short-term investment         US$ 3,000       N/A     US$ 3,000      
  Toyota Auto Receivables 2003B     Short-term investment         US$ 4,970       N/A     US$ 4,964      
  Triad Auto Receivables Tr     Short-term investment         US$ 5,042       N/A     US$ 5,025      
  TXU Elec Delivery Transition     Short-term investment         US$ 8,009       N/A     US$ 8,066      
  USAA Auto Owner Tr     Short-term investment         US$ 4,000       N/A     US$ 4,011      
  Wachovia Auto Owner Tr     Short-term investment         US$ 6,000       N/A     US$ 6,008      
  Wachovia Auto Owner Tr     Short-term investment         US$ 4,999       N/A     US$ 5,027      
  WFS Financial Owner Trust     Short-term investment         US$ 5,008       N/A     US$ 5,019      
  WFS Finl 2002 4 Owner Tr     Short-term investment         US$ 2,958       N/A     US$ 2,959      
  WFS Finl 2004 2 Owner Tr     Short-term investment         US$ 4,994       N/A     US$ 5,013      
  Whole Auto Ln Tr     Short-term investment         US$ 5,967       N/A     US$ 5,975      
  World Omni Auto Receivables Tr     Short-term investment         US$ 5,963       N/A     US$ 5,946      
  World Omni Auto Receivables Tr     Short-term investment         US$ 5,000       N/A     US$ 5,009      
  Commercial papers                                            
  Canadian Imperial     Short-term investment         US$ 2,997       N/A     US$ 2,997      
  Corporate issued notes                                            
  Canadian Imperial Bk     Short-term investment         US$ 1,999       N/A     US$ 1,999      
  Equity  
  Crimson Asia Capital Ltd., L.P.     Long-term investment           38,314       N/A       38,314      
  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             653,211      
Chi Cherng
  Stock                                            
  TSMC   Parent company   Short-term investment     15,670       458,564             701,091      
  Certificate                                            
  Hsin Ruey   Major shareholder   Long-term investment           918,599       64       918,599      

(Continued)

-54-


 

                                                 
                                 
                                             
                September 30, 2004
   
        Relationship
with the
  Financial
Statement
  Shares/Units   Carrying Value
(US$ in
  Percentage of   Market Value
or Net Asset Value
(US$ in
   
Held Company Name
  Marketable Securities Type and Name
  Company
  Account
  (In Thousand)
  Thousand)
  Ownership
  Thousand)
  Note
Hsin Ruey
  Stock                                            
  TSMC   Parent company   Short-term investment     15,700     $ 459,512           $ 702,405      
  Certificate                                            
  Chi Cherng   Major shareholder   Long-term investment           917,803       64       917,803      
TSMC International
  Stock                                            
  InveStar   Subsidiary   Long-term investment     24,320     US$ 28,432       97     US$ 28,432      
  InveStar II   Subsidiary   Long-term investment     51,300     US$ 35,454       97     US$ 35,454      
  TSMC Development   Subsidiary   Long-term investment     1     US$ 597,064       100     US$ 597,064      
  TSMC Technology   Subsidiary   Long-term investment     1     US$ 5,936       100     US$ 5,936      
  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$ 459,344       99     US$ 459,344      
InveStar
  Common stock                                            
  RichTek Technology Corp.     Short-term investment     1,090     US$ 107       2     US$ 2,253      
  Advanced Power Electronics Corp.     Short-term investment     843     US$ 439       1     US$ 615      
  Broadtek Electronics Corp.     Short-term investment     869     US$ 275           US$ 244      
  SiRF Technology Holdings, Inc.     Short-term investment     306     US$ 1,333       1     US$ 3,843      
  Broadtek Electronics Corp.     Long-term investment     145     US$ 44           US$ 41      
  Programmable Microelectronics (Taiwan), Corp.     Long-term investment     575     US$ 203       1     US$ 203      
  Global Testing Corp.     Long-term investment     13,268     US$ 5,293       9     US$ 5,293      
  RichTek Technology Corp.     Long-term investment     1,053     US$ 99       2     US$ 2,176      
  Signia Technologies, Inc.     Long-term investment     701     US$ 206       3     US$ 206      
  Incentia Design Systems, Inc.     Long-term investment     365     US$ 90       1     US$ 90      
  Advanced Power Electronics Corp.     Long-term investment     1,123     US$ 530       2     US$ 819      
  Capella Microsystems (Taiwan), Inc.     Long-term investment     530     US$ 156       4     US$ 156      
  Preferred stock                                            
  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       2     US$ 741      
  Match Lab, Inc.     Long-term investment     1,875     US$ 150       3     US$ 150      
  Oridus, Inc. (CreOsys, Inc.)     Long-term investment     1,500     US$ 150       8     US$ 150      
  IP Unity     Long-term investment     1,008     US$ 494       2     US$ 494      
  Tropian, Inc.     Long-term investment     1,758     US$ 471       3     US$ 471      

(Continued)

-55-


 

                                                 
                                 
                                             
                September 30, 2004
   
        Relationship
with the
  Financial
Statement
  Shares/Units   Carrying Value
(US$ in
  Percentage of   Market Value
or Net Asset Value
(US$ in
   
Held Company Name
  Marketable Securities Type and Name
  Company
  Account
  (In Thousand)
  Thousand)
  Ownership
  Thousand)
  Note
InveStar II
  Common stock                                            
  RichTek Technology Corp.     Short-term investment     503     US$ 287       1     US$ 1,039      
  SiRF Technology Holdings, Inc.     Short-term investment     20     US$ 131           US$ 253      
  eChannel Option Holding, Inc.     Long-term investment     358     US$ 251       4     US$ 251      
  eLCOS Microdisplay Technology, Ltd.     Long-term investment     270     US$ 27       1     US$ 27      
  Signia Technologies (Taiwan), Inc.     Long-term investment     351     US$ 101       1     US$ 101      
  Procoat Technology, Inc.     Long-term investment     5,123     US$ 1,940       10     US$ 1,940      
  RichTek Technology Corp.     Long-term investment     494     US$ 282       1     US$ 1,021      
  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     471     US$ 127       1     US$ 127      
  EoNex Technologies, Inc.     Long-term investment     55     US$ 3,048       5     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      
  Goyatek 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                                            
  Memsic, Inc.     Long-term investment     2,289     US$ 1,560       8     US$ 1,560      
  OEpic, Inc.     Long-term investment     4,997     US$ 542       8     US$ 542      
  eLCOS Microdisplay Technology, Ltd.     Long-term investment     2,667     US$ 3,500       15     US$ 3,500      
  NanoAmp Solutions, Inc.     Long-term investment     375     US$ 1,500       1     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$ 120       9     US$ 120      
  Reflectivity, Inc.     Long-term investment     4,255     US$ 2,205       5     US$ 2,205      
  Tropian, Inc.     Long-term investment     1,464     US$ 393       2     US$ 393      
  Match Lab, Inc.     Long-term investment     313     US$ 25       1     US$ 25      
  Kilopass Technology, Inc.     Long-term investment     3,887     US$ 2,000       19     US$ 2,000      
  FangTek, Inc.     Long-term investment     6,806     US$ 3,250       34     US$ 3,250      
  Alchip Technologies, Ltd.     Long-term investment     2,579     US$ 2,950       18     US$ 2,950      
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      
  NetLogic Microsystems, Inc.     Long-term investment     113     US$ 1,388       1     US$ 1,388      
  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      
  Ikanos Communication, Inc.     Long-term investment     7,446     US$ 3,125       3     US$ 3,125      

(Continued)

-56-


 

                                                 
                September 30, 2004
   
                                        Market Value    
        Relationship   Financial           Carrying Value       or Net Asset Value    
        with the   Statement   Shares/Units   (US$ in   Percentage of   (US$ in    
Held Company Name
  Marketable Securities Type and Name
  Company
  Account
  (In Thousand)
  Thousand)
  Ownership
  Thousand)
  Note
  Quicksilver Technology, Inc.     Long-term investment     1,049     US$ 670       4     US$ 670      
  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       4     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       4     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       2     US$ 500      
  NuCORE Technology Inc.     Long-term investment     2,254     US$ 1,455       2     US$ 1,455      
  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
  Common stock                                            
  Yobon Technologies, Inc.     Long-term investment     1,675     US$ 787       17     US$ 787      
  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      
  Tzero Technologies, Inc.     Long-term investment     244     US$ 500       2     US$ 500      
  Miradia, Inc.     Long-term investment     1,809     US$ 1,600       2     US$ 1,600      
  Axiom Microdevices, Inc.     Long-term investment     686     US$ 700       5     US$ 700      
  Next IO, Inc.     Long-term investment     216     US$ 182           US$ 182      
GUC
  Bond funds                                            
  Grand Cathay     Short-term investment     2,814       35,275       N/A       35,401      
  TIIM     Short-term investment     1,065       14,581       N/A       14,641      
  Polaris De Li     Short-term investment     1,550       22,652       N/A       22,713      
  EnTrust Kirin     Short-term investment     2,106       22,516       N/A       22,607      
  E. Sun New Era     Short-term investment     1,920       20,144       N/A       20,231      
  Jih Sun     Short-term investment     1,525       20,116       N/A       20,196      
  EnTrust Phoenix     Short-term investment     1,399       20,382       N/A       20,462      
  Mega Diamond     Short-term investment     1,281       14,220       N/A       14,276      
  Taiwan Security Argent     Short-term investment     8       37,079       N/A       38,610      
  President Home Run     Short-term investment     247       3,364       N/A       3,363      
  Stock funds                                            
  TIIM DaLi     Short-term investment     296       5,000       N/A       4,530      
  Stock                                            
  Global Unichip Corporation—North America   Subsidiary   Long-term investment     100       3,531       100       3,531      

-57-


 

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 NINE MONTHS ENDED SEPTEMBER 30, 2004
(Amounts in Thousand New Taiwan Dollars, Unless Otherwise Specified)

                                                 
                    Beginning Balance
  Acquisition
    Marketable               Shares/   Amount   Shares/   Amount
    Securities Type   Financial       Nature of   Units   (US$ in   Units   US$ (in
Company Name
  and Name
  Statement Account
  Counter-party
  Relationship
  (Thousand)
  Thousand)
  (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       68,021       1,000,000  
  ABN AMRO Bond Fund   Short-term investment   ABN AMRO       34,794       500,000       165,257       2,400,000  
  ABN AMRO Select Bond Fund   Short-term investment   ABN AMRO                   18,235       200,000  
  JF Taiwan First Bond Fund   Short-term investment   JF Asset Management (Taiwan) Ltd.                   110,580       1,500,000  
  INVESCO R.O.C Bond A Fund   Short-term investment   INVESCO Asset Management Taiwan                   93,975       1,350,000  
  Dresdner Bond DAM Fund   Short-term investment   Allianz Dresdner Securities Investment Consulting Co., Ltd.                   80,833       900,000  
  Barits Bond Fund   Short-term investment   Barits Securities Investment Trust Co., Ltd.                   76,640       900,000  
  Shinkong Chi Shin Bond Fund   Short-term investment   Shinkong Investment Trust Co., Ltd.                   151,594       2,100,000  
  NITC Bond Fund   Short-term investment   National Investment Trust Co., Ltd.                   3,764       600,000  
  Bonds under repurchase agreement   Short-term investment   Chung Shing Bills Finance Corp. and several financial institutions             1,800,000             2,577,163  
  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                         2,023,206  
  2003 Government Bond Series A   Short-term investment   BNP and several financial institutions                         1,207,409  
  2003 Government Bond Series I   Long-term investment   FCB and several financial institutions                         3,402,213  
  2004 Government Bond Series A   Long-term investment   China Bills Finance Corp. and several financial institutions                         1,750,381  
  2004 Government Bond Series E   Long-term investment   BNP and several financial institutions                         3,890,925  
  United States Treas NTS   Short-term investment                         US$ 321,464  
  Corporate bonds                                            
  Taiwan Power Company   Short-term investment   KGI Securities Co., Ltd.                         2,777,798  
  Allstate Finl Global Fdg LLC   Short-term investment                         US$ 3,171  
  American Express Co.   Short-term investment                         US$ 3,550  
  American Express Cr Corp. Mtn   Short-term investment                         US$ 3,503  
  American Gen Fin Corp. Mtn   Short-term investment                         US$ 3,130  
  American Gen Fin Corp. Mtn   Short-term investment                         US$ 3,702  
  American Honda Fin Corp. Mtn   Short-term investment                         US$ 3,509  
  American Honda Fin Corp. Mtn   Short-term investment                         US$ 3,750  
  American Honda Fin Corp. Mtn   Short-term investment                         US$ 3,800  
  American Intl Group Inc. Mtnf   Short-term investment                         US$ 3,795  
  Bank New York Inc.   Short-term investment                         US$ 3,945  

     

[Additional columns below]

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

                                                             
                  Disposal
  Ending Balance
   
                                Carrying   Gain (Loss)           Amount
    Marketable           Shares/   Amount   Value   on Disposal           (US$ in
    Securities Type   Financial       Units   (US$ in   (US$ in   (US$ in   Shares/Units   Thousand)
Company Name
  and Name
  Statement Account
  Counter-party
  (Thousand)
  Thousand)
  Thousand)
  Thousand)
  (Thousand)
  (Note 1)
The Company
  Money market funds                                                        
  BOA Fund   Short-term investment   BOA     40,000     $
US$
1,359,120
(40,000

)
  $
US$
1,359,120
(40,000

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

)
 
US$
679,560
(20,000

)
             
  Bond funds                                                        
  JF Taiwan Bond Fund   Short-term investment   JF Asset Management (Taiwan) Ltd.     16,923       250,000       247,981       2,019       85,441       1,252,019  
  ABN AMRO Bond Fund   Short-term investment   ABN AMRO     65,143       950,000       943,825       6,175       134,906       1,954,409  
  ABN AMRO Select Bond Fund   Short-term investment   ABN AMRO                             18,235       200,000  
  JF Taiwan First Bond Fund   Short-term investment   JF Asset Management (Taiwan) Ltd.     25,694       350,000       348,537       1,463       84,886       1,151,463  
  INVESCO R.O.C Bond A Fund   Short-term investment   INVESCO Asset Management
Taiwan
                            93,975       1,350,000  
  Dresdner Bond DAM Fund   Short-term investment   Allianz Dresdner Securities Investment Consulting Co., Ltd.                             80,833       900,000  
  Barits Bond Fund   Short-term investment   Barits Securities Investment Trust Co., Ltd.                             76,640       900,000  
  Shinkong Chi Shin Bond Fund   Short-term investment   Shinkong Investment Trust Co., Ltd.                             151,594       2,100,000  
  NITC Bond Fund   Short-term investment   National Investment Trust Co., Ltd.                             3,764       600,000  
  Bonds under repurchase agreement   Short-term investment   Chung Shing Bills Finance Corp. and several financial institutions           1,800,000       1,800,000                   2,577,163  
  Government bonds                                                        
  1994 Government Bond Series C   Short-term investment   Chung Shing Bills Finance Corp. and several financial institutions           1,427,762       1,422,197       5,565          
  2002 Government Bond Series A   Short-term investment   BNP and several financial institutions           3,169,750       3,157,331       12,419          
  2002 Government Bond Series E   Short-term investment   BNP and several financial institutions           3,133,875       3,113,066       20,809          
  2002 Government Bond Series J   Short-term investment   BNP and several financial institutions                                   2,023,206  
  2003 Government Bond Series A   Short-term investment   BNP and several financial institutions                                   1,207,409  
  2003 Government Bond Series I   Long-term investment   FCB and several financial institutions                                   3,399,371  
  2004 Government Bond Series A   Long-term investment   China Bills Finance Corp. and several financial institutions                                   1,750,231  
  2004 Government Bond Series E   Long-term investment   BNP and several financial institutions                                   3,892,641  
  United States Treas NTS   Short-term investment           US$ 264,138     US$ 264,681     US$ (543 )         US$ 56,783  
  Corporate bonds                                                        
  Taiwan Power Company   Short-term investment   KGI Securities Co., Ltd.