TSMC
Annual Report 2004

Plain-text annual report

TSMC commits itself to providing its customers with the best quality and most comprehensive services. LETTER TO SHAREHOLDERS Dear Shareholders, Year 2004 was a banner year for TSMC. We again set new records for revenues and earnings, while continuing to lead the semiconductor dedicated foundry sector. Our production accounted for more than 7% of the total value of the world's semi- conductor output. TSMC's performance was anchored in our "Trinity of Strength": strength in technology development and deployment, strength in manufacturing capacity and efficiency, and strength in building customer partnerships. For example: ● TSMC cumulatively shipped over one million wafers (8-inch equivalent) in 0.13-micron technology. ● TSMC's NexsysSM 90nm, the world's first 12-inch, low-k, 90-nanometer process to reach full production, was adopted in more than 30 customer products after one year's ramp, and achieved product yields ahead of internal goals. ● TSMC served more than 300 customers and produced more than 5,000 products in our fabs. With its core manufacturing and logistics competencies, TSMC's experience in integrating front-end design and back-end turn- key services has helped customers resolve many daunting challenges in advanced chips designed with our 90nm technology. We collaborate closely with customers, enabling them to deliver their products on time and to achieve success in their end markets. Financial Strength and Results TSMC broke new records in both revenues and net income in 2004. Revenue reached NT$255.9 billion, an increase of 26.8% compared with the previous record set in 2003. Net income was NT$92.32 billion, an increase of 95.3% compared with 2003 results, while fully diluted earnings per share were NT$3.97 (US$0.59 per ADS unit), an increase of 96.8 %. In US dollars, rev- enue for 2004 was US$7.65 billion, an increase of 30.3%, while net income grew to US$2.76 billion, an increase of 100%. A Long-Term Growth Engine TSMC's consistently strong financial performance proves the company's value as a solid long-term growth engine. The cyclical nature of the semiconductor industry is well known. Since the mid-1990s, we have taken strategic advantage of upturns. But we are careful not to overreach, and so we weather downturns well. We have been free cash flow positive in all but one year in our 18-year history, a track record rarely found in this industry. 5 Our recently enhanced dividend policy is a sign of our confidence in the TSMC growth engine. After the company's IPO in 1994, we made our first cash dividend payment in 2004, with a 30% cash payout ratio. We further resolved to distribute future dividends preferentially in cash. Under a change approved by shareholders on December 21, 2004, stock dividends will not exceed 50 percent of total distributions in future. The change will permit us more flexibility in planning future cash divi- dend distributions. Two-Pronged Business Strategy to Ensure Future Growth Our strategy for continued profitable growth has two dimensions: horizontal expansion into specialty technologies platforms in mature technologies; and vertical expansion through leadership in advanced process technologies for next-generation prod- ucts. With specialty technologies, we can leverage our unique scale and manufacturing know-how at older, partly depreciated fab facilities to increase capacity utilization and margins throughout the cycle. With demand strong for our 90nm technology, we plan to substantially increase our capacity of 90nm in 2005. Our total capacity for advanced technologies (defined as 0.13-micron and below) will more than double in 2005. Innovation TSMC has continued to demonstrate its leadership in semiconductor processes technology. For example, in December 2004, TSMC announced the successful use of immersion lithography tools developed by ASML to produce fully functional 90nm devices. These circuits represented the world's first publicly announced data indicating that immersion-based lithography sys- tems are nearing production-ready status. Recognition and Awards for Outstanding Achievements TSMC continued to receive recognition and awards from around the world as a corporate role model. Among the numerous media surveys conducted in 2004 (for example, Institutional Investor, The Asset Magazine, Asiamoney, FinanceAsia, IR Magazine, and The Know Network), TSMC was awarded top honors in the areas of overall management, knowledge manage- ment, corporate governance and investor relations, and was voted the "Most Admired Company" by CommonWealth Magazine. In addition, TSMC received the Gold Medal Award from The Department of Economic Affairs of the Government of the Republic of China in the "National Invention and Creation" category. Other Corporate Developments In the period from March 24 to May 21, 2004, TSMC bought back 124.72 million common shares, representing 0.6% of total outstanding shares at that time. These repurchased shares were subsequently cancelled during the third quarter of 2004. TSMC, TSMC North America, and WaferTech filed a series of lawsuits in late 2003 and 2004 in both state and federal courts in California and with the U. S. International Trade Commission against Semiconductor Manufacturing International Corporation (SMIC), SMIC (Shanghai), and SMIC Americas. The lawsuits alleged that SMIC companies infringed multiple TSMC patents and misappropriated TSMC's trade secrets. These suits have been settled out of court. As part of the agreement, SMIC will pay TSMC US$175 million over six years to resolve TSMC's patent infringement and trade secret claims. 6 Outlook for the Future We believe that the world semiconductor industry is likely to expand at a compound annual growth rate of 8% to 10% within this decade. Coming out of the industry's most severe cyclical downturn in 2001, the global semiconductor industry has expe- rienced two consecutive years of strong growth: 18% in 2003 followed by an estimated 28% growth in 2004. We now expect global semiconductor revenue to remain at about the same level or slightly lower in 2005. The value of the foundry segment's output is likely to have increased from a 16% share of world IC markets in 2003 to an estimated 18% in 2004. Our trinity of strengths and our two-pronged growth strategy, coupled with our continuing emphasis on cost efficiency, should enable TSMC to compete well. We have every confidence that our dedication, our operating and financial discipline, as well as our strong commitment to innovation and customer partnership, will continue to produce the outstanding performance that has characterized TSMC since we founded the dedicated semiconductor foundry business in 1987. Morris Chang, Chairman and CEO F. C. Tseng, Deputy CEO Rick Tsai, President and COO Left to right: F.C. Tseng, Morris Chang, Rick Tsai TSMC served more than 300 customers and produced more than 5,000 products in 2004. A BRIEF INTRODUCTION TO TSMC 1. Company Profile TSMC's establishment of a dedicated integrated circuit (IC) foundry on February 21, 1987 at Hsinchu Science Park, Taiwan, was the first of its kind in the world. Today, TSMC is the world's largest dedicated semiconductor foundry, providing the industry's leading process technology and the foundry industry's largest portfolio of process-proven libraries, IP, design tools and reference flows. As the global leader in the dedicated foundry sector of the semiconductor industry, TSMC currently operates two 12-inch wafer fabs, five 8-inch wafer fabs and one 6-inch fab. The Company also has substantial capacity commitments at two wholly owned subsidiaries, WaferTech in the U.S. and TSMC (Shanghai) Company, Ltd. in China, and at a joint-venture fab, SSMC, in Singapore. The total installed annual capacity of TSMC and its affiliates amounted to 4.8 million 8-inch equivalent wafers in 2004. TSMC's common shares are listed on the Taiwan Stock Exchange. The depositary receipts of its common shares are listed on the New York Stock Exchange (NYSE) under the symbol TSM. TSMC takes its role as a responsible corporate citizen seriously. The Company is committed to community service and maintaining strong stakeholder relationships. Sound corporate governance is rooted in a strong Board of Directors comprised of experienced business leaders and dis- tinguished scholars. The Board reinforces the Company's financial integrity and management soundness. There are three independent Board members among a total of nine directors. They are Sir Peter L. Bonfield, Professor Lester C. Thurow, and Mr. Stan Shih. In addition, Professor Michael E. Porter is an independent supervisor. Under TSMC's Board of Directors, the Audit Committee was established in 2002. It oversees the integrity of TSMC's financial and audit systems. The Compensation Committee was established in June 2003. It reviews and makes recommendations on issues related to employee and executive compensation. 1.1 Core Values Integrity - a central value of the Company. TSMC's commitment to integrity can best be illustrated by its strong corporate governance efforts as well as the requirement that all TSMC employees act with honesty and uprightness, as set forth in its ethics policy and standard operating procedures. Customer Partnership - an essential part of the Company's core competitive strength. TSMC's dedication to customer partnership helps to foster premium competitiveness for its customers and significant returns for its shareholders. Innovation - the wellspring of the Company's growth. TSMC demands and encourage creativity from its employees. The spirit of innovation is applied to every aspect of the Company's business, from strategic planning to marketing to manage- ment to technology and production. Commitment - the driving force that makes things happen. TSMC asks of its entire staff their personal commitment to their job and to the Company. The Company commits itself to uphold the welfare of its employees, its customers and its shareholders. 9 1.2 Statement of Company Vision Our vision is to be the most advanced, innovative, and largest provider of foundry services. And, in partnership with our customers, we aim to forge the most powerful force in the semiconductor industry. To realize our vision, we must be: (1) a technology leader, competitive with all other industry leaders; (2) the manufacturing leader; and (3) the most reputable and service-oriented foundry, providing the greatest total value to customers. 1.3 Corporate Recognition Awards honoring TSMC in 2004 included: ● Most Admired Company in Taiwan (CommonWealth Magazine, October 2004 - for the eighth consecutive year) ● Gold Medal of Contribution Award, National Invention and Creation Award ( Ministry of Economic Affairs, ROC, October 2004) ● Best Practice of Quality Management ( Industrial Development Bureau, Ministry of Economic Affairs, ROC, November 2004) ● Overall Best Company for Corporate Governance in Taiwan (Asiamoney, December 2004) ● Best Managed Company, Best Corporate Governance, and Best Investor Relations in the Taiwan region ( FinanceAsia, 2003) ● Best Investor Relations by a Taiwan Company ( IR Magazine, November 2004) ● Best Corporate Governance in Taiwan (The Asset Magazine, 2004) ● Best Investor Relations in the Technology: Semiconductors Sector: The Buy-Side View, Best Investor Relations in the Technology: Semiconductors Sector: The Sell-Side View, Best Investor Relations in Taiwan: The Buy-Side View (Institutional Investor, July 2004) ● Dr. Morris Chang, Chairman and CEO, was selected as one of Asia's 25 Most Powerful People in Business (Fortune Magazine, August 2004) 2. Market Overview 2.1 TSMC Achievements In 2004, TSMC maintained its leading position in the dedicated foundry segment of the semiconductor industry, with an estimated mar- ket share of 47%, about twice that of its closest competitor. TSMC achieved this result in the face of fierce competition from both estab- lished competitors and new entrants to the business. A key contributor to TSMC's strong position is its lead in advanced process technologies: 28% of TSMC's revenues in 2004 came from geometries of 0.13-micron and below manufacturing processes. Working closely with its customers, TSMC took the lead in volume pro- duction of many products designed with its 0.13-micron FSG (Fluorinated Silicate Glass) and low-k processes. By September 2004, TSMC had produced and shipped more than one million 0.13-micron 8-inch equivalent wafers, placing TSMC far to the fore of foundry pro- duction at this advanced process node. The Company had also generated many times the 0.13-micron revenue of its nearest foundry competitor. TSMC enhanced its advanced process design reference flows to version 5.0 from version 4.0 in 2004 to include significant new power management, design for test, design for manufacturing, flip-chip design capabilities, and the first integrated chip-to-pack- age design capabilities. The reference flows, together with a comprehensive IP and library program, help customers reduce costs and increase productivity before products go into production. Because they reduce barriers to new designs, they also decrease customers' time to market. Examples of TSMC's technology development and deployment in 2004 included: ● Advanced Technologies (90nm, low-k and 65nm) ● Silicon-on-Insulator (SOI) Technology for 90nm and 65nm nodes ● Immersion Lithography for 90nm and below ● Mixed-Signal and Radio Frequency (MS/RF) Technologies ● 90nm High Density Embedded Memory Processes 10 ● Logic Processes with Nonvolatile Memory at 0.35µm and 0.25µm nodes ● 40-volt, 0.18µm High Voltage Technology ● TSMC Reference Flow 5.0 for Power Closure and Integrated Chip to Package Design Other key contributors to TSMC's success in 2004 were its continued progress in its R&D program and its unwavering focus on cus- tomer service. 2.2 Market Analysis On the back of a 16% IC revenue rebound in 2003, IC revenues continued its growth trend with a 28% increase in 2004 to US$179 bil- lion, out of the total worldwide semiconductor revenue of US$213 billion. Fabless slightly outpaced Integrated Device Manufacturers (IDM) with a market share of 15.5% of total IC revenues in 2004. IC foundry, a manufacturing sub-segment of the IC industry that serves fabless companies as well as IDM, had total revenue of US$19.9 billion in 2004, up 40% from a year ago, while revenues from dedicated IC foundies reached US$16.8 billion, up 46% from 2003. It is estimated that the production value of dedicated IC foundries accounted for 18.8% of worldwide IC revenues in 2004. According to IC Insights, a market research company, the largest geographic segment of the market for dedicated foundry services is North America, which accounted for 58% of the dedicated foundry revenue in 2004. The second largest market segment is Asia Pacific (ex Japan), which accounted for 24% of the dedicated foundry revenue in 2004. European-based companies accounted for 10%, and companies based in Japan contributed 8%. 2.3 Industry Growth Forecast After two consecutive years of strong growth, industry consensus indicates that the semiconductor market will stay flat or slightly decline in 2005. Inventory correction and erosion in average selling price (ASP) per IC unit are believed by market analysts to be the primary causes for the non-growth forecast of 2005. The market is then predicted to pick up in 2006. 2.4 Foundry Market Outlook: Opportunities and Threats TSMC believes foundry services will play an increasingly important role as the IC industry becomes more reliant on foundry services. Industry analysts forecast that by 2009, 28.8% of global IC production value will come from dedicated foundries, as compared to 18.8% in 2004. Confident of future foundry growth, TSMC plans to continue its capacity expansion in the year 2005 with capital investment of approxi- mately US$2.5 billion to US$2.7 billion. Besides continued ramping up and expansion of Fab 12, TSMC's first 12-inch production fab, the Company is also expanding capacity at Fab 14, another 12-inch fab in Taiwan, and TSMC (Shanghai), an 8-inch fab in China. The threat of excess capacity and falling wafer prices, however, may return over the next couple of years. To capitalize on opportunities, to minimize competitive threats and to reduce risk, TSMC will continue focusing on high-growth segments of the industry. 2.5 China Project The Taiwan Government granted "Phase I" approval to TSMC's application to invest in a semiconductor fabrication plant in China, and TSMC accordingly established TSMC (Shanghai) Company Limited in August 2003. In March 2004, TSMC submitted a "Phase II" application to the Taiwan Government for the same investment. "Phase II" approval was granted in May 2004, and in the following month TSMC began to equip the plant with used tools and machinery relocated from TSMC's Taiwan fabs. As of December 31, 2004, TSMC had invested a total of US$276 million in TSMC (Shanghai). TSMC (Shanghai) commenced production of 0.35 and 0.25 micron process technologies in October 2004. The fab will ramp up its capacity to 15,000 8-inch wafers per month by the end of 2005. 11 3. Organization 3.1 Organization Chart Shareholders' Meeting Board of Directors Chairman & CEO Supervisors Deputy CEO President & COO China Project Research & Development Information Technology Exploratory Research Human Resources Quality & Reliability Corporate Planning World-Wide Marketing & Sales Materials Management & Risk Management Operations I Operations II Chief Financial Officer & Spokesperson General Counsel Internal Audit Marketing Pricing & Business Process Customer Service Asia / Pacific Business TSMC Europe TSMC Japan TSMC North America China Region Business Development 12 3.2 Function Description China Project ● China development strategy and execution Research & Development ● Advanced technology research and development, mask operations, and design services Information Technology ● Company-wide information infrastructure, e-Business strategy, and information systems development and operation Exploratory Research ● Exploratory technology development and patent affairs management Human Resources ● Human resources management and organizational development Quality & Reliability ● Quality and reliability management Corporate Planning ● Production planning & control, industrial engineering, and operational efficiency Worldwide Marketing & Sales ● Marketing strategy, technology, and services marketing ● Pricing & Business Processes pricing and business management ● Customer Service customer loyalty and solutions effectiveness ● Regional Operations business development and account services for North America, Europe, Japan, Asia and China regions Materials Management & Risk Management ● Purchasing, warehousing, import and export, logistics support, industrial safety, and environmental protection Operations I ● Manufacturing operations (Fabs 2, 3, 5, 6, 7, and 8), product engineering, and back-end operations Operations II ● Manufacturing operations (Fabs 12 and 14), new fab planning, and manufacturing technology integration Chief Financial Officer & Spokesperson ● Finance and accounting services, including investor relations, treasury, tax, asset management, financial and accounting management ● Corporate spokesperson General Counsel ● Corporate legal affairs, contracts, patent and other intellectual property matters Internal Audit ● Internal audit and process compliance 13 3.3 Directors & Supervisors Information regarding Directors & Supervisors Title / Name Chairman Morris Chang Koninklijke Philips Electronics N. V. Representatives: (Note 3) Director J. C. Lobbezoo Director Mario Alberto Rivas (Note 1) Director F. C. Tseng Director Stan Shih Development Fund, Executive Yuan Representatives: (Note 3) Director Chintay Shih Director Sir Peter Leahy Bonfield Date Elected Term Expires Date First Elected Shareholding when Elected Current Shareholding Spouse and Minor Shareholding Shares % Shares % Shares % 06/03/2003 06/02/2006 12/10/1986 91,669,112 0.49 122,793,152 0.53 111,723 0.00 06/03/2003 06/02/2006 12/10/1986 2,554,450,279 13.72 2,576,997,318 11.08 - - 06/03/2003 06/02/2006 05/13/1997 30,356,889 0.16 40,041,167 0.17 121,018 0.00 06/03/2003 06/02/2006 04/14/2000 2,225,077 0.01 1,348,371 0.01 14,681 0.00 06/03/2003 06/02/2006 12/10/1986 1,793,522,406 9.63 1,716,683,170 7.38 - - 06/03/2003 06/02/2006 05/07/2002 0 0.00 0 0.00 0 0.00 Director Lester Carl Thurow 06/03/2003 06/02/2006 05/07/2002 0 0.00 0 0.00 0 0.00 14 TSMC Shareholding by Nominee Arrangement (Shares) 0 0 Education and Selected Past Positions Selected Current Positions Ph. D., Electrical Engineering, Stanford University, USA Chairman, Industrial Technology Research Institute President & COO, General Instrument Corporation CEO, TSMC Director, Chairman and/or President of TSMC subsidiary companies Supervisor, Industrial Technology Research Institute M. A., Business Economics, Erasmus University, the Executive Vice President & Chief Financial Officer, Philips Netherlands Semiconductors B.V. Chairman, Systems on Silicon Manufacturing Company Pte Ltd. Director, FEI Company Masters degrees, EE Semiconductor Physics and Business Administration, Rensselaer Polytechnic Institute, the Netherlands Executive Vice President, Communications Businesses, Philips Semiconductors B.V. Member of Philips Semiconductors' Executive Management Corporate Vice President, Motorola Semiconductors (now Team Freescale Semiconductor, Inc.), Motorola, Inc. 0 Ph. D., Electrical Engineering, National Cheng-Kung University, Taiwan President, TSMC President, Vanguard International Semiconductor Corp. Deputy CEO, TSMC Director and/or President of TSMC subsidiary companies Chairman, Global Unichip Corp. Director, Prosperity Venture Capital Corp. Director, digimax, Inc. Director, Allegro Manufacturing Pte, Ltd. 0 Honorary Doctor of International Law, Thunderbird, American Graduate School of International Management, USA Honorary Fellowship, University of Wales, Cardiff, UK Honorary Doctor of Technology, The Hong Kong Polytechnic Group Chairman, iD SoftCapital Co-Founder, Chairman Emeritus of the Acer Group Director, ABW (Acer, BenQ, Wistron) Family Managing Director, Industrial Technology Research Institute University, Hong Kong Honorary EE Ph. D., MSEE, BSEE, National Chiao Tung University, Taiwan 0 Ph. D., Electrical Engineering, Princeton University, USA President, Industrial Technology Research Institute 0 Engineering, Loughborough University of Technology, UK CEO and Chairman of the Executive Committee, British Telecommunications Plc Professor and Dean, College of Technology Management, National Tsing Hua University, Taiwan Managing Director and Special Advisor, Industrial Technology Research Institute Director, Industrial Technology Investment Corporation Director, Vanguard International Semiconductor Corp. Senior Non-Executive Director, AstraZeneca Group Plc Director, L.M. Ericsson Director, Mentor Graphics Corporation Inc. Vice President, the British Quality Foundation Member of the Citigroup International Advisory Board Member of the Sony Corporation Advisory Board Non-Executive Director, Corporate Board of the Department for Constitutional Affairs Non Executive Member of Actis LLP Supervisory Board Non Executive Director of Her Majesty's Courts Services Board - - - - - - - - - 0 Ph. D., Economics, Harvard University, USA Dean, Sloan School of Management, M.I.T. Jerome and Dorothy Lemelson Professor of Management and - Economics, Sloan School of Management, M.I.T. Director, Analog Devices, Inc. Director, E*Trade As of 02/28/2005 Managers Are Spouse or Within Second-degree Relative of Consanguinity to Each Other Title Name Relation - - - - - - - - - - - - - - - - - - - - (Continued) 15 Title / Name Director Rick Tsai Koninklijke Philips Electronics N.V. Representatives: (Note 3) Supervisor Robbert J. Brakel Development Fund, Executive Yuan Representatives: (Note 3) Supervisor James C. Ho (Note 2) Supervisor Michael E. Porter Date Elected Term Expires Date First Elected Shareholding when Elected Current Shareholding Spouse and Minor Shareholding Shares % Shares % Shares 06/03/2003 06/02/2006 06/03/2003 19,491,738 0.10 24,497,273 0.11 06/03/2003 06/02/2006 12/10/1986 2,554,450,279 13.72 2,576,997,318 11.08 06/03/2003 06/02/2006 12/10/1986 1,793,522,406 9.63 1,716,683,170 7.38 0 - - % 0.00 - - 06/03/2003 06/02/2006 05/08/2002 0 0.00 0 0.00 0 0.00 Note 1: Mr. Mario Alberto Rivas replaced Mr. Scott McGregor on December 15, 2004. Note 2: Mr. James C. Ho replaced Ms. Susan Chang on August 20, 2004. Note 3: Information on Directors and Supervisors that are Representatives of Juridical Person Shareholders: Directors / Supervisors That are Representatives of Juridical Person Shareholders Director: J. C. Lobbezoo Director: Mario Alberto Rivas Supervisor: Robbert Brakel Director: Chintay Shih Supervisor: James C. Ho Juridical Person Shareholders Koninklijke Philips Electronics N.V. Top Ten Shareholders of Juridical Person Shareholders, or Shareholders Owning More than 10% of Juridical Person Shareholders Top Ten Shareholders: Not Available Shareholders Owned More than 10% Shares: None Development Fund, Executive Yuan Not Applicable 16 TSMC Shareholding by Nominee Arrangement (Shares) Education and Selected Past Positions Selected Current Positions Ph. D., Material Science, Cornell University, USA Executive Vice President, Worldwide Marketing and Sales, President & COO, TSMC Director of TSMC subsidiary companies TSMC President, Vanguard International Semiconductor Corp. Drs., Business Economics, Free University of Amsterdam, the Netherlands Post Doctorate Controllers Programme (RC), Free University of Vice President & CFO, Philips Mobile Display Systems Director, Philips Electronic Industries (Taiwan) Ltd. Director, Philips Electronic Building Elements Industries Amsterdam, the Netherlands (Taiwan) Ltd. 0 0 0 Ph. D., Economics, University of Pittsburgh, USA M. A., Economics, University of Pittsburgh, USA Executive Director, Center for Economic Deregulation and Innovation, Council for Economic Planning and Development, Executive Yuan Deputy Executive Director and Executive Director, Asia-Pacific Regional Operations Center, Council for Economic Planning and Development, Executive Yuan Deputy Executive Secretary, Development Fund, Executive Yuan Director, Taiwan High Speed Rail 0 Ph. D., Business Economics, Harvard University, USA Bishop William Lawrence University Professor, Harvard Business School Director, Inforte Corporation Director, Parametric Technology Corporation Director, Thermo-Electron Corporation As of 02/28/2005 Managers Are Spouse or Within Second-degree Relative of Consanguinity to Each Other Title Name Relation - - - - - - - - - - - - - - - - - - 17 Remuneration Paid to Directors and Supervisors in 2004 Transportation Compensation Allowance (Note 3) (NT$ thousands) (NT$ thousands) Cash (NT$ thousands) Shares 1,440 127,805 25,670 10,237,505 Title / Name Chairman & Chief Executive Officer Morris Chang Koninklijke Philips Electronics N.V. Representatives: Director J. C. Lobbezoo Director Mario Alberto Rivas (Note 1) Supervisor Robbert J. Brakel Director & Deputy Chief Executive Officer F. C. Tseng Director Stan Shih Development Fund, Executive Yuan Representatives: Director Chintay Shih Supervisor James C. Ho (Note 2) Director Sir Peter Leahy Bonfield Director Lester Carl Thurow Director & President & Chief Operating Officer Rick Tsai Supervisor Michael E. Porter Note 1: Mr. Mario Alberto Rivas replaced Mr. Scott McGregor on December 15, 2004. Note 2: Mr. James C. Ho replaced Ms. Susan Chang on August 20, 2004. Note 3: Although Chi Cherng Investment Co., Ltd. and Hsin Ruey Investment Co., Ltd. had stepped down from TSMC's Board on June 3, 2003, they received a pro rata compensation in 2004 for the period that they remained on the Board in 2003. Note 4: Average closing price per common share in December 2003, adjusted for cash and stock dividends and employee profit sharing (in stock) distributed in 2004. 18 Employee Profit Sharing Stock Market Price Per Share (NT$, Note 4) Market Value (NT$ thousands) Total Compensation (NT$ thousands) Total Compensation Paid to Directors & Supervisors as % of 2003 Net Income Number of Employee Stock Options Granted in 2004 Other Compensation (NT$ thousands) 53.98 552,621 707,536 1.50% 0 2,466 19 Independence Analysis of Board Members Under Taiwan SFB Criteria Taiwan SFB provides a set of criteria to determine the independence of Board Members. The specific criteria and applicability to TSMC Board Members are shown below in detail. Independence Criteria of Directors and Supervisors Title / Name Chairman Morris Chang Director Peter Leahy Bonfield Director Lester Carl Thurow Director Stan Shih Director J. C. Lobbezoo Director Mario Alberto Rivas Director Chintay Shih Director F. C. Tseng Director Rick Tsai Supervisor Robbert J. Brakel Supervisor James C. Ho Supervisor Michael E. Porter Over five years of experience in business, finance, legal or areas required by the Company Not an employee of the Company, nor a director, supervisor or employee of affiliated companies Not a natural person shareholder directly or indirectly owning more than 1% of the Company's out- standing shares, nor one of the Company's top ten natural person shareholders √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ Note: "√" indicates meeting conditions specified above. Board of Directors Composition TSMC's Board of Directors consists of nine distinguished members. Their outstanding careers and breadth of experience encompass high technology, finance, business, and management. Three of the nine members of the Board -- Sir Peter L. Bonfield, former CEO of British Telecommunications, Professor Lester C. Thurow of M.I.T., and Mr. Stan Shih, former Chairman of Acer Group -- are independent direc- tors. A complete list of TSMC's directors, their qualifications and experience can be found on pages 14-17. 20 Not a spouse nor first- or second- degree relative to any person speci- fied in columns 3 and 4 Criteria Not a director, supervisor or employee of a shareholder of juridical person of the Company directly or indirectly owning more than 5% of the Company's out- standing shares, nor one of the Company's top five shareholders of juridical person Not a director, supervisor, manager or shareholder holding more than 5% of the outstanding shares of certain companies or institutions that have financial or business relationship with the Company Not an owner, partner, director, supervisor, manager of any sole proprietor, partnership, company or institution and his/her spouse, or the specialist and his/her spouse, that provides finance, commerce, legal consultation and services to the Company or affiliat- ed companies within one year Not a juridical person or its represen- tative as defined in Article 27 of Company Law √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ Responsibilities The Board's primary duty is to fulfill its oversight responsibilities for the overall business and affairs of TSMC. Day-to-day operations, preparation of financial statements, fund raising, and investments remain the legal responsibility of the Company's management, and the activities of the Board do not supersede or alter those responsibilities. In conjunction with Company staff, the Board also monitors regulatory activities, such as amendments to Taiwan's laws, amendments to the U.S. SEC rules and regulations, and changes to the New York Stock Exchange and Taiwan Stock Exchange listing requirements. 21 3.4 Management Team Information regarding Management Team Title / Name Chairman & Chief Executive Officer Morris Chang Deputy Chief Executive Officer F. C. Tseng President & Chief Operating Officer Rick Tsai Senior Vice President Research & Development Shang-Yi Chiang Senior Vice President Worldwide Marketing & Sales Kenneth Kin Senior Vice President & Chief Information Officer Stephen T. Tso Vice President Materials Management & Risk Management J. B. Chen Vice President Research & Development Ping Yang Vice President Operations I C. C. Wei Vice President Operations II Mark Liu Vice President Marketing Genda Hu Vice President Operations I M. C. Tzeng Date Effective 03/03/1998 08/07/2001 08/07/2001 11/07/2000 Shareholding Spouse and Minor Shareholding 122,793,152 % 0.53 Shareholding 111,723 % 0.00 40,041,167 0.17 121,018 0.00 24,497,273 0.11 13,248,391 0.06 08/07/2001 2,781,256 0.01 11/02/2004 12,003,489 0.05 09/05/2000 6,391,916 0.03 42,265 0.00 08/07/2001 5,304,686 0.02 0 0.00 03/03/1998 4,974,702 0.02 1,192 0.00 05/11/1999 9,277,631 0.04 08/11/2000 2,121,879 0.01 0 0 0.00 0.00 08/07/2001 4,756,521 0.02 371,286 0.00 0 0 0 0 0.00 0.00 0.00 0.00 0 0 0.00 0.00 05/07/2002 1,281,909 0.01 09/08/2003 2,850,487 0.01 175,697 0.00 02/17/2004 1,103,349 0.00 08/10/2004 290,000 0.00 10/15/2003 698,015 0.00 0 0 0 0.00 0.00 0.00 01/01/2002 7,377,026 0.03 1,140,866 0.00 TSMC Shareholding by Nominee Arrangement (Shares) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Vice President & General Counsel Richard Thurston 02/08/2002 1,542,094 0.01 Vice President Customer Partnership and Service Chiam Wu Vice President, Chief Financial Officer & Spokesperson Lora Ho Vice President Human Resources P. H. Chang Vice President Operations II Wei-Jen Lo Senior Director Internal Audit Jan Kees van Vliet Senior Director Corporate Planning Organization L. C. Tu 22 Education and Selected Past Positions Selected Current Positions (see page 15) (see page 15) (see page 15) (see page 15) (see page 15) (see page 15) Ph. D., Electrical Engineering, Stanford University, USA Vice President, Research and Development, TSMC Department Manager, Device Research and Applications, Hewlett-Packard Company Director of International Sematech Ph. D., Nuclear Engineering and Applied Physics, Columbia University, USA Vice President, Worldwide Sales & Services, IBM Microelectronics Division Director of TSMC Europe B.V. Ph. D., Materials Science & Engineering, University of California, Berkeley, USA President, WaferTech, LLC Senior Vice President, Operations, TSMC Director of WaferTech, LLC Director of TSMC Partners, Ltd. Director of United Industrial Gases Co., Ltd. Director of Global Unichip Corp. Director of TSMC (Shanghai) Company, Ltd. Director of VisEra Technology Company, Ltd. Director of System on Silicon Manufacturing Company Pte Ltd. Director of TSMC Partners, Ltd. Director of System on Silicon Manufacturing Company Pte Ltd. Director and/or Supervisor TSMC subsidiary companies Supervisor of Global Unichip Corporation Supervisor of VisEra Technology Company, Ltd. Master, Physics, National Tsing Hua University, Taiwan Vice President, Tainan Site Operation, TSMC President, TSMC-Acer Semiconductor Manufacturing Corp. Ph. D., Electrical Engineering, University of Illinois, Champaign-Urbana, USA Senior Vice President, U.S. Subsidiary, TSMC North America Director, Device and Flow Design, Semiconductor Process and Device Center, Texas Instruments Incorporated Ph. D., Electrical Engineering, Yale University, USA Vice President, South Site Operation, TSMC Senior Vice President, Chartered Semiconductor Manufacturing Ltd. Ph. D., Electrical Engineering and Computer Science, University of California, Berkeley, USA Vice President, South Site Operation, TSMC President, Worldwide Semiconductor Manufacturing Corp. Ph. D., Electrical Engineering, Princeton University, USA General Director, Electronic Research and Service Organization, Industrial Technology Research Institute President, Taiwan Semiconductor Industry Association Master, Applied Chemistry, Chung Yuan University, Taiwan Senior Director, Fab 2 Operation, TSMC J. D., Rutgers School of Law, State University of New Jersey, USA Ph. D., History, University of Virginia, USA Partner, Haynes Boone, LLP Vice President Corporate Staff, Assistant General Counsel, Texas Instruments Incorporated M. S., Materials Science and Engineering, Oregon State University, USA Group Vice President, Applied Materials, Inc. Vice Chairman, Applied Materials Taiwan, Ltd. Master, Finance, Nationl Taiwan University, Taiwan Senior Director, Accouting, TSMC Vice President, TI-Acer Semiconductor Manufacturing Corp. Ph. D., Materials Science and Engineering, Purdue University, USA Senior Director, Materials Management, TSMC Vice President, Worldwide Semiconductor Manufacturing Corp. Ph. D., Solid State Physics and Surface Chemistry, University of California, Berkeley, USA Director, Advanced Technology Development & CTM Plant Manager, Intel M. S., Management, Delft / Erasmus University, the Netherlands Senior Director, Pricing & Business Process, TSMC Chief Financial Officer and member of the Board of Management, Philips Taiwan Master, Business Administration, Tulane University, USA Senior Director, Fab 5 Operation, TSMC As of 02/28/2005 Managers are Spouse or Within Second-degree Relative of Consanginity to Each Other Title Name Relation - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Department Manager M. J. Tzeng Siblings - - - - - - - - - - - - - - - - - - - - - 23 Compensation Paid to President and Vice Presidents Title Name Salary (NT$ thousands) Bonus (NT$ thousands) Cash (NT$ thousands) Shares President & Chief Operating Officer Rick Tsai Senior Vice President Research & Development Senior Vice President Worldwide Marketing & Sales Senior Vice President & Chief Information Officer Senior Vice President & Chief Information Officer Vice President Materials Management & Risk Management Vice President Research & Development Vice President Operations I Vice President Operations II Vice President Marketing Vice President Operations I Vice President & General Counsel S. Y. Chiang Kenneth Kin Quincy Lin (Note 1) Stephen T. Tso J. B. Chen Ping Yang C. C. Wei Mark Liu Genda Hu M. C. Tzeng Richard Thurston Vice President Customer Partnership and Service Vice President, Chief Financial Officer & Spokesperson Vice President Human Resources Vice President Operations II Chiam Wu Lora Ho P. H. Chang Wei-Jen Lo Note 1: Mr. Quincy Lin retired on February 28, 2005. 53,705 20,560 44,695 18,125,194 Note 2: Average closing price per common share in December 2003, adjusted for cash and stock dividends and employee profit sharing (in stock) distributed in 2004. 24 Employee Profit Sharing Stock Market Price Per Share (NT$, Note 2) Market Value (NT$ thousands) Total Compensation (NT$ thousands) Total Compensation to President and VPs as % 2003 of Net Income ESOP shares granted in 2004 Other Compensation (NT$ thousands) 53.98 978,398 1,097,359 2.32% 0 4,278 25 Employee Profit Sharing Granted to Management Team Profit Sharing Stock Shares Market Price Per Share (NT$, Note 2) Market Value (NT$ thousands) Profit Sharing Cash (NT$ thousands) Total Profit Sharing Value (NT$ thousands) Total Profit Sharing Value to Management Team as % of 2003 Net Income 26,789,012 53.98 1,446,071 66,419 1,512,490 3.20% Tital Name Chairman & Chief Executive Officer Deputy Chief Executive Officer Morris Chang F. C. Tseng President & Chief Operating Officer Rick Tsai Senior Vice President Research & Development S. Y. Chiang Senior Vice President Worldwide Marketing & Sales Senior Vice President & Chief Information Officer Senior Vice President & Chief Information Officer Vice President Materials Management & Risk Management Kenneth Kin Quincy Lin (Note 1) Stephen T. Tso J. B. Chen Vice President Research & Development Ping Yang Vice President Operations I Vice President Operations II Vice President Marketing Vice President Operations I Vice President & General Counsel Vice President Customer Partnership and Service Vice President Chief Financial Officer & Spokesperson Vice President Human Resources Vice President Operations II Senior Director Internal Audit Senior Director Corporate Planning Organization C. C. Wei Mark Liu Genda Hu M. C. Tzeng Richard Thurston Chiam Wu Lora Ho P. H. Chang Wei-Jen Lo Jan Kees van Vliet L. C. Tu Note 1: Mr. Quincy Lin retired on February 28, 2005. Note 2: Average closing price per common share in December 2003, adjusted for cash and stock dividends and employee profit sharing (in stock) distributed in 2004. 26 Information on Net Change in Shareholding and Net Change in Shares Pledged by Directors, Supervisors, Management and Shareholders of 10% Shareholdings or More 2004 01/01/2005~ 02/28/2005 Net Change in Shares Pledged (Note 1) Net Change in Shareholding Net Change in Shares Pledged (Note 1) Unit: Share Title / Name Chairman & CEO Morris Chang Director & Supervisor Koninklijke Philips Electronics N.V. Representatives: J. C. Lobbezoo Mario Alberto Rivas Robbert J. Brakel Director & Deputy CEO F. C. Tseng Director Stan Shih Director & Supervisor Development Fund, Executive Yuan Representatives: Chintay Shih James C. Ho Director Sir Peter Leahy Bonfield Director Lester Carl Thurow Director & President & COO Rick Tsai Supervisor Michael E. Porter Senior Vice President Shang-Yi Chiang Senior Vice President Kenneth Kin Senior Vice President & CIO Stephen T. Tso Vice President J. B. Chen Vice President Ping Yang Vice President C. C. Wei Vice President Mark Liu Vice President Genda Hu Vice President M. C. Tzeng Vice President & General Counsel Richard Thurston Vice President Chiam Wu Vice President, CFO & Spokesperson Lora Ho Vice President P. H. Chang Vice President Wei-Jen Lo Senior Director Jan Kees van Vliet Senior Director L. C. Tu Net Change in Shareholding 20,409,803 318,191,017 5,981,948 166,488 211,964,972 0 0 3,619,817 0 2,898,482 908,741 0 (Note 2) 1,135,035 938,874 1,479,981 1,323,636 829,371 1,217,427 717,785 704,909 1,131,967 0 0 0 0 0 0 0 0 0 400,000 0 0 (Note 2) 0 0 0 0 0 0 0 0 0 682,861 (Note 3) 0 (Note 4) 414,449 1,150,325 0 (Note 3) 0 (Note 4) 0 0 0 0 -100,000 0 0 0 0 -240,000 0 -70,000 -200,000 0 -200,000 -340,000 -144,000 -150,000 -86,000 -36,000 -30,000 0 -80,000 0 -10,000 -10,000 -58,000 Note 1: This refers to the creation of security interest over TSMC shares in favor of creditors, usually in connection with a shareholder's own financing activities. Note 2: Net change in shareholding or share pledged from 11/02/2004 to 12/31/2004. Note 3: Net change in shareholding or share pledged from 02/17/2004 to 12/31/2004. Note 4: Net change in shareholding or share pledged from 08/10/2004 to 12/31/2004. 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 27 Stock Trade with Related Party: None Stock Pledge with Related Party: None 3.5 TSMC Long-Term Investments Ownership Long-Term Investment Equity Method TSMC International Investment Ltd. TSMC Partners, Ltd. Systems on Silicon Manufacturing Co. Pte Ltd. Vanguard International Semiconductor Corp. TSMC (Shanghai) Company Ltd. Emerging Alliance Fund, L.P. VentureTech Alliance Fund II, L.P. TSMC North America Global UniChip Corp. TSMC Japan K.K. VisEra Technology Company Ltd. Chi Cherng Investment Co., Ltd. Hsin Ruey Investment Co., Ltd. TSMC Europe B.V. Cost Method Non- Publicly Traded United Industrial Gases Co. Ltd. Shin-Etsu Handotai Taiwan Company Ltd. Hontung Venture Capital Co., Ltd. W. K. Technology Fund IV Globaltop Partner I Venture Capital Corp. Funds Horizon Ventures Crimson Asia Capital Ownership by TSMC (1) Shares 987,968,244 300,000 382,264 409,531,914 Not Applicable (Note 3) Not Applicable (Note 3) Not Applicable (Note 3) 11,000,000 39,040,000 6,000 5,100,000 Not Applicable (Note 3) Not Applicable (Note 3) 200 16,782,937 10,500,000 8,391,608 5,000,000 5,000,000 Not Applicable (Note 3) Not Applicable (Note 3) % 100.0 100.0 32.0 27.9 100.0 99.5 98.0 100.0 47.3 100.0 25.0 35.7 35.7 100.0 10.3 7.0 10.5 1.9 1.5 12.1 1.0 Note 1: Share interest held by Koninklijke Philips Electronics N.V. Note 2: Include 27.6% owned by Development Fund, Executive Yuan. Note 3: Not applicable: These firms do not issue shares. TSMC's investment is measured as a percentage of ownership interest. Note 4: Not available: Not all information is available to TSMC as of the report date. 28 Direct / Indirect Ownership by Directors, Supervisors, and Management (2) Shares - - 573,396 410,138,855 - - - - 2,561,675 - 3,340,000 - - - % - - 48.0 (Note 1) 27.9 (Note 2) - - - - 3.1 - 16.4 - - - Not Available (Note 4) Not Available (Note 4) Not Available (Note 4) Not Available (Note 4) Not Available (Note 4) Not Available (Note 4) Not Available (Note 4) Not Available (Note 4) Not Available (Note 4) Not Available (Note 4) Total Ownership (1) + (2) Shares 987,968,244 300,000 955,660 819,670,769 Not Applicable (Note 3) Not Applicable (Note 3) Not Applicable (Note 3) 11,000,000 41,601,675 6,000 8,440,000 Not Applicable (Note 3) Not Applicable (Note 3) 200 16,782,937 10,500,000 8,391,608 5,000,000 5,000,000 Not Applicable (Note 3) Not Available (Note 4) Not Applicable (Note 3) Not Applicable (Note 3) Not Available (Note 4) Not Applicable (Note 3) As of 12/31/2004 % 100.0 100.0 80.0 55.8 100.0 99.5 98.0 100.0 50.4 100.0 41.4 35.7 35.7 100.0 10.3 7.0 10.5 1.9 1.5 12.1 1.0 29 4. Capital & Shares 4.1 History of Capitalization Unit: Share/NT$ Month/Year Price Par Value 02/1987 12/1988 11/1989 07/1990 12/1990 07/1991 12/1991 12/1992 08/1993 07/1994 06/1995 05/1996 07/1997 07/1998 07/1999 11/1999 06/2000 06/2000 08/2000 12/2000 07/2001 07/2002 06/2003 07/2003 06/2004 08/2004 11/2004 01/2005 02/2005 1,000 1,000 1,000 - 1,000 - 10 10 - - - - - - - - - 220 - 10 - - 10 - - - - - - 1,000 1,000 1,000 1,000 1,000 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 Authorized Paid-in Shares 5,510,000 5,510,000 5,510,000 5,510,000 5,510,000 551,000,000 551,000,000 551,000,000 Amount 5,510,000,000 5,510,000,000 5,510,000,000 5,510,000,000 5,510,000,000 5,510,000,000 5,510,000,000 5,510,000,000 Shares 1,377,500 2,204,000 3,306,000 3,360,797 3,911,797 391,179,700 473,829,700 551,000,000 Amount 1,377,500,000 2,204,000,000 3,306,000,000 3,360,797,000 3,911,797,000 3,911,797,000 4,738,297,000 5,510,000,000 780,000,000 7,800,000,000 608,304,000 6,083,040,000 780,000,000 7,800,000,000 780,000,000 7,800,000,000 3,000,000,000 30,000,000,000 1,439,000,000 14,390,000,000 3,000,000,000 30,000,000,000 2,654,200,000 26,542,000,000 8,500,000,000 85,000,000,000 4,081,300,000 40,813,000,000 8,500,000,000 85,000,000,000 6,047,175,967 60,471,759,670 9,100,000,000 91,000,000,000 7,548,483,035 75,484,830,350 9,100,000,000 91,000,000,000 7,670,881,717 76,708,817,170 17,800,000,000 178,000,000,000 9,990,849,423 99,908,494,230 17,800,000,000 178,000,000,000 10,105,849,423 101,058,494,230 17,800,000,000 178,000,000,000 11,689,364,587 116,893,645,870 17,800,000,000 178,000,000,000 12,989,364,587 129,893,645,870 24,600,000,000 246,000,000,000 18,132,553,051 181,325,530,510 24,600,000,000 246,000,000,000 19,922,886,745 199,228,867,450 24,600,000,000 246,000,000,000 18,622,886,745 186,228,867,450 24,600,000,000 246,000,000,000 20,266,618,984 202,666,189,840 24,600,000,000 246,000,000,000 23,376,597,005 233,765,970,050 24,600,000,000 246,000,000,000 23,251,877,005 232,518,770,050 24,600,000,000 246,000,000,000 23,251,963,693 232,519,636,930 24,600,000,000 246,000,000,000 23,252,048,432 232,520,484,320 24,600,000,000 246,000,000,000 23,252,256,555 232,522,565,550 30 Sources of Capital Founding Cash Offering Cash Offering Capitalization of Profits Cash Offering Par Value Change from NT$1,000 to NT$10 Cash Offering Cash Offering: NT$582,171,120 Capitalization of Profits: NT$189,531,880 Capitalization of Profits Capitalization of Profits Capitalization of Profits Capitalization of Profits Capitalization of Profits Capitalization of Profits Capitalization of Profits Conversion of ECB Capitalization of Profits: NT$21,320,311,040 and Capital Surplus: NT$1,879,366,020 Cash Offering (ADR) Merger with WSMC & TSMC-ACER Cash Offering (Preferred Stock) Capitalization of Profits Capitalization of Profits Redemption of Preferred Stock Capitalization of Profits Capitalization of Profits Capital Reduction : Cancellation of Treasury Shares Exercise of Employee Stock Options Exercise of Employee Stock Options Exercise of Employee Stock Options Remark Capital Increase by Assets other than Cash Date of Approval & Approval Document No. As of 02/28/2005 NO NO NO NO NO - NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO - - - - - - - 10/30/1992 (81) Tai Tsai Cheng (1) No. 02818 07/05/1993 (82) Tai Tsai Cheng (1) No. 01624 06/15/1994 (83) Tai Tsai Cheng (1) No. 26945 05/19/1995 (84) Tai Tsai Cheng (1) No. 29799 04/16/1996 (85) Tai Tsai Cheng (1) No. 24544 05/26/1997 (86) Tai Tsai Cheng (1) No. 40772 05/26/1998 (87) Tai Tsai Cheng (1) No. 46156 05/26/1999 (88) Tai Tsai Cheng (1) No. 48906 - 04/27/2000 (89) Tai Tsai Cheng (1) No. 34058 05/09/2000 (89) Tai Tsai Cheng (1) No. 34440 06/07/2000 (89) Tai Tsai Cheng (1) No. 47200 09/22/2000 (89) Tai Tsai Cheng (1) No. 80344 06/05/2001 (90) Tai Tsai Cheng (1) No. 135268 05/28/2002 (91) Tai Tsai Cheng (1) No. 128948 - 06/18/2003 Tai Tsai Cheng 1 Tzu No. 0920127023 05/25/2004 Tai Tsai Cheng 1 Tzu No. 0930123135 - 06/25/2002 Tai Tsai Cheng 1 Tzu No. 0910134577 06/25/2002 Tai Tsai Cheng 1 Tzu No. 0910134577 06/25/2002 Tai Tsai Cheng 1 Tzu No. 0910134577 31 4.2 Capital & Shares Unit: Share Type of Stock Common Stock Authorized Capital Issued Shares Listed 23,252,256,555 Non-Listed - Total 23,252,256,555 As of 02/28/2005 Total Unissued Shares 1,347,743,445 24,600,000,000 4.3 Status of Shareholders Stock: Common Share Type of Shareholders Number of Shareholders Shareholding Holding Percentage (%) Government Agencies Financial Institutions Other Juridical Persons 9 1,922,288,920 8.27 131 1,135,368,348 4.88 958 2,799,465,844 12.04 As of 11/22/2004 (last record date) Foreign Institutions & Natural Persons 1,731 12,491,364,497 53.72 Domestic Natural Persons Total 522,128 4,903,476,084 21.09 524,957 23,251,963,693 100.00 4.4 Distribution Profile of Shareholder Ownership Stock: Common Share As of 11/22/2004 (last record date) Shareholder Ownership (Unit: Share) 1 ~ 999 1,000 ~ 5,000 5,001 ~ 10,000 10,001 ~ 15,000 15,001 ~ 20,000 20,001 ~ 30,000 30,001 ~ 40,000 40,001 ~ 50,000 50,001 ~ 100,000 100,001 ~ 200,000 200,001 ~ 400,000 400,001 ~ 600,000 600,001 ~ 800,000 800,001 ~ 1,000,000 Over 1,000,001 Total 4.5 Major Shareholders Stock: Common Share Number of Shareholders Ownership Ownership (%) 127,166 253,538 66,874 28,714 12,189 13,202 6,013 3,714 6,660 3,225 1,605 519 269 193 1,076 524,957 41,636,756 601,100,290 473,155,537 349,967,791 213,029,781 319,993,621 207,823,414 166,239,704 457,932,539 441,268,282 447,791,347 251,663,368 187,674,486 173,913,489 18,918,773,288 23,251,963,693 0.18 2.59 2.03 1.50 0.92 1.38 0.89 0.71 1.97 1.90 1.93 1.08 0.81 0.75 81.36 100.00 Rank 1 2 3 4 5 6 7 8 9 10 Shareholders ADR-Taiwan Semiconductor Manufacturing Company, Ltd. Koninklijke Philips Electronics N. V. Philips Electronics Industries (Taiwan), Ltd. Development Fund, Executive Yuan The Growth Fund of America, Inc. JPMorgan Chase Bank, Taipei Branch in Custody for Europacific Growth Fund JPMorgan Chase Bank, Taipei Branch in Custody for The New Perspective Fund, Inc. Government of Singapore Investment Corp. PFE. Ltd. Bureau of Labor Insurance Merrill Lynch International Ltd. Total Shares Owned 3,341,753,899 2,576,997,318 1,836,016,294 1,716,683,170 464,756,085 268,009,895 254,326,011 229,044,518 205,586,322 162,330,362 32 As of 11/22/2004 (last record date) Ownership ( % ) 14.37 11.08 7.90 7.38 2.00 1.15 1.09 0.99 0.88 0.70 4.6 Other Share Information Net Worth, Earnings, Dividends and Market Price Per Common Share Unit: NT$, except weighted average shares and return on investment Item Market Price Per Share Highest Market Price Lowest Market Price Average Market Price Net Worth Per Share Before Distribution After Distribution Earnings Per Share Weighted Average Shares (thousand shares) Earnings Per Share Earnings Per Share (Note 3) Dividends Per Share Cash Dividends Stock Dividends Dividends from Retained Earnings Dividends from Capital Surplus Accumulated Undistributed Dividend Return on Investment Price / Earning Ratio (Note 4) Price / Dividend Ratio (Note 5) Cash Dividend Yield Rate (Note 6) 2003 72.5 40.1 56.4 16.24 13.52 20,231,739 2.33 2.02 0.60 1.41 - - 24.21 94.00 0.01 2004 01/01/2005~02/28/2005 68.5 40.7 52.4 17.16 (Note 1) 23,255,086 3.97 (Note 1) 2.0 0.5 - - 13.20 (Note 1) (Note 1) 55.5 46.2 51.3 (Note 2) (Note 1) 23,131,559 (Note 2) (Note 1) (Note 1) (Note 1) (Note 1) - (Note 2) (Note 1) (Note 1) Note 1: Pending shareholder's meeting resolution Note 2: Financials of the period not yet finalized Note 3: Retroactive adjustment for stock dividends and bonus to employees Note 4: Price / Earning Ratio = Average Market Price / Earnings Per Share Note 5: Price / Dividend Ratio = Average Market Price / Cash Dividends Per Share Note 6: Cash Dividend Yield Rate = Cash Dividends Per Share / Average Market Price 4.7 Dividend Policy TSMC does not pay dividends when there is no profit for a particular fiscal year, except under certain conditions specified in its Articles of Incorporation. Profits may be distributed by way of cash dividend, stock dividend, or a combination of cash and stock. Distribution of profits is made preferably by way of cash dividends; in the past, profit distribution was generally accomplished by way of stock dividends. Under current policy, the ratio for stock dividends may not exceed 50% of the total distribution. 4.8 Distribution of Profit The Board adopted a proposal for 2004 profit distribution at its quarterly meeting on February 22, 2005. The proposed profit distribu- tion will be effected upon the approval of shareholders at the Annual Shareholder Meeting on May 10, 2005. Proposal to Distribute 2004 Profits Unit: NT$ Bonus to Directors & Supervisors Cash Dividends to Common Shareholders (NT$ 2.00 per share) Stock Dividends to Common Shareholders (NT$ 0.5 per share at par value, i.e., 50 shares for each 1,000 shares owned) (Note 1) Employees' Profit Sharing in Cash Employees' Profit Sharing in Stock (Note 2) 231,466,144 46,504,096,864 11,626,024,220 3,086,215,246 3,086,215,260 Note 1: Equivalent to underlying number of shares: 1,162,602,422 Note 2: Equivalent to underlying number of shares: 308,621,526 33 According to the Company's Articles of Incorporations, when allocating net profits for each fiscal year, the Company, after setting aside regulatorily-required legal reserves, shall set aside 0.3% of the balance as bonus to directors and supervisors, and not less than 1% as bonus to employees of the Company. 2003 profit distribution for Directors & Supervisors Compensation, and Employee Profit Sharing: Board Resolution (02/17/2004) Amount (NT$) Amount (NT$) 127,805,326 127,805,326 681,628,401 2,726,513,630 3,535,947,357 681,628,401 2,726,513,630 3,535,947,357 Actual Result Underlying Number of Shares - - 272,651,363 - Dilution (%) - - 1.17 - Directors & Supervisors Compensation (Cash) Employee Profit Sharing in Cash Employee Profit Sharing in Stock Total The EPS of 2003 and 2004 might have varied if "Directors & Supervisors Compensation" and "Employee Profit Sharing" had been subject to different accounting treatments: Accounting Treatments Treatment as Profit Distribution Treatment as Expenses (Employee Profit Sharing in stock expensed at par value) 2003 EPS NT$ 2.33 NT$ 2.15 2004 EPS NT$ 3.97 NT$ 3.70 4.9 Impact to 2005 Business Performance, EPS and ROE Resulting from Stock Dividend Distribution: Not Applicable. 4.10 Buyback of Treasury Stock Buyback Plan Purpose Period Originally Planned Buyback Price Range Class and Number of Shares Bought Back Value of Shares Bought Back Number of Shares Cancelled or Transferred Accumulated Number of Shares Held Percentage of Accumulated Shares Held to Total Outstanding Shares As of 02/28/2005 First Buyback Plan Due to significant volatility of the Taiwan stock market after 2004 Taiwan presidential election, the Company decided to buy back TSMC common shares in the interests of shareholders. 03/24/2004 ~ 05/23/2004 NT$38.5 ~ NT$95.0 per common share 124,720,000 common shares NT$7,059,797,818 124,720,000 common shares 0 0% 34 5. Issuance of Corporate Bonds 5.1 Corporate Bonds Issuance Issuing Date Denomination Offering Price Total Amount Coupon Rate Tenure Guarantor Trustee Underwriter Legal Counsel Auditor Repayment Outstanding Domestic Unsecured Bond (IV) Domestic Unsecured Bond (V) 12/04/2000 - 12/15/2000 01/10/2002 - 01/24/2002 As of 02/28/2005 NT$1,000,000 NT$10,000,000 Par NT$15,000,000,000 Tranche A: 5.25% p.a. Tranche B: 5.36% p.a. Tranche A: 5 years Maturity: 12/04/2005- 12/15/2005 Tranche B: 7 years Maturity: 12/04/2007-12/14/2007 NT$1,000,000 NT$5,000,000 Par NT$15,000,000,000 Tranche A: 2.60% p.a. Tranche B: 2.75% p.a. Tranche C: 3.00% p.a. Tranche A: 5 years Maturity: 01/10/2007-01/22/2007 Tranche B: 7 years Maturity: 01/10/2009-01/24/2009 Tranche C: 10 years Maturity: 01/10/2012- 01/24/2012 None The International Commercial Bank of China None TC Bank Not Applicable Not Applicable Eluvzy International Law Office Yan-an International Law Office TN Soong & Co Bullet TN Soong & Co Bullet NT$15,000,000,000 NT$15,000,000,000 Redemption or Early Repayment Clause None None Customary Covenants Customary Covenants tw AA (Taiwan Ratings Corporation, 11/08/2000) tw AA (Taiwan Ratings Corporation, 12/03/2001) Covenants Credit Rating Other Rights of Bondholders Conversion Right None Amount of Converted or Exchanged Common Shares, ADRs or Other Securities as of 02/28/2004 Not Applicable Dilution Effect and Other Adverse Effects on Existing Shareholders Custodian None None 5.2 Convertible Bond: None 5.3 Exchangeable Bond: None 5.4 Bond with Warrants: None 6. Preferred Shares 6.1 Preferred Share: None 6.2 Preferred Share with Warrant: None None Not Applicable None None 35 7. Issuance of American Depositary Shares Issuing Date 10/08/1997 11/20/1998 Issuance and Listing NYSE NYSE 01/12/1999 01/14/1999 NYSE 07/15/1999 NYSE 08/23/1999 09/09/1999 NYSE 02/22/2000 03/08/2000 NYSE 04/17/2000 NYSE Total Amount (US$) 594,720,000 184,554,440 35,500,000 296,499,641 158,897,089 379,134,599 224,640,000 Offering Price per ADS (US$) Units Issued Underlying Securities Common Shares Represented 24.78 15.26 17.75 24.516 28.964 57.79 56.16 24,000,000 12,094,000 2,000,000 12,094,000 5,486,000 6,560,000 4,000,000 TSMC Common Shares from Selling Shareholders TSMC Common Shares from Selling Shareholders TSMC Common Shares from Selling Shareholders TSMC Common Shares from Selling Shareholders TSMC Common Shares from Selling Shareholders (Pursuant to ADR Conversion Sale Program) TSMC Common Shares from Selling Shareholders (Pursuant to ADR Conversion Sale Program) TSMC Common Shares from Selling Shareholders 120,000,000 60,470,000 10,000,000 60,470,000 27,430,000 32,800,000 20,000,000 Rights and Obligations of ADS Holders Same as those of Common Share Holders Same as those of Common Share Holders Same as those of Common Share Holders Same as those of Common Share Holders Same as those of Common Share Holders Same as those of Common Share Holders Same as those of Common Share Holders Trustee Not Applicable Not Applicable Not Applicable Not Applicable Not Applicable Not Applicable Not Applicable Depositary Bank Custodian Bank ADSs Outstanding (Note 1) Apportionment of expenses for the issuance and main- tenance Terms and Conditions in the Deposit Agreement and Custody Agreement Citibank, N. A. New York Citibank, N. A. Taipei Branch 24,000,000 Citibank, N. A. New York Citibank, N. A. Taipei Branch Citibank, N. A. New York Citibank, N. A. Taipei Branch 46,222,650 48,222,650 Citibank, N. A. New York Citibank, N. A. Taipei Branch Citibank, N. A. New York Citibank, N. A. Taipei Branch 76,893,859 83,453,859 Citibank, N. A. New York Citibank, N. A. Taipei Branch 87,453,859 Citibank, N. A. New York Citibank, N. A. Taipei Branch 71,407,859 (Note 2) See Deposit Agreement and Custody Agreement for Details See Deposit Agreement and Custody Agreement for Details See Deposit Agreement and Custody Agreement for Details See Deposit Agreement and Custody Agreement for Details See Deposit Agreement and Custody Agreement for Details See Deposit Agreement and Custody Agreement for Details See Deposit Agreement and Custody Agreement for Details Closing Price per ADS (US$) 2004 01/01/2005 - 02/28/2005 High Low Average High Low Average US$10.19 US$ 6.64 US$ 8.26 US$ 9.43 US$ 7.68 US$ 8.49 Note 1: TSMC has in aggregate issued 410,517,000 ADSs since 1997, which, if taking into consideration of stock dividend distributed over the period, would amount to 668,904,257ADSs. As of February 28, 2005, total number of outstanding ADSs was 668,350,778 after 553,479 ADSs were redeemed. Stock dividend dis- tributed in 1998, 1999, 2000, 2001, 2002, 2003 and 2004 was 45%, 23%, 28%, 40% , 10%, 8% and 14.08668% respectively. Note 2: All fees and expenses such as underwriting fees, legal fees, listing fees and other expenses related to issuance of ADSs were borne by the selling shareholders, while maintenance expenses such as annual listing fees and accountant fees were borne by TSMC. Note 3: All fees and expenses such as underwriting fees, legal fees, listing fees and other expenses related to issuance of ADSs were borne by TSMC and the selling shareholders, while maintenance expenses such as annual listing fees and accountant fees were borne by TSMC. 36 06/07/2000 - 06/15/2000 NYSE 05/14/2001 - 06/11/2001 NYSE 06/12/2001 11/27/2001 NYSE NYSE 02/07/2002 02/08/2002 NYSE 11/21/2002 - 12/19/2002 NYSE 07/14/2003 - 07/21/2003 NYSE 11/14/2003 NYSE 1,167,873,850 240,999,660 297,649,640 320,600,000 1,001,650,000 160,097,914 908,514,880 1,077,000,000 35.75 20.63 20.63 16.03 16.75 8.73 10.40 10.77 32,667,800 11,682,000 14,428,000 20,000,000 59,800,000 18,348,000 87,357,200 100,000,000 Cash Offering and TSMC Common Shares from Selling Shareholders TSMC Common Shares from Selling Shareholders (Pursuant to ADR Conversion Sale Program) TSMC Common Shares from Selling Shareholders TSMC Common Shares from Selling Shareholders TSMC Common Shares from Selling Shareholders TSMC Common Shares from Selling Shareholders (Pursuant to ADR Conversion Sale Program) TSMC Common Shares from Selling Shareholders TSMC Common Shares from Selling Shareholders 163,339,000 58,410,000 72,140,000 100,000,000 299,000,000 91,740,000 436,786,000 500,000,000 Same as those of Common Share Holders Same as those of Common Share Holders Same as those of Common Share Holders Same as those of Common Share Holders Same as those of Common Share Holders Same as those of Common Share Holders Same as those of Common Share Holders Same as those of Common Share Holders Not Applicable Citibank, N. A. New York Citibank, N. A. Taipei Branch 156,290,739 Not Applicable Citibank, N. A. New York Citibank, N. A. Taipei Branch 170,718,739 Not Applicable Citibank, N. A. New York Citibank, N. A. Taipei Branch 259,006,235 Not Applicable Citibank, N. A. New York Citibank, N. A. Taipei Branch 144,608,739 (Note 3) Not Applicable Citibank, N. A. New York Citibank, N. A. Taipei Branch 318,806,235 (Note 2) Not Applicable Citibank, N. A. New York Citibank, N. A. Taipei Branch 369,019,413 Not Applicable Citibank, N. A. New York Citibank, N. A. Taipei Branch 485,898,166 Not Applicable Citibank, N. A. New York Citibank, N. A. Taipei Branch 585,898,166 See Deposit Agreement and Custody Agreement for Details See Deposit Agreement and Custody Agreement for Details See Deposit Agreement and Custody Agreement for Details See Deposit Agreement and Custody Agreement for Details See Deposit Agreement and Custody Agreement for Details See Deposit Agreement and Custody Agreement for Details See Deposit Agreement and Custody Agreement for Details See Deposit Agreement and Custody Agreement for Details 37 8. Status of Employee Stock Option Plan (ESOP) 8.1 Issuance of Employee Stock Options ESOP Granted Approval Date by the Securities and Futures Bureau Issue (Grant) Date Number of Options Granted Percentage of Shares Exercisable to Outstanding Common Shares First Grant 06/25/2002 08/22/2002 18,909,700 0.10154% Second Grant 06/25/2002 11/08/2002 1,085,000 0.00583% Third Grant 06/25/2002 03/07/2003 6,489,514 0.03485% Option Duration 10 years 10 years 10 years Source of Option Shares New Common Share New Common Share New Common Share Vesting Schedule 2nd Year: up to 50% 3rd Year: up to 75% 4th Year: up to 100% 2nd Year: up to 50% 3rd Year: up to 75% 4th Year: up to 100% 2nd Year: up to 50% 3rd Year: up to 75% 4th Year: up to 100% Shares Exercised Value of Shares Exercised (NT$) Shares Unexercised Original Grant Price Per Share (NT$) Adjusted Exercise Price Per Share (NT$) Percentage of Shares Unexercised to Outstanding Common Shares Impact to Shareholders' Equity 317,550 13,273,590 18,919,793 53.0 41.8 0.08137% 62,000 2,498,600 1,288,513 51.0 40.3 0.00554% 0 0 6,765,199 41.6 32.8 0.02909% Dilution to Shareholders' Equity is limited Dilution to Shareholders' Equity is limited Dilution to Shareholders' Equity is limited 8.2 ESOP Granted to Management Team and to Top 10 Employees with an Individual Grant Value over NT$30,000,000 Title Name Number of Options Granted (Note 2) % of Shares Exercisable to Outstanding Common Shares Chairman & Chief Executive Officer President & Chief Operating Officer Senior Vice President Senior Vice President Vice President Vice President Vice President & General Counsel Morris Chang (Note 1) Rick Tsai (Note 1) Stephen T. Tso (Note 1) Kenneth Kin (Note 1) C. C. Wei (Note 1) Mark Liu (Note 1) Richard Thurston (Note 1) 3,147,813 0.01354% Note 1: TSMC granted options to certain of its officers (as listed above) as a result of their voluntary selection to exchange part of their profit sharing for stock options in 2003. Note 2: Number of Options Granted includes the additional shares due to stock dividend distributed in 2004. 38 As of 02/28/2005 Fourth Grant 06/25/2002 06/06/2003 23,090,550 0.12399% Fifth Grant 10/29/2003 12/03/2003 842,900 0.00453% Sixth Grant 10/29/2003 02/19/2004 15,720 0.00008% Seventh Grant 10/29/2003 05/11/2004 11,167,817 0.05510% Eighth Grant 10/29/2003 08/11/2004 135,300 0.00058% 10 years 10 years 10 years 10 years 10 years New Common Share New Common Share New Common Share New Common Share New Common Share 2nd Year: up to 50% 3rd Year: up to 75% 4th Year: up to 100% 2nd Year: up to 50% 3rd Year: up to 75% 4th Year: up to 100% 2nd Year: up to 50% 3rd Year: up to 75% 4th Year: up to 100% 2nd Year: up to 50% 3rd Year: up to 75% 4th Year: up to 100% 2nd Year: up to 50% 3rd Year: up to 75% 4th Year: up to 100% 0 0 23,437,165 58.5 46.2 0.10080% 0 0 736,033 66.5 57.8 0.00317% 0 0 15,258 63.5 55.2 0.00007% 0 0 11,355,403 57.5 49.9 0.04884% 0 0 135,300 43.8 43.8 0.00058% Dilution to Shareholders' Equity is limited Dilution to Shareholders' Equity is limited Dilution to Shareholders' Equity is limited Dilution to Shareholders' Equity is limited Dilution to Shareholders' Equity is limited Exercised Unexercised Shares Exercised Exercise Price Per Share Value of Shares Exercised (NT$) % of Shares Exercised to Outstanding Common Shares Shares Unexercised Adjusted Grant Price Per Share Value of Shares Unexercised (NT$) % of Shares Unexercised to Outstanding Common Shares As of 02/28/2005 0 0 0 0 3,147,813 32.8 103,248,266 0.01354% 39 9. Status of Mergers and Acquisitions: No mergers or acquisitions were undertaken in 2004. 10. Corporate Governance Maintaining the highest standards of corporate governance has been an integral expression of TSMC's core values since its founding. TSMC advocates and upholds operational transparency and respect for shareholder rights. We believe that the basis for successful corpo- rate governance is a sound and effective Board of Directors. In line with this principle, TSMC's Board of Directors established an Audit Committee in 2002 and a Compensation Committee in 2003. During 2004, TSMC received numerous awards for being the best managed company in Taiwan with respect to corporate governance. However, we believe that good governance is fundamentally a global issue. We hold ourselves to world class standards of integrity and fairness, and our benchmarks for transparency and disclosure are international ones. 10.1 Audit Committee The Audit Committee assists the Board in fulfilling its financial oversight responsibilities, which include reviewing the Company's financial reports, the Company's auditing and accounting policies and procedures, and the Company's systems of internal control. TSMC's Audit Committee is empowered by its Charter to conduct any study or investigation it deems appropriate to discharge its respon- sibilities. It has direct access to TSMC's internal auditors, the Company's outside independent auditors, and all employees of the Company. The Committee is authorized to retain and oversee special legal, accounting or other consultants as it deems appropriate to fulfill its char- ter purposes. As of March 2005, there were four members on the Audit Committee: three independent directors and a supervisor of TSMC. The Committee meets at least four times a year. The Audit Committee convened four regular meetings and two special meetings in 2004. 10.2 Compensation Committee The Compensation Committee assists the Board in discharging its responsibilities related to compensation and benefit policies, plans and programs of TSMC, and evaluation and compensation of TSMC's executives, directors and supervisors. As of March 2005, the Compensation Committee was comprised of five members: three independent directors serving as voting mem- bers of the Committee, and two non-voting directors. The Committee meets at least four times a year. The Compensation Committee convened four regular meetings in 2004. 40 10.3 Taiwan Corporate Governance Implementation as Required by SFB Item Implementation Status 1. Shareholding Structure & Shareholders' Rights (1) The way of handling shareholder sugges- tions or disputes TSMC has designated relevant departments, such as Investor Relations, Public Relations, Legal, etc., to handle shareholder's sug- gestions or disputes. (2) The Company's possession of major share- holder's list and the list of ultimate owners of these major shareholders TSMC tracks the shareholdings of directors, supervisors, officers, and shareholders holding more than 10% of the outstanding shares of TSMC. (3) Risk Management Mechanism and Fire Wall between the Company and its affiliates TSMC has established relevant guidelines in its "Internal Control System" policy and procedures. 2. Composition and Responsibilities of the Board of Directors (1) Independent Directors Sir Peter Leahy Bonfield, Prof. Lester Carl Thurow, and Mr. Stan Shih are independent directors of TSMC. (2) Regular evaluation of external auditors' independency The Audit Committee regularly evaluates the independency of exter- nal auditors. 3. Composition and Responsibilities of Supervisors (1) Independent Supervisor(s) Prof. Michael E. Porter is an independent supervisor of TSMC. (2) Communication channel with employees or shareholders The employees and managers of relevant departments regularly report and present Company information to the Independent Supervisor; all Supervisor have access to Company employees or man- agers for information they need. Reason for Non-Implementation Not Applicable Not Applicable Not Applicable 4. Communication channel with stakeholders TSMC designates relevant departments to communicate with stake- holders on a case by case basis. Not Applicable 5. Information Disclosure (1) Establishment of corporate website to dis- close information regarding the Company's financials, business and corporate gover- nance status (2) Other information disclosure channels (e.g. English website, appointing responsible people to handle information collection and disclosure, appointing spokesperson, web- casting investors conference) TSMC discloses information through its website www.tsmc.com. Not Applicable TSMC has designated relevant departments (e.g. Investor Relations, Public Relations, etc.) to handle the collection and disclosure of infor- mation as required by relevant laws and regulations of Taiwan and other jurisdictions. TSMC has designated spokespersons as required by relevant regula- tion. TSMC is the first Taiwan company that webcasts live investor confer- ences. 6. Operations of the Company's audit committee and other committees of the Board of Directors TSMC's Board of Directors has established an Audit Committee and a Compensation Committee. Please refer to "Corporate Governance" section on page 40 of this Annual Report for the details. Not Applicable 7. If the Company has established corporate governance policies based on TSE Corporate Governance Best Practice Principles, please describe dis- crepancy between the policies and their implementation: For the status of TSMC's corporate governance, please refer to "Corporate Governance" section on page 40 of this Annual Report. (Continued) 41 8. Other important information to facilitate better understanding of the Company's corporate governance practices (e.g. directors' and supervisors' training, directors' and supervisors' attendance of the board of director's meetings, the implementation of risk management policies and risk eval- uation measures, the implementation of consumers/customers protection policies, the implementation of directors recusing themselves in case of conflicts of interests situations, purchasing insurance for directors and supervisors, and social responsibilities.) : (1) From time to time, TSMC provides to directors and supervisors information and training concerning regulatory requirements and developments as related to director' and supervisors' activities. TSMC management also regularly present Company's business and other information to direc- tors and supervisors. (2) The Board convened four regular meetings and one special meeting in 2004. Meeting attendance was as follows: Name of Directors/ Supervisor Directors: Morris Chang Peter L. Bonfield Lester C. Thurow Stan Shih Jan Lobbezoo Scott McGregor Chintay Shih F. C. Tseng Rick Tsai Supervisors: Michael E. Porter Robbert Brakel Susan Chang James C. Ho (appointed in August 20, 2004 to replace Susan Chang) Number of Meetings of Board of Directors Attended in 2004 5 4 4 4 5 5 5 5 5 0 (Note) 5 1 1 (3) TSMC conducts risk management and risk evaluation pursuant to the internal policies established in accordance with relevant laws and regula- tions. (4) TSMC's directors recuse themselves from voting on matters in which their interests conflict with TSMC's. (5) TSMC maintains D&O Insurance for its directors, supervisors, and officers. (6) TSMC established the "TSMC Education and Culture Foundation" in 1998 to perform its social responsibilities. Note: Supervisor Michael E. Porter meets regularly with the Company's management in Taiwan. The management also reports to him periodically in the U.S. on the Company's business operations and financial statements, and seeks his advice on the Company's business strategy from time to time. 42 11. Social Responsibility Information 11.1 TSMC Education and Culture Foundation TSMC is dedicated to being a leading corporate citizen and has been an active sponsor of educational and cultural activities in Taiwan. In order to better consolidate and organize our contributions and fulfill our commitment to social responsibility, TSMC established the TSMC Education and Culture Foundation (TSMC Foundation) in 1998. Dr. F. C. Tseng, Deputy CEO of TSMC, has served as Chairman of the Foundation since 2002. Last year, in addition to existing long term projects, the Foundation started several new initiatives, including the "TSMC Scholarship", "TSMC Youth Novel Writing and Book Review Award" and "TSMC Volunteer Program". Commitment to Education To encourage underprivileged college students to pursue their education, in 2004 the Foundation created the TSMC Scholarship Fund. We have committed NT$25 million over five years to help at least 250 students among five universities with outstanding academic per- formance to complete their college education. TSMC continues to support National Tsing Hua University in its effort to establish the School of Technology Management －TSMC Hall. The purpose of this project, to which TSMC is contributing a total of NT$150 million, is to facilitate the training of technology professionals with management skill. Furthermore, the Foundation is committed to supporting related academic programs at leading universities with the objective of advancing technology education. To increase general public inter- est in science and technology, we also sponsored various science education programs in 2004, including the Tai-Yu Wu science writing award, Tai-Yu Wu science camp and C. S. Wu science camp. Sponsorship of Art Events and Aesthetic Education In 2004, we created "The TSMC Youth Novel Writing and Book Review Award" to promote creative writing and literary reading interest among youth. The competition was widely acclaimed, with 500 novels and 300 book reviews from all over Taiwan submitted for consid- eration. The Foundation sponsors outstanding national arts events and cultural exhibitions, including the "Taipei Museum of Modern Arts" to increase public interest and participation in fine arts. To stimulate interest in the arts from an early age, we promote children's aesthet- ic education. Year 2004 was the third consecutive year to support the "TSMC Aesthetic Education Tour", which organizes annual tours for nearly 10,000 children from rural areas throughout Taiwan to visit museums and fine arts institutes. The first TSMC Youth Literary Awards Ceremony 43 Contributions to the TSMC Site Community We strive to enrich the site communities and make them better places to live. TSMC is thus committed to promoting various educational, artistic and charitable initiatives at two of our largest operating sites, "Hsinchu" and "Tainan". In 2004, we once again sponsored the "TSMC Hsinchu Art Festival". This year's themes included "Classical Drama", "Children's Esthetic Programs" and a series of "Stories of Creativity" lectures. The Festival brought high-quality artistic events to the local community and created opportunities for the local audi- ence to enjoy the beauty of the fine arts. In the summer of 2004, the Foundation also assisted "Tao-Shan" primary school in Hsinchu County successfully to cope with devastating typhoon damage. The school was relocated and provided with operational support that enabled it to continue serving students in spite of the storm. In Tainan, we continued to sponsor the "National Cheng Kung University Culture and Art Festival" and to support the publication of the picture book "The Beauty of Tainan". Dedication to Employee Volunteer Program In addition to financial sponsorships, TSMC encourages employees to give back to the communities in which they live and work, thus directly contributing to the improvement of the society as a whole. We initiated and organized the "TSMC Guide Volunteer Program" at the National Museum of Natural Science, in which TSMC employees serve as guides on weekends for the IC exhibition we sponsor. In 2004, 200 volunteers joined the program and served a total of 4,000 hours and 170,000 visitors to the museum. We also initiated the "TSMC Book Reading Volunteer Program", started in September 2004 with 50 members. The program provides book reading events at rural schools in the Hsinchu area, stimulating the reading interest of children and inspiring them towards a better tomorrow. 11.2 Other Social Issues Health and Safety Performance TSMC is committed to achieving the highest standards of health and safety. TSMC offers comprehensive health care and employee assis- tance programs at all of its operating sites. Employees have access to on-site clinics, stress management and counseling services, a 24- hour nursing service, annual physical check-ups, women's health services, cancer screening, on-site fitness facilities and programs, weight management services, and a series of health awareness programs. All employees have access to the company's web-based wellness infor- mation and health programs. Policies and Procedures Relating to Adherence to Environmental, Safety and Health Regulations TSMC believes its environmental, safety and health (ESH) practices should not only meet the relevant legal requirements, but also bench- mark recognized international practices. The Company's goals are to prevent pollution and efficiently use all resources, prevent incidents, improve employees' safety and health, protect property and establish a work environment that promotes the well-being of our employees and the communities in which we operate. In 2004, TSMC continued its efforts on Environmental Accounting, Life Cycle Assessment, Green Procurement, Traffic Safety, Employee Ergonomics Promotion and Contractor Management. TSMC actively incorporates risk management concepts in new building design and process development. In order to minimize potential operational losses, the Company regularly evaluates and enhances electrical and seismic protection during installation of tools and equip- ment, thus reducing the risk of operation interruption. Equal Opportunity Employment TSMC believes in equal opportunity employment and values the diversity its staff contributes. Recruitment is conducted via open selection and is based on candidate merit to meet the needs of each position, regardless of race, gender, age, religion, nationality or affiliation. 44 Supplier Selection Process and Criteria Regarding Social and Environmental Issues In 2004, TSMC conducted a "Green Supply Chain Project" sponsored by the IDB (Industrial Development Bureau). This project has set up a green procurement procedure for requesting raw material suppliers to set up environmental management systems and to officially declare that they do not and will not use prohibited substances. Social and Environmental Impacts of TSMC's Outsourced Operations and Contractors TSMC has promoted a "Responsible Care Program" to assist contractors to enhance the Company's Environmental, Safety and Health (ESH) management system. TSMC collected input from contractors and communicated its expectations on ESH performance to its con- tractors annually. Drawing on content from the Voluntary Protection Program (VPP), TSMC has developed an "ESH Auditing Manual" used for auditing major contractors. Social and Environmental Impacts of TSMC's Suppliers TSMC has conducted a "Life Cycle Assessment" (LCA) for 6-inch and 8-inch wafer processes to evaluate the environmental impact from and on the manufacturing process and supply chain. This study collected and analyzed data from the entire chip manufacturing chain, from raw materials suppliers to finished products, and included statistics for such items as energy and raw materials consumption and generation of pollutants. The LCA study has established an eco-profile and the values of environmental loadings of chip manufacturing, which can be provided to TSMC's customers upon request. 45 TSMC's in-house mask shop is one of the world's largest mask making facilities. OPERATIONAL HIGHLIGHTS 1. Business Activities 1.1 Business Scope TSMC excels in all aspects of its business. This excellence includes process technologies, wafer manufacturing and logistics, capacity utilization, customer service, as well as a wide range of support services including design services, mask manufac- turing, wafer probing, and in-house bumping and testing. The essence of our foundry business is the success of our cus- tomers. TSMC continually strives to provide the overall best value to its customers. 1.2 Customer Applications Over the past 18 years, more than five hundred customers worldwide have relied on TSMC to manufacture chips used across the entire spectrum of electronic applications. A far from exhaustive list of applications includes computers and peripherals, information appliances, wired and wireless communications systems, automotive and industrial equipment, as well as consumer electronics such as DVDs, digital TVs, game consoles, and digital still cameras (DSCs). The rapid evolution of end products drives our customers to utilize TSMC's innovative technologies and services, while concurrently propelling TSMC to further its own technology development. As always, success depends on leading rather than following industry trends. 1.3 Net Sales over the Last Two Years Unit: Quantity (8-inch wafer) Amount (NT$ thousands) Wafer Package Other Total Domestic Export Domestic Export Domestic Export Domestic Export 2004 2003 Quantity Amount Quantity Amount 1,012,161 33,226,052 734,922 24,704,913 3,781,577 192,108,136 2,895,843 156,792,897 110 12,135 231,568 12,749,599 13,497 39,298 1,891,631 16,004,875 175 66,238 14,771 37,963 18,960 5,094,196 2,211,759 13,081,616 1,025,768 35,129,817 749,868 26,935,632 4,034,443 220,862,610 3,000,044 174,968,709 47 1.4 Production over the Last Two Years Unit: Capacity / Quantity (8-inch wafer) Amount (NT$ thousands) Year 2004 2003 2. Customers Wafers Capacity 4,787,523 4,013,855 Quantity 4,799,657 3,588,871 Amount 127,840,620 108,043,471 TSMC's global customers have diverse product specialties, and enjoy prominent standing in various business segments of the semiconduc- tor industry. Fabless segment customers include Altera Corporation, ATI Technologies, Inc., Broadcom Corporation, Marvell Semiconductor, Inc., nVidia Corporation, Qualcomm Inc. and VIA Technologies, Inc. IDM customers include Analog Devices, Inc., Freescale Semiconductor, Inc., Philips Semiconductors, and Texas Instruments, Inc. TSMC's business with nVidia Corporation amounted to over 10% of Company revenue in 2003. Due to substantial increase of revenue and more diversified customer base, no single customer accounted for more than 10% of Company revenue in 2004. 2.1 Customer Service TSMC is a service-oriented company and believes customer service is the critical factor in enhancing customer loyalty. In turn, customer loyalty leads to higher levels of customer retention and expansion of business relationships. TSMC's goal is to maintain its position as the most advanced and largest technology and foundry service provider. TSMC believes that achieving this goal will help retain existing cus- tomers, attract new customers, and strengthen their partnership relationship with TSMC. To facilitate customer interaction and information access on a real-time basis, TSMC has established a range of internet-based services covering applications in design collaboration, engineering collaboration, and logistic collaboration. They are collectively branded as eFoundrysm. 2.2 Customer Satisfaction TSMC conducts regular reviews and surveys to ensure that customers' needs are being adequately addressed. Continual improvement plans supplemented by customer feedback are an integral part of this business process. 2.3 Market Expansion/Penetration TSMC continues to diversify its customer base while supporting the growth of its existing customers. Of 300 active customers in 2004, 45 were new. TSMC's customers also gained market share, notably in a number of end applications in computers, wired communications, wireless communications, and consumer electronics. 48 3. Raw Material Supply Major Materials Wafer Major Suppliers Market Status Procurement Strategy MEMC S. E. H. Siltronic SUMCO There are four suppliers combined provide over 80% of the world's wafer capacity. Each supplier has multiple manufacturing sites, including USA, Asia and Europe, to meet cus- tomer and market demands. Chemicals Merck Tai-Young High Tech (TYS) These two companies are major bulk chemical suppliers worldwide. The chemical raw materials of these two suppli- ers are imported from Japan or Taiwan local pro- ducers, primarily to support the Taiwan market. Photoresist AZ Shin-Etsu Chemical Sumitomo T. O. K. These four companies are worldwide major pho- toresist suppliers. These four suppliers are competitors in the Taiwan market. They all store stock in Taiwan and provide just in time service. Specialty Gases Air Liquide Air Products BOC Taiyo Toyo Sanso These four companies are worldwide major spe- cialty gas suppliers. These four suppliers are competitors; their prod- ucts are mutually replaceable. Other domestic suppliers are available and ready to penetrate the Taiwan market, thus facilitation TSMC to secure better commercial terms in the future. TSMC's suppliers of silicon wafer are required to pass stringent quality certification proce- dures. TSMC procure wafers from multiple sources to ensure adequate supplies for volume manufac- turing and to reinforce risk management. TSMC maintains competitive price and service agreements with its wafer suppliers and when necessary includes strategic and collaborative agreements with key suppliers. TSMC reviews quality, delivery, cost and service performance of its wafer suppliers and reflects the reviews in TSMC's orders accordingly. An periodical audit of each wafer supplier's physical quality system ensures TSMC maxi- mum quality maintenance. Both suppliers have localized many of their operations closer to TSMC's major manufactur- ing centers, improving inventory and quality control significantly. TSMC audits the suppliers' physical quality to maintain specifications and ensure quality con- trol. TSMC provides a three-month forecast of rolling demand to its photoresist suppliers to give them adequate preparation time. TSMC monitors suppliers' inventory status through their respective monthly inventory reports. TSMC's IQC personnel conduct monthly physi- cal inventory checks at suppliers' warehouses to confirm material quality and availability. TSMC conducts annual audits of each suppli- er's physical quality system to ensure quality, supply, and availability of photoresist. TSMC's four major specialty gas suppliers are located in Japan, USA and the UK, providing sufficient geographic dispersion to minimize supply risk. Products of four suppliers are mutually replaceable, ensuring competitive pricing and quality service. TSMC requires each supplier to provide monthly inventory reports as a measure to monitor and ensures steady provisions. TSMC conducts annual audits of each suppli- er's physical quality system to ensure quality and supply availability of specialty gases. 49 4. Employees Attracting and retaining the right talent is one of the key objectives of TSMC's human resources strategy. TSMC's total workforce num- bered 18,597 as of year-end 2004, representing an increase of 15.8% from year-end 2003. TSMC recruited 94 managers, 1,873 profes- sionals and 3,013 technicians during the year. By the end of February 2005, TSMC's total workforce reached 18,570. In 2004, the Company employed a total of 1,853 managers and 6,671 professionals. Of the 1,853 managers, 11.1% were female. Non- Taiwanese nationals made up 2.5% of TSMC's workforce at the managerial and professional levels. By the end of February 2005, there were 1,882 managers and 6,715 professionals. TSMC's staff are well educated: 2.4% of employees hold PhD's, 26.5% Master's degrees, 17.6% university Bachelor's degrees, 23.9% other college degrees, and 29.6% high school diplomas. The following tables show the TSMC personnel structure from 2003 to February 28, 2005. TSMC Workforce Structure by Job Title Manager Professional Assistant Engineer / Clerical Staff Technician Total 12/31/2003 12/31/2004 02/28/2005 1,627 5,697 816 7,926 16,066 1,853 6,671 754 9,319 18,597 1,882 6,715 750 9,223 18,570 TSMC Workforce Structure by Gender, Age and Years Served Gender Male Female Average Age Average Service Year 4.1 Human Capital 12/31/2003 12/31/2004 02/28/2005 43.2% 56.8% 30.3 4.6 45.4% 54.6% 30.5 4.6 45.8% 54.2% 30.6 4.8 TSMC strives to create and maintain an environment that provides favorable workplace conditions, offers personal challenges, and sup- ports career development. TSMC also encourages the development of professional know-how, a positive attitude, affirmative values, hon- est behavior and genuine commitment to succeed as a member of the TSMC team. There were no labor disputes that caused the compa- ny financial losses from January 1, 2004 to February 28, 2005. 4.2 People Development Continuous learning is the cornerstone of TSMC's employee development strategy. TSMC provides its employees with a range of techni- cal, professional and management training programs, and promotes "On-the-Job Training" (OJT) initiatives for new employees. Since its launch in 2002, the Individual Development Plan (IDP) program has become an effective tool to enhance organizational learning in the area of employees' personal development as well as the Company's business needs. 50 4.3 Employee Satisfaction TSMC conducts an annual Employee Satisfaction Survey to determine levels of employee involvement and engagement. As an indicator of employee satisfaction, TSMC was recognized as a "2003 Best Employer in Asia" and a "Best Employer in Taiwan" in a survey conducted by Hewitt Associates, the Asia Wall Street Journal, and the Far Eastern Economic Review. To foster a dynamic and fulfilling work environment, TSMC launched a series of company-wide employee relations programs in 2004, such as Zest-for-Life@TSMC. These programs include an annual sports day, family day, engineer/secretary festival, and "heart talk" speech- es, Employee Assistance Programs (EAPs), and many other programs and events. 4.4 Compensation The Company's compensation program consists of cash compensation and profit sharing. Cash compensation includes monthly salary and a quarterly variable incentive bonus. The profit sharing program consists of cash and stocks. The Company appropriates a certain percentage of its earnings available to common stockholders for distribution to employees under the profit sharing program. The pur- pose of this distribution is threefold: to reward employees' contributions appropriately; to encourage employees to work consistently and continuously to ensure the success of the Company; and to link employees' interests with those of TSMC's shareholders. The amount and form of the distribution depend on the recommendation of the Compensation Committee to the Board of Directors and are subject to shareholder approval at the Annual General Meeting. Individual awards are based on each employee's job responsibility, contribution and performance. In line with respective local market practices, the Company either grants stock options or distributes performance bonuses to overseas employees. Stock option grants are based on the policies outlined in TSMC's "Employee Stock Option Program." The options are granted for a period of ten years, with a vesting schedule of 50% upon completion of a two-year period, 75% after three years and 100% after four years. Distribution of performance bonuses is based on operating results as well as individual employees' performances. 5. Innovation 5.1 R&D Organization and Investment TSMC increased its R&D investment and expanded its world-class R&D organization to extend Moore's Law and provide best-in-class semiconductor technology and design solutions to our customers. Overall, R&D staff grew by 10.3% in 2004, while total expenditure reached over NT$12.5 billion. For advanced process development, TSMC strengthened the capability and expanded the capacity of its 300mm R&D pilot line in 2004. This expansion served to accommodate its growing R&D development activities to support additional business growth with our customers. In 2004, the former CTO office and its Exploratory Technology function, and the Design Service function were fully integrated with the rest of R&D to speed up the introduction of new logic transistors, memory devices, and interconnect into TSMC technology offering. TSMC also expanded its external R&D partnership and alliance activities with tool and materials vendors, International Sematech, as well as the ASIC/SoC technology alliance with Freescale, Philips, and STMicroelectronics. A new SOI joint development alliance was formed with Freescale to develop cutting-edge 90nm and 65nm SOI technology and to set up basic SOI design infrastructure. This new alliance supple- ments the Company's mainstream internal bulk CMOS technology R&D. In addition, TSMC also strengthened its collaborative research with key partners for design-process co-optimization, which will enable the best technology and design solutions for product success in the complex and challenging nanometer era. 51 5.2 R&D Accomplishments in 2004 Reflecting its ongoing commitment to innovation, TSMC was granted 460 US patents and 516 ROC patents in 2004. With a growing number of key patent disclosures and patents granted over the past years, TSMC now has a rich and strong patent portfolio, as well as other significant intellectual property assets. Our intellectual capital not only is a key to maintaining our technology leadership and inde- pendence, but also provides the Company with cross-licensing and royalty benefits. TSMC pioneered immersion lithography and worked closely with tool partners to set up the infrastructure and to enable readiness of pro- totyping and production of tools. This technology can extend the resolution capability of conventional 193nm imaging tools down to the 32nm technology node, without having to rely on expensive, high-risk 157nm alternatives. In 2004, TSMC demonstrated the manufac- turing feasibility of 193nm immersion lithography using the state-of-the-art 90nm process. This is a breakthough. TSMC continued to expand its advanced device and large-diameter wafer manufacturing. In 2004, TSMC's 12-inch Fab 12 qualified the Company's industry-leading manufacturable 90nm CMOS logic process featuring advanced Cu/low-k interconnects. TSMC also proved the baseline process of a 65nm CMOS logic platform featuring a gate length in the range of 35-45nm. A 6T-SRAM design with industry- leading cell size was functionally proven with the 65nm baseline process. TSMC also worked on demonstrating an extreme low-k dielec- tric process. Development of a 45nm CMOS logic platform was also initiated in 2004. TSMC continued to engage in, and expand, exploratory research activities such as strained-Si processes, high-k gate dielectrics, metal gates, nano devices, SOI technology, MRAM, and advanced RFIC features. These activities cover long-term, potentially high-payoff, and over-the-horizon technologies. Several novel innovations arising from this exploratory research were published in 2004, including 5nm nanowire devices, functional 1Mb MRAM devices, and innovative strained-Si techniques on both bulk silicon and SOI substrates. In addi- tion to preparing the way for future industry developments, this exploratory work also strengthens TSMC's future patent position. 5.3 Spectrum of New Technologies In addition to the highlights noted above, TSMC introduced a rich mix of new process technologies. For example, Mixed-Signal/Radio Frequency Technology TSMC developed a 90nm mixed signal/radio frequency (MS/RF) technology and offered it to customers for mass production, with excel- lent product performance. The new technology features a high-performance metal inductor with a high quality factor of more than 20, making RF SoC a reality. Silicon Germanium BiCMOS Technology TSMC completed process qualification of a foundry-based 0.18µm versatile SiGe BiCMOS technology for mass production. This integrat- ed technology enables microwave power amplifier applications as well as provides a single chip solution for high performance, low power, low noise, wired and wireless applications. 0.18µm CMOS Image Sensor Process Following strong growth in volume production of the 0.18µm 3T CMOS image sensor process, TSMC developed and qualified a higher performance 0.18µm 4T pinned-diode CMOS image sensor process. This new process is aimed at small pixel-size, high-resolution and high-performance pixel arrays for high-end imaging applications. Because it is fully compatible with TSMC's 0.18µm CMOS logic and embedded memory processes, it enhances the System-On-Chip (SoC) platform for consumer and industrial applications such as mobile phones, DSCs, security and other image sensor markets. Embedded High Density Memory Technology TSMC saw stronger demand for embedded high-density memory from customers who urgently need a SoC solution for applications such as handheld devices, games, DSCs, HDDs & communication applications. TSMC's 0.13µm 1T-Q, which is a smaller, higher density version of planar 1T-RAM, passed qualification and entered volume production in 2004. TSMC's 90nm 1T-MIM featuring a 0.21µm2 MIM capaci- 52 tor with high-k dielectric demonstrated 100% yield at 8Mb memory density. This cell size is only one-fifth that of the most aggressive 6T- SRAM in the 90nm technology node. Qualification is in progress and volume production will be initiated in the second half of 2005. Flash/Embedded Flash Technology TSMC's 0.18µm embedded Flash technology was qualified for production release in 2004. Several customers currently have production runs underway utilizing this technology. In addition, a self-aligned Flash with 32Mb density is now in volume production. Development work on 0.18µm automotive embFlash technology is in progress, with fully functional 8Mb IP demonstrated in 2004. Meanwhile, TSMC's 0.13µm embedded Flash technology creates synergy between devices at the 0.18µm and 0.13µm nodes. Both excellent data retention and endurance were demonstrated in 2004 on 8Mb IP with a new copper backend process. Mask Technology Mask technology is an integral part of advanced lithography. TSMC has proprietary resolution-enhancement techniques that are closely optimized with our in-house mask-making technology, including optical proximity correction, phase-shift, and other resolution-assist mask features. TSMC mask facilities feature state-of-the-art mask writers, etchers, and inspection and repair tools for both R&D and pro- duction use. TSMC's strength in mask technology R&D and production provides significant benefits to our customers in terms of technical excellence, quality, fast cycle time, and one-stop service. In 2004, the Company successfully established high-quality, cost-effective 65nm generation mask-making technology and mass production capability. We also demonstrated mask technology capabilities for the coming 45nm generation of devices. The Company has also developed metrology using e-beam, scatterometry, and electrical techniques to sup- port wafer lithography and mask making. Design Services TSMC announced Reference Flow 5.0 at the 2004 Design Automation Conference. This new Reference Flow addresses several key issues for chip designs based on advanced process technology. With it, TSMC continues to set industry standards for foundries in providing solutions for advanced design methodologies. Having launched the industry's first multiple-Vt library, TSMC continued adding more advanced features such as back-bias and design-for-manufacturing (DFM) compliance layouts in 2004 in order to address today's top design challenges involving power management and DFM. 5.4 R&D Plans for 2005 Moving forward, TSMC's R&D focus will be on Nexsys sm 65nm, 45nm-logic / mixed signal technology platforms, and related embedded memory for SoC applications in 300mm wafers. Intense effort will be devoted to qualifying the 65nm node with superior transistor per- formance featuring a strong strained Si process and sub-0.5µm2 6T SRAM cell size, both in bulk CMOS and SOI. The development efforts on 45nm should produce new technology advances in 2005, particularly in the pioneering areas of high-k gate dielectrics, metal gates, and extreme-low-k interconnects. Other development projects include: 65nm mixed signal/RF for communication applications; qualification of 90nm embedded 1T MIM memory for high-density applications; 0.13µm embedded Flash IP development; 0.13µm 4T CMOS image sensor technology; 0.18µm high-voltage process modules; as well as low power, low cost, customized SiGe RF BiCMOS technologies. TSMC plans to maintain its long-term lead over competitors in the foundry industry through a strong exploratory technology research program. The R&D team will explore process capabilities beyond the 45nm technology node, for 25nm geometries and smaller. Exploratory work continues on new transistors and process technologies such as SOI, 3D structures, MRAM, strained-layer CMOS and novel SoC features. The fruits of exploratory technology development are being evaluated for implementation at future technology nodes such as 45nm and 32nm. The goal is to extend Moore's law through innovative in-house work, as well as collaborating with industry leaders and academia to push the envelope in finding cost-effective solutions. TSMC plans to continue working closely with international consortia and photolithography equipment suppliers to ensure timely develop- ment of 193 high NA scanner technology, liquid immersion lithography, and massively parallel E-Beam direct write and EUV scanner 53 technology to support process development at the 45nm node and beyond. TSMC will also continue to collaborate with mask inspection equipment suppliers to develop aerial image inspection techniques. This will help ensure that TSMC maintains the Company's leadership position in mask quality and cycle time, and continues to meet aggressive R&D, prototyping and production requirements. TSMC will continue to invest heavily to expand R&D capabilities. With a highly competent and dedicated R&D team and an unwavering commitment to innovation, TSMC is confident of its ability to deliver the best and most cost-effective SoC technologies for our customers and support our business growth. 6. Efficiency Yield Management Reducing the time to achieve yield maturity for new products is a very important goal to TSMC. TSMC has developed a comprehensive technology transfer methodology -- from R&D to production -- to shorten the new technology learning curve. TSMC has a proven record in delivering the industry's best-yield performance to customers. Delivery Management TSMC has a proven record of providing customers with a consistent product delivered on time. To become even more responsive to change, TSMC has re-engineered its demand fulfillment system as well as developed a state-of-the-art manufacturing scheduling system to further enhance our delivery accuracy Cycle Time Management Delivering products with short demand fulfillment cycle time is key to our customers' business success. To create this value for our cus- tomers, TSMC has developed a sophisticated manufacturing scheduling and dispatching system, as well as embarked on Lean manufac- turing approach. Flexible Manufacturing Management Flexible Manufacturing is a crucial element addressing the current unpredictability of forecasting demand. TSMC is able to meet sudden customer demand surges, due in large part to our cluster Fab capability as well as extensive performance matching know-how for tools and factories (Fabs). Inventory Management TSMC made great progress in 2004 on materials planning methodology development, which improves current operations through sys- tematic, easy-to-measure, consistent and integrated IT platform. The results are demonstrated by the accuracy of materials requirements, management of abnormal materials consumption, and reduction of excess inventory for both TSMC and suppliers. TSMC's standard usage monitor mechanism not only enhances the sensitivity of abnormal usage detection but also facilitates usage alignment among fabs. Knowledge Management TSMC has built the industry's leading, state-of-the-art knowledge management system. TSMC's vast repository system for the capture of key knowledge also features a sophisticated expert system that embeds this captured knowledge into our engineering system. TSMC is the only Taiwan company that has been awarded the Most Admired Knowledge Enterprises (MAKE) award, the most prestigious award in the knowledge management community, in 2002 and 2003. 7. Quality TSMC commits itself to providing its customers with the best quality wafers for their products. TSMC Quality and Reliability (Q&R) part- ners with customers and the entire TSMC team to achieve "quality-in-time" for customers' time to market. In the design stage, Q&R tech- nical services assist customers to design-in their product reliability requirements. Q&R also works with R&D in process development to 54 assure reliability performance, not only for a variety of circuit devices, but also for different types of IC packages. Systems have been deployed by Q&R to ensure robust quality in managing production dynamics in meeting customers' business demand. To sustain produc- tion quality and minimize customer risk when deviation occurs, manufacturing quality monitoring and event management span all critical stages -- from raw material supply, mask making, real time in-process monitoring, to wafer sort/assembly, and customer field quality per- formance. Leading edge, fast-turn-around failure analysis techniques are used from process development to customer production issues. TSMC Q&R is also responsible to lead the company towards the ultimate goal of zero defect through continuous improvement programs in terms of cost consciousness, efficient systems and effective methodologies. Customer feedback indicates that products shipped from TSMC have either met or exceeded their field quality requirements in the marketplace. From independent surveys, customers have consis- tently ranked TSMC overall quality higher than the competition. Also, in 2004, TSMC received certification for the third consecutive year of ISO/TS 16949 that meets the Automotive industry's quality requirement. 8. Environmental Protection PFCs Emission and Air Quality Control TSMC has endorsed a Memorandum of Understanding (MOU) between the Taiwan Semiconductor Industrial Association and ROC- Environmental Protection Administration (EPA), where TSMC is committed to reducing perfluorinated compounds (PFCs) emission to 10% below the average of 1997 and 1999 by 2010. Based on the MOU, TSMC has set up a PFCs reduction policy and implementation roadmap. To achieve committed reduction target, approaches like process optimization, chemical replacement and abatement are neces- sary. Installation of PFCs abatement tools for etching process has been included at the beginning stage of new fab. Moreover, the emis- sion of volatile organic compounds, acid gases, and alkali gases are also well controlled in compliance with regulation. Water Consumption and Conservation To improve water recovery rate and reduce water consumption, TSMC has focused on developing reclamation technology for the Chemical Mechanical Polishing (CMP) process wastewater in 8-inch and 12-inch fabs. In 2004, TSMC successfully launched the CMP wastewater reclamation system to reduce natural water consumption. Energy Consumption and Conservation TSMC continuously seeks to conserve energy to reduce the emission of carbon dioxide. Major energy conservation accomplishments include adopting inverters in air conditioning, exhaust, and process water systems, to control power output according to actual require- ments so as to save energy. Waste Disposal and Land Contamination Industrial waste that cannot be reused or recycled are either incinerated or sent to designated landfills. TSMC's waste solvents and sludge (CaF2) were reused by cement plants as complementary fuel and raw material. Waste sulfuric acid, copper sulfate and phosphoric acid were recycled for downgraded industrial use. Furthermore, based on the monitoring results of soil and groundwater, all the lands of TSMC's fabs are free from contamination, according to the standards set by the Soil and Groundwater Pollution Remediation Act of EPA. Environmental Performance Starting in 2001, the Dow Jones Sustainability Indexes (DJSI) components have listed TSMC each year for its exceptional achievements in corporate sustainability. TSMC has also put significant efforts on ESH improvement programs. Two national awards were received in 2004, including: (1) "Annual Environmental Protection Award for Enterprises" from the EPA, and (2) "Water Conservation Outstanding Performance Awards" from the Water Resources Agency. Environmental Compliance Record Penalties or fines due to environmental pollution event in 2004: None. 55 9. Important Contracts Technology Cooperation Agreement Term of Agreement: 1997 - 2008 Contracting Party: Koninklijke Philips Electronics N.V. ("Philips") Summary: TSMC is obliged to pay to Philips fixed amounts of license fees for third party patent cross licenses obtained through Philips. TSMC and Philips agree to cross license the patents owned by each party. Manufacturing Agreement Term of Agreement: 02/16/1996 - 12/31/2005, automatically renewed for one year terms, unless terminated with a six-month prior writ- ten notice by TSMC Contracting Party: WaferTech, LLC ("WaferTech") Summary: TSMC has the right to purchase the entire installed capacity of WaferTech during the production period. Shareholders Agreement Term of Agreement: Effective as of 03/30/1999 and may be terminated as provided in the Agreement Contracting Parties: Koninklijke Philips Electronics N.V. ("Philips") and EDB Investments Pte Ltd. ("EDBI") Summary: TSMC, Philips and EDBI established a joint venture "Systems on Silicon Manufacturing Company Pte Ltd." ("SSMC") to build an IC foundry in Singapore. TSMC holds 32% of the shares. Philips and TSMC are committed to purchasing a certain percentage of SSMC's capacity. Technology Cooperation Agreement Term of Agreement: 03/30/1999 - 03/29/2009 Contracting Party: Systems on Silicon Manufacturing Company Pte Ltd. ("SSMC") Summary: TSMC agreed to transfer certain of its process technologies to SSMC, and SSMC agreed to pay TSMC a certain per- centage of the net selling prices of SSMC products. Patent License Agreement Term of Agreement: 10/26/2001 - 12/31/2006 Contracting Party: A multinational company Summary: The parties entered into cross license arrangements for certain semiconductor patents. TSMC pays license fees to the said company. Foundry Related Agreements Term of Agreement: 1995 - 2006 Contracting Parties: Several multinational companies Summary: TSMC guarantees a pre-determined capacity for a set number of years to customers. In return, customers deposit a certain amount of money with TSMC. Manufacturing Agreement Term of Agreement: 04/01/2004 - 03/31/2006 Contracting Party: Vanguard International Semiconductor Corporation ("VIS") Summary: VIS reserves certain capacity to manufacture certain TSMC products at prices as agreed by the parties. TSMC agreed to transfer certain technology to VIS and to receive compensation from VIS in the form of royalty payments. 56 Patent License Agreement Term of Agreement: 11/01/2002 - 10/31/2012 Contracting Party: A multinational company Summary: The parties entered into cross license arrangements for certain semiconductor patents. TSMC pays license fees to the said company. Patent License Agreement Term of Agreement: 07/01/2002 - 6/30/2009 Contracting Party: A multinational company Summary: The parties entered into cross license arrangements for certain semiconductor patents. TSMC pays license fees to the said company. Patent License Agreement Term of Agreement: 01/01/2001 - 12/31/2011 Contracting Party: A multinational company Summary: The parties entered into cross license arrangements for certain semiconductor patents. TSMC pays license fees to the said company. Amended and Restated Joint Technology Cooperation Agreement Term of Agreement: 07/16/2001 - 12/31/2005 Contracting Parties: STMicroelectronics NV, Philips Semiconductors International B.V., Freescale Semiconductor, Inc. Summary: The parties entered into a joint technology cooperation arrangement for the development of certain high-perform- ance and advanced semiconductor technologies. Technology Development and License Agreement Term of Agreement: 12/04/2003 - 12/03/2007 Contracting Party: Freescale Semiconductor, Inc. Summary: The parties agreed jointly to develop certain advanced SOI process technologies and to cross license related intellec- tual property rights. Settlement Agreement Term of Agreement: 01/30/2005 - 12/31/2010 Contracting Party: Semiconductor Manufacturing International Corp. ("SMIC") and certain of its subsidiaries Summary: The parties settled their patent infringement and trade secret misappropriation disputes, wherein SMIC agreed to pay TSMC US$175 million over six years. 57 Innovation is the wellspring of TSMC growth. We received 460 US patents and added 516 ROC patents to our porfolio in 2004. FINANCING PLANS AND IMPLEMENTATION Corporate Bond 1. Financing Plans Source of Fund Issuance Issue Date Tenor Coupon Rate Outstanding Corporate Bond 01/10/2002 - Tranche A: 5 years Tranche A: 2.60% p.a. Tranche A: NT$ 2.5 billion 01/24/2002 Tranche B: 7 years Tranche B: 2.75% p.a. Tranche B: NT$ 8.0 billion Tranche C: 10 years Tranche C: 3.00% p.a. Tranche C: NT$ 4.5 billion Use of Fund Project The proceeds of the bond finance a part of Fab 14 whose total investment is expected to reach NT$77.63 billion. Expansion Plan Fund Used From 2002 To 2004 (NT$ thousands) Future Fund Use (NT$ thousands) 30,838,480 46,791,520 Approved by the Securities and Futures Commission and disclosed on the Taiwan Stock Exchange Market Observation Post System on December 17, 2001. 2. Status of Implementation & Benefits Project commenced in 2002 and production ramping-up has begun since the fourth quarter of 2004. 59 TSMC is the first foundry to reach the full production of 12-inch, low-k, 90nm process. FINANCIAL STATUS, OPERATING RESULTS, AND RISK MANAGEMENT 1. Financial Position Unit: NT$ thousands Item Current Assets Fixed Assets Other Assets Total Assets 2004 2003 Difference 173,667,311 158,526,272 15,141,039 227,976,400 188,286,752 39,689,648 12,616,636 11,638,485 978,151 487,553,210 396,416,862 91,136,348 Current Liabilities 60,638,852 30,537,984 30,100,868 Long-term Liabilities 27,949,059 36,664,569 (8,715,510) Total Liabilities Capital Stock Capital Surplus 88,587,911 67,202,553 21,385,358 232,519,637 202,666,189 29,853,448 56,537,259 56,855,885 (318,626) Retained Earnings 113,730,016 71,100,090 42,629,926 Total Shareholders' Equity 398,965,299 329,214,309 69,750,990 % 10 21 8 23 99 -24 32 15 -1 60 21 1.1 Analysis of Deviation over 20% ● The increase in fixed assets was mainly due to acquisition of new equipment for advanced technology capacity expan- sion. ● The increase in current liabilities was primarily due to an increase in equipment payables and a reclassification of bonds payable from noncurrent portion to current. ● Long-term liabilities decreased as a result of the above reclassification to current liabilties. ● The increase in retained earnings was due to much better operating results in 2004. 1.2 Major Impact on Financial Position : There was no significant impact on the Company's financial position. 1.3 Future Plan on Financial Position : Not Applicable 61 2. Operating Results Unit: NT$ thousands Item Gross Sales Sales Returns and Allowances Net Sales Cost of Sales Gross Profit Operating Expense Operating Income Non-operating Income Non-operating Expense Income before Tax Tax Credit (Expense) Income after Tax 2004 2003 260,726,896 206,157,918 (4,734,469) 255,992,427 145,831,843 110,160,584 23,337,806 86,822,778 6,859,714 1,903,908 91,778,584 537,531 92,316,115 (4,253,577) 201,904,341 129,012,704 72,891,637 20,244,060 52,647,577 2,665,799 4,285,101 51,028,275 (3,769,575) 47,258,700 Difference 54,568,978 (480,892) 54,088,086 16,819,139 37,268,947 3,093,746 34,175,201 4,193,915 (2,381,193) 40,750,309 4,307,106 45,057,415 % 26 11 27 13 51 15 65 157 -56 80 -114 95 2.1 Analysis of Deviation over 20% ● Increase in net sales and gross profit: The increase of net sales was mainly due to increased wafer shipment partially offset by lower ASP and unfavorable foreign exchange rate. The improved gross profit was primarily due to higher capacity utilization and better product mix. ● Increase in non-operating income: The increase was primarily due to higher investment income. In addition, interest income increased as a result of increased bond investment. ● Decrease in non-operating expense: The decrease was largely due to a lack of asset write-off loss and lower exchange loss. ● Decrease in tax expense: The decrease was primarily due to a higher tax credits. 2.2 Reasons for changing the Company's major business; explain the variance resulting from the adjustment of selling prices or costs, the increase or decrease of quantity and the combination of production and selling, or the replacement of old products. If the Company's operation strategy, market situation, economic environment or other internal or external factors has changed or expects to have any significant change, explain the fact, influencing factors and the possible impact to the Company's future finance and responding proposal: Not Applicable 2.3 Planned selling quantities and its base for next year. Explain the major factors that keep the Company's forecast sales quantity to rise or decline: Please refer to "Letter To Shareholders". 2.4 Gross Profit Deviation Analysis Unit: NT$ millions Gross Profit in 2004 Gross Profit in 2003 Difference Price Difference Cost Difference Mix and Volume Difference 110,161 72,892 37,269 (12,905) 18,426 31,748 1. Market competition caused unfavorable price variance. 2. Technology advance- ment caused a price decline in matured tech- nology. Favorable cost variacne came from continous cost reduction activities and a lower depreciation as a result of fully-depreciated assets. 1. Revenue from advanced technology (≤ 0.13µm) increased from 17% in 2003 to 28% in 2004. In addition, capacity utilization improved from 89% in 2003 to 100% in 2004. The product mix improvement and higher utilization resulted in higher gross profit. 2. Wafer shipment grew 35% in 2004. This quantity differ- ence resulted in higher gross profit. 62 3. Cash Flow Unit: NT$ thousands Cash Balance 12/31/2003 Net Cash Provided by Operating Activities in 2004 Net Cash Outflows from Investing and Financing Activities in 2004 Cash Balance 12/31/2004 Remedy for Cash Shortfall Investment Plan Financing Plan 98,288,002 143,680,218 (176,436,402) 65,531,818 - - 3.1 Analysis of Cash Flow ● NT$143.7 billion net cash provided by operating activities: Mainly from net income and depreciation/amortization. ● NT$176.4 billion net cash outflows from investing and financing activities: This represents the sum of (1) NT$150.9 billion of invest- ment activities, including capital expenditures, short-term and long-term cash investments, and (2) NT$25.6 billion of financing activi- ties, mainly over cash divideds, shares buyback and repayment of corporate bonds. 3.2 Remedy for Cash Shortfall and Liquidity Analysis : Because TSMC enjoys a cashflow surplus, remedial actions are not required. 3.3 Cash Flow Projection for Next Year: TSMC does not provide financial projections, including cash flow projections. 4. Major Capital Expenditure 4.1 Major Capital Expenditure and Source of Capital Unit: NT$ thousands Plan Actual or Planned Source of Capital Actual or Planned Completion Date up to 12/31/2004 Total Amount up to 12/31/2004 Production Equipment Owner's Equity/Bond Completed 146,569,133 44,023,305 31,467,451 71,078,377 R&D Equipment Owner's Equity/Bond Completed 7,997,602 3,104,963 2,892,584 2,000,055 Note: Can not be reasonably estimated at the time of preparation. The Execution of Major Capital Expenditure 2002 2003 2004 2005 (Note) 2006 (Note) - - - - 4.2 Estimated Possible Benefit With the above-mentioned capital spending, it is estimated that TSMC production capacity may be increased by 800,000 8-inch equiva- lent wafers per annum in 2005 and onwards. Other Benefits (e.g. Product Quality, Anti-Pollution, Cost Reduction and etc.): Please refer to "Operational Highlights". 5. Long-Term Investment None of the current year investments exceeded 5% of the Company's capital. 6. Risk Management 6.1 Environmental, Safety and Health (ESH) Risk and Emergencies and Natural Disasters TSMC is committed to maintaining a comprehensive risk management system dedicated to the safety, security, and protection of people, property, and the environment. In order to deal with emergencies and natural disasters at each facility, management has developed com- prehensive plans and procedures that focus on loss prevention, emergency response, crisis management, and business recovery. TSMC has adopted the International Standard on Environmental Management System (ISO 14001) as its standard for environmental manage- ment. TSMC Fabs 2, 3, 5, 6, 7, 8 and 12 have been ISO 14001 and OHSAS 18001 certified. 63 6.2 Management of Financial Operations Existing internal policies and procedures with respect to high-risk/high-leveraged investment, lending/endorsement and guarantee for other parties, and financial derivatives transactions In order to manage financial risk, TSMC does not make high-risk or high-leveraged financial investments. To control various types of financial transactions, the Company has established internal policies and procedures based on sound financial and business practices; all in compliance with the relevant rules and regulations issued by the Taiwan Securities and Futures Commission. TSMC policies and proce- dures include "Policies and Procedures for Financial Derivatives Transactions," "Procedures for Lending Funds to Other Parties," "Procedures for Acquisition or Disposal of Assets," and "Procedures for Endorsement and Guarantee." The financial transactions of a "derivative" nature that TSMC enters into are strictly for hedging purposes and not for any trading or speculative purpose. Covenants TSMC s subsidiaries -- TSMC Development, Inc. and TSMC North America -- separately have entered into loan facility agreements. In con- nection with those agreements, TSMC provides guarantees up to US$100 million in aggregate. Customary Borrower and/or Guarantor covenants exist in those agreements. 6.3 Internal Management of Economic Risk Interest Rate Fluctuation TSMC's exposure to interest rate risks derives primarily from long-term debt obligations that are incurred in the normal course of busi- ness. In order to limit its exposure to interest rate risks, TSMC finances its funding needs through issuance of long-term, fixed-rate debt. Foreign Exchange Volatility The Company is exposed to foreign exchange risks for both revenues and procurement. Most of TSMC s revenues derive from the export of its products (approximately, 86% in 2004). Meanwhile, a substantial portion of the Company's procurement of equipment, tools and material is imported. TSMC hedges its foreign exchange exposure mainly through forward currency contracts. Inflation Inflation in Taiwan was approximately 1.62% in 2004. It did not have a significant impact on TSMC operations and profits. 6.4 Political and Regulatory Environment TSMC's management team closely monitors political and regulatory developments that could have a material impact on TSMC business and operations. Political and regulatory developments did not have any material adverse effect on TSMC during 2004. Since TSMC is also an NYSE listed company, TSMC is required to comply with the provisions of the U.S. Sarbanes-Oxley Act and relevant regulations that are applicable to non-US companies. TSMC has taken measures to ensure compliance with applicable regulatory require- ments, and will continue to monitor regulatory developments and implement changes as necessary for compliance. 6.5 Contingent Plans for Events That May Have a Significant Adverse Impact on the Company's Business and Image TSMC maintains the highest degree of integrity, ethics, and fairness in managing and running its operations. TSMC has established a poli- cy of "Ethics and Business Conduct," and its management does not tolerate unethical behavior or compromise of its core values and prin- ciples. TSMC pays special attention to emergency preparedness for natural and man-made disasters such as typhoons, earthquakes, and envi- ronmental contamination. We have established extensive contingency planning, including the establishment of processes and procedures for creating emergency task forces as and when necessary. In such a situation, contingency planning would include the preparation of a thorough analysis of the emergency, its impact, alternatives, and solutions for each possible scenario, and appropriate precautionary and/or recovery measures. Each task force's responsibility would be to ensure TSMC's ability to conduct business with as little personal harm, business disruption, and financial impact as possible under the circumstances. As of the date of this Annual Report, there are no reportable material events necessitating the activation of such contingencies. 64 6.6 Litigation Proceedings To protect its intellectual capital, trade secrets and other assets, TSMC may initiate, as appropriate, litigation against third parties. TSMC, TSMC North America, and WaferTech filed a series of lawsuits in late 2003 and 2004 in both state and federal courts in California and with the U. S. International Trade Commission against Semiconductor Manufacturing International Corporation ("SMIC"), SMIC (Shanghai), and SMIC Americas. The lawsuits alleged that SMIC companies infringed multiple TSMC patents and misappropriated TSMC's trade secrets. These suits have been settled out of court on January 30, 2005. As part of the agreement, SMIC will pay TSMC US$175 million over six years to resolve TSMC's patent infringement and trade secret claims. TSMC receives from time to time, as is the case for many high-technology companies, communications from third parties asserting that TSMC's technologies, designs, and manufacturing processes may infringe certain patents or other intellectual property rights. TSMC takes these matters seriously, investigates all such claims, and takes appropriate action as circumstances require. TSMC was not involved in any material litigation in 2004 and is not currently involved in any material litigation. 6.7 Potential benefits and risks associated with mergers and acquisitions In 2004, and as of the date of this Annual Report, TSMC has not consummated any merger and acquisition activities. 6.8 Potential benefits and risks associated with capacity expansion To meet customers' demands, TSMC increased its annual production capacity by approximately 800,000 8-inch equivalent wafers in 2004. The average utilization rates for the four quarters of 2004 were 105%, 106%, 103%, and 88%, respectively. As of the date of this Annual Report, the benefits brought about by such capacity expansion have been in line with TSMC's expectation. If market conditions become less favorable than management anticipates, some benefits associated with such capacity expansion may not be realized. 6.9 Potential risks associated with purchase or sales concentration TSMC procures raw materials from multiple sources to ensure adequate supplies for volume production and to mitigate purchase con- centration risks. No individual customer accounted for more than 10% of TSMC's net sales in 2004. 6.10 Potential impact and risks associated with significant transfer of shareholdings by TSMC's directors, supervisors and major shareholders who own 10 percent or more of TSMC's total outstanding shares In 2004, and as of the date of this Annual Report, none of TSMC's directors, supervisors and major shareholders has disposed of signifi- cant numbers of shares. 6.11 Potential impact and risks associated with replacement of management In 2004, and as of the date of this Annual Report, there were no such risks for TSMC. 6.12 Other material risks In 2004, and as of the date of this Annual Report, there were no other material risks for TSMC. 7. Other Necessary Supplement: None 65 FINANCIAL INFORMATION Year 2004 was a banner year for TSMC. We again set new records for revenues and earnings. 67 1. Condensed Balance Sheet Financial analysis from 2000-2004 Unit: NT$ thousands Item Current assets Long-term investments Fixed assets Other assets Current liabilities Before distribution After distribution Long-term liabilities Other liabilities Capital stock Capital surplus Retained earnings Before distribution After distribution Unrealized loss on long-term investment Cumulative transaction adjustments Total Assets Total Liabilities Before distribution After distribution Total Equity Before distribution After distribution *Subject to change after shareholders' meeting resolution 2. Condensed Statement of Income Financial analysis from 2000-2004 Unit:NT$ thousands (Except EPS:NT$) Item Net sales Gross profit* Income from operations Non-operating Income Non-operating Expense Interest revenue Interest expense Income from operations of continued 2000 85,950,586 33,422,010 207,005,370 14,594,492 41,188,662 41,814,102 29,000,000 9,030,097 129,893,646 55,285,821 76,924,173 24,866,848 (71,564) (278,377) 340,972,458 2001 63,652,726 32,869,391 215,499,242 23,713,325 25,210,619 25,799,467 24,000,000 9,333,990 181,325,531 57,128,433 37,507,410 19,015,226 - 1,228,701 335,734,684 2002 94,747,405 34,978,495 217,192,263 23,097,348 31,160,103 31,673,588 39,281,665 3,720,536 199,228,867 57,004,789 40,792,197 23,841,390 (194,283) 945,129 370,015,511 2003 158,526,272 37,965,353 188,286,752 11,638,485 30,537,984 43,691,881 33,300,829 3,363,740 202,666,189 56,855,885 71,100,090 26,846,412 (35) 225,408 396,416,862 79,218,759 79,844,199 58,544,609 59,133,457 74,162,304 74,675,789 67,202,553 80,356,450 261,753,699 261,128,259 277,190,075 276,601,227 295,853,207 295,339,722 329,214,309 316,060,412 2004 173,667,311 73,292,863 227,976,400 12,616,636 60,638,852 * 23,752,940 4,196,119 232,519,637 56,537,259 113,730,016 * - (2,226,427) 487,553,210 88,587,911 * 398,965,299 * 2000 166,228,420 75,996,839 60,541,105 5,409,307 2,112,818 1,575,460 1,858,197 2001 125,888,003 36,381,051 17,342,286 2,891,557 9,575,128 1,365,919 1,951,830 2002 160,961,329 51,967,145 34,176,306 1,762,893 8,826,744 1,008,147 2,119,935 2003 201,904,341 72,891,637 52,647,577 2,665,799 4,285,101 819,377 1,576,343 2004 255,992,427 110,160,584 86,822,778 6,859,714 1,903,908 1,762,347 1,352,738 segments-before tax 63,837,594 10,658,715 27,112,455 51,028,275 91,778,584 Income from operations of continued segments-after tax Net income Earnings per share Capitalized interest 65,106,194 65,106,194 5.71 ** 2.86 *** 72,903 14,483,174 14,483,174 0.83 ** 0.60 *** 207,297 21,610,291 21,610,291 1.14 ** 0.91 *** 165,857 47,258,700 47,258,700 2.33 ** 2.02 *** 138,668 92,316,115 92,316,115 3.97 ** 262,109 * Certain accounts of 2000 have been reclassified to conform to 2001 through 2004 classifications ** Based on weighted average shares outstanding in each year ***Retroactive adjustment for capitalization of unappropriated earnings and bonus to employees 68 3. Financial Analysis Financial analysis from 2000-2004 Capital Analysis Liquidity Analysis Operating Performance Analysis Profitability Analysis Cash flow Leverage Others Debts ratio (%) Long-term fund to fixed assets (%) Current ratio (%) Quick ratio (%) Times interest earned (times) Average collection turnover (times) Days sales outstanding Average inventory turnover (times) Average inventory turnover days Average payment turnover (times) Fixed assets turnover (times) Total assets turnover (times) Return on total assets (%) Return on equity (%) Operating income to capital stock (%) Profit before tax to capital stock (%) Cost to Revenue Ratio (%) Profit after tax to net sales (%) Net worth per share (NTD) Earnings per share (NTD) (Note1) Dividends per share (NTD) Cash dividends (NTD) Stock dividends (NTD) Cash flow ratio (%) Cash flow adequacy ratio (%) Cash flow reinvestment ratio (%) Operating leverage Financial leverage Royalty Expense (NT$K) Royalty Revenue (NT$K) Gross Margin (NT$K) Sales and Marketing Costs (NT$K) (Note2) Effective Tax Rate (%) Working Capital (NT$K) Capital Expenditure (NT$K) 2000 23.23 140.46 208.68 178.13 34.02 7.70 47.42 10.77 33.90 10.76 0.80 0.49 24.12 31.43 46.61 49.15 54.28 39.17 21.28 2.86 2.80 - 2.80 213.17 106.03 22.47 2.34 1.03 2,477,021 23,557 75,996,839 2,420,409 7.54 44,761,924 79,720,461 2001 17.44 139.76 252.48 211.92 5.84 5.32 68.61 9.19 39.70 11.52 0.58 0.37 4.76 5.37 9.56 5.88 71.10 11.50 15.70 0.60 4.00 - 4.00 284.27 105.73 16.00 6.14 1.13 3,715,200 55,077 36,381,051 2,175,747 17.56 38,442,107 68,002,448 2002 20.04 154.30 304.07 264.11 12.79 9.08 40.20 11.57 31.55 20.72 0.74 0.44 6.63 7.54 17.15 13.61 67.71 13.43 15.19 0.91 1.00 - 1.00 302.59 122.72 17.88 3.88 1.07 6,232,338 204,350 51,967,145 1,140,424 16.55 63,587,302 54,443,595 2003 16.95 192.53 519.11 478.38 30.67 9.17 39.92 12.14 30.06 14.41 1.07 0.51 12.67 15.12 25.98 25.18 63.90 23.41 16.24 2.02 0.80 - 0.80 355.85 145.42 17.71 3.21 1.03 5,221,718 209,764 72,891,637 1,193,520 18.27 127,988,288 37,247,465 2004 18.17 185.42 286.40 261.92 57.67 9.34 39.10 11.63 31.39 14.39 1.12 0.53 21.16 25.36 37.34 39.47 56.97 36.06 17.16 3.97 2.01 0.60 1.41 236.94 149.94 18.12 2.46 1.02 2,870,259 423,804 110,160,584 1,454,362 11.85 113,028,459 76,171,356 Note1: Retroactive adjustment for capitalization of unappropriated earnings and bonus to employees. Note2: Certain accounts of 2000 through 2002 have been reclassified to conform to 2003 and 2004 classifications. *The calculation formula of financial analysis was listed as follows : 1. Capital Structure Analysis (1) Debts ratio (2) Long-term fund to fixed assets = Total Liabilities / Total Assets = (Shareholders' Equity + Long-term Liabilities)/ 2. Liquidity Analysis (1) Current ratio (2) Quick ratio Net Properties = Current Assets / Current Liabilities = (Current Assets - Inventories - Prepaid Expenses) / Current Liabilities (2) Return on equity (3) Cost to Revenue Ratio (4) Profit after tax to net sales (5) Earnings per share = Net Income / Average Shareholders' Equity = Cost of Goods Sold / Net Sales = Net Income / Net Sales = ( Net Income - Preferred Stock Dividend ) / (6) Net worth per share = ( Shareholders' Equity - Preferred Sock ) / Number of shares outstanding Weighted Average Number of Shares Outstanding (3) Times interest earned = Earnings before Interest and Taxes / Interest Expenses 5. Cash flow (1) Cash flow ratio 3. Operating Performance Analysis (1) Average collection turnover (2) Days sales outstanding (3) Average inventory turnover (4) Average inventory turnover days = 365 / Inventory Turnover rate (5) Average payment turnover (6) Fixed assets turnover (7) Total assets turnover = Net Sales / Average Trade Receivables = 365 / Receivables Turnover rate = Cost of Sales / Average Inventory = Cost of Sales / Average Trade Payables = Net Sales / Net Properties = Net Sales / Total Assets = Net Cash Provided by Operating Activities / Current Liabilities (2) Cash flow adequacy ratio = Five-year sum of cash from operations / (3) Cash flow reinvestment ratio = ( Cash Provided by Operating Activities - Five-year sum of capital expenditures, inventory additions, and cash dividend Cash Dividends ) / ( Gross Plant + Investment + Other Assets + Working Capital ) 6. Leverage 4. Profitability Analysis (1) Return on total assets = ( Net Income + Interest Expenses * Operations (1 - Effective tax rate ) ) /Average Total Assets (2) Financial leverage = Income from Operations / ( Income from (1) Operating leverage = ( Net Sales - Variable Cost ) / Income from Operations - Interest Expenses ) 69 4. Condensed Interim Balance Sheet by Quarter Unit: NT$ thousands March 31, 2004 June 30, 2004 September 30, 2004 December 31, 2004 Amount % Amount % Amount % Amount % 175,716,905 37,978,462 195,932,438 11,409,716 421,037,521 42 9 46 3 100 173,815,349 49,216,494 200,281,787 16,513,218 439,826,848 40 11 46 3 100 177,681,922 58,185,933 207,155,918 19,483,919 462,507,692 38 13 45 4 100 173,667,311 73,292,863 227,976,400 12,616,636 487,553,210 36 15 47 2 100 ASSEETS Current assets Long-term investments Fixed assets Other assets TOTAL ASSETS LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Current liabilities Long-term liabilities Other liabilities TOTAL LIABILITIES SHAREHOLDERS' EQUITY 38,081,342 32,999,977 3,370,160 74,451,479 9 8 1 18 48 13 21 - - - 82 49,046,758 36,260,196 3,446,140 88,753,094 233,765,970 56,885,914 69,045,214 53,132 (9) (8,676,467) 351,073,754 11 8 1 20 53 13 16 - - (2) 80 44,232,342 34,914,936 4,097,624 83,244,902 232,518,770 56,529,100 91,535,211 300,345 (3,967) (1,616,669) 379,262,790 9 8 1 18 50 12 20 - - - 82 60,638,852 23,752,940 4,196,119 88,587,911 232,519,637 56,537,259 113,730,016 (2,226,427) - (1,595,186) 398,965,299 12 5 1 18 48 11 23 - - - 82 Capital stock Capital surplus Retained earnings Cummulative translation adjustments Unrealized loss on long-term investment Treasury stock (at cost) TOTAL SHAREHOLDERS' EQUITY 202,666,189 56,860,879 89,889,292 (728,208) - (2,102,110) 346,586,042 TOTAL LIABILITIES AND SHAREHOLD- ERS' EQUITY 421,037,521 100 439,826,848 100 462,507,692 100 487,553,210 100 70 5. Condensed Interim Satement of Income by Quarter Unit:NT$ thousands (Except EPS:NT$) GROSS SALES SALES RETURNS AND ALLOWANCES NET SALES COST OF SALES GROSS PROFIT OPERATING EXPENSES INCOME FROM OPERATIONS NON-OPERATING INCOME Investment income recognized by equity method-net Interest Technical service income Gain on disposal of property, plant and equipment Gain (loss) on sales of investments Others Total Non-Operating Income NON-OPERATING EXPENSES Interest Foreign exchange loss (gain), net Loss on disposal of property, plant and equipment Unrealized valuation loss on short-term investments Others Total Non-Operating Expenses Q1, 2004 Q2, 2004 Q3, 2004 Q4, 2004 2004 Amount % Amount % Amount % Amount % Amount % 58,785,691 (1,272,486) 57,513,205 34,783,992 22,729,213 5,188,564 17,540,649 66,196,574 (1,327,333) 64,869,241 36,730,069 28,139,172 6,005,671 22,133,501 70,797,355 (1,062,318) 69,735,037 37,595,584 32,139,453 6,018,743 26,120,710 100 57 43 9 34 64,947,276 (1,072,332) 63,874,944 36,722,198 27,152,746 6,124,828 21,027,918 260,726,896 (4,734,469) 255,992,427 145,831,843 110,160,584 23,337,806 86,822,778 100 57 43 9 34 100 57 43 10 33 100 54 46 9 37 100 60 40 9 31 802,676 256,296 56,983 59,087 94,477 92,135 1,361,654 330,172 122,117 6,749 - 7,832 466,870 1 1 - - - - 2 1 - - - - 1 1,251,290 302,296 54,113 55,015 4,167 46,163 1,713,044 272,809 420,474 26,164 - 6,573 726,020 2 - - - - - 2 - 1 - - - 1 1,377,781 501,820 216,487 30,797 13,127 184,660 2,324,672 274,791 (3,826) 30,563 - 14,857 316,385 2 1 - - - - 3 - - - - - - 608,572 701,935 96,221 19,248 (21,452) 55,820 1,460,344 474,966 (215,685) 44,246 75,212 15,894 394,633 1 1 - - - - 2 1 - - - - 1 34 - 34 2 1 - - - - 3 1 - - - - 1 36 - 36 4,040,319 1,762,347 423,804 164,147 90,319 378,778 6,859,714 1,352,738 323,080 107,722 75,212 45,156 1,903,908 91,778,584 537,531 92,316,115 3.97 INCOME BEFORE INCOME TAX 18,435,433 32 23,120,525 35 28,128,997 40 22,093,629 INCOME TAX BENEFIT(EXPENSE) 353,769 1 289,075 - (195,818) - 90,505 NET INCOME 18,789,202 33 23,409,600 35 27,933,179 40 22,184,134 EARNINGS PER SHARE AFTER TAX 0.93 0.88 1.20 0.96 6. Auditors' Opinion from 2000 to 2004 Year 2000 2001 2002 2003 2004 CPA Shu-Chieh Huang, Yung-Do Way Shu-Chieh Huang, Yung-Do Way Shu-Chieh Huang, Yung-Do Way Yu-Feng Huang, Yung-Do Way Hung-Wen Huang, Ming-Cheng Chang Audit Opinion An Unqualified Opinion An Unqualified Opinion A Modified Unqualified Opinion A Modified Unqualified Opinion An Unqualified Opinion Deloitte Touche Tohmatsu 12F, No. 156, Sec. 3, Min-Sheng E. Rd., Taipei, Taiwan, R.O.C. Tel : 886-2-2545-9988 71 7. Supervisors' Report The Board of Directors has prepared and submitted to the Supervisors the Company's 2004 Business Report, Financial Statements, and proposal for allocation of profits. The CPA firm of Deloitte & Touche was retained to audit TSMC's Financial Statements. The auditors have submitted to the Board a report relating to the Financial Statements. The Business Report, Financial Statements, and profit allocation pro- posal have been examined by and determined to be correct and accurate by the undersigned, the supervisors of Taiwan Semiconductor Manufacturing Company Limited. According to Article 219 of the Company Law, we hereby submit this report. Taiwan Semiconductor Manufacturing Company Limited Supervisor Robbert J. Brakel Supervisor James C. Ho Supervisor Michael E. Porter March 11, 2005 8. Financial Difficulties The Company should disclose the financial impact to the Company if the Company and its affiliated companies incur any financial or cash flow difficulties from 2004 until February 28, 2005: None 72 9. Financial Statements and Independent Auditors' Report INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders Taiwan Semiconductor Manufacturing Company, Ltd. We have audited the accompanying balance sheets of Taiwan Semiconductor Manufacturing Company, Ltd. as of December 31, 2004 and 2003, and the related statements of income, changes in shareholders' equity and cash flows for the years then ended. These finan- cial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial state- ments based on our audits. We conducted our audits in accordance with the Rules Governing the Audit of Financial Statements by Certified Public Accountants, and auditing standards generally accepted in the Republic of China. Those rules and standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the account- ing principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Taiwan Semiconductor Manufacturing Company, Ltd. as of December 31, 2004 and 2003, and the results of its operations and its cash flows for the years then ended in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and account- ing principles generally accepted in the Republic of China. We have also audited the consolidated financial statements of Taiwan Semiconductor Manufacturing Company, Ltd. as of and for the years ended December 31, 2004 and 2003, and have expressed an unqualified opinion on such financial statements. January 13, 2005 (January 30, 2005 as to Note 20m) Notice to Readers The accompanying financial statements are intended only to present the financial position, results of operations and cash flows in accor- dance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdiction. The standards, procedures and practices to audit such financial statements are those generally accepted and applied in the Republic of China. For the convenience of readers, the auditors' report and the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the orig- inal Chinese version or any difference in the interpretation of the two versions, the Chinese-language auditors' report and financial state- ments shall prevail. 73 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD. BALANCE SHEETS DECEMBER 31, 2004 AND 2003 (In Thousands of New Taiwan Dollars, Except Par Value) ASSETS CURRENT ASSETS Cash and cash equivalents (Notes 2, 3 and 4) Short-term investments, net (Notes 2 and 4) Receivables from related parties (Note 18) Notes receivable Accounts receivable Allowance for doubtful receivables (Note 2) Allowance for sales returns and others (Note 2) Other receivables from related parties (Note 18) Other financial assets (Notes 2 and 21) Inventories, net (Notes 2 and 5) Deferred income tax assets (Notes 2 and 12) Prepaid expenses and other current assets Total current assets LONG-TERM INVESTMENTS (Notes 2, 6, 16 and 21) Equity method Cost method Long-term bonds Other investments Total long-term investments PROPERTY, PLANT AND EQUIPMENT (Notes 2, 7 and 18) Cost Buildings Machinery and equipment Office equipment Accumulated depreciation Advance payments and construction in progress Net property, plant and equipment GOODWILL (Note 2) OTHER ASSETS Deferred charges, net (Notes 2, 8 and 20) Deferred income tax assets (Notes 2 and 12) Refundable deposits (Note 18) Assets leased to others, net (Note 2) Idle assets (Note 2) Total other assets TOTAL The accompanying notes are an integral part of the financial statements. $ 2004 Amount 65,531,818 52,979,095 16,186,083 2,942 15,323,939 (980,461) (3,327,914) 1,617,339 2,406,736 14,171,945 8,849,000 906,789 173,667,311 46,828,322 772,634 15,170,167 10,521,740 73,292,863 84,299,167 390,719,215 7,041,132 482,059,514 (300,006,201) 45,923,087 227,976,400 1,916,146 8,845,144 1,645,003 85,413 78,613 46,317 10,700,490 $ % 14 11 4 - 3 - (1) - - 3 2 - 36 10 - 3 2 15 17 80 1 98 (61) 10 47 - 2 - - - - 2 2003 Amount % 98,288,002 12,559,019 14,867,662 9,893 13,907,914 (1,016,022) (2,126,025) 132,963 689,440 10,907,158 8,322,000 1,984,268 158,526,272 37,262,237 703,116 - - 37,965,353 71,277,031 332,252,225 6,180,495 409,709,751 (247,514,312) 26,091,313 188,286,752 2,264,536 7,947,331 1,070,596 177,379 84,347 94,296 9,373,949 25 3 4 - 4 - (1) - - 3 2 - 40 10 - - - 10 18 84 1 103 (62) 6 47 1 2 - - - - 2 $ 487,553,210 100 $ 396,416,862 100 74 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable Payables to related parties (Note 18) Payables to contractors and equipment suppliers Accrued expenses and other current liabilities (Notes 2, 10 and 20) Current portion of long-term bonds payable (Note 9) $ Total current liabilities LONG-TERM LIABILITIES Bonds payable (Note 9) Other long-term payables (Notes 10 and 20) Other payables to related parties (Notes 18 and 20) Total long-term liabilities OTHER LIABILITIES Accrued pension cost (Notes 2 and 11) Guarantee deposits (Note 20) Deferred credits - gain on intercompany (Notes 2 and 18) Total other liabilities Total liabilities SHAREHOLDERS' EQUITY (Notes 2 and 14) Capital stock - $10 par value Authorized: 24,600,000 thousand shares Issued: 23,251,964 thousand shares in 2004 and 20,266,619 thousand shares in 2003 Capital surplus Retained earnings Appropriated as legal reserve Appropriated as special reserve Unappropriated earnings Others Unrealized loss on long-term investments Cumulative translation adjustments Treasury stock (at cost) - 45,521 thousand shares in 2004 and 40,597 thousand shares in 2003 (Notes 2 and 16) 2004 2003 Amount % Amount % 6,488,617 3,198,490 31,154,309 9,297,436 10,500,000 $ 1 1 6 2 2 6,083,876 4,500,140 7,117,884 7,836,084 5,000,000 60,638,852 12 30,537,984 19,500,000 1,934,968 2,317,972 23,752,940 3,101,196 412,393 682,530 4,196,119 4 - 1 5 1 - - 1 30,000,000 3,300,829 - 33,300,829 2,600,251 763,489 - 3,363,740 2 1 2 2 1 8 7 1 - 8 1 - - 1 88,587,911 18 67,202,553 17 232,519,637 56,537,259 25,528,007 - 88,202,009 - (2,226,427) (1,595,186) 48 11 5 - 18 - - - 202,666,189 56,855,885 20,802,137 68,945 50,229,008 (35) 225,408 (1,633,228) 51 14 5 - 13 - - - Total shareholders' equity 398,965,299 82 329,214,309 83 TOTAL $ 487,553,210 100 $ 396,416,862 100 75 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD. STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003 (In Thousands of New Taiwan Dollars, Except Earnings Per Share) GROSS SALES (Notes 2 and 18) $ 260,726,896 $ 206,157,918 SALES RETURNS AND ALLOWANCES (Note 2) (4,734,469) (4,253,577) 2004 2003 Amount % Amount % NET SALES COST OF SALES (Notes 13 and 18) GROSS PROFIT OPERATING EXPENSES (Notes 13 and 18) Research and development General and administrative Marketing Total operating expenses INCOME FROM OPERATIONS NON-OPERATING INCOME AND GAINS Investment income recognized by equity method, net (Notes 2 and 6) Interest (Notes 2 and 21) Technical service income (Notes 18 and 20) Gain on disposal of property, plant and equipment (Notes 2 and 18) Gain on sales of investments (Note 2) Other (Note 18) Total non-operating income and gains NON-OPERATING EXPENSES AND LOSSES Interest (Notes 2, 7, 9 and 21) Foreign exchange loss, net (Notes 2 and 21) Loss on disposal of property, plant and equipment (Note 2) Unrealized valuation loss on short-term investments (Notes 2 and 4) Loss on property, plant and equipment and idle assets (Note 2) Other Total non-operating expenses and losses INCOME BEFORE INCOME TAX INCOME TAX BENEFIT (EXPENSE) (Notes 2 and 12) NET INCOME 255,992,427 100 201,904,341 100 145,831,843 110,160,584 12,516,434 9,367,010 1,454,362 23,337,806 57 43 5 3 1 9 129,012,704 72,891,637 12,712,695 6,337,845 1,193,520 20,244,060 86,822,778 34 52,647,577 4,040,319 1,762,347 423,804 164,147 90,319 378,778 6,859,714 1,352,738 323,080 107,722 75,212 - 45,156 1,903,908 2 1 - - - - 3 1 - - - - - 1 791,424 819,377 209,764 438,804 114,817 291,613 2,665,799 1,576,343 909,496 373,472 - 1,401,585 24,205 4,285,101 $ $ 91,778,584 36 $ 51,028,275 537,531 - (3,769,575) 92,316,115 36 $ 47,258,700 64 36 6 3 1 10 26 - 1 - - - - 1 1 - - - 1 - 2 25 (2) 23 (Continued) 76 EARNINGS PER SHARE (NT$, Note 17) Basic earnings per share Diluted earnings per share 2004 2003 Before Income Tax After Income Tax Before Income Tax After Income Tax $ $ 3.95 3.95 $ $ 3.97 3.97 $ $ 2.18 2.18 $ $ 2.02 2.02 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 sub- sidiaries is treated as an investment instead of the treasury stock, and are shown as follows (Notes 2 and 16): NET INCOME EARNINGS PER SHARE (NT$) Basic earnings per share Diluted earnings per share The accompanying notes are an integral part of the financial statements. $ $ $ 2004 2003 92,340,760 $ 47,337,094 3.96 3.96 $ $ 2.02 2.02 (Concluded) 77 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD. STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003 (In Thousands of New Taiwan Dollars) Capital Stock Issued Preferred Stock Common Stock Shares (in thousand) Amount Shares (in thousand) Amount BALANCE, JANUARY 1, 2003 1,300,000 $ 13,000,000 18,622,887 $ 186,228,867 Redemption and retirement of preferred stock (1,300,000) (13,000,000) - - Appropriations of prior year's earnings Legal reserve Special reserve Bonus to employees - stock Cash dividends paid for preferred stock Stock dividends - 8% Remuneration to directors and supervisors Net income in 2003 Adjustment arising from changes in ownership percentage in investees Reversal of unrealized loss on long-term investment of investees Translation adjustments Treasury stock - sales of parent company stock held by subsidiaries BALANCE, DECEMBER 31, 2003 Appropriations of prior year's earnings Legal reserve Reversal of special reserve Bonus to employees - cash Bonus to employees - stock Cash dividends paid for preferred stocks Cash dividends - 6% Stock dividends - 14% Remuneration to directors and supervisors Net income in 2004 Adjustment arising from changes in ownership percentage in investees Reversal of unrealized loss on long-term investment of investees Translation adjustments Issuance of stock arising from exercising stock options Cash dividends received by subsidiaries from parent company Treasury stock - sales of the parent company stock held by subsidiaries Treasury stock - repurchased by the Company Retirement of treasury stock BALANCE, DECEMBER 31, 2004 The accompanying notes are an integral part of the financial statements. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - $ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 153,901 - 1,489,831 - - - 1,539,013 - 14,898,309 - - - - - - - - - - - 20,266,619 202,666,189 - - - 272,651 - - 2,837,327 - - - - 2,726,514 - - 28,373,267 - - - - - 87 - - - - - - - 867 - - - (124,720) (1,247,200) 23,251,964 $ 232,519,637 78 Capital Surplus Retained Earnings Legal Reserve Special Reserve Unappropriated Earnings Total Unrealized Loss on Long-term Investments Cumulative Translation Adjustments Treasury Stock (Note 16) Total Shareholders' Equity $ 57,004,789 $ 18,641,108 $ - - - - - - - - (158,924) - - 10,020 - 2,161,029 - - - - - - - - - - - - - 68,945 - - - - - - - - - $ 22,151,089 $ 40,792,197 $ (194,283) $ 945,129 $ (1,923,492) $ 295,853,207 - - (2,161,029) (68,945) (1,539,013) (455,000) (14,898,309) (58,485) - - (1,539,013) (455,000) (14,898,309) (58,485) 47,258,700 47,258,700 - - - - - - - - - - - - - - - - - 194,248 - - - - - - - - - - - - (719,721) - - - - - - - - - - - - 290,264 (13,000,000) - - - (455,000) - (58,485) 47,258,700 (158,924) 194,248 (719,721) 300,284 56,855,885 20,802,137 68,945 50,229,008 71,100,090 (35) 225,408 (1,633,228) 329,214,309 - - - - - - - - - 34,059 - - 2,757 22,781 1,864 - (380,087) 4,725,870 - - - - - - - - - - - - - - - - $ 56,537,259 $ 25,528,007 $ - (68,945) - - - - - - - - - - - - - - - (4,725,870) 68,945 (681,628) (2,726,514) (184,493) (12,159,971) (28,373,267) (127,805) - - (681,628) (2,726,514) (184,493) (12,159,971) (28,373,267) (127,805) 92,316,115 92,316,115 - - - - - - - - - - - - - - (5,432,511) (5,432,511) $ 88,202,009 $ 113,730,016 $ - - - - - - - - - - 35 - - - - - - - - - - - - - - - - - - (2,451,835) - - - - - - - - - - - - - - - - - - - 38,042 - - (681,628) - (184,493) (12,159,971) - (127,805) 92,316,115 34,059 35 (2,451,835) 3,624 22,781 39,906 (7,059,798) (7,059,798) 7,059,798 - $ (2,226,427) $ (1,595,186) $ 398,965,299 79 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003 (In Thousands of New Taiwan Dollars) CASH FLOWS FROM OPERATING ACTIVITIES Net income Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization Deferred income taxes Investment income recognized by equity method, net Amortization of premium/discount of long-term bond investments Loss on property, plant, and equipment, and idle assets Gain on sales of long-term investments, net Gain on disposal of property, plant and equipment, net Accrued pension cost Changes in operating assets and liabilities Decrease (increase) in Receivables from related parties Notes receivable Accounts receivable Allowance for doubtful receivables Allowance for sales returns and others Other receivables from related parties Other financial assets Inventories, net Prepaid expenses and other current assets Increase (decrease) in Payables to related parties Accounts payable Accrued expenses and other liabilities 2004 2003 $ 92,316,115 $ 47,258,700 63,072,140 (1,101,407) (4,040,319) 28,673 - (2,216) (56,425) 500,945 (1,318,421) 6,951 (1,416,025) (35,561) 1,201,889 (11,496) (1,655,730) (3,264,787) 1,077,479 (1,771,144) 404,741 (255,184) 61,786,114 3,639,971 (791,424) - 1,401,585 (79,149) (65,332) 389,709 (4,752,698) 50,347 (4,412,467) 86,158 (237,042) (64,439) 189,024 (566,822) 121,298 2,033,142 1,234,642 1,447,119 Net cash provided by operating activities 143,680,218 108,668,436 CASH FLOWS FROM INVESTING ACTIVITIES Increase in short-term investments Acquisitions of Long-term investments Property, plant and equipment Proceeds from disposal of Long-term investments Property, plant and equipment Increase in deferred charges Decrease in refundable deposits Decrease in other assets (43,822,489) (30,290,982) (76,171,356) 7,822 1,713,934 ((2,404,130) 91,966 - (12,529,448) (3,006,374) (37,247,465) 476,405 177,307 (2,137,932) 366,090 9,250 Net cash used in investing activities (150,875,235) (53,892,167) (Continued) 80 CASH FLOWS FROM FINANCING ACTIVITIES Cash dividends paid for common stock Repurchase of treasury stock Repayment of long-term bonds payable Cash bonus paid to employees Decrease in guarantee deposits Cash dividends paid for preferred stock Remuneration paid to directors and supervisors Proceeds from issuance of new shares arising from exercises of stock options Redemption of preferred stock Net cash used in financing activities NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, BEGINNING OF THE YEAR CASH AND CASH EQUIVALENTS, END OF THE YEAR SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Interest paid (excluding the amount capitalized of NT$262,109 thousand and NT$138,668 thousand in 2004 and 2003, respec- tively, Note 7) Income tax paid NONCASH INVESTING AND FINANCING ACTIVITIES Current portion of long-term bonds payable Current portion of other payables to related parties (under payables to related parties) Current portion of other long-term payables (under accrued expenses and other current liabilities) Reclassification of short-term investments to long-term investments Reclassification of long-term investments to short-term investments The accompanying notes are an integral part of the financial statements. 2004 2003 $ $ $ $ $ $ $ $ $ (12,159,971) (7,059,798) (5,000,000) (681,628) (351,096) (184,493) (127,805) 3,624 - (25,561,167) (32,756,184) 98,288,002 65,531,818 1,379,287 309,522 10,500,000 492,022 1,505,345 3,402,413 - $ $ $ $ $ $ $ $ $ - - (4,000,000) - (631,577) (455,000) (58,485) - (13,000,000) (18,145,062) 36,631,207 61,656,795 98,288,002 1,652,579 2,500 5,000,000 - 1,591,972 - 29,571 (Concluded) 81 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD. NOTES TO FINANCIAL STATEMENTS (Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise) 1. Organization and Operations Taiwan Semiconductor Manufacturing Company, Ltd. (the Company or TSMC), a Republic of China (R.O.C.) corporation, was incorporat- ed as a venture among the Government of the R.O.C., acting through the Development Fund of the Executive Yuan; Philips Electronics N.V. and certain of its affiliates (Philips); and certain other private investors. On September 5, 1994, its shares were listed on the Taiwan Stock Exchange (TSE). On October 8, 1997, TSMC listed some of its shares of stock on the New York Stock Exchange (NYSE) in the form of American Depositary Shares (ADSs). The Company is engaged mainly in the manufacturing, selling, packaging, testing and computer-aided designing of integrated circuits and other semiconductor devices and the manufacturing of masks. 2. Summary of Significant Accounting Policies The financial statements are presented in conformity with Guidelines Governing the Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted in the R.O.C. For the convenience of readers, the accompanying financial statements have been translated into English from the original Chinese ver- sion prepared and used in the R.O.C. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language financial statements shall prevail. Significant accounting policies are summarized as follows: Use of Estimates The preparation of financial statements in conformity with the aforementioned guidelines and principles requires management to make reasonable assumptions and estimates of matters that are inherently uncertain. The actual results may differ from management's estimates. Classification of Current and Noncurrent Assets and Liabilities Current assets are those expected to be converted to cash, sold or consumed within one year from the balance sheet date. Current liabili- ties are obligations due on demand within one year from the balance sheet date. Assets and liabilities that are not classified as current are noncurrent 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 primarily consist of corporate bonds, asset-backed securities, bond funds, agency bonds, government bonds and others. Short-term investments are recorded at historical cost and are carried at the lower of cost or market value as of the balance sheet date. An allowance for decline in value is provided and is charged to current earnings when the aggregate carrying value of the investments 82 exceeds the aggregate market value. A reversal of the allowance is recorded for a subsequent recovery of the market value. The cost of funds and listed stocks sold are counted for using the weighted-average method; whereas the other securities are accounted for using the specific identification method. The market value of funds is determined using the net asset value of the funds at the end of the year, and the market value of listed stocks is determined using the average-closing price of the listed stocks for the last month of the year. The others are determined using the average of bid and ask prices as of the balance sheet date. Cash dividends are recorded as investment income in the current year. Allowance for Doubtful Receivables An allowance for doubtful receivables is provided based on a review of the collectibility of accounts receivables. The Company determines the amount of allowance for doubtful 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 price and the collectibility is reasonably assured. 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 a majority of the customers and 30 to 45 days after the end of the month in which the sales occur for some customers. Since the receivables from sales are collectible within one year and such transactions are frequent, the fair value of receivables is equivalent to the nominal amount of cash received. Inventories Inventories are stated at the lower of cost or market value. Inventories are recorded at standard cost and adjusted to the approximate weighted-average cost at the end of the year. Market value represents replacement cost for raw materials, supplies and spare parts. Market value represents net realizable value for finished goods and work in process. The Company assesses the impact of changing tech- nology 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 estimat- ed losses on scrap and slow-moving items are recognized in the allowance for losses. Long-term Investments Investments in companies wherein the Company exercises significant influence on the operating and financial policy decisions are accounted for using the equity method of accounting. The Company's proportionate share in the net income or net loss of investee com- panies is recognized in the "investment income/loss recognized by equity method, net" account. When equity investments are made, the difference, if any, between the cost of investment and the Company's proportionate share of the investee's net equity is amortized using the straight-line method over five years and is also recorded in the "investment income/loss recognized by equity method, net" account. 83 When the Company subscribes to additional investee shares at a percentage different from its existing equity interest, the resulting carry- ing amount of the investment in the 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 or credited to cap- ital surplus. Investments in companies wherein the Company does not exercise significant influence are recorded at historical cost. Cash dividends are recognized as dividend income in the year received but are accounted for as reductions in the carrying amount of the long-term invest- ments if the dividends are received in the same year that the related investments are acquired. Stock dividends are recorded as an increase in the number of shares held and do not affect investment income or the carrying amount of the investment. An allowance is recognized for any decline in the market value of investments with readily ascertainable fair market value with the corresponding amount recorded as an unrealized loss, a component of shareholders' equity. A reversal of the allowance will result from a subsequent recovery of the market value of such investments. The carrying amounts of investments whose fair market values are not readily ascertainable are reduced to reflect an other-than-temporary decline in their values, with the related impairment loss charged to income. Investments in foreign mutual funds are stated at the lower of aggregate cost or net asset value. An allowance is recognized when the net asset value of the funds is lower than their cost, with the corresponding amount recorded as a reduction to shareholders' equity. A reversal of the allowance will result from a subsequent recovery of the net asset value. The costs of stocks and mutual funds sold are determined using the weighted-average method. Investments in long-term bonds are stated at amortized cost. The discount or premium is amortized over the duration period using the interest method, and recorded as an adjustment to interest income. 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 amount, and the market value becomes the new basis. If an investee company recognizes an unrealized loss on its long-term investment using the lower-of-cost-or-market method, the Company also recognizes a corresponding unrealized loss in proportion to its ownership percentage in the investee company and records the amount as a component of its shareholders' equity. Gains or losses on sales from the Company to investee companies accounted for using the equity method are deferred in proportion to the Company's ownership percentage in the investee companies until realized through transactions with third parties. The entire amount of the gains or losses on sales to majority-owned subsidiaries is deferred until such gains or losses are realized through the subsequent sales of the related products to third parties. Gains or losses on sales from investee companies to the Company are deferred in proportion to the Company's ownership percentages in the investee companies until realized through transactions with third parties. If an investee's functional currency is a foreign currency, translation adjustments will result from the process of translating the investee's financial statements into the reporting currency of the Company. Such adjustments are accumulated and reported as a separate compo- nent of shareholders' equity. Property, Plant and Equipment, Assets Leased to Others and Idle Assets Property, plant and equipment and assets leased to others are stated at cost less accumulated depreciation. When an impairment is determined, the related assets are stated at the lower of fair value or book value. Idle assets are stated at the lower of net realizable value or book value. Significant additions, renewals and betterments incurred during the construction period are capitalized. Maintenance and repairs are expensed in the year incurred. Interest expense incurred during the purchase and construction period is also capitalized. 84 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 correspon- ding accounts, with any gain or loss credited or charged to non-operating income or expenses in the year of sale or disposal. Goodwill Goodwill represents the excess of the consideration paid for acquisition over the fair market value of identifiable net assets acquired and acquisition costs. Goodwill is amortized using the straight-line method over the estimated life of 10 years. Deferred Charges Deferred charges consist of technology license fees, software and system design costs and other charges. The amounts are amortized as follows: technology license fees - the shorter of the estimated life of the technology or the term of the technology transfer contract; soft- ware and system design costs and other charges - 3 or 5 years. Pension Costs The Company records net periodic pension costs on the basis of actuarial calculations. Unrecognized net transition obligation and unrec- ognized net gains or losses are amortized over 25 years. Income Tax The Company uses an inter-period tax allocation method for income tax. Deferred income tax assets and liabilities are recognized for the tax effects of temporary differences and unused tax credits. Valuation allowances are provided to the extent, if any, that it is more likely than not that deferred income tax assets will not be realized. A deferred tax asset or liability is classified as current or noncurrent in accor- dance with the classification of its related asset or liability. However, if a deferred tax asset or liability does not relate to an asset or liability in the financial statements, then it is classified as either current or noncurrent based on the expected length of time before it is realized or settled. Any tax credit arising from the purchases of machinery, equipment and technology, research and development expenditures, personnel training, and investments in important technology-based enterprises are recognized using the flow-through method. Adjustments of prior years' tax liabilities are added to or deducted from the current year's tax provision. Income taxes on unappropriated earnings of 10% are expensed in the year of shareholder approval which is the year subsequent to the year the earnings are generated. Stock-based Compensation Employee stock option plans that are amended or have options granted on or after January 1, 2004 must be accounted for by the inter- pretations issued by the Accounting Research and Development Foundation. The Company adopted the intrinsic value method and any compensation cost determined using this method is charged to expense over the employee vesting period. Treasury Stock When the Company repurchases its outstanding common stock, the cost of the reacquired stock is recorded as treasury stock as a reduc- tion to shareholders' equity. When the Company retires treasury stock, the treasury stock account is reduced and the common stock as well as the capital surplus - additional paid-in capital are reversed in proportionate to the equity percentage of the retirement. When the book value of the treasury stock exceeds the sum of the par value and additional paid-in capital, the difference is charged to capital sur- plus - treasury stock and to retained earnings for any remaining amount. The Company's stock held by its subsidiaries is also treated as treasury stock and reclassified from long-term investments to treasury stock. The cash dividends received by the subsidiaries from the Company are recorded under capital surplus - treasury stock. 85 Foreign Currency Transactions Foreign currency transactions are recorded in New Taiwan dollars at the rates of exchange in effect when the transactions occur. Exchange gains or losses derived from foreign currency transactions or monetary assets and liabilities denominated in foreign currencies are recognized in current income. At the end of each year, assets and liabilities denominated in foreign currencies are revalued at the pre- vailing exchange rates with the resulting gains or losses recognized in current income. Derivative Financial Instruments The Company enters into foreign currency forward contracts to manage currency exposures in cash flow and in foreign-currency-denomi- nated assets and liabilities. The contracts are recorded in New Taiwan dollars at the current rate of exchange of the contract date. The dif- ferences in the New Taiwan dollar amounts translated using the spot rates and the amounts translated using the contracted forward rates on the contract date are amortized over the terms of the forward contracts using the straight-line method. At the end of each year, the receivables or payables arising from forward contracts are restated using the prevailing spot rates at the balance sheet date with the resulting differences charged to income. In addition, the receivables and payables related to the forward contracts of the same counter party are netted with the resulting amount presented as either an asset or a liability. Any resulting gain or loss upon settlement is credited or charged to income in the year of settlement. The Company enters into cross-currency swap contracts to manage currencies exposures on foreign currency denominated assets and lia- bilities. The principal amount is recorded using the spot rates at the contract date. The differences in the New Taiwan dollar amounts translated using the spot rates and the amounts translated using the contracted rates on the contract date are amortized over the terms of the contracts using the straight-line method. At the end of each year, the receivables or payables arising from cross-currency swap contracts are restated using the prevailing spot rate with the resulting differences charged to income. In addition, the receivables and payables related to the contracts are netted with the resulting amount presented as either an asset or a liability. The difference in interest computed pursuant to the contracts on each settlement date or the balance sheet date is recorded as an adjustment to the interest income or expense associated with the hedged items. Any resulting gain or loss upon settlement is credited or charged to income in the year of settlement. The Company enters into interest rate swap contracts to manage exposures to changes in interest rates on existing assets or liabilities. These transactions are accounted for on an accrual basis, in which the cash settlement receivable or payable is recorded as an adjustment to interest income or expense associated with the hedged items. The premiums paid for the foreign currency option contracts entered into for hedging purposes are amortized and charged to income on a straight-line basis over the term of the related contract. Any resulting gain upon exercise settlement is credited or charged to income in the year of exercise. Reclassifications Certain accounts in the financial statements as of and for the year ended December 31, 2003 have been reclassified to conform to the financial statements as of and for the year ended December 31, 2004. 86 3. Cash and Cash Equivalents Cash and bank deposits Government bonds acquired under repurchase agreements Corporate issued notes 4. Short-Term Investments Corporate bonds Corporate issued asset-backed securities Bond funds Agency bonds Government bonds Money market funds Government bonds acquired under repurchase agreements Commercial papers Corporate issued notes Listed stocks Allowance for valuation losses Market value $ 2004 45,838,453 19,215,153 478,212 $ 2003 92,340,643 5,947,359 - $ 65,531,818 $ 98,288,002 2004 13,554,598 11,766,877 10,662,758 8,633,889 7,346,858 673,888 249,449 95,666 63,796 6,528 53,054,307 (75,212) $ 2003 - - 1,000,000 - 7,692,595 2,038,680 1,800,000 - - 27,744 12,559,019 - 52,979,095 $ 12,559,019 52,979,095 $ 12,703,444 $ $ $ The Company entered into investment management agreements with three well-known financial institutions (fund managers) to manage investment portfolios for the Company. In accordance with the investment guidelines and terms in these agreements, the securities invested by the fund managers cannot be below a pre-defined credit rating. As of December 31, 2004, the Company had investment portfolios with these fund managers that aggregated to an original amount of US$1,200,000 thousand. The investment portfolios included securities such as corporate bonds, asset-backed securities, agency bonds, government bonds and others. Securities acquired with maturities less than three months from the date of purchase were reclassified as cash equivalents. 5. Inventories, Net Finished goods Work in process Raw materials Supplies and spare parts Allowance for losses $ 2004 3,229,417 10,713,178 808,722 779,368 15,530,685 (1,358,740) $ 2003 2,716,195 8,292,327 445,357 674,548 12,128,427 (1,221,269) $ 14,171,945 $ 10,907,158 87 6. Long-Term Investments 2004 2003 Carrying Amount % of Owner-ship Carrying Amount % of Owner-ship Equity method TSMC International Investment Ltd. (TSMC International) TSMC (Shanghai) Company Limited (TSMC - Shanghai) Vanguard International Semiconductor Corporation (VIS) TSMC Partners, Ltd. (TSMC Partners) Systems on Silicon Manufacturing Company Pte Ltd. (SSMC) Emerging Alliance Fund, L.P. (Emerging Alliance) TSMC North America (TSMC - North America) Global UniChip Corporation (GUC) VentureTech Alliance Fund II, L.P. (VTAF II) TSMC Japan K. K. (TSMC - Japan) VisEra Technologies Company, Limited (VisEra) Chi Cherng Investment Co., Ltd. (Chi Cherng) Hsin Ruey Investment Co., Ltd. (Hsin Ruey) Taiwan Semiconductor Manufacturing Company Europe B.V. (TSMC - $ 23,778,997 8,113,511 5,401,982 3,908,356 3,290,888 823,232 502,242 391,626 329,968 102,572 59,116 50,570 49,823 Europe) Cost method Non-publicly traded stocks Funds Long-term bonds Government bonds Corporate bonds China Steel Corporation Taiwan Power Company Nan Ya Plastics Corporation Formosa Plastics Corporation Formosa Petrochemical Corporation Other investments 25,439 46,828,322 482,500 290,134 772,634 10,260,481 2,978,804 915,276 407,526 405,485 202,595 15,170,167 10,521,740 100 100 28 100 32 99 100 47 98 100 25 36 36 100 - - - - - - - - - $ 22,654,743 1,901,428 4,077,198 4,116,934 2,759,376 704,744 417,858 368,434 - 101,722 50,231 42,941 42,006 24,622 37,262,237 432,500 270,616 703,116 - - - - - - - - 100 100 28 100 32 99 100 47 - 100 25 36 36 100 - - - - - - - - - $ 73,292,863 $ 37,965,353 On January 8, 2003, the Company's investee, VIS, issued 600,000 thousand shares of common stock at a price of NT$7 per share of which the Company purchased a total of 230,882 thousand shares. VIS reduced its capital on August 11, 2004 in order to decrease its accumulated deficit. The number of shares of VIS held by the Company after the capital reduction declined from 787,016 thousand shares to 409,532 thousand shares. The Company's ownership percentage remained the same. For the years ended December 31, 2004 and 2003, net investment income recognized from the equity method investees was NT$4,040,319 thousand and NT$791,424 thousand, respectively. The carrying amounts of investments accounted for under the equity method and the related investment income or losses were determined based on the audited financial statements of the investees as of and for the same periods as the Company. 88 As of December 31, 2004, other investments consist of the following: Nominal Amount Carrying Amount Range of Interest Rates Maturity Date Step-up callable deposits Domestic bank Foreign bank Callable range accrual deposits $ 2,000,000 2,138,340 $ 2,007,681 2,152,394 2.05%-2.20% 1.44%-4.75% July 2007 to August 2007 June 2007 to August 2007 Foreign bank 6,383,400 6,414,151 (See below) September 2009 to December 2009 $ 10,521,740 $ 10,574,226 During the year ended December 31, 2004, the Company deposited funds into structured-time deposits with the following terms: The interest rate of the step-up callable deposits is determined by the Company and the related banks. The amount of interest earned by the Company for the callable range accrual deposits is based on a pre-defined range as determined by the 3-month or 6-month LIBOR rate plus an agreed upon rate ranging between 2.1% and 3.45%. Based on the terms of the deposits, if the 3-month or 6-month LIBOR rate moves outside of the pre-defined range, the interest paid to the Company is at minimum of 1.5%. Under the term of contracts, the bank has the right to cancel the contracts before the maturity date. Deposits that reside in Hong Kong and Singapore amounted to NT$2,553,360 thousand and NT$638,340 thousand, respectively. 7. Property, Plant and Equipment Accumulated depreciation consisted of the following: Buildings Machinery and equipment Office equipment 2004 35,546,918 259,782,721 4,676,562 300,006,201 $ $ 2003 29,384,609 214,296,129 3,833,574 247,514,312 $ $ Information on the status of the expansion or construction plans of the Company's manufacturing facilities as of December 31, 2004 is as follows: Construction / Expansion Plan Estimated Total Cost Accumulated Expenditures Expected Date of Commencement Fab 12 expansion $ 58,744,200 $ 41,870,300 January 2005 Interest expense for the years ended December 31, 2004 and 2003 was NT$ 1,614,847 thousand and NT$1,715,011 thousand, respec- tively (before deducting capitalized amounts of NT$262,109 thousand in 2004 and NT$138,668 thousand in 2003, respectively). The interest rates used for purposes of calculating the capitalized amounts was 2.80% and 2.80% to 5.283% in 2004 and 2003, respectively. 89 8. Deferred Charges, Net Technology license fees Software and system design costs Other 9. Bonds Payable Domestic unsecured bonds: Issued in October 1999 and repayable in October 2004, 5.95% interest payable annually Issued in December 2000 and repayable in December 2005 and 2007 in two equal payments, 5.25% and 5.36% interest payable annually, respectively Issued in January 2002 and repayable in January 2007, 2009 and 2012 in three equal payments, 2.60%, 2.75% and 3.00% interest payable annually, respectively $ $ $ 2004 6,534,899 2,160,636 149,609 8,845,144 2003 5,084,684 2,718,270 144,377 7,947,331 $ $ 2004 2003 - $ 5,000,000 15,000,000 15,000,000 15,000,000 15,000,000 $ 30,000,000 $ 35,000,000 As of December 31, 2004, future principal repayments for the Company's bonds are as follows: Year of Repayment 2005 2007 2009 2010 and thereafter 10. Other Long-Term Payables Amount 10,500,000 7,000,000 8,000,000 4,500,000 30,000,000 $ $ The Company entered into several license arrangements for certain semiconductor-related patents. Future payments under the agree- ments as of December 31, 2004 are as follows: Year 2005 2006 2007 2008 2009 and thereafter Amount 1,505,345 466,786 446,838 255,336 766,008 3,440,313 $ $ The current portion of other long-term payables is recorded in the "accrued expenses and other current liabilities" account. 90 11. Pension Plan The Company has a defined benefit pension plan for all regular employees that provides benefits based on the employee's length of serv- ice and average monthly salary and wages for the six-month period prior to retirement. The Company contributes an amount equal to 2% of salaries and wages paid each month to a Pension Fund (the Fund). The Fund is administered by a pension fund monitoring com- mittee (the Committee) and deposited in the Committee's name in the Central Trust of China. Information on the pension plan is summarized as follows: a. Components of net periodic pension cost Service cost Interest cost Projected return on plan assets Amortization Net periodic pension cost b. Reconciliation of the funded status of the plan and accrued pension cost Benefit obligation Vested benefit obligation Nonvested benefit obligation Accumulated benefit obligation Additional benefits based on future salaries Projected benefit obligation Fair value of plan assets Funded status Unrecognized net transitional obligation Unrecognized net loss Accrued pension cost Vested benefit c. Actuarial assumptions Discount rated used in determining present values Future salary increase rate Expected rate of return on plan assets d. Contributions to the Fund $ $ $ $ $ 2004 632,594 128,315 (41,925) 8,300 727,284 2004 67,104 2,704,251 2,771,355 2,132,721 4,904,076 (1,447,540) 3,456,536 (132,791) (222,549) 3,101,196 76,003 2004 3.25% 3.00% 3.25% $ $ $ $ $ 2003 502,116 109,671 (41,154) 2,409 573,042 2003 21,895 2,184,593 2,206,488 1,752,208 3,958,696 (1,207,264) 2,751,432 (141,091) (10,090) 2,600,251 22,261 2003 3.25% 3.00% 3.25% 2004 2003 $ 226,339 $ 181,106 91 e. Payments from the Fund 12. Income Tax 2004 1,446 $ 2003 3,490 $ a. A reconciliation of income tax on income before income tax at the statutory rate and income tax expense is as follows: 2004 2003 Income tax based on "income before income tax" at statutory rate (25%) Tax-exempt income Temporary and permanent differences Current income tax on income before income tax credits b. Income tax benefit (expense) consists of: Current income tax on income before income tax credits Additional 10% income tax on unappropriated earnings Income tax credits Other income tax Net change in deferred income tax assets and liabilities Investment tax credits Temporary differences Net change in valuation allowance of deferred income tax assets Income tax benefit (expense) c. Deferred income tax assets (liabilities) consisted of the following: Current: Investment tax credits Noncurrent: Investment tax credits Temporary differences Valuation allowance d.Integrated income tax information: $ $ $ $ $ $ (22,944,646) 15,372,913 (2,077,362) (9,649,095) 2004 (9,649,095) (821,767) 10,470,862 (563,876) 234,690 1,034,916 (168,199) $ $ $ (12,757,069) 5,255,750 728,904 (6,772,415) 2003 (6,772,415) (1,271,759) 7,917,070 (2,500) (917,759) 80,390 (2,802,602) 537,531 $ (3,769,575) 2004 8,849,000 17,035,584 (2,450,535) (12,940,046) 1,645,003 2003 8,322,000 17,327,894 (3,485,451) (12,771,847) 1,070,596 $ $ The balances of the imputation credit account (ICA) as of December 31, 2004 and 2003 were zero and NT$2,832 thousand, respectively. The expected and actual creditable ratio for distribution of earnings of 2004 and 2003 was zero and 0.03%, respectively. The imputation credits allocated to the shareholders are based on the balance as of the date of dividend distribution. The expected creditable ratio for distribution of earnings of 2004 may be adjusted when the allocation of the imputation credits is made. 92 e. All earnings generated prior to December 31, 1997 have been appropriated. f. As of December 31, 2004, investment tax credits consisted of the following: Regulation Items Statute for Upgrading Industries Purchase of machinery and equipment Law Items Statute for Upgrading Industries Research and development expenditures Statute for Upgrading Industries Personnel training Statute for Upgrading Industries Investments in important technology-based enterprises Total Creditable Amounts 4,448,442 3,819,937 4,886,439 4,140,462 6,309,182 $ Remaining Creditable Amounts - 116,189 4,886,439 4,140,462 6,309,182 23,604,462 $ 15,452,272 Total Creditable Amounts 2,270,013 3,147,071 3,342,952 1,976,913 1,843,800 12,580,749 48,659 29,448 27,312 26,780 132,199 38,036 $ $ $ $ $ Remaining Creditable Amounts - 3,147,071 3,342,952 1,976,913 1,843,800 10,310,736 - 29,448 27,312 26,780 83,540 38,036 $ $ $ $ $ $ $ Expiry Year 2004 2005 2006 2007 2008 Expiry Year 2004 2005 2006 2007 2008 2004 2005 2006 2007 2005 g. The sales generated from the following expansion and construction of the Company's manufacturing plants are exempt from income tax: Construction of Fab 6 Construction of Fab 8 - module B Expansion of Fab 2 - modules A and B, Fab 3, Fab 4, Fab 5 and Fab 6 Construction of Fab 12 Tax-Exemption Period 2001 to 2004 2002 to 2005 2003 to 2006 2004 to 2007 h. The tax authorities have examined income tax returns of the Company through 2000. However, the Company is contesting the assess- ment of the tax authority for 1992 and 1998. The Company believes that any additional assessment will not have a material adverse effect on the Company. 93 13. Labor Cost, Depreciation and Amortization Expenses Year Ended December 31, 2004 Year Ended December 31, 2003 Classified as Cost of Sales Classified as Operating Expenses Total Classified as Cost of Sales Classified as Operating Expenses Total $ 8,832,324 $ 4,160,867 $ 12,993,191 $ 7,392,295 $ 3,093,658 $ 10,485,953 571,853 471,646 398,428 309,585 255,482 356,877 881,438 727,128 755,305 476,687 379,845 273,780 239,067 190,507 159,569 715,754 570,352 433,349 $ 10,274,251 $ 5,082,811 $ 15,357,062 $ 8,522,607 $ 3,682,801 $ 12,205,408 Labor cost Salary Labor and health insurance Pension Other Depreciation Amortization $ 56,001,719 $ 2,496,827 $ 2,429,967 $ 2,137,893 $ 58,431,686 $ 4,634,720 $ 55,699,522 $ 1,385,594 $ 2,298,375 $ 2,399,724 $ 57,997,897 $ 3,785,318 14. Shareholders' Equity Common Stock, Capital Surplus and Earnings The Company has issued a total of 668,351 thousand ADSs which are traded on the NYSE as of December 31, 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 Company Law of the R.O.C. However, the capital surplus generated from donations and the excess of the issue price over the par value of capital stock (including the stock issued for new capital, mergers, con- vertible bonds and the surplus arising from treasury stock transactions) may be appropriated as stock dividends restricted to a certain per- centage based on shareholders' ownership. As of December 31, 2004 and 2003, the capital surplus consisted of the following: From merger Additional paid-in capital From long-term investments From convertible bonds Donations Treasury stock 2004 24,003,546 23,051,675 121,354 9,360,424 55 205 56,537,259 $ $ 2003 24,132,297 23,172,550 87,295 9,410,632 55 53,056 56,855,885 $ $ The Company's Articles of Incorporation as revised on December 21, 2004, provide that the following shall be appropriated from annual earnings to the extent that the annual earnings exceed any cumulative deficit: a. 10% legal reserve; until the amount of total legal reserve equals the Company's paid-in capital; b. Special reserve in accordance with relevant laws or regulations; c. Remuneration to directors and supervisors and bonuses to employees at 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; 94 d. The appropriation of any remaining balance shall be approved by the shareholders. Dividends may be distributed by way of cash dividend or stock dividend at the discretion of the Company. As the operation of the Company is at a steady growth stage, distribution of profits shall be made preferably by way of cash dividend. Distribution of profits may also be made by way of stock dividend; provided however, the ratio for stock dividend shall not exceed 50% of total distribution. Any appropriations of net income are recorded in the financial statements in the year of shareholder approval. An appropriation for legal reserve is required until the reserve equals the aggregate par value of the Company's issued capital stock. The reserve can only be used to offset a deficit or be distributed as a stock dividend up to 50% of the reserve balance when the reserve bal- ance has reached 50% of the aggregate par value of the issued capital stock of the Company. A special reserve equivalent to the net debit balance of the other components of shareholder's equity (for example, unrealized loss on long-term investments and cumulative translation adjustments, but excluding treasury stock), shall be made from unappropriated earn- ings pursuant to existing regulations promulgated by the R.O.C. Securities and Futures Bureau (SFB). Any special reserve appropriated may be reversed to the extent that the net debit balance of the related account reverses. The appropriations of the earnings of 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: Legal reserve Special reserve Bonus paid to employees - in cash Bonus paid to employees - in stock Preferred stock dividend - in cash Common stock dividend - in cash Common stock dividend - in stock Remuneration to directors and supervisors - in cash Appropriation of Earnings Dividend Per Share (NT$) $ For Fiscal Year 2003 4,725,870 (68,945) 681,628 2,726,514 184,493 12,159,971 28,373,267 127,805 $ For Fiscal Year 2002 2,161,029 68,945 - 1,539,013 455,000 - 14,898,309 58,485 $ 48,910,603 $ 19,180,781 For Fiscal Year 2003 For Fiscal Year 2002 $ $ 0.35 0.60 1.41 0.35 - 0.80 The amount of the 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 the R.O.C. states TSMC, as a holder of treasury stock shall not participate in the appropriations 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 paid in stock had been paid in cash and all of the bonus to employees and remuneration to directors and supervisors had been charged against income for 2003 and 2002, the after income tax basic earnings per share for the years ended December 31, 2003 and 2002 would have decreased from NT$2.33 to NT$2.15 and NT$1.14 to NT$1.05, respectively. The shares distributed as a bonus to employees represented 1.35% and 0.83% of the Company's total outstanding common shares as of December 31, 2003 and 2002, respectively. As of January 13, 2005, the board of directors have not resolved the appropriation for earnings of 2004. The above information about 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, the R.O.C. resident shareholders are allowed a tax credit for their proportionate share of the income tax paid by the Company on earnings generated since January 1, 1998. 95 Preferred Stock 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, the Company is no longer authorized to issue preferred stock. The preferred shareholders had the following rights and the related terms and conditions prior to redemption: Preferred shareholders a. Are entitled to receive cumulative cash dividends at an annual rate of 3.5%. b. Are not entitled to receive any common stock dividends (whether declared out of unappropriated earnings or capital surplus). c. Have priority over the holders of common shares to the assets of TSMC available for distribution to shareholders upon liquidation or dissolution; however, the pre-emptive rights to the assets shall not exceed the issue price 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 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 or any of its domestic or foreign subsidiaries, in which the Company's shareholding with voting rights, directly or indirectly, is more than fifty percent (50%). The option rights of both plans are valid for ten years and exercisable at certain percent- ages subsequent to the second anniversary of the grant date. Under the terms of the 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 2003 Plan and the 2002 Plan, units that were never granted, or had been granted and subsequently cancelled were expired as of December 31, 2004. On November 2, 2004, the board of directors approved the 2004 Plan, in which the maximum number of units authorized to be granted is 11,000 thousand, with each unit representing one common share of stock. The option rights may be granted to qualified employees of the Company or any of its domestic or foreign subsidiaries, in which the Company's shareholding with voting rights, directly or indirectly, is more than fifty percent (50%). The option rights of the plans are valid for ten years and exercisable at certain percentages subsequent to the second anniversary of the grant date. Under the terms of the plan, 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. The 2004 plan was approved by Bureau of Monetary Affairs, Financial Supervisory Commission of the R.O.C. on January 6, 2005. 96 Information on outstanding stock options for the years ended December 31, 2004 and 2003 is as follows: Year ended December 31, 2004 Beginning outstanding balance Options granted Options exercised Options cancelled Ending outstanding balance Year ended December 31, 2003 Beginning outstanding balance Options granted Options cancelled Ending outstanding balance 2003 Plan 2002 Plan Number of Outstanding Stock Option Rights (in thousand) Weighted- Average Exercise Price (NT$) Number of Outstanding Stock Option Rights (in thousand) Weighted- Average Exercise Prices (NT$) 842 13,199 - (1,404) 12,637 - 843 (1) 842 57.8 49.9 - 50.9 - 66.5 66.5 48,515 7,201 (87) (3,899) 51,730 19,369 32,031 (2,885) 48,515 42.7 42.6 41.8 44.2 48.6 50.3 48.7 The number of outstanding option rights and exercise prices have been adjusted to reflect the appropriations of dividends in accordance with the plans. As of December 31, 2004, information on outstanding and exercisable option rights is as follows: Range of Exercise Price (NT$) 43.8-57.8 32.8-46.2 Options Outstanding Options Exercisable Number of Outstanding Options (in thousand) Weighted- Average Remaining Contractual Life (Years) Weighted- Average Exercise Price (NT$) Number of Exercisable Options (in thousand) Weighted- Average Exercise Price (NT$) 12,637 51,730 64,367 9.34 8.09 8.33 50.3 42.6 44.1 - 10,307 10,307 - 41.7 41.7 2003 plan 2002 plan Total The compensation cost recognized for the year ended December 31, 2004 was zero. Had the Company used the fair value based method to evaluate the options granted, the method, assumptions and pro forma results of the Company for the year ended December 31, 2004 would have been as follows: Method Assumptions: Expected dividend yield Expected volatility Risk free interest rate Expected life Net income: Net income as reported Pro forma net income Amount 1.00% 43.77%-46.15% 3.07%-3.85% 5 years $ 92,316,115 92,257,355 (Continued) 97 Earnings per share (EPS) - after income tax: Basic EPS as reported Pro forma basic EPS Diluted EPS as reported Pro forma diluted EPS NT$ 3.97 3.97 3.97 3.97 The estimated weighted average fair value for the options granted during the year ended December 31, 2004 was NT$19.73 per option. 16. Treasury Stock (Common Stock) Year ended December 31, 2004 Reclassification of parent company stock held by subsidiaries from long-term investment Repurchase under share buyback plan Year ended December 31, 2003 Reclassification of parent company stock held by subsidiaries from long-term investment Beginning Shares Increase/ Dividend Decrease Ending Shares (Shares in thousand) 40,597 - 40,597 5,676 124,720 752 124,720 130,396 125,472 45,521 - 45,521 42,001 3,357 4,761 40,597 Proceeds from the sale of treasury stock for the years ended December 31, 2004 and 2003 were NT$39,906 thousand and NT$331,945 thousand, respectively. The Company's capital stock held by a subsidiary as an investment is recorded as treasury stock, with the holder having the same rights as other common shareholders. As of December 31, 2004 and 2003, the book value of the treasury stock was NT$1,595,186 thousand and NT$1,633,228 thousand, respectively; the market value was NT$2,241,009 thousand and NT$2,548,788 thousand, respectively. The Company held a special meeting of the board of directors and approved a share buyback plan to repurchase the Company's common shares listed on the TSE during the period from March 24, 2004 to May 23, 2004. The Company repurchased 124,720 thousand common shares for a total of NT$7,059,798 thousand. All the treasury stock repurchased under the buyback plan was retired on August 16, 2004. 98 17. Earnings Per Share EPS is computed as follows: Year ended December 31, 2004 Basic EPS Amounts (Numerator) Before Income Tax After Income Tax Number of Shares (Denominator) (in thousand) EPS (NT$) Before Income Tax After Income Tax Income available to common shareholders Effect of diluted securities - stock options $ 91,778,584 - $ 92,316,115 - 23,248,682 6,404 $ 3.95 $ 3.97 Diluted EPS Income available to common shareholders (includ- ing effect of diluted potential common stock) Year ended December 31, 2003 Net Income Less - preferred stock dividends Basic EPS Income available to common shareholders Effect of diluted potential common stock - stock options Diluted EPS Income available to common shareholders (includ- ing effect of diluted potential common stock) $ 91,778,584 $ 92,316,115 23,255,086 $ 3.95 $ 3.97 $ 51,028,275 (184,493) $ 47,258,700 (184,493) 50,843,782 47,074,207 23,327,354 $ 2.18 $ 2.02 - - 9,599 $ 50,843,782 $ 47,074,207 23,336,953 $ 2.18 $ 2.02 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 SSMC GUC VisEra 99 e. Indirect subsidiaries WaferTech, LLC (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: 2004 2003 Amount % Amount % For the years Sales TSMC - North America Philips and its affiliates Others Purchase WaferTech VIS SSMC TSMC - Shanghai Manufacturing expenses - technical assistance fee (See Note 20a) Philips Marketing expenses - commission TSMC - Japan TSMC - Europe General and administrative expense - rental expenses GUC Research and development expenses GUC Sales of property, plant and equipment TSMC - Shanghai VIS Non-operating income and gains SSMC (primarily technical service income, see Note 20e) VIS (primarily technical service income, see Note 20j) VisEra WaferTech $ $ $ $ $ $ $ $ $ $ $ $ $ 142,271,732 5,463,565 466,345 148,201,642 15,203,047 9,169,602 5,869,123 12,752 30,254,524 907,047 253,341 202,678 456,019 13,186 11,688 2,969,347 33,974 3,003,321 364,505 117,760 28,917 3,267 514,449 55 2 - 57 34 21 13 - 68 1 17 14 31 2 - 96 1 97 5 2 - - 7 $ $ $ $ $ $ $ $ $ $ $ $ $ 117,758,911 3,577,054 610,534 121,946,499 11,433,083 4,910,810 5,519,805 - 21,863,698 3,023,741 215,202 154,262 369,464 - - - 15,125 15,125 201,869 251 - 2,794 204,914 57 2 - 59 36 15 17 - 68 3 18 13 31 - - - 9 9 8 - - - 8 (Continued) 100 At end of year Receivables TSMC - North America Philips and its affiliates Others Other receivables TSMC - Shanghai SSMC VIS Others Payables VIS WaferTech Philips and its affiliates SSMC Others Other long-term payables Philips and its affiliates Deferred credits - gain on intercompany TSMC - Shanghai (disposal of property, plant and equipment) Refundable deposits VIS 2004 2003 Amount % Amount % $ $ $ 15,526,964 581,487 77,632 96 4 - 16,186,083 100 1,472,880 63,701 47,599 33,159 91 4 3 2 13,946,638 895,063 25,961 94 6 - 14,867,662 100 - - 118,503 14,460 - - 89 11 1,617,339 100 $ 132,963 100 1,533,938 913,107 469,494 207,794 74,157 3,198,490 2,317,972 48 29 15 6 2 100 100 682,530 100 - - $ $ $ $ 1,034,074 1,184,642 1,579,568 634,647 67,209 23 27 35 14 1 4,500,140 100 - - - - 150,840 85 $ $ $ $ $ $ $ $ $ The terms of sales to related parties are not significantly different from those to third parties. For other related parties transactions, since there are 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. Future remaining lease payments are as follows: Year 2005 2006 2007 2008 2009 2010 and thereafter Amount $ 238,411 238,411 238,411 220,246 214,192 1,422,637 $ 2,572,308 101 20. Significant Commitments and Contingencies The significant commitments and contingencies as of December 31, 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 an effective date from January 1, 2004 for five years. Upon expiration, this amended Technical Cooperation Agreement will be terminated at the expiration date and will not be automatically renewed. Under this amended Technical Cooperation Agreement, the Company will pay Philips royalties based on a fixed amounts mutually agreed-on, rather than under certain percentage of the Company's annual net sales. The Company and Philips agree to cross license the patents owned by each party. The Company also obtained through Philips a number of patent cross licenses. b. Under a technical cooperation agreement with ITRI, the Company shall reserve and allocate up to 35% of certain of its production capacity for use by the Ministry of Economic Affairs (MOEA) or any other party designated by the MOEA. 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 December 31, 2004, the Company had a total of US$12,802 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 December 31, 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 each unless pre-terminated by either party under certain conditions. f. Under a Technology Transfer Agreement (TTA) with National Semiconductor Corporation (National) entered into on June 27, 2000, the Company shall receive payments for the licensing of certain technology to National. The agreement was to remain in force for ten years and could be automatically renewed for successive periods of two years thereafter unless either party gives notice for early termi- nation 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. 102 g. Beginning in 2001, the Company entered into several licensing arrangements for certain semiconductor patents. The terms of the con- tracts 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. h. 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. i. In December 2003, the Company entered into a Technology Development and License Agreement with Motorola, Inc. to jointly devel- op 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 agree- ment, the Company will pay royalties to Motorola, Inc. and will share a portion of the costs associated with the joint development project. j. The Company provides a technology transfer to VIS under a Manufacturing License and Technology Transfer Agreement entered into in August 2004. The Company receives compensation for such technology transfer in the form of royalty payments from VIS computed at specific percentages of net selling price of certain products sold by VIS. VIS agreed to reserve its certain capacity to manufacture for the Company certain products at prior as agreed by the parties. k. Amounts available under unused letters of credit as of December 31, 2004 were NT$6,480 thousand, US$204 thousand and SG$85 thousand. l. The Company provided guarantees on loans amounting to US$60,000 thousand and US$40,000 thousand for TSMC Development, Inc. (TSMC Development) and TSMC - North America, respectively. m. TSMC, TSMC - North America and WaferTech filed a series of lawsuits in late 2003 and 2004 in both state and federal courts in California and with the U.S. International Trade Commission against Semiconductor Manufacturing International Corporation ("SMIC"), SMIC (Shanghai) and SMIC Americas. The lawsuits alleged that SMIC companies infringed multiple TSMC patents and misappropriated TSMC's trade secrets. These suits have been settled out of court on January 30, 2005. As part of the agreement, SMIC will pay TSMC US$175 million over six years to resolve TSMC's patent infringement and trade secret claims. 103 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 and 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 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 at prices of at least NT$100 million or 20% of the paid-in capital: None; g. Total purchase from or sale to related parties amounting to at least NT$100 million or 20% of the paid-in capital: Please see Table 6 attached; h. Receivable from related parties amounting to at least NT$100 million or 20% of the paid-in capital: Please see Table 7 attached; i. Names, locations, and related information of investees of which the Company exercises significant influence: Please see Table 8 attached; j. Financial instrument transactions: 1) Derivative financial instruments The Company entered into derivative financial instrument transactions for the years ended December 31, 2004 and 2003 to manage exposures related to foreign exchange rate and interest rate fluctuations. Certain information on these contracts is as follows: a) Outstanding forward exchange contracts as of December 31, 2004 and 2003 are as follows: Financial Instruments Currency Maturity Date 2004 Sell Sell 2003 Sell Buy Buy US$/NT$ US$/EUR US$/NT$ EUR/US$ JPY/US$ January 2005 to March 2005 January 2005 January 2004 to July 2004 January 2004 January 2004 Contract Amount (in thousand) US$ US$ US$ EUR JPY 733,000 159,081 1,805,000 7,500 748,405 104 As of December 31, 2004 and 2003, receivables from forward exchange contracts (included in the "other financial assets" account) aggregate approximately NT$392,534 thousand, and NT$76,385 thousand; payables from forward exchange contracts (included in the "other current liabilities" account) aggregate approximately NT$559 thousand and NT$174,018 thousand. b) Cross currency swaps Outstanding cross currency swap contracts as of December 31, 2004 are as follows: Maturity Date Contract Amount (in Thousands) Range of Interest Rate Paid Range of Interest Rate Received January 2005 to June 2005 US$ 1,420,000 1.28%-2.72% 0.49%-1.17% As of December 31, 2004, receivables from the cross currency swap contracts (included in the "other financial assets" account) was approximately NT$761,030 thousand. Net exchange gain or loss arising from forward exchange contracts and cross currency swap contracts was recognized in the "for- eign exchange loss, net" account and the difference in interest was recorded in interest income or expense. c) Interest rate swaps Outstanding contracts as of December 31, 2004 and 2003 were as follows: Contract Date Period 2004 September 2003 October 2003 October 2003 October 2003 October 2003 November 2003 2003 September 2003 October 2003 October 2003 October 2003 October 2003 November 2003 July 1999 d) Option contracts September 2003 to December 2005 October 2003 to December 2005 October 2003 to December 2005 October 2003 to December 2005 October 2003 to December 2005 November 2003 to December 2005 September 2003 to December 2005 October 2003 to December 2005 October 2003 to December 2005 October 2003 to December 2005 October 2003 to December 2005 November 2003 to December 2005 July 1999 to June 2004 Contract Amount (in thousand) NT$ NT$ NT$ NT$ NT$ NT$ NT$ NT$ NT$ NT$ NT$ NT$ US$ 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000 2,857 During 2004, the Company did not enter into any foreign currency option contracts. There were no outstanding option contracts as of December 31, 2003. The Company entered into foreign currency option con- tracts for hedging purposes; therefore, the related premiums and the foreign exchange gain or loss are recognized in the "foreign exchange loss, net" account. 105 e) Transaction risk i) Credit risk. Credit risk represents the positive net settlement amount of those contracts with positive fair values at the balance sheet date. The positive net settlement amount represents the loss incurred by the Company if the counter-parties breached the contracts. The banks, which are the counter-parties to the foregoing derivative financial instruments, are reputable financial institutions. Management believes its exposure related to the potential default by those counter-parties is low. ii) Market price risk. All derivative financial instruments are intended as hedges for fluctuations in foreign exchange rates and inter- est rates. Gains or losses from these hedging instruments are likely to be offset by gains or losses from the hedged items. Interest rate risks are also controlled as the expected cost of capital is fixed. Thus, market price risks are believed to be low. iii) Cash flow risk and the amount and period of future cash needs. As of December 31, 2004, the Company's future cash needs for outstanding forward exchange contracts and cross currency swap contracts are as follows: Term Within one year Inflow (in thousand) NT$ 69,761,484 EUR 118,500 Outflow (in thousand) US$ 2,312,081 The Company has sufficient operating capital to meet the above cash needs. In addition, there will be corresponding cash inflow for the cash outflow. Therefore, the cash flow risk is low. 2) Fair values of financial instruments were as follows: 2004 2003 Carrying Amount Fair Value Carrying Amount Fair Value Non-derivative financial instruments Assets Short-term investments, net Long-term investments (securities with market price) $ 52,979,095 20,572,150 $ 52,979,095 23,657,754 $ 12,559,019 4,077,198 $ 12,703,444 10,465,676 Liabilities Bonds payable (including current portion) 30,000,000 30,607,341 35,000,000 35,850,377 Derivative financial instruments Forward exchange contracts (buy) Forward exchange contracts (sell) Cross currency swap contracts Interest rate swap contracts - 391,975 761,030 4,361 - 317,090 760,012 (22,714) 2,351 (99,984) - - 3,037 40,638 - 2,093 The above financial instruments do not include cash and cash equivalents, receivables, other financial assets, payables, and payable to contractors and equipment suppliers. The carrying amounts of the aforementioned instruments reported in the balance sheet approximate their fair values. 106 The above financial instruments also exclude refundable deposits, guarantee deposits, long-term investments that do not have quot- ed market prices as well as other long-term payables. The future cash inflow and outflow of the deposits approximate their fair val- ues. Some of long-term investments do not have quoted market prices; therefore, fair values for those long-term investments are not shown above. The fair value of other long-term payables is determined using the discounted value of expected cash flows, which approximates the carrying value. Fair values of financial instruments were determined as follows: a) Fair value of short-term and publicly traded long-term investments is based on quoted market prices. b) The fair value of bonds payable is the quoted market value. c) Fair value of derivative financial instruments is the amount receivable from or payable to the counter-party if the contracts were terminated on the balance sheet date. 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. 22. Segment Financial Information a. Gross export sales Area Americas Asia and others Europe 2004 113,948,320 91,057,215 19,084,530 224,090,065 $ $ 2003 103,600,081 63,349,186 11,706,059 178,655,326 $ $ The export sales information is based on amounts billed to customers within the area. b. Major customers representing at least 10% of net total sales: In 2004, there is no customer accounted for at least 10% of the Company's total sales. The Company only has one customer that accounts for at least 10% of its total sales in 2003. The sales to such customer amounted to $21,893,320 thousand and $31,220,104 thousand in 2004 and 2003, representing 8% and 15% of its total sales, respectively. 107 TABLE 1 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD. AND INVESTEES FINANCING PROVIDED FOR THE YEAR ENDED DECEMBER 31, 2004 (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified) No. Financing Name Counter-party Financial Statement Account 1 TSMC International TSMC Development Other receivables TSMC Technology Other receivables 2 TSMC Partners TSMC Development Other receivables Maximum Balance for the Period (US$ in thousand) Ending Balance (US$ in thousand) $ (US$ (US$ (US$ 1,915,020 60,000) $ (US$ 319,170 10,000) 1,915,020 60,000) - 2,553,360 80,000) (US$ 2,553,360 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. TABLE 2 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD. AND INVESTEES ENDORSEMENT/GUARANTEE PROVIDED FOR THE YEAR ENDED DECEMBER 31, 2004 (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified) No. Endorsement/ Guarantee Provider Name Nature of Relationship (Note 2) Limits on Each Counter-party's Endorsement/ Guarantee Amounts Counter-party 0 The Company TSMC Development TSMC - North America WaferTech Not exceed 10% of the net worth of the Company, and also limiting to the total capital issued of the endorsement/guarantee company, unless otherwise approved by Board of Directors. 3 2 3 Note 1: 25% of the net worth of the Company as of December 31, 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. 108 Interest Rate Type of Financing (Note 1) Transaction Amounts Reasons for Short-term Financing Allowance for Bad Debt 1.50% - 1.50% $ 2 - 2 - - - Operating capital $ - Operating capital - - - Collateral Item Value Financing Limit for Each Borrowing Company Financing Company's Financing Amount Limits (US$ in thousand) $ - - - - - - N/A $ 31,532,982 (US$ 987,968) (Note 2) N/A (Note 3) Maximum Balance for the Year (US$ in thousand) Ending Balance (US$ in thousand) Value of Collateral Property, Plant and Equipment Ratio of Accumulated Amount of Collateral to Net Equity of the Latest Financial Statement Maximum Collateral/Guarantee Amounts Allowable (Note 1) $ (US$ (US$ (US$ 1,915,020 60,000) 1,276,680 40,000) 14,043,480 440,000) $ $ (US$ (US$ 1,915,020 60,000) 1,276,680 40,000) - - - - $ 99,741,325 0.48% 0.32% - 109 TABLE 3 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD. AND INVESTEES MARKETABLE SECURITIES HELD DECEMBER 31, 2004 (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified) Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account The Company Government bonds 2003 Government Bond Series A United States Treas NTS 2003 Government Bond Series I 2004 Government Bond Series A 2004 Government Bond Series E 2004 Kaohsiung Municipal Bond Series A Bonds under repurchase agreement Bond funds JF Taiwan Bond Fund ABN AMRO Bond Fund JF Taiwan First Bond Fund INVESCO R.O.C. Bond A Fund Dresdner Bond DAM Fund Barits Bond Fund Shinkong Chi Shin Bond Fund ABN AMRO Select Bond Fund NITC Bond Fund HSBC NTD Money Management Fund Stock Taiwan Mask Corp. TSMC International VIS TSMC Partners SSMC TSMC - North America GUC TSMC - Japan VisEra TSMC - Europe United Industrial Gases Co., Ltd. Shin-Etsu Handotai Taiwan Co., Ltd. W.K. Technology Fund IV Hontung Venture Capital Co., Ltd. Globaltop Partner I Venture Capital Corp. Corporate bonds Taiwan Power Company Abbott Labs Abbott Labs Ace Ltd AIG Sunamerica Global Fing IX Allstate Finl Global Fdg LLC American Express Co. American Gen Fin Corp. American Gen Fin Corp. Mtn American Gen Fin Corp. Mtn - - - - - - - - - - - - - - - - - - Subsidiary Investee Subsidiary Investee Subsidiary Investee Subsidiary Investee Subsidiary - - - - - - - - - - - - - - - Short-term investment Short-term investment Long-term investment Long-term investment Long-term investment Long-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment 110 December 31, 2004 Shares/Units (in thousand) Carrying Value (US$ in thousand) Percentage of Ownership Market Value or Net Asset Value (US$ in thousand) Note - - - - - - - 78,698 134,906 84,886 76,705 80,833 76,640 151,594 18,235 3,764 41,568 1,787 987,968 409,532 300 382 11,000 39,040 6 5,100 - 16,783 10,500 5,000 8,392 5,000 - - - - - - - - - - $ 1,207,409 US$ 192,357 3,397,081 2,349,573 3,893,827 620,000 249,449 1,153,209 1,956,175 1,151,463 1,101,911 900,000 900,000 2,100,000 200,000 600,000 600,000 6,528 23,778,997 5,401,982 3,908,356 3,290,888 502,242 391,626 102,572 59,116 25,439 193,584 105,000 50,000 83,916 50,000 2,777,798 2,732 1,581 1,046 1,032 3,171 3,550 1,768 3,130 1,058 US$ US$ US$ US$ US$ US$ US$ US$ US$ N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A - 100 28 100 32 100 47 100 25 100 10 7 2 10 1 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A $ 1,202,028 US$ 191,824 3,393,982 2,352,973 3,892,025 620,000 251,593 1,169,406 1,978,785 1,162,632 1,111,932 910,904 907,765 2,115,554 201,183 602,703 601,958 27,552 23,778,997 8,493,692 3,908,356 3,290,888 1,179,352 418,272 102,572 59,116 25,439 284,036 170,940 55,146 53,571 49,909 2,749,413 2,709 1,587 1,042 1,028 3,096 3,503 1,765 3,087 1,042 US$ US$ US$ US$ US$ US$ US$ US$ US$ Treasury stock of NT$677,110 thou- sand is deducted from the carrying value. (Continued) 111 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account American Honda Fin Corp. Mtn American Intl Group Inc. Mtnf Amgen Inc. Amsouth Bk Birmingham Ala ANZ Cap Tr I Bank New York Inc. Bank New York Inc. Bank Scotland Treas Svcs PLC Bank Utd Houston TX Mtbn Bear Stearns Cos Inc. Bear Stearns Cos Inc. Medium Te Berkshire Hathaway Fin Corp. Bristol Myers Squibb Co. British Telecommunications PLC Cargill Inc. Chase Manhattan Corp. New Cit Group Hldgs Inc. Citigroup Inc. Citigroup Inc. Citigroup Inc. Colonial Pipeline Co. Compaq Computer Corp. Consolidated Edison Co. NY Inc. Corestates Cap Corp. Countrywide Fdg Corp. Mtn Countrywide Home Lns Inc. Credit Suisse Fb USA Inc. Credit Suisse First Boston Credit Suisse First Boston USA Daimlerchrysler North Amer Daimlerchrysler North Amer Hld Dell Computer Corp. Den Danske BK Aktieselskab Deutsche Telkom Intl Fin BV Diageo PLC Dow Chem Co. European Invt Bk Fifth Third Bk Cincinnati OH First Data Corp. First Un Corp. Fleet Finl Group Inc. New Fleet Finl Corp Inc. New Ford Mtr Cr Co. FPL Group Cap Inc. FPL Group Cap Inc. General Elec Cap Corp. Mtn General Elec Cap Corp. Mtn General Elec Cap Corp. Mtn Genworth Finl Inc. Goldman Sachs Group Inc. Mtn Goldman Sachs Group LP Goldman Sachs Group LP Greenpoint Finl Corp. GTE Corp. Hancock John Global Fdg Mtn Hartford Finl Svcs Group Inc. Hartford Finl Svcs Group Inc. Heller Finl Inc. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment 112 December 31, 2004 Shares/Units (in thousand) Carrying Value (US$ in thousand) Percentage of Ownership Market Value or Net Asset Value (US$ in thousand) Note - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,800 3,795 3,005 1,972 1,012 1,525 3,945 2,715 580 3,518 3,105 1,498 3,819 2,104 2,120 1,628 3,203 2,000 1,033 3,583 1,625 3,719 3,687 1,062 2,158 5,210 2,645 786 2,249 997 749 3,054 2,192 1,852 3,459 921 8,315 2,419 3,013 970 494 975 1,542 1,001 860 3,467 1,040 3,886 3,412 3,505 1,637 1,100 974 2,134 1,003 765 296 1,171 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,803 3,795 2,991 1,978 1,001 1,509 3,943 2,717 574 3,493 3,105 1,494 3,788 2,091 2,079 1,613 3,195 2,002 1,033 3,523 1,612 3,593 3,618 1,060 2,151 5,157 2,599 779 2,240 999 755 3,025 2,166 1,838 3,477 911 8,236 2,466 2,986 965 493 962 1,535 990 846 3,455 1,040 3,878 3,408 3,494 1,599 1,075 972 2,109 986 758 296 1,163 (Continued) 113 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account Hershey Foods Corp. Hewlett Packard Co. Honeywell Inc. Household Fin Corp. Household Fin Corp. Household Fin Corp. Mtn Bk Ent HSBC USA Inc.New Huntington Natl Bk Huntington Natl Bk Columbus OH ING Bank ING Sec Life Ins Ingslf Intl Bk For Recon + Dev JP Morgan Chase + Co. Jackson Natl Life Global Fdg Jackson Natl Life Global Fdg S JP Morgan Chase + Co. Keycorp Mtn Book Entry KFW Intl Fin Inc. Kraft Foods Inc. Kraft Foods Inc. Lehman Brothers Hldgs Inc. Lehman Brothers Hldgs Inc. Lehman Brothers Hldgs Inc. Lilly Eli + Co. Lincoln Natl Corp. In Merita Bk Ltd NY Brh Merrill Lynch + Co. Inc. Metropolitan Life Global Mtn Monumental Global Fdg II Monumental Global Fdg II Monumental Global Fdg II 2002A Morgan Stanley Morgan Stanley Group Inc. Morgan Stanley Group Inc. National Westminster Bk PLC Nationsbank Corp. Nationwide Bldg Soc Nationwide Life Global Mtn Pepsico Inc. Mtn Book Entry PNC Fdg Corp. Popular North Amer Inc. Mtn Premark Intl Inc. Pricoa Global Fdg I Mtn Pricoa Global Fdg I Mtn Principal Life Global Fdg I Gl Protective Life Secd Trs Prudential Ins Co. Amer Reinsurance Group Amer Inc. Royal Bk Scotland Group PLC Royal Bk Scotland Group PLC Royal Bk Scotland Group PLC Safeco Corp. Salomon Smith Barney Hldgs Inc. Sara Lee Corp. SBC Communications Inc. SBC Communications Inc. Scotland Intl Fin B V 144A Shell Finance (UK) PLC - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment 114 December 31, 2004 Shares/Units (in thousand) Carrying Value (US$ in thousand) Percentage of Ownership Market Value or Net Asset Value (US$ in thousand) Note - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 1,627 3,373 3,284 529 2,993 3,542 1,154 3,003 2,954 2,114 3,012 5,232 1,043 1,036 2,998 3,663 3,500 5,104 773 1,037 1,163 3,705 2,171 3,750 519 538 3,486 1,907 2,500 1,534 1,045 2,136 3,638 1,050 1,433 3,644 3,457 1,463 3,818 1,080 3,042 2,954 3,507 3,050 3,168 2,920 2,648 2,091 1,563 564 369 765 3,160 1,596 3,681 2,251 1,533 3,604 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 1,606 3,305 3,218 522 2,985 3,510 1,134 3,000 2,961 2,113 3,007 5,102 1,039 1,032 2,988 3,629 3,502 5,027 765 1,036 1,162 3,634 2,154 3,749 518 533 3,481 1,910 2,501 1,516 1,034 2,128 3,628 1,048 1,422 3,549 3,477 1,469 3,817 1,075 3,022 2,914 3,503 3,047 3,102 2,969 2,610 2,089 1,547 558 364 763 3,100 1,601 3,617 2,245 1,532 3,553 (Continued) 115 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account SLM Corp. SLM Corp. Medium Term Nts SP Powerassets Ltd Global Suntrust Bks Inc. Swedbank Sparbanken Svenge AB TIAA Global Mkts Inc. Tribune Co. Med Trm Nts Union Planters Unitedhealth Group Inc. US Bk Natl Assn Cincinnati OH Virginia Elec + Pwr Co. Vodafone Group PLC New Wachovia Corp. Wal Mart Cda Venture Corp. Washington Mut Fin Corp. Washington Mut Inc. Washington Post Co. Wells Fargo + Co. New Westfield Cap Corp. Ltd China Steel Corporation Taiwan Power Company Nan Ya Plastics Corporation Formosa Plastics Corporation Formosa Petrochemical Corporation Agency bonds Fed Hm Ln Pc Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Mtg Corp Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Mtn Federal Home Loan Mtg Assn Federal Home Loan Mtg Corp. Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Mtn - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment 116 December 31, 2004 Shares/Units (in thousand) Carrying Value (US$ in thousand) Percentage of Ownership Market Value or Net Asset Value (US$ in thousand) Note - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 500 2,950 991 1,062 1,084 519 2,943 2,755 3,119 2,669 2,884 2,559 3,720 3,670 4,768 4,735 3,182 3,697 1,999 2,978,804 915,276 407,526 405,485 202,595 3,466 US$ 2,532 US$ 1,042 US$ 4,927 US$ 7,962 US$ 7,014 US$ 4,936 US$ 4,948 US$ 2,454 US$ 7,018 US$ 4,996 US$ 7,042 US$ 6,098 US$ US$ 2,909 US$ 13,953 US$ 13,983 US$ 13,981 6,978 US$ 3,388 US$ 4,953 US$ 9,997 US$ 998 US$ 4,933 US$ 4,930 US$ 4,847 US$ 4,903 US$ 5,270 US$ 6,940 US$ 6,903 US$ US$ 4,981 6,997 US$ US$ 15,787 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 501 2,985 992 1,060 1,067 514 2,965 2,704 3,097 2,687 2,838 2,561 3,600 3,602 4,689 4,682 3,180 3,631 1,999 2,977,695 914,582 407,484 405,322 200,000 3,462 US$ 2,520 US$ 1,024 US$ 4,947 US$ 7,939 US$ 6,924 US$ 4,949 US$ 4,944 US$ 2,468 US$ 7,004 US$ 4,973 US$ 6,985 US$ 6,084 US$ US$ 2,907 US$ 13,898 US$ 13,946 US$ 13,946 6,928 US$ 3,419 US$ 4,941 US$ 9,943 US$ 993 US$ 4,936 US$ 4,938 US$ 4,891 US$ 4,943 US$ 5,237 US$ 6,937 US$ 6,917 US$ US$ 4,953 6,983 US$ US$ 15,798 (Continued) 117 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account Federal Natl Mtg Assn Mtn Freddie Mac Fed Hm Ln Pc Pool E89857 Fed Hm Ln Pc Pool G11295 Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Gtd FNMA Pool 685116 FNMA Pool 725095 FNMA Pool 790828 FNMA Pool 793932 FNMA Pool 794040 FNMA Pool 795548 FNMA Pool 806642 GNMA II Pool 081150 GNMA II Pool 081153 Government Natl Mtg Assn Corporate issued asset-backed securities Aegis Asset Backed Secs Tr Aesop Fed II LLC Aesop Fed II LLC American Express Cr Account Ma American Home Mtg Invt Tr Americredit Automobile Receiv Americredit Automobile Rec Tr Americredit Automobile Rec Tr Americredit Automobile Receivb Atlantic City Elc Trns Fdg LLC Banc Amer Coml Mtg Inc. Banc Amer Mtg Secs Inc. Bank of Amer Lease Equip Tr Bear Stearns Alt A Tr Bear Stearns Asset Backed Secs BMW Veh Owner Tr California Infr + Economic Dev California Infras + Economic California Infrastructure Dev Capital Auto Receivables Asset Capital One Auto Fin Tr Capital One Auto Fin Tr Capital One Auto Fin Tr Capital One Multi Asset Execut Caterpillar Finl Asset Tr Centex Home Equity Ln Tr Cit Equip Coll Tr Citibank Cr Card Issuance Tr Citicorp Mtg Secs CNH Equip Tr Comm 2004 Htl 1 Credit Suisse First Boston Mtg CWABS Inc. CWABS Inc. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment 118 December 31, 2004 Shares/Units (in thousand) Carrying Value (US$ in thousand) Percentage of Ownership Market Value or Net Asset Value (US$ in thousand) Note - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 7,000 4,929 2,535 2,277 6,096 4,435 3,558 3,645 4,242 2,141 4,765 3,486 1,003 2,008 4,807 994 1,021 977 2,006 999 3,789 1,734 2,000 US$ 4,955 US$ 1,912 US$ 3,445 US$ 949 US$ 2,002 US$ 1,055 US$ 2,000 US$ 4,949 US$ 926 US$ 5,364 US$ 4,030 US$ 4,023 US$ 1,478 US$ 2,000 US$ 4,978 US$ 4,298 US$ 6,126 US$ 5,089 US$ 4,018 US$ 319 US$ 1,147 US$ 3,000 US$ US$ 4,957 US$ 10,008 3,500 US$ 4,999 US$ 4,959 US$ 2,364 US$ 5,000 US$ 4,600 US$ 4,209 US$ 1,647 US$ 1,903 US$ N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 6,976 4,934 2,531 2,273 6,075 4,440 3,539 3,615 4,188 2,126 4,719 3,446 1,002 2,003 4,773 994 1,020 975 2,004 997 3,766 1,700 2,004 4,963 1,888 3,427 949 1,998 1,048 1,990 4,912 923 5,315 4,006 3,995 1,489 2,000 4,941 4,230 6,064 5,035 3,992 318 1,145 2,989 4,977 9,923 3,493 4,991 4,965 2,363 4,952 4,607 4,178 1,662 1,907 (Continued) 119 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account CWABS Inc. CWABS Inc. CWABS Inc. CWABS Inc. CWALT Inc. CWABS Inc. CWABS Inc. Daimlerchrysler Auto Tr Daimlerchrysler Auto Tr Daimlerchrysler Auto Tr Detroit Edison Securitization Fifth Third Auto Tr Finance Amer Mtg Ln Tr First Franklin Mtg Ln Tr First Horizon Abs Tr First Union Lehman Bros Mtg Tr First USA Credit Cr Master Tr Ford Cr Auto Owner Tr Granite Mtgs PLC GS Auto Ln Tr GS Mtg Secs Corp. Harley Davidson Motorcycle Tr Harley Davidson Motorcycle Tr Holmes Fing No 8 PLC Honda Auto Receivables Household Automotive Tr Hyundai Auto Receivables Tr IMPAC Cmb Tr IMPAC Cmb Tr IMPAC Secd Assets Corp. Long Beach Accep Auto Receivab Merrill Lynch Mtg Invs Inc. Merrill Lynch Mtg Invs Inc. Monumentl Global Fdg II National City Auto Receivables Navistar finl 2003 A Owner Tr Nissan Auto Receivables Nissan Auto Receivables Own Tr Nissan Auto Receivables Owner ONYX Accep Owner Tr ONYX Accep Owner Tr Providian Gateway Owner Tr Providian Gateway Owner Tr Reliant Energy Transition Bd Residential Asset Mtg Prods Residential Asset Mtg Prods Residential Fdg Mtg Secs I Inc. Sequoia Mtg Tr Sequoia Mtg Tr Sequoia Mtg Tr Sequoia Mtg Tr Sequoia Mtg Tr Structured Adj Rate Mtg Ln Tr Structured Asset Secs Corp. Thoornburg Mtg Secs Tr Toyota Auto Receivables 2003B Triad Auto Receivables Tr TXU Elec Delivery Transition - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment 120 December 31, 2004 Shares/Units (in thousand) Carrying Value (US$ in thousand) Percentage of Ownership Market Value or Net Asset Value (US$ in thousand) Note - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1,907 US$ 2,000 US$ 5,000 US$ 3,500 US$ 4,292 US$ 2,317 US$ 4,040 US$ 4,991 US$ 4,982 US$ 4,897 US$ 674 US$ 3,000 US$ 985 US$ 2,002 US$ 2,000 US$ 3,567 US$ US$ 5,011 US$ 10,999 5,000 US$ 2,948 US$ 2,944 US$ 3,417 US$ 5,999 US$ 5,001 US$ 5,000 US$ 513 US$ 3,500 US$ 1,414 US$ 988 US$ 3,570 US$ 2,526 US$ 1,460 US$ 1,500 US$ 1,000 US$ 1,206 US$ 4,928 US$ 7,000 US$ 4,999 US$ 4,853 US$ 963 US$ 4,913 US$ 4,204 US$ 3,992 US$ 5,185 US$ 3,731 US$ 3,000 US$ 3,659 US$ 2,504 US$ 1,960 US$ 1,488 US$ 2,000 US$ 3,500 US$ 3,037 US$ 1,403 US$ 1,921 US$ 4,970 US$ 5,042 US$ 7,736 US$ N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 1,912 US$ 1,997 US$ 5,055 US$ 3,541 US$ 4,277 US$ 2,298 US$ 4,040 US$ 4,970 US$ 4,970 US$ 4,893 US$ 671 US$ 2,999 US$ 986 US$ 2,006 US$ 2,000 US$ 3,534 US$ US$ 5,008 US$ 10,936 5,000 US$ 2,970 US$ 2,944 US$ 3,400 US$ 5,938 US$ 5,052 US$ 4,991 US$ 511 US$ 3,468 US$ 1,413 US$ 988 US$ 3,566 US$ 2,502 US$ 1,460 US$ 1,502 US$ 1,001 US$ 1,207 US$ 4,889 US$ 6,958 US$ 4,993 US$ 4,872 US$ 961 US$ 4,933 US$ 4,201 US$ 3,982 US$ 5,117 US$ 3,672 US$ 2,980 US$ 3,631 US$ 2,513 US$ 1,955 US$ 1,486 US$ 2,000 US$ 3,500 US$ 3,031 US$ 1,394 US$ 1,923 US$ 4,930 US$ 4,997 US$ 7,715 US$ (Continued) 121 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account USAA Auto Owner Tr Wachovia Auto Owner Tr Wachovia Auto Owner Tr WFS Financial Owner Trust WFS Finl 2004 2 Owner Tr WFS Finl 2004 4 Owner Tr Whole Auto Ln Tr Whole Auto Ln Tr Whole Auto Ln Tr World Omni Auto Receivables Tr Commercial papers Corporate issued notes Money market funds Equity Horizon Venture Fund I, L.P. Crimson Asia Capital Ltd., L.P. - - - - - - - - - - - - Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Long-term investment Long-term investment TSMC - North America TSMC stock Parent company Short-term investment Chi Cherng Hsin Ruey TSMC International TSMC stock TSMC stock Money market fund BOA Fund Stock InveStar InveStar II TSMC Development TSMC Technology 3DFX Interactive Inc. TSMC Development WaferTech stock InveStar Common stock RichTek Technology Corp. Advanced Power Electronics Corp. Broadtek Electronics Corp. Monolithic Power Systems, Inc. SiRF Technology Holdings, Inc. Broadtek Electronics Corp. Programmable Microelectronics (Taiwan), Corp. Global Testing Corp. RichTek Technology Corp. Signia Technologies, Inc. Incentia Design Systems, Inc. Advanced Power Electronics Corp. Capella Microsystems (Taiwan), Inc. Preferred stock Integrated Memory Logic, Inc. Sensory, Inc. - - - - - - - - - - - - - - - 122 Parent company Short-term investment Parent company Short-term investment - Short-term investment Subsidiary Subsidiary Subsidiary Subsidiary - Subsidiary Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment December 31, 2004 Shares/Units (in thousand) Carrying Value (US$ in thousand) Percentage of Ownership Market Value or Net Asset Value (US$ in thousand) Note - - - - - - - - - - - - - - - - 14,151 15,670 15,700 30,300 24,320 51,300 1 1 68 - 682 1,108 869 1,975 90 145 575 13,268 842 701 365 1,123 530 1,831 1,404 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 4,000 6,000 4,999 5,008 4,994 5,399 5,967 4,000 3,000 5,963 2,997 1,999 US$ 21,114 246,485 43,649 677,110 458,564 459,512 US$ 30,300 US$ 34,514 US$ 34,534 US$ 603,993 US$ 5,544 - US$ 484,060 67 US$ 502 US$ US$ 275 US$ 1,567 393 US$ 46 US$ 208 US$ 5,670 US$ 83 US$ 202 US$ 92 US$ 508 US$ 154 US$ US$ US$ 1,221 125 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A - - - N/A 97 97 100 100 - 99 - - - - - - 1 9 1 3 1 2 4 12 6 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,991 5,991 4,995 4,989 4,992 5,342 5,966 3,969 2,964 5,906 2,997 1,999 US$ 21,114 246,485 43,649 696,661 771,451 772,897 US$ 30,300 US$ 34,514 US$ 34,534 US$ 603,993 5,544 US$ - US$ 484,060 1,370 US$ 697 US$ US$ 225 US$ 19,910 1,157 US$ 38 US$ 208 US$ 5,670 US$ 1,692 US$ 202 US$ 92 US$ 706 US$ 154 US$ US$ US$ 1,221 125 (Continued) 123 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account InveStar II Emerging Alliance Sonics, Inc. NanoAmp Solutions, Inc. Memsic, Inc. Reflectivity, Inc. IP Unity Tropian, Inc. Common stock RichTek Technology Corp. Monolithic Power Systems, Inc. eChannel Option Holding, Inc. eLCOS Microdisplay Technology, Ltd. Signia Technologies, Inc. Procoat Technology, Inc. RichTek Technology Corp. Programmable Microelectronics (Taiwan), Inc. Auden Technology MFG. Co., Ltd. GeoVision, Inc. EoNex Technologies, Inc. Conwise Technology Corporation, Ltd. EON Technology, Corp. Goyatek Technology, Corp. Trendchip Technologies Corp. Ralink Technology (Taiwan), Inc. Silicon Data International Co., Inc. Capella Microsystems(Taiwan), Inc. Preferred stock Memsic, Inc. eLCOS Microdisplay Technology, Ltd. NanoAmp Solutions, Inc. Advanced Analogic Technology, Inc. Sonics, Inc. Reflectivity, Inc. Tropian, Inc. Kilopass Technologies, Inc. FangTek, Inc. Alchip Technologies Limited Common stock Global Investment Holding, Inc. RichWave Technology Corp. NetLogic Microsystems, Inc. Preferred stock Quake Technologies, Inc. Pixim, Inc. Newport Opticom, Inc. Ikanos Communication, Inc. Quicksilver Technology, Inc. Mosaic Systems, Inc. Zenesis Technologies, Inc. Reflectivity, Inc. Teknovus, Inc. Miradia, Inc. (Formerly XHP Microsystems, Inc.) Axiom Microdevices, Inc. Optichron, Inc. Audience, Inc. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Short-term investment Short-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment 124 December 31, 2004 Shares/Units (in thousand) Carrying Value (US$ in thousand) Percentage of Ownership Market Value or Net Asset Value (US$ in thousand) Note 2,686 541 2,727 1,064 1,008 1,758 321 864 358 270 351 5,123 395 177 953 471 55 2,800 3,276 2,088 2,000 1,833 2,000 419 2,289 2,667 375 948 1,582 4,255 1,464 3,887 6,806 2,579 10,000 2,600 113 601 1,721 962 7,446 1,049 2,481 1,204 4,848 5,556 3,040 1,000 714 1,654 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,530 853 1,500 741 494 471 184 2,081 251 27 101 1,940 226 50 738 127 3,048 490 1,175 545 861 791 204 122 1,560 3,500 1,500 1,261 3,082 2,205 393 2,000 3,250 2,950 100,000 867 1,388 450 2,382 250 3,125 - 12 699 2,479 1,000 1,000 1,000 1,000 250 4 2 10 2 2 3 - - 4 1 1 10 1 - 4 1 5 14 8 7 5 3 3 3 8 15 1 2 5 5 2 19 34 18 6 13 1 1 3 6 3 4 6 4 4 3 4 5 6 2 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,530 853 1,500 741 494 471 645 8,716 251 27 101 1,940 794 50 738 127 3,048 490 1,175 545 861 791 204 122 1,560 3,500 1,500 1,261 3,082 2,205 393 2,000 3,250 2,950 100,000 867 1,388 450 2,382 250 3,125 - 12 699 2,479 1,000 1,000 1,000 1,000 250 (Continued) 125 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account VTAF II GUC Next IO, Inc. NuCORE Technology Inc. Centrality Communications, Inc. Layer N Networks, Inc. Common stock Yobon Technologies, Inc. Sentelic, Corp. Ivyon Technology, Inc. Preferred stock Powerprecise Solutions, Inc. Tzero Technologies, Inc. Miradia, Inc. Agelia Technologies, Inc. Audience, Inc. Axiom Microdevices, Inc. Next IO, Inc. Bond funds Grand Cathay TIIM Polaris De Li EnTrust Kirin E. Sun New Era Jih Sun EnTrust Phoenix Transcend Fortune Stock funds TIIM DaLi UPAMC Global Select Fund of Funds Sheng Hua 9966 Balance Stock Global Unichip Corporation - NA - - - - - - - - - - - - - - - - - - - - - - - - - Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Subsidiary Long-term investment 126 December 31, 2004 Shares/Units (in thousand) Carrying Value (US$ in thousand) Percentage of Ownership Market Value or Net Asset Value (US$ in thousand) Note 800 2,254 809 1,905 1,675 600 200 258 244 1,809 1,149 531 686 216 3,608 703 1,550 2,106 1,920 772 2,081 1,936 296 336 300 100 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 500 1,455 1,000 1,000 787 1,022 775 250 500 1,600 1,000 102 700 182 45,543 9,698 22,800 22,697 20,313 10,262 30,563 22,947 5,000 3,364 3,000 3,375 2 2 2 2 17 15 10 3 2 2 2 1 5 - N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 100 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 500 1,455 1,000 1,000 787 1,022 775 250 500 1,600 1,000 102 700 182 45,544 9,698 22,800 22,698 20,314 10,262 30,564 22,948 4,474 3,378 3,011 3,375 127 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 YEAR ENDED DECEMBER 31, 2004 (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified) Company Name Marketable Securities Type and Name Financial Statement Account Counter-party Nature of Relationship The Company Money market funds BOA Fund Short-term investment BOA GS Fund Short-term investment Goldman Sachs Bond funds JF Taiwan Bond Fund ABN AMRO Bond Fund ABN AMRO Select Bond Fund JF Taiwan First Bond Fund INVESCO R.O.C Bond A Fund Dresdner Bond DAM Fund Barits Bond Fund Shin Kong Chi Shin Bond Fund NITC Bond Fund HSBC NTD Money Management Fund Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment JF Asset Management (Taiwan) Ltd. ABN AMRO ABN AMRO JF Asset Management (Taiwan) Ltd. INVESCO Asset Management Taiwan Allianz Dresdner Securities Investment Consulting Co., Ltd. Barits Securities Investment Trust Co., Ltd. Shinkong Investment Trust Co., Ltd. National Investment Trust Co., Ltd. HSBC Asset Management (Taiwan) Ltd. Bonds under repurchase agreement Short-term investment Chung Shing Bills Finance Corp. and several financial institutions Government bonds 1994 Government Bond Series C 2002 Government Bond Series A 2002 Government Bond Series E 2002 Government Bond Series J 2003 Government Bond Series A United States Treas NTS 2003 Government Bond Series I 2004 Government Bond Series A Short-term investment Chung Shing Bills Finance Corp. and several financial Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Long-term investment Long-term investment institutions BNP and several financial institutions BNP and several financial institutions BNP and several financial institutions BNP and several financial institutions - FCB and several financial institutions China Bills Finance Corp. and several financial institu- tions 2004 Government Bond Series E 2004 Kaohsiung Municipal Bond Series A Long-term investment Long-term investment BNP and several financial institutions KGI Securities Co., Ltd. and several financial institutions Corporate bonds Taiwan Power Company Allstate Finl Global Fdg LLC American Express Co. American Express Cr Corp. Mtn American Gen Fin Corp. Mtn American Gen Fin Corp. Mtn American Honda Fin Corp. Mtn American Honda Fin Corp. Mtn American Honda Fin Corp. Mtn American Intl Group Inc. Mtnf Amgen Inc. Bank New York Inc. Bank One Corp. Bear Stearns Cos Inc. Bear Stearns Cos Inc. Bear Stearns Cos Inc. Medium Te Bristol Myers Squibb Co. Brown Forman Corp. Cardinal Health Inc. Cit Group Hldgs Inc. Citigroup Inc. Compaq Computer Corp. Consolidated Edison Co. NY Inc. Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment KGI Securities Co., Ltd. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 128 Beginning Balance Acquisition Disposal Ending Balance Shares/Units (in thousand) Amount (US$ in thousand) Shares/Units (in thousand) Amount (US$ in thousand) Shares/Units (in thousand) Amount (US$ in thousand) Carrying Value (US$ in thousand) Gain (Loss) on Disposal (US$ in thousand) Shares/Units (in thousand) Amount (US$ in thousand) (Note 1) 40,000 20,000 34,343 34,794 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - $ (US$ 1,359,120 40,000) 679,560 (US$ 20,000) $ - - - - 500,000 500,000 - - - - - - - - 1,800,000 1,422,197 3,157,331 3,113,066 - - - - - - - - - - - - - - - - - - - - - - - - - - - - 68,021 165,257 18,235 110,580 93,975 80,833 76,640 151,594 3,764 41,568 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1,000,000 2,400,000 200,000 1,500,000 1,350,000 900,000 900,000 2,100,000 600,000 600,000 2,577,163 - - - 2,023,206 1,207,409 699,398 3,402,213 2,349,573 3,890,925 620,000 2,777,798 3,171 3,550 3,503 3,130 3,702 3,509 3,750 3,800 3,795 3,005 3,945 3,693 3,805 3,518 3,105 3,819 3,277 3,837 3,203 3,583 3,719 3,687 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 40,000 20,000 23,666 65,145 - 25,694 17,270 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - $ 1,359,120 (US$ 40,000) 679,560 (US$ 20,000) $ 1,359,120 (US$ 40,000) 679,560 (US$ 20,000) $ 350,000 950,000 - 350,000 250,000 - - - - - 346,791 943,825 - 348,537 248,089 - - - - - 4,127,714 4,127,714 1,427,762 1,422,197 US$ US$ US$ US$ US$ US$ US$ US$ 3,169,750 3,133,875 2,031,500 - 506,162 - - - - - - - 3,504 - - 3,509 3,755 - - - - 3,695 3,816 - - - 3,280 3,795 - - - - US$ US$ US$ US$ US$ US$ US$ US$ 3,157,331 3,113,066 2,023,206 - 507,041 - - - - - - - 3,503 - - 3,509 3,750 - - - - 3,693 3,805 - - - 3,277 3,837 - - - - US$ US$ US$ US$ US$ US$ US$ - - 3,209 6,175 - 1,463 1,911 - - - - - - 5,565 12,419 20,809 8,294 - (879) - - - - - - - 1 - - - 5 - - - - 2 11 - - - 3 (42) - - - - $ - - - - 78,698 134,906 18,235 84,886 76,705 80,833 76,640 151,594 3,764 41,568 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1,153,209 1,956,175 200,000 1,151,463 1,101,911 900,000 900,000 2,100,000 600,000 600,000 249,449 - - - - 1,207,409 192,357 3,397,081 2,349,573 3,893,827 620,000 2,777,798 3,171 3,550 - 3,130 3,702 - - 3,800 3,795 3,005 3,945 - - 3,518 3,105 3,819 - - 3,203 3,583 3,719 3,687 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ (Continued) 129 Company Name Marketable Securities Type and Name Financial Statement Account Counter-party Nature of Relationship Countrywide Fdg Corp. Mtn Countrywide Home Lns Inc. Credit Suisse First Boston USA Dell Computer Corp. Diageo PLC European Invt Bk Federal Home Ln Mtg Corp Federal Home Loan Mtg Assn First Data Corp. General Elec Cap Corp. Mtn General Elec Cap Corp. Mtn General Elec Cap Corp. Mtn Genworth Finl Inc. Goldman Sachs Group Inc Mtn Goldman Sachs Group LP Hewlett Packard Co. Honeywell Inc. Household Fin Corp. Household Fin Corp. Mtn Bk Ent Huntington Natl Bk ING Sec Life Ins Ingslf Intl Bk For Recon + Dev JP Morgan Chase + Co. JP Morgan Chase + Co. JP Morgan Chase + Co. Keycorp Mtn Book Entry KFW Intl Fin Inc. Lehman Brothers Hldgs Inc. Lehman Brothers Hldgs Inc. Lilly Eli + Co. Merrill Lynch + Co Inc. Merrill Lynch + Co Inc. Monumental Global Fdg II 2002A Morgan Stanley Group Inc. Morgan Stanley Group Inc. Nationsbank Corp. Nationwide Bldg Soc Nationwide Life Global Mtn Pepsico Inc. Mtn Book Entry Popular North Amer Inc Mtn Pricoa Global Fdg I Mtn Pricoa Global Fdg I Mtn Principal Life Global Fdg I Gl Salomon Smith Barney Hldgs Inc. SBC Communications Inc. Shell Finance (UK) PLC TIAA Global Mkts Inc. Unitedhealth Group Inc. Viacom Inc. Viacom Inc. Wachovia Corp. Walmart Cda Venture Corp. Washington Mut Fin Corp. Washington Mut Inc. Washington Post Co. Wells Fargo + Co. New China Steel Corporation Taiwan Power Company Nan Ya Plastics Corporation Formosa Plastics Corporation Formosa Petrochemical Corporation Agency bonds Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Chung Shing Bills Finance Corp. BNP and several financial institutions Chung Shing Bills Finance Corp. Chung Shing Bills Finance Corp. Chung Shing Bills Finance Corp. Short-term investment Short-term investment - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 130 Beginning Balance Acquisition Disposal Ending Balance Shares/Units (in thousand) Amount (US$ in thousand) Shares/Units (in thousand) Amount (US$ in thousand) Shares/Units (in thousand) Amount (US$ in thousand) Carrying Value (US$ in thousand) Gain (Loss) on Disposal (US$ in thousand) Shares/Units (in thousand) Amount (US$ in thousand) (Note 1) $ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,534 5,210 3,177 3,054 3,459 8,315 4,237 4,847 3,013 3,507 3,467 3,886 3,412 3,505 3,820 3,373 3,284 3,712 3,542 3,003 3,012 5,232 3,638 3,128 3,663 3,500 5,104 3,417 3,705 3,750 3,497 3,486 3,129 5,741 4,763 3,644 3,457 3,413 3,818 3,042 3,507 3,050 3,168 3,160 3,681 3,604 3,631 3,119 3,177 3,172 3,720 3,670 4,768 4,735 3,182 3,697 2,997,430 950,646 408,538 406,245 202,980 US$ US$ 6,096 4,725 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,540 - 3,188 - - - - - - 3,498 - - - - - - - 3,633 - - - - 3,601 - - - - 3,381 - - 3,498 - - - 3,713 - - - - - - - - - - - 3,131 - 3,135 3,175 - - - - - - - - - - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,534 - 3,177 - - - - - - 3,507 - - - - - - - 3,712 - - - - 3,638 - - - - 3,417 - - 3,497 - - - 3,713 - - - - - - - - - - - 3,112 - 3,177 3,172 - - - - - - - - - - - - - 6 - 11 - - - - - - (9) - - - - - - - (79) - - - - (37) - - - - (36) - - 1 - - - - - - - - - - - - - - - 19 - (42) 3 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ - 5,210 - 3,054 3,459 8,315 4,237 4,847 3,013 - 3,467 3,886 3,412 3,505 3,820 3,373 3,284 - 3,542 3,003 3,012 5,232 - 3,128 3,663 3,500 5,104 - 3,705 3,750 - 3,486 3,129 5,741 1,050 3,644 3,457 3,413 3,818 3,042 3,507 3,050 3,168 3,160 3,681 3,604 519 3,119 - - 3,720 3,670 4,768 4,735 3,182 3,697 2,978,804 915,276 407,526 405,485 202,595 US$ US$ 6,096 4,725 (Continued) 131 Company Name Marketable Securities Type and Name Financial Statement Account Counter-party Nature of Relationship Feferal Home Ln Mtg Corp. Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Gtd Federal Natl Mtg Assn Mtn Fnma Pool 790828 Gnma II Pool 081153 Gnma II Pool Tba Nov 30 Arms Government Natl Mtg Assn Federal Hm Ln PC Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Mtn Federal Home Loan Mtg Corp. Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Disc Nts Federal Natl Mtg Assn Mtn Freddie Mac Student Ln Marketing Assn Corporate issued asset-backed securities Aesop Fdg II LLC American Express Cr Account MA Americredit Automobile Receivb Banc Amer Coml Mtg Inc. Banc Amer Mtg Secs Inc. Bank Of Amer Lease Equip Tr BMW Veh Owner Tr California Infr + Economic Dev California Infras + Economic California Infrastructure Dev Capital Auto Receivables Asset Capital One Master Tr Capital One Multi Asset Execut Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 132 Beginning Balance Acquisition Disposal Ending Balance Shares/Units (in thousand) Amount (US$ in thousand) Shares/Units (in thousand) Amount (US$ in thousand) Shares/Units (in thousand) Amount (US$ in thousand) Carrying Value (US$ in thousand) Gain (Loss) on Disposal (US$ in thousand) Shares/Units (in thousand) Amount (US$ in thousand) (Note 1) $ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,558 5,861 3,393 6,130 6,371 7,000 5,014 3,817 4,829 4,473 3,466 5,210 4,927 14,938 7,014 4,936 9,956 5,264 4,948 7,018 9,993 7,042 6,098 13,953 13,983 13,981 6,978 3,388 4,907 4,953 9,997 9,971 11,984 4,933 4,930 4,903 11,036 10,496 5,270 4,982 6,940 4,867 6,903 4,981 6,997 4,993 5,000 15,787 4,929 16,000 4,955 3,445 4,949 5,503 4,030 4,023 4,978 4,298 8,383 7,419 4,627 3,093 4,957 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ - - - - - - - - 4,829 - - 4,153 - 6,980 - - 9,967 5,286 - - 5,000 - - - - - - - 4,981 - - 9,942 10,965 - - - 10,997 10,430 - 4,983 - 4,938 - - - 4,993 - - - 16,000 - - - - - - - - - - - 3,072 - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ - - - - - - - - 4,829 - - 4,168 - 6,976 - - 9,956 5,264 - - 4,997 - - - - - - - 4,907 - - 9,971 10,986 - - - 11,036 10,496 - 4,982 4,867 - - - 4,993 - - - 16,000 - - - - - - - - - - - 3,093 - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ - - - - - - - - - - - (15) - 4 - - 11 22 - - 3 - - - - - - - 74 - - (29) (21) - - - (39) (66) 1 71 - - - - - - - - - - - - - - - - - - - (21) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,558 5,861 3,393 6,130 6,371 7,000 5,014 3,817 - 4,473 3,466 1,042 4,927 7,962 7,014 4,936 - - 4,948 7,018 4,996 7,042 6,098 13,953 13,983 13,981 6,978 3,388 - 4,953 9,997 - 998 4,933 4,930 4,903 - - 5,270 - 6,940 - 6,903 4,981 6,997 - 5,000 15,787 4,929 - 4,955 3,445 4,949 5,503 4,030 4,023 4,978 4,298 8,383 7,419 4,627 - 4,957 (Continued) 133 Company Name Marketable Securities Type and Name Financial Statement Account Counter-party Nature of Relationship Capital One Secd Nt Tr Caterpillar Finl Asset Tr Centex Home Equity Ln Tr Cit Equip Coll Tr Citibank Cr Card Issuance Tr CHN Equip Tr Comm 2004 Htl 1 Credit Suisse First Boston Mtg CWABS Inc. CWABS Inc. CWALT Inc. CWMBS Inc. CWMBS Inc. Daimlerchrysler Auto Tr Daimlerchrysler Auto Tr Daimlerchrysler Auto Tr First Union Lehman Bros Mtg Tr First USA Credit Cr Master Tr Ford Cr Auto Owner Tr GE Cap Cr Card Master Nt Tr Granite Mtgs PLC GS Mtg Secs Corp. Harley Davidson Motorcycle Tr Harley Davidson Motorcycle Tr Holmes Fing No 8 PLC Honda Auto Receivables Hyundai Auto Receivables Tr Impac Secd Assets Corp. Monumentl Global Fdg II Navistar Finl 2003 A Owner Tr Nissan Auto Receivables Nissan Auto Receivables Owner Tr Nissan Auto Receivables Owner ONYX Accep Owner Tr Permanent Fing No 1 PLC Providian Gateway Owner Tr Providian Gateway Owner Tr Reliant Energy Transition Bd Residential Asset Mtg Prods Residential Fdg Mtg Secs I Inc Sequoia Mtg Tr Structured Adj Rate Mtg Ln Tr Toyota Auto Receivables 2003 B Triad Auto Receivables Tr TXU Elec Delivery Transition USAA Auto Owner Tr Wachovia Auto Owner Tr Wachovia Auto Owner Tr WFS Financial Owner Trust WFS Finl 2002 4 Owner Tr WFS Finl 2004 2 Owner Tr WFS Finl 2004 4 Owner Tr Whole Auto Ln Tr Whole Auto Ln Tr World Omni Auto Receivables Tr World Omni Auto Receivables Tr Money market funds Common stock RichTek Technology Corp. Atheros Communication, Inc. Monolithic Power Systems, Inc. InveStar InveStar II Common stock RichTek Technology Corp. Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Note: The ending balance included the recognition of the investment income (loss) by the equity method, the cumulative translation adjustments and the bond premi- um or discount amortization amount. 134 Beginning Balance Acquisition Disposal Ending Balance Shares/Units (in thousand) Amount (US$ in thousand) Shares/Units (in thousand) Amount (US$ in thousand) Shares/Units (in thousand) Amount (US$ in Thousand) Carrying Value (US$ in thousand) Gain (Loss) on Disposal (US$ in thousand) Shares/Units (in thousand) Amount (US$ in thousand) (Note 1) $ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 947 1,205 2,521 US$ US$ US$ 121 3,593 2,000 465 US$ 346 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 5,032 10,008 3,500 4,999 4,959 5,000 4,600 5,000 5,000 3,500 4,718 3,129 4,040 4,991 4,982 4,897 4,177 5,011 10,999 4,000 5,000 4,000 4,000 5,999 5,001 5,000 3,500 4,000 3,500 4,928 7,000 4,999 4,853 4,913 5,102 4,204 3,992 5,185 3,766 3,947 3,500 3,058 4,970 5,042 8,009 4,000 6,000 4,999 5,008 3,904 4,994 5,399 5,967 4,000 5,963 5,000 21,114 - - - - US$ US$ US$ US$ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1,595 1,205 546 US$ US$ US$ 5,000 - - - - - - - - - - - - - - - - - - 4,003 - - - - - - - - - - - - - - 5,036 - - - - - - - - - - - - - - - - - - - - 4,986 - 6,783 8,972 4,318 US$ US$ US$ US$ US$ US$ US$ 5,032 - - - - - - - - - - - - - - - - - - 4,000 - - - - - - - - - - - - - - 5,102 - - - - - - - - - - - - - - - - - - - - 5,000 - 184 3,593 433 US$ US$ US$ US$ US$ US$ US$ (32) - - - - - - - - - - - - - - - - - - 3 - - - - - - - - - - - - - - (66) - - - - - - - - - - - - - - - - - - - - (14) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ - 10,008 3,500 4,999 4,959 5,000 4,600 5,000 5,000 3,500 4,718 3,129 4,040 4,991 4,982 4,897 4,177 5,011 10,999 - 5,000 4,000 4,000 5,999 5,001 5,000 3,500 4,000 3,500 4,928 7,000 4,999 4,853 4,913 - 4,204 3,992 5,185 3,766 3,947 3,500 3,058 4,970 5,042 8,009 4,000 6,000 4,999 5,008 3,904 4,994 5,399 5,967 4,000 5,963 - US$ 21,114 6,598 5,379 3,885 682 - 1,975 US$ US$ 67 - 1,567 768 US$ 3,394 US$ 519 US$ 2,875 321 US$ 184 135 TABLE 5 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD. AND INVESTEES ACQUISITION OF INDIVIDUAL REAL ESTATE AT COSTS OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2004 (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified) Company Name Types of Property Transaction Date Transaction Amount Payment Term Counter-party The Company Fab. 12 April 21, 2004 $ 1,484,370 By the construction progress IDC Taiwan, Inc., Taiwan Branch Fab. 12 Fab. 12 Fab. 12 Fab. 12 Fab. 12 Fab. 12 Fab. 12 Fab. 12 Fab. 12 Fab. 14 Fab. 12 Fab. 12 Fab. 12 Fab. 12 April 21, 2004 April 22, 2004 May 12, 2004 May 12, 2004 May 12, 2004 June 17, 2004 July 02, 2004 July 08, 2004 July 08, 2004 420,168 224,800 340,307 116,181 133,092 165,208 225,744 100,767 466,833 By the construction progress By the construction progress By the construction progress By the construction progress By the construction progress By the construction progress By the construction progress By the construction progress By the construction progress (U.S.A.) CHRIST AG Allis Electric Co., Ltd. United Industry gas Corp., Ltd. United Industry gas Corp., Ltd. BOC EDWARDS, CMS Organo Corporation Marketech International Corp. Kanto Chemical Co., Inc. United Integrated Services Co., Ltd. August 03, 2004 300,000 By the construction progress United Integrated Services Co., August 05, 2004 August 05, 2004 August 05, 2004 October 15, 2004 122,969 185,984 182,060 105,299 By the construction progress By the construction progress By the construction progress By the construction progress Ltd. Marketech International Corp. Marketech International Corp. Marketech International Corp. IDC Taiwan, Inc., Taiwan Branch (U.S.A.) TABLE 6 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD. AND INVESTEES TOTAL PURCHASES FROM OR SALES TO RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2004 (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified) Company Name Related Party Nature of Relationship The Company TSMC - North America Philips and its affiliates GUC WaferTech VIS SSMC Subsidiary Major shareholder Investee Subsidiary Investee Investee Transaction Details Purchase/Sale Amount Sales Sales Sales Purchases Purchases Purchases $ 142,271,732 5,463,565 371,546 15,203,047 9,169,602 5,869,123 136 Nature of Relationship Prior Transaction of Related Counter-party Owner Relationship Transfer Date Amount Price Reference Purpose of Acquisition Other Terms - - - - - - - - - - - - - - - N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Public bidding Manufacturing purpose N/A N/A N/A N/A N/A N/A N/A N/A N/A Public bidding Public bidding Public bidding Public bidding Public bidding Public bidding Public bidding Public bidding Public bidding Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose N/A Public bidding Manufacturing purpose N/A N/A N/A N/A Public bidding Public bidding Public bidding Public bidding Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose None None None None None None None None None None None None None None None Transaction Details Abnormal Transaction Notes/Accounts Payable or Receivable Note % to Total Payment Terms Unit Price Payment Terms Ending Balance 55 2 - 34 13 21 Net 30 days after invoice date Net 30 days after monthly closing Net 30 days after monthly closing Net 30 days after monthly closing Net 30 days after monthly closing Net 30 days after monthly closing None None None None None None None None None None None None $ 15,526,964 581,487 56,436 (913,107) (1,533,938) (207,794) % to Total 47 2 - 9 16 2 137 TABLE 7 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD. AND INVESTEES RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL DECEMBER 31, 2004 (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified) Company Name Related Party Nature of Relationship Ending Balance Turnover Rate The Company TSMC - North America TSMC - Shanghai Philips and its affiliates Subsidiary Subsidiary Major shareholder $ 15,526,964 1,473,365 581,487 38 days (Note 1) 49 days Note 1: The ending balance is generated mainly from the sales of machinery, so it is not applicable for the calculation of the turnover rate. TABLE 8 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD. AND INVESTEES NAMES, LOCATIONS, AND RELATED INFORMATION OF INVESTEES ON WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCE DECEMBER 31, 2004 (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified) Investor Company Investee Company Location Main Businesses and Products The Company TSMC - North America San Jose, California, U.S.A. Sales and marketing of integrated circuits and TSMC - Europe TSMC - Japan TSMC - Shanghai Amsterdam, the Netherlands Yokohama, Japan Shanghai, China Marketing activities Marketing activities Manufacturing and marketing of integrated circuits and semiconductor devices VIS Hsin-Chu, Taiwan semiconductor devices Research, design, development, manufacture, packaging, testing and sale of memory integrated circuits, LSI, VLSI and related parts TSMC International Tortola, British Virgin Islands Providing investment in companies involved in the Chi Cherng Hsin Ruey TSMC Partners SSMC Emerging Alliance GUC VisEra VTAF II design, manufacture, and other related business in the semiconductor industry Taipei, Taiwan Taipei, Taiwan Tortola, British Virgin Islands Singapore Cayman Islands Hsin-Chu, Taiwan Investment activities Investment activities Investment activities Fabrication and supply of integrated circuits Investing in new start-up technology companies Researching, developing, manufacturing, testing and Hsin-Chu, Taiwan Manufacturing, material wholesaling and retailing of marketing of integrated circuits Cayman Islands Investing in new start-up technology companies electronic spare parts Note 1: The treasury stock is deducted from the carrying value. Note 2: The gains or losses on disposal of the stocks held by subsidiaries (treated as treasury stocks) and the paid-in capital from cash dividend distributed by parent company are excluded. 138 Overdue Amount Action Taken Amounts Received in Subsequent Period Allowance for Bad Debts $ 5,044,202 145,146 7,136 - Accelerate demand on account receivables - $ 6,013,414 - 13,726 $ - - - Original Investment Amount Balance as of December 31, 2004 December 31, 2004 December 31, 2003 Shares (in thousand) Percentage of Ownership Carrying Value (Note 1) Net Income (Loss) of the Investee Investment Gain (Loss)(Note 2) Note $ 333,178 $ 333,178 11,000 100 $ 502,242 $ 120,587 $ 112,543 Subsidiary 15,749 83,760 9,187,962 15,749 83,760 1,890,952 - 6 - 8,119,816 8,119,816 409,532 31,445,780 31,445,780 987,968 300,000 300,000 10,350 6,408,190 1,447,957 409,920 51,000 332,412 300,000 300,000 10,350 6,408,190 1,179,690 409,920 51,000 - - - 300 382 - 39,040 5,100 - 100 100 100 28 100 36 36 100 32 99 47 25 98 25,439 102,572 8,113,511 262 2,919 (727,036) 262 2,919 (727,036) Subsidiary Subsidiary Subsidiary 5,401,982 4,706,668 1,329,555 Investee 23,778,997 2,598,162 2,598,162 Subsidiary 50,570 49,823 3,908,356 3,290,888 823,232 391,626 59,116 329,968 21,359 21,887 43,117 2,288,786 (97,767) 30,424 35,540 18,373 (664) (491) 43,117 732,418 (97,278) 23,279 Investee Investee Subsidiary Investee Subsidiary Investee 8,885 Investee 14,648 Subsidiary 139 TABLE 9 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD. AND INVESTEES INFORMATION OF INVESTMENT IN MAINLAND CHINA DECEMBER 31, 2004 (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified) Investee Company Main Businesses and Products Total Amount of Paid-in Capital (RMB in Thousand) Investment Type Investment Flows Accumulated Outflow of Investment from Taiwan as of January 1, 2004(US$ in Thousand) Outflow (US$ in Thousand) Inflow Accumulated Outflow of Investment from Taiwan as of December 31, 2004 (US$ in Thousand) TSMC (Shanghai) Company Limited Manufacturing and marketing of integrat- ed circuits and semi- conductor devices $ 9,187,962 (RMB 2,284,355) (Note 1) $ (US$ 1,890,952 56,000) $ (US$ 7,297,010 220,000) $ - $ (US$ 9,187,962 276,000) Percentage of Ownership in Investment Investment Gain (Loss) (Note 2) Carrying Value as of December 31, 2004 Accumulated Inward Remittance of Earnings as of December 31, 2004 Accumulated Investment in Mainland China as of December 31, 2004 (US$ in Thousand) Investment Amounts Authorized by Investment Commission, MOEA (US$ in Thousand) Upper Limit on Investment (US$ in Thousand) 100% $ (727,036) $ 8,113,511 $ - $ (US$ 9,187,962 276,000) $ 11,841,207 (US$ 371,000) $ (US$ 11,841,207 371,000) Note 1: Direct investment in TSMC (Shanghai) US$276,000 thousand. Note 2: Amount was recognized based on the audited financial statements. 140 10. Consolidated Financial Statements and Independent Auditors' Report INDEPENDENT AUDITORS' REPORT The Board of Directors and the Shareholders Taiwan Semiconductor Manufacturing Company, Ltd. We have audited the accompanying consolidated balance sheets of Taiwan Semiconductor Manufacturing Company, Ltd. and sub- sidiaries (the Company) as of December 31, 2004 and 2003, and the related consolidated statements of income, changes in shareholders equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with the Rules Governing the Audit of Financial Statements by Certified Public Accountants, and auditing standards generally accepted in the Republic of China. Those rules and standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the account- ing principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Taiwan Semiconductor Manufacturing Company, Ltd. and subsidiaries as of December 31, 2004 and 2003, and the results of their operations and their cash flows for the years then ended, in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and generally accepted accounting principles in the Republic of China. January 13, 2005 (January 30, 2005 as to Note 22m) Notice to Readers The accompanying consolidated financial statements are intended only to present the consolidated financial position, results of opera- tions and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdiction. The standards, procedures and practices to audit such consolidated financial statements are those generally accepted and applied in the Republic of China. For the convenience of readers, the auditors report and the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the origi- nal Chinese version or any difference in the interpretation of the two versions, the Chinese-language auditors report and financial state- ments shall prevail. 141 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2004 AND 2003 (In Thousands of New Taiwan Dollars, Except Par Value) ASSETS CURRENT ASSETS Cash and cash equivalents (Notes 2, 3 and 4) Short-term investments, net (Notes 2 and 4) Receivables from related parties (Note 20) Notes receivable Accounts receivable Allowance for doubtful receivables (Note 2) Allowance for sales returns and others (Note 2) Other receivables from related parties (Note 20) Other financial assets (Notes 2 and 23) Inventories, net (Notes 2 and 5) Deferred income tax assets, net (Notes 2 and 14) Prepaid expenses and other current assets Total current assets LONG-TERM INVESTMENTS (Notes 2, 6, 18 and 23) Equity method Cost method Long-term bonds Other investments Total long-term investments PROPERTY, PLANT AND EQUIPMENT (Notes 2, 7, 10 and 20) Cost Land and land improvements Buildings Machinery and equipment Office equipment Leased assets Total cost Accumulated depreciation Advance payments and construction in progress Net property, plant and equipment GOODWILL (Note 2) OTHER ASSETS Deferred charges, net (Notes 2, 8 and 22) Deferred income tax assets, net (Notes 2 and 14) Refundable deposits (Note 20) Others Total other assets $ 2004 Amount % 74,302,351 54,107,951 654,377 2,942 31,211,481 (982,843) (3,342,450) 141,578 2,212,371 15,555,937 8,917,986 1,667,401 184,449,082 9,143,612 3,266,330 15,170,167 10,521,740 38,101,849 803,508 97,882,699 433,130,364 8,538,225 566,243 540,921,039 (331,253,866) 49,244,153 258,911,326 7,115,510 8,992,452 1,649,979 106,448 127,445 10,876,324 $ 15 11 - - 7 - (1) - - 3 2 - 37 2 1 3 2 8 - 19 87 2 - 108 (66) 10 52 1 2 - - - 2 2003 Amount 102,988,896 13,611,536 920,444 9,893 28,495,269 (1,020,398) (2,135,843) 131,731 1,373,705 12,135,324 8,398,205 1,632,908 166,541,670 7,255,239 3,492,775 - - 10,748,014 855,394 79,778,533 371,315,729 7,457,538 726,585 460,133,779 (275,013,069) 26,733,553 211,854,263 8,720,917 7,992,016 1,111,367 199,522 232,762 9,535,667 % 26 3 - - 7 - - - - 3 2 - 41 2 1 - - 3 - 20 91 2 - 113 (68) 7 52 2 2 - - - 2 TOTAL $ 499,454,091 100 $ 407,400,531 100 The accompanying notes are an integral part of the consolidated financial statements. 142 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES 2004 2003 Amount % Amount % Short-term bank loans (Note 9) Payables to related parties (Note 20) Accounts payable Payable to contractors and equipment suppliers Accrued expenses and other current liabilities (Notes 2, 12 and 22) Current portion of bonds payable (Note 11) $ 383,004 2,217,815 7,264,419 33,427,702 10,126,368 10,500,000 $ - 1 2 6 2 2 407,736 3,248,289 6,438,604 7,232,103 8,094,191 5,000,000 63,919,308 13 30,420,923 - 1 2 2 2 1 8 2 7 1 - - 8,800,302 30,000,000 3,300,829 - 726,585 42,827,716 10 2,601,450 763,889 1,483,245 4,848,584 88,999 1 - - 1 - 1,915,020 19,500,000 7,964,975 2,317,972 566,243 32,264,210 3,101,707 412,881 714,949 4,229,537 75,737 - 4 2 - - 6 1 - - 1 - Total current liabilities LONG-TERM LIABILITIES Long-term bank loans (Note 10) Bonds payables (Note 11) Other long-term payables (Note 12) Other payables to related parties (Notes 20 and 22) Liability under capital lease (Notes 2 and 7) Total long-term liabilities OTHER LIABILITIES Accrued pension cost (Notes 2 and 13) Guarantee deposits (Note 22) Others Total other liabilities MINORITY INTEREST IN SUBSIDIARIES (Note 2) Total liabilities 100,488,792 20 78,186,222 19 SHAREHOLDERS' EQUITY (Notes 2 and 16) Capital stock - $10 par value Authorized: 24,600,000 thousand shares Issued: 23,251,964 thousand shares in 2004 and 20,266,619 thousands shares in 2003 Capital surplus Retained earnings: Appropriated as legal reserve Appropriated as special reserve Unappropriated earnings Others: Unrealized loss on long-term investments (Note 2) Cumulative translation adjustments (Note 2) Treasury stock (at cost) - 45,521 thousand shares in 2004 and 40,597 thousand shares in 2003 (Notes 2 and 18) Total shareholders' equity TOTAL 232,519,637 56,537,259 25,528,007 - 88,202,009 - (2,226,427) (1,595,186) 398,965,299 47 11 5 - 18 - (1) - 80 202,666,189 56,855,885 20,802,137 68,945 50,229,008 (35) 225,408 (1,633,228) 329,214,309 $ 499,454,091 100 $ 407,400,531 50 14 5 - 12 - - - 81 100 143 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003 (In Thousands of New Taiwan Dollars, Except Consolidated Earnings Per Share) GROSS SALES (Notes 2 and 20) $ 261,947,351 $ 207,279,137 SALES RETURNS AND ALLOWANCES (Note 2) (4,734,733) (4,282,325) 2004 2003 Amount % Amount % 257,212,618 100 202,996,812 100 NET SALES (Note 24) COST OF SALES (Notes 15 and 20) GROSS PROFIT OPERATING EXPENSES (Notes 15, 20 and 24) Research and development General and administrative Marketing Total operating expenses INCOME FROM OPERATIONS NON-OPERATING INCOME AND GAINS (Note 24) Investment income recognized by equity method, net (Notes 2 and 6) Interest (Notes 2 and 23) Gain on sales of investments, net (Note 2) Technical service income (Notes 20 and 22) Gain on disposal of property, plant and equipment (Note 2) Other (Note 20) Total non-operating income and gains NON-OPERATING EXPENSES AND LOSSES (Note 24) Interest (Notes 2, 7 and 23) Foreign exchange loss, net (Notes 2 and 23) Loss on impairment of long-term investments (Note 2) Loss on disposal of property, plant and equipment (Note 2) Unrealized valuation loss of short-term investments (Note 2) Loss on impairment of property, plant and equipment and idle assets (Note 2) Investment loss recognized by equity method, net (Notes 2 and 6) Other Total non-operating expenses and losses INCOME BEFORE INCOME TAX AND MINORITY INTEREST (Note 24) INCOME TAX BENEFIT (EXPENSE) (Notes 2 and 14) INCOME BEFORE MINORITY INTEREST 141,393,435 115,819,183 12,516,434 11,454,374 3,366,701 27,337,509 88,481,674 2,094,137 1,858,359 914,541 423,804 242,785 556,598 6,090,224 1,528,908 382,164 350,608 131,148 75,212 - - 138,271 2,606,311 91,965,587 363,426 92,329,013 55 45 5 4 1 10 35 1 1 - - - - 2 1 - - - - - - - 1 36 - 36 - 128,113,334 74,883,478 12,712,695 8,199,965 2,670,237 23,582,897 51,300,581 - 888,107 3,538,081 209,764 438,809 594,551 5,669,312 1,891,009 755,100 652,718 374,126 - 1,506,199 294,244 317,852 5,791,248 51,178,645 (3,922,957) 47,255,688 3,012 63 37 6 4 2 12 25 - 1 2 - - - 3 1 1 - - - 1 - - 3 25 (2) 23 - 23 (Continued) MINORITY INTEREST IN LOSS (INCOME) OF SUBSIDIARIES (Notes 2 and (12,898) 24) CONSOLIDATED NET INCOME $ 92,316,115 36 $ 47,258,700 144 2004 2003 Income Before Income Tax and Minority Interest Consolidated Net Income Income Before Income Tax and Minority Interest Consolidated Net Income CONSOLIDATED EARNINGS PER SHARE (NT$, Note 19) Basic earnings per share Diluted earnings per share $ 3.96 $ 3.95 $ 3.97 $ 3.97 $ 2.19 $ 2.19 $ 2.02 $ 2.02 The accompanying notes are an integral part of the consolidated financial statements. (Concluded) 145 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003 (In Thousands of New Taiwan Dollars) Capital Stock Issued Preferred Stock Common Stock Shares (in thousand) Amount Shares (in thousand) Amount BALANCE, JANUARY 1, 2003 1,300,000 $ 13,000,000 18,622,887 $ 186,228,867 Redemption and retirement of preferred stock (1,300,000) (13,000,000) - - Appropriations of prior year's earnings Legal reserve Special reserve Bonus to employees - stock Cash dividends paid for preferred stock Stock dividends - 8% Remuneration to directors and supervisors Net income in 2003 Adjustment arising from changes in ownership percentage in investees Reversal of unrealized loss on long-term investment of investees Translation adjustments Treasury stock - sales of parent company stock held by subsidiaries BALANCE, DECEMBER 31, 2003 Appropriations of prior year's earnings Legal reserve Reversal of special reserve Bonus to employees - cash Bonus to employees - stock Cash dividends paid for preferred stock Cash dividends - 6% Stock dividends - 14% Remuneration to directors and supervisors Net income in 2004 Adjustment arising from changes in ownership percentage in investees Reversal of unrealized loss on long-term investment of investees Translation adjustments Issuance of stock arising from exercising stock options Cash dividends received by subsidiaries from parent company Treasury stock - sales of the parent company stock held by subsidiaries Treasury stock - repurchased by the Company Retirement of treasury stock BALANCE, DECEMBER 31, 2004 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - $ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 153,901 - 1,489,831 - - - 1,539,013 - 14,898,309 - - - - - - - - - - - 20,266,619 202,666,189 - - - 272,651 - - 2,837,327 - - - - 2,726,514 - - 28,373,267 - - - - - 87 - - - - - - - 867 - - - (124,720) (1,247,200) 23,251,964 $ 232,519,637 The accompanying notes are an integral part of the consolidated financial statements. 146 Retained Earnings Capital Surplus Legal Reserve Special Reserve Unappropriated Earnings Total Unrealized Loss on Long-term Investments Cumulative Translation Adjustments Treasury Stock (Note 18) Total Shareholders' Equity $ 57,004,789 $ 18,641,108 $ - - - - - - - - (158,924) - - 10,020 - 2,161,029 - - - - - - - - - - - - - 68,945 - - - - - - - - - $ 22,151,089 $ 40,792,197 $ (194,283) $ 945,129 $ (1,923,492) $ 295,853,207 - - (2,161,029) (68,945) (1,539,013) (455,000) (14,898,309) (58,485) - - (1,539,013) (455,000) (14,898,309) (58,485) 47,258,700 47,258,700 - - - - - - - - - - - - - - - - - 194,248 - - - - - - - - - - - - (719,721) - - - - - - - - - - - - 290,264 (13,000,000) - - - (455,000) - (58,485) 47,258,700 (158,924) 194,248 (719,721) 300,284 56,855,885 20,802,137 68,945 50,229,008 71,100,090 (35) 225,408 (1,633,228) 329,214,309 - - - - - - - - - 34,059 - - 2,757 22,781 1,864 - (380,087) 4,725,870 - - - - - - - - - - - - - - - - $ 56,537,259 $ 25,528,007 $ - (68,945) - - - - - - - - - - - - - - - (4,725,870) 68,945 (681,628) (2,726,514) (184,493) (12,159,971) (28,373,267) (127,805) - - (681,628) (2,726,514) (184,493) (12,159,971) (28,373,267) (127,805) 92,316,115 92,316,115 - - - - - - - - - - - - - - (5,432,511) (5,432,511) $ 88,202,009 $ 113,730,016 $ - - - - - - - - - - 35 - - - - - - - - - - - - - - - - - - (2,451,835) - - - - - - - - - - - - - - - - - - - 38,042 - - (681,628) - (184,493) (12,159,971) - (127,805) 92,316,115 34,059 35 (2,451,835) 3,624 22,781 39,906 (7,059,798) (7,059,798) 7,059,798 - $ (2,226,427) $ (1,595,186) $ 398,965,299 147 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003 (In Thousands of New Taiwan Dollars) CASH FLOWS FROM OPERATING ACTIVITIES Consolidated net income Adjustments to reconcile consolidated net income to net cash provided by operating activities: Depreciation and amortization Deferred income taxes Investment loss (income) recognized by equity method, net Amortization of premium/discount of long-term bond investments Loss on impairment of property, plant and equipment, and idle assets Loss on impairment of long-term investments Gain on sales of long-term investments, net Gain on disposal of property, plant and equipment, net Accrued pension cost Minority interest in income (loss) of subsidiaries Changes in operating assets and liabilities: Decrease (increase) in: Receivables from related parties Notes receivable Accounts receivable Allowance for doubtful receivables Allowance for sales returns and others Inventories, net Other receivables from related parties Other financial assets Prepaid expenses and other current assets Increase (decrease) in: Payables to related parties Accounts payable Accrued expenses and other current liabilities 2004 2003 $ 92,316,115 $ 47,258,700 69,818,457 (1,058,393) (2,094,137) 28,673 - 350,608 (85,203) (111,637) 500,257 12,898 266,067 6,951 (2,716,212) (37,555) 1,206,607 (3,420,613) (9,847) (777,100) (34,493) (1,499,968) 825,815 (336,385) 69,161,317 3,665,383 294,244 - 1,506,199 652,718 (78,694) (64,683) 389,890 (3,012) (544,764) 50,347 (8,964,567) 87,405 (236,672) (933,878) (67,752) (347,161) 605,001 1,472,140 1,300,012 834,941 Net cash provided by operating activities 153,150,905 116,037,114 CASH FLOWS FROM INVESTING ACTIVITIES Increase in short-term investments, net Acquisitions of: Long-term investments Property, plant and equipment Proceeds from disposal of: Long-term investments Property, plant, and equipment Increase in deferred charges Decrease in refundable deposits Decrease in other assets Decrease in minority interest in subsidiaries (43,554,878) (23,054,379) (81,094,557) 165,243 1,812,633 (2,405,673) 93,074 51,604 (26,160) (13,326,339) (1,412,335) (37,870,907) 505,702 177,312 (2,138,087) 357,744 4,610 (3,487) Net cash used in investing activities (148,013,093) (53,705,787) (Continued) 148 CASH FLOWS FROM FINANCING ACTIVITIES Cash dividends paid for common stock Repurchase of treasury stock Repayments on: Long-term bank loans Bonds payable Short-term bank loans Cash bonus paid to employees Decrease in guarantee deposits Cash dividends paid for preferred stock Remuneration paid to directors and supervisors Proceeds from: Disposal of treasury stock Issuance of stock arising from exercising stock options Redemption of preferred stock Net cash used in financing activities NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, BEGINNING OF THE YEAR CASH AND CASH EQUIVALENTS, END OF THE YEAR SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Interest paid (excluding the amount capitalized of NT$ 278,334 thou- sand and NT$139,516 thousand in 2004 and 2003, respectively, Note 7) Income tax paid NONCASH INVESTING AND FINANCING ACTIVITIES Current portion of bonds payable Current portion of other payables to related parties (under payables to related parties) Current portion of other long-term payables (under accrued expenses and other current liabilities) Reclassification of long-term investments to short-term investments Reclassification of short-term investments to long-term investments The accompanying notes are an integral part of the consolidated financial statements. 2004 $ (12,137,190) (7,059,798) $ (6,656,152) (5,000,000) - (681,628) (351,008) (184,493) (127,805) 39,906 3,624 - (32,154,544) (27,016,732) (1,669,813) 102,988,896 2003 - - (8,915,557) (4,000,000) (309,807) - (631,177) (455,000) (58,485) 300,284 - (13,000,000) (27,069,742) 35,261,585 (62,893) 67,790,204 $ $ $ $ $ $ $ $ 74,302,351 $ 102,988,896 1,470,333 389,189 $ $ 1,982,594 218,954 10,500,000 $ 5,000,000 492,022 1,505,345 343,950 3,402,413 $ $ $ $ - 1,591,972 140,984 - (Concluded) 149 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise) 1. General Taiwan Semiconductor Manufacturing Company, Ltd. (TSMC), a Republic of China (R.O.C.) corporation, was incorporated as a venture among the Government of the R.O.C., acting through the Development Fund of the Executive Yuan; Philips Electronics N.V. and certain of its affiliates (Philips); and certain other private investors. On September 5, 1994, its shares were listed on the Taiwan Stock Exchange (TSE). On October 8, 1997, TSMC listed some of its shares of stock on the New York Stock Exchange (NYSE) in the form of American Depositary Shares (ADSs). TSMC is engaged mainly in the manufacturing, selling, packaging, testing and computer-aided designing of integrated circuits and other semiconductor devices, and the manufacturing of masks. TSMC has six direct wholly-owned subsidiaries: TSMC International Investment Ltd. (TSMC International), TSMC North America (TSMC - North America), Taiwan Semiconductor Manufacturing Company Europe B.V. (TSMC - Europe), TSMC Japan K. K. (TSMC - Japan), TSMC (Shanghai) Company Limited (TSMC - Shanghai) and TSMC Partners, Ltd. (TSMC Partners). In addition, TSMC has the following consoli- dating subsidiaries: a 99.5% owned subsidiary, Emerging Alliance Fund, L.P. (Emerging Alliance), a 98% owned subsidiary, VentureTech Alliance Fund II, L.P. (VTAF II, a newly established entity in 2004) and two 36% owned affiliates - Chi Cherng Investment Co., Ltd. (Chi Cherng, which is 36% owned by TSMC and 64% owned by Hsin Ruey Investment Co., Ltd.) and Hsin Ruey Investment Co., Ltd. (Hsin Ruey, which is 36% owned by TSMC and 64% owned by Chi Cherng). TSMC International has two wholly-owned subsidiaries - TSMC Development, Inc. (TSMC Development) and TSMC Technology, Inc. (TSMC Technology), and two 97% owned subsidiaries - InveStar Semiconductor Development Fund, Inc. (InveStar) and InveStar Semiconductor Development Fund, Inc. (II) LDC (InveStar II). TSMC Development has a 99.996% owned subsidiary, WaferTech, LLC (WaferTech). The following diagram presents information regarding the relationship and ownership percentages among TSMC and its consolidated subsidiaries as of December 31, 2004: TSMC 100% 100% 100% 100% 100% 100% 36% 36% 99.5% 98% TSMC-North America TSMC- Japan TSMC International TSMC-Europe TSMC Partners TSMC Shanghai Chi Cherng 64% 64% Hsin Ruey Emerging Alliance VTAF II 100% 100% 97% 97% TSMC Technology TSMC Development InveStar InveStar II 99.996% WaferTech 150 TSMC - North America is engaged in the sales and marketing of integrated circuits and semiconductor devices. TSMC - Europe and TSMC - Japan are engaged mainly in marketing activities. TSMC Technology is engaged mainly in engineering support activities. TSMC - Shanghai is engaged in the manufacturing and marketing of integrated circuits and other semiconductor devices. TSMC Partners, TSMC Development, Chi Cherng and Hsin Ruey are engaged in investing activities. TSMC International is engaged in providing investment in companies involved in the design, manufacture, and other related business in the semiconductor industry. Emerging Alliance, VTAF II, InveStar and InveStar II are engaged in investing in new start-up technology companies. WaferTech is engaged in the manufacturing, sell- ing, testing and computer-aided designing of integrated circuits and other semiconductor devices. 2. Significant Accounting Policies The consolidated financial statements are presented in conformity with Guidelines Governing the Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted in the R.O.C. For the convenience of readers, the accompanying financial statements have been translated into English from the original Chinese ver- sion prepared and used in the R.O.C. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language financial statements shall prevail. Significant accounting policies are summarized as follows: Consolidation TSMC consolidates the accounts of all majority (directly and indirectly) owned subsidiaries. All significant intercompany balances and transactions have been eliminated. The consolidated financial statements include, as of and for the years ended December 31, 2004 and 2003, the accounts of TSMC, TSMC - North America, TSMC - Europe, TSMC - Japan, TSMC - Shanghai, TSMC Partners, Emerging Alliance, VTAF II, Chi Cherng, Hsin Ruey and TSMC International and its subsidiaries, InveStar, InveStar II, TSMC Development (including WaferTech) and TSMC Technology. TSMC and the foregoing subsidiaries are hereinafter referred to collectively as the "Company". Minority interests in WaferTech (0.004%), Emerging Alliance (0.5%), VTAF II (2%), InveStar (3%) and InveStar II (3%) are presented sepa- rately in the consolidated financial statements. Use of Estimates The preparation of financial statements in conformity with the aforementioned guidelines and principles requires management to make reasonable assumptions and estimates of matters that are inherently uncertain. The actual results may differ from management's estimates. Classification of Current and Noncurrent Assets and Liabilities Current assets are those expected to be converted to cash, sold or consumed within one year from the balance sheet date. Current liabili- ties are obligations due on demand within one year from the balance sheet date. Assets and liabilities that are not classified as current are noncurrent assets and liabilities, respectively. 151 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 primarily consist of corporate bonds, asset-backed securities, bond funds, agency bonds, government bonds and others. Short-term investments are recorded at historical cost and are carried at the lower of cost or market value as of the balance sheet date. An allowance for decline in value is provided and is charged to current earnings when the aggregate carrying value of the investments exceeds the aggregate market value. A reversal of the allowance is recorded for a subsequent recovery of the market value. The cost of funds and listed stocks sold are counted for using the weighted-average method; whereas the other securities are accounted for using the specific identification method. The market value of funds is determined using the net asset value of the funds at the end of the year, and the market value of listed stocks is determined using the average-closing price of the listed stocks for the last month of the year. The others are determined using the average of bid and ask prices as of the balance sheet date. Cash dividends are recorded as investment income in the current year. Allowance for Doubtful Receivables An allowance for doubtful receivable is 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 have occurred, if applicable, a fixed or determinable price and the collectibility is reasonably assured. 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 a majority of the customers and 30 to 45 days after the end of the month in which the sales occur for some customers. Since the receivables from sales are collectible within one year and such transactions are frequent, the fair value of receivables is equivalent to the nominal amount of cash received. Inventories Inventories are stated at the lower of cost or market value. Inventories are recorded at standard cost and adjusted to the approximate weighted-average cost at the end of the year. Market value represents net replacement cost for raw materials, supplies and spare parts. Market value represents net realizable value for finished goods and work in process. The Company assesses the impact of changing tech- nology 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 estimat- ed losses on scrap and slow-moving items are recognized in the allowance for losses. 152 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 com- panies is recognized in the "investment income/loss recognized by equity method, net" account. When equity investments are made, the difference, if any, between the cost of investment and the Company's proportionate share of investee's net equity is amortized using the straight-line method over five years and is recorded in 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 carry- ing amount of the investment in the 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 or credited to cap- ital surplus. Investments in companies wherein the Company does not exercise significant influence are recorded at historical cost. Cash dividends are recognized as investment income in the year received but are accounted for as reductions in the carrying amount of the long-term invest- ments if the dividends are received in the same year that the related investments are acquired. Stock dividends are recorded as an increase in the number of shares held and do not affect investment income or the carrying amount of the investment. An allowance is recognized for any decline in the market value of investments with readily ascertainable fair market value with the corresponding amount recorded as an unrealized loss, a component of shareholders' equity. A reversal of the allowance will result from a subsequent recovery of the market value of such investments. The carrying amounts of investments whose fair market values are not readily ascertainable are reduced to reflect an other-than-temporary decline in their values, with the related impairment loss charged to income. Investments in foreign mutual funds are stated at the lower of aggregate cost or net asset value. An allowance is recognized when the net assets value of the funds is lower than their cost, with the corresponding amount recorded as a reduction to shareholders' equity. A reversal of the allowance will result from a subsequent recovery of the net asset value. The costs of stocks and mutual funds sold are determined using the weighted-average method. Investments in long-term bonds are stated at amortized cost. The discount or premium is amortized over the duration period using the interest method, and recorded as an adjustment to interest income. 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 amount, and the market value becomes the new basis. If an investee company recognizes an unrealized loss on its long-term investments using the lower-of-cost-or-market method, the Company also recognizes a corresponding unrealized loss in proportion to its ownership percentage in the investee company and records the amount as a component of its shareholders' equity. Gains or losses on sales from the Company to investee companies accounted for using the equity method are deferred in proportion to the Company's ownership percentage in the investee companies until realized through transactions with third parties. The entire amount of the gains or losses on sales to majority-owned subsidiaries is deferred until such gains or losses are realized through the subsequent sales of the related products to third parties. Gains or losses on sales from investee companies to the Company are deferred in proportion to the Company's ownership percentages in the investee companies until realized through transactions with third parties. 153 If an investee's functional currency is a foreign currency, translation adjustments will result from the process of translating the investee's financial statements into the reporting currency of the Company. Such adjustments are accumulated and reported as a separate compo- nent of shareholders' equity. Property, Plant and Equipment, Assets Leased to Others, Leased Assets and Idle Assets Property, plant and equipment and assets leased to others are stated at cost less accumulated depreciation. When impairment is deter- mined, the related assets are stated at the lower of fair value or book value. Idle assets are stated at the lower of net realizable value or book value. Significant additions, renewals and betterments incurred during the construction period are capitalized. Maintenance and repairs are expensed in the year incurred. Interest expense incurred for the project during the purchase and construction period is also capitalized. Properties covered by agreements qualifying as capital leases are carried at the lower of the leased equipment's market value or the present value of the minimum lease payments at the inception date of the lease. Depreciation is computed using the straight-line method over the following estimated service lives: land improvements - 20 years; build- ings - 10 to 20 years; machinery and equipment - 5 to 10 years; office equipment - 3 to 15 years; and leased assets - 20 years. Upon sale or disposal of property, plant and equipment, the related cost and accumulated depreciation are removed from the correspon- ding accounts, with any gain or loss credited or charged to non-operating income or expenses in the year of sale or disposal. Goodwill Goodwill represents the excess of the consideration paid for acquisition over the fair market value of identifiable net assets acquired and acquisition costs. Goodwill is amortized using the straight-line method over the estimated life of 10 years. Deferred Charges Deferred charges consist of technology license fees, software and system design costs and other charges. The amounts are amortized as follows: technology license fees - the shorter of the estimated life of the technology or the term of the technology transfer contract, soft- ware and system design costs and other charges - 3 or 5 years. Pension Costs TSMC 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 carryforwards. 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 noncurrent based on the expect- ed length of time before it is realized or settled. Any tax credits arising from the purchases of machinery, equipment and technology, research and development expenditures, personnel training, and investments in important technology-based enterprises are recognized using the flow-through method. Adjustments to prior years' tax liabilities are added to or deducted from the current year's tax provision. Income taxes on unappropriated earnings (excluding earnings from foreign consolidating subsidiaries) of 10% are expensed in the year of shareholder approval which is the year subsequent to the year the earnings are generated. 154 Stock-based Compensation Employee stock option plans that are amended or have options granted on or after January 1, 2004 must be accounted for by the inter- pretations issued by the Accounting Research and Development Foundation. The Company adopted the intrinsic value method and any compensation cost determined using this method is charged to expense over the employee vesting period. Treasury Stock When the Company repurchases its outstanding common stock, the cost of the reacquired stock is recorded as treasury stock as a reduc- tion to shareholders' equity. When the Company retires treasury stock, the treasury stock account is reduced and the common stock as well as the capital surplus additional paid-in capital are reversed in proportionate to the equity percentage of the retirement. When the book value of the treasury stock exceeds the sum of the par value and additional paid-in capital, the difference is charged to capital sur- plus - treasury stock and to retained earnings for any remaining amount. The Company's stock held by its subsidiaries is also treated as treasury stock and reclassified from long-term investments to treasury stock. The cash dividends received by the subsidiaries from the Company are recorded under capital surplus - treasury stock. Foreign-Currency Transactions Foreign currency transactions are recorded in New Taiwan dollars at the rates of exchange in effect when the transactions occur. Exchange gains or losses derived from foreign currency transactions or monetary assets and liabilities denominated in foreign currencies are recognized in current income. At the end of each year, assets and liabilities denominated in foreign currencies are revalued at the pre- vailing exchange rates with the resulting gains or losses recognized in current income. Derivative Financial Instruments The Company enters into foreign currency forward contracts to manage currency exposures in cash flow and in foreign-currency-denomi- nated assets and liabilities. The contracts are recorded in New Taiwan dollars at the current rate of exchange of the contract date. The dif- ferences in the New Taiwan dollar amounts translated using the spot rates and the amounts translated using the contracted forward rates on the contract date are amortized over the terms of the forward contracts using the straight-line method. At the end of each year, the receivables or payables arising from forward contracts are restated using the prevailing spot rates at the balance sheet date with the resulting differences charged to income. In addition, the receivables and payables related to the forward contracts of the same counter party are netted with the resulting amount presented as either an asset or a liability. Any resulting gain or loss upon settlement is credited or charged to income in the year of settlement. The Company enters into cross-currency swap contracts to manage currencies exposures on foreign currency denominated assets and lia- bilities. The principal amount is recorded using the spot rates at the contract date. The differences in the New Taiwan dollar amounts translated using the spot rates and the amounts translated using the contracted rates on the contract date are amortized over the terms of the contracts using the straight-line method. At the end of each year, the receivables or payables arising from cross-currency swap contracts are restated using the prevailing spot rate with the resulting differences charged to income. In addition, the receivables and payables related to the contracts are netted with the resulting amount presented as either an asset or a liability. The difference in interest computed pursuant to the contracts on each settlement date or the balance sheet date is recorded as an adjustment to the interest income or expense associated with the hedged items. Any resulting gain or loss upon settlement is credited or charged to income in the year of settlement. The Company enters into interest rate swap contracts to manage exposures to changes in interest rates on existing assets or liabilities. These transactions are accounted for on an accrual basis, in which the cash settlement receivable or payable is recorded as an adjustment to interest income or expense associated with the hedged items. The premiums paid for the foreign currency option contracts entered into for hedging purposes are amortized and charged to income on a straight-line basis over the term of the related contract. Any resulting gain upon exercise settlement is credited or charged to income in the year of exercise. 155 Translation of Foreign-currency Financial Statements ROC SFAS No. 14, "Accounting for Foreign-Currency Transactions," applies to foreign subsidiaries that use the local foreign currency as their functional currency. The financial statements of foreign subsidiaries are translated into New Taiwan dollars at the following exchange rates: Assets and liabilities - current rate on balance sheet date; shareholders' equity - historical rate; income and expenses - average rate during the year. The resulting translation adjustment is recorded as a separate component of shareholders' equity. Reclassifications Certain accounts in the consolidated financial statements as of and for the year ended December 31, 2003 have been reclassified to con- form to the consolidated financial statements as of and for the year ended December 31, 2004. 3. Cash and Cash Equivalents Cash and bank deposits Government bonds acquired under repurchase agreements Corporate issued notes 4. Short-Term Investments Corporate bonds Corporate issued asset-backed securities Bond funds Agency bonds Government bonds Money market funds Government bonds acquired under repurchase agreements Listed stocks Commercial papers Corporate issued notes Allowance for valuation losses Market value 2004 54,608,985 19,215,153 478,213 74,302,351 2004 13,554,598 11,766,877 10,662,758 8,633,889 7,346,858 1,640,973 249,449 168,299 95,666 63,796 54,183,163 (75,212) 54,107,951 54,990,545 $ $ $ $ $ 2003 97,041,537 5,947,359 - 102,988,896 2003 - - 1,000,000 - 7,692,595 3,068,213 1,800,000 50,728 - - 13,611,536 - 13,611,536 14,054,511 $ $ $ $ $ The Company entered into investment management agreements with three well-known financial institutions (fund managers) to manage investment portfolios for the Company. In accordance with the investment guidelines and terms in these agreements, the securities invested by the fund managers cannot be below a pre-defined credit rating. As of December 31, 2004, the Company had investment portfolios with these fund managers that aggregated to an original amount of US$1,200,000 thousand. The investment portfolios included securities such as corporate bonds, asset-backed securities, agency bonds, government bonds and others. Securities acquired with maturities less than three months from the date of purchase were reclassified as cash equivalents. 156 5. Inventories, Net Finished goods Work in process Raw materials Supplies and spare parts Allowance for losses 6. Long-Term Investments Equity method Vanguard International Semiconductor Corporation (VIS) Systems on Silicon Manufacturing Company Pte Ltd. (SSMC) Global UniChip Corporation (GUC) VisEra Technologies Company Ltd. (VisEra) $ Cost method Common stocks Publicly traded stocks Non-publicly traded stocks Preferred stocks Funds Long-term bonds Government bonds Corporate bonds China Steel Corporation Taiwan Power Company Nan Ya Plastics Corporation Formosa Plastics Corporation Formosa Petrochemical Corporation Other investments 2004 3,526,036 11,437,466 993,151 1,176,735 17,133,388 (1,577,451) 15,555,937 $ $ 2003 2,881,499 9,100,199 465,745 1,052,075 13,499,518 (1,364,194) 12,135,324 $ $ 2004 2003 Carrying Amount % of Owner-ship Carrying Amount % of Owner-ship 5,401,982 3,290,888 391,626 59,116 9,143,612 71,832 1,226,499 1,677,865 290,134 3,266,330 10,260,481 2,978,804 915,276 407,526 405,485 202,595 15,170,167 10,521,740 $ 28 32 47 25 - - - - - - - - - - - 4,077,198 2,759,376 368,434 50,231 7,255,239 26,728 1,156,769 2,038,662 270,616 3,492,775 - - - - - - - - 28 32 47 25 - - - - - - - - - - - $ 38,101,849 $ 10,748,014 On January 8, 2003, TSMC's investee, VIS, issued 600,000 thousand shares of common stock at a price of NT$7 per share of which TSMC purchased a total of 230,882 thousand shares. VIS reduced its capital on August 11, 2004 in order to decrease its accumulated deficit. The number of shares of VIS held by TSMC after the capital reduction declined from 787,016 thousand shares to 409,532 thousand shares. TSMC's ownership percentage remained the same. For the years ended December 31, 2004 and 2003, net investment income and loss recognized from the equity method investees was NT$2,094,137 thousand and NT$294,244 thousand, respectively. The carrying amounts of investments accounted for under the equity method and the related investment income or losses were determined based on the audited financial statements of the investees as of and for the same periods as the Company. 157 As of December 31, 2004, other investments consist of the following: Nominal Amount Carrying Amount Range of Interest Rates Maturity Date Step-up callable deposits Domestic bank Foreign bank Callable range accrual deposits $ 2,000,000 2,138,340 $ 2,007,681 2,152,394 2.05%-2.20% 1.44%-4.75% July 2007 to August 2007 June 2007 to August 2007 Foreign bank 6,383,400 6,414,151 (See below) September 2009 to December 2009 $ 10,521,740 $ 10,574,226 During the year ended December 31, 2004, the Company deposited funds into structured-time deposits with the following terms: The interest rate of the step-up callable deposits is determined by the Company and the related banks. The amount of interest earned by the Company for the callable range accrual deposits is based on a pre-defined range as determined by the 3-month or 6-month LIBOR rate plus an agreed upon rate ranging between 2.1% and 3.45%. Based on the terms of the deposits, if the 3-month or 6-month LIBOR rate moves outside of the pre-defined range, the interest paid to the Company is at a minimum rate of 1.5%. Under the term of the contracts, the bank has the right to cancel the contracts prior to the maturity date. Deposits that reside in banks located in Hong Kong and Singapore amounted to NT$2,553,360 thousand and NT$638,340 thousand, respectively. 7. Property, Plant and Equipment Accumulated depreciation consisted of the following: Land improvements Buildings Machinery and equipment Office equipment Leased assets $ 2004 172,484 38,160,322 287,204,368 5,683,577 33,115 $ 331,253,866 2003 154,062 31,665,779 238,392,296 4,800,932 - 275,013,069 $ $ Information on the status of the expansion or construction plans of TSMC's manufacturing facilities as of December 31, 2004 is as follows: Construction/Expansion Plan Estimated Total Cost Accumulated Expenditures Expected Date of Commencement Fab 12 expansion $ 58,744,200 $ 41,870,300 January 2005 158 Interest expense for the years ended December 31, 2004 and 2003 was NT$1,807,242 thousand and NT$2,030,525 thousand, respec- tively (before deducting capitalized amounts of NT$278,334 thousand in 2004 and NT$139,516 thousand in 2003, respectively). The interest rates used for purposes of calculating the capitalized amounts were 1.89% to 2.89% and 1.77% to 5.283% in 2004 and 2003, respectively. The Company entered into agreements to lease certain buildings that qualify as capital leases. The term of the lease is from December 2003 to December 2013. 8. Deferred Charges, Net Technology license fees Software and system design costs Other 9. Short-Term Bank Loans 2004 6,534,899 2,213,636 243,917 8,992,452 $ $ 2003 5,084,684 2,719,199 188,133 7,992,016 $ $ Unsecured loan in U.S. dollars: US$12,000 thousand, repayable by June 2006, annual interest at 2.80% and 1.52% in 2004 and 2003, respectively $ 383,004 $ 407,736 2004 2003 10. Long-Term Bank Loans Unsecured loan: US$60,000 thousand, repayable by December 2006, annual interest at 2.475% and 1.56% in 2004 and 2003, respectively Secured loan: US$199,000 thousand; annual interest at 1.8275% in 2003 2004 2003 $ $ 1,915,020 - 1,915,020 $ $ 2,038,680 6,761,622 8,800,302 As of December 31, 2004, all the assets of WaferTech with a carrying amount of approximately NT$15,955,936 thousand (US$499,920 thousand) were pledged for the secured loan. WaferTech is required to maintain compliance with certain financial covenants defined in the agreement. As of December 31, 2004, WafterTech was in compliance with all such financial covenants. Under the unsecured loan agreement, the Company is required maintain compliance with certain financial covenants which, if violated, could result in payment of the obligation prior to the originally scheduled payment date. The Company was in compliance with the financial covenants as of December 31, 2004. 159 11. Bonds Payable Domestic unsecured bonds: Issued in December 2000 and repayable in December 2005 and 2007 in two equal payments, 5.25% and 5.36% interest payable annually, respectively Issued in January 2002 and repayable in January 2007, 2009 and 2012 in three equal payments, 2.6%, 2.75% and 3.00% interest payable annually, respectively Issued in October 1999 and repayable in October 2004, 5.95% interest payable annually 2004 2003 $ 15,000,000 $ 15,000,000 15,000,000 - 15,000,000 5,000,000 $ 30,000,000 $ 35,000,000 As of December 31, 2004, future principal repayments for the Company's bonds are as follows: Year of Repayment 2005 2007 2009 2010 and thereafter 12. Other Long-Term Payables Payables for acquisition of property, plant and equipment (Note 22k) Payables for royalties Less - current portion 2004 6,030,007 3,440,313 9,470,320 1,505,345 7,964,975 $ $ Amount 10,500,000 7,000,000 8,000,000 4,500,000 30,000,000 2003 - 4,892,801 4,892,801 1,591,972 3,300,829 $ $ $ $ TSMC entered into several license arrangements for certain semiconductor-related patents. Future minimum payments under the agree- ments as of December 31, 2004 are as follows: Year 2005 2006 2007 2008 2009 and thereafter Amount 1,505,345 466,786 446,838 255,336 766,008 3,440,313 $ $ The current portion of other long-term payables is recorded in the "accrued expenses and other current liabilities" account. 160 13. Pension Plan TSMC has a defined benefit pension plan for all regular employees that provides benefits based on the employee's length of service and average monthly salary and wages for the six-month period prior to retirement. TSMC contributes an amount equal to 2% of salaries and wages paid each month to a pension fund (the Fund). The Fund is administered by a pension fund monitoring committee (the Committee) and deposited in the Committee's name in the Central Trust of China. Information on the pension plan is summarized as follows: a. Components of net periodic pension cost Service cost Interest cost Projected return on plan assets Amortization Net periodic pension cost b. Reconciliation of the funded status of the plan and accrued pension cost Benefit obligation Vested benefit obligation Nonvested benefit obligation Accumulated benefit obligation Additional benefits based on future salaries Projected benefit obligation Fair value of plan assets Funded status Unrecognized net transitional obligation Unrecognized net loss Accrued pension cost Vested benefit c. Actuarial assumptions Discount rated used in determining present values Future salary increase rate Expected rate of return on plan assets d. Contributions to the Fund $ $ $ $ $ 2004 632,594 128,315 (41,925) 8,300 727,284 $ 2003 502,116 109,671 (41,154) 2,409 $ 573,042 2004 2003 67,104 2,704,251 2,771,355 2,132,721 4,904,076 (1,447,540) 3,456,536 (132,791) (222,549) 3,101,196 76,003 2004 3.25% 3.00% 3.25% $ $ $ 21,895 2,184,593 2,206,488 1,752,208 3,958,696 (1,207,264) 2,751,432 (141,091) (10,090) 2,600,251 22,261 2003 3.25% 3.00% 3.25% 2004 2003 $ 226,339 $ 181,106 161 e. Payments from the Fund 14. Income Tax 2004 1,446 $ 2003 3,490 $ a. A reconciliation of income tax on income before income tax and minority interest at the statutory rate and income tax expense is as follows: 2004 2003 Income tax based on income before income tax and minority interest at the statutory rate Tax-exempt income Temporary and permanent differences Current income tax on income before income tax credits b. Income tax benefit (expense) consists of: Current income tax on income before income tax credits Additional 10% income tax on unappropriated earnings Income tax credits Other income tax Net change in deferred income tax assets and liabilities Net operating loss carryforwards Investment tax credits Temporary differences Net change in valuation allowance of deferred income tax assets Adjustment of prior years taxes Income tax benefit (expense) c. Deferred income tax assets (liabilities) consist of the following: Current Investment tax credits Temporary differences Valuation allowance Noncurrent Net operating loss carryforwards Investment tax credits Temporary differences Valuation allowance $ $ $ $ $ $ $ $ (24,685,380) 14,712,500 186,719 (9,786,161) 2004 (9,786,161) (823,932) 10,470,862 (555,588) (1,652,983) 234,690 1,131,331 1,345,355 (148) $ $ $ (12,881,547) 5,255,750 732,681 (6,893,116) 2003 (6,893,116) (1,273,482) 7,917,070 (7,988) 535,725 (917,759) (300,848) (2,982,501) (58) 363,426 $ (3,922,957) 2004 8,849,000 319,717 (250,731) 8,917,986 6,735,080 17,035,584 (7,760,152) (14,360,533) 1,649,979 2003 8,322,000 385,221 (309,016) 8,398,205 8,388,063 17,327,894 (8,956,987) (15,647,603) 1,111,367 $ $ $ $ 162 d. Integrated income tax information: The balances of the imputation credit account (ICA) of the TSMC as of December 31, 2004 and 2003 were zero and NT$2,832 thou- sand, respectively. The expected and actual creditable ratio of TSMC for distribution of earnings of 2004 and 2003 was zero and 0.03%, respectively. The imputation credits allocated to the shareholders are based on the balance as of the date of dividend distribution. The expected creditable ratio for distribution of earnings of 2004 may be adjusted when the allocation of the imputation credits is made. e. TSMC's earnings generated prior to December 31, 1997 have been appropriated. f. As of December 31, 2004, TSMC's investment tax credits consisted of the following: Regulation Items Statute for Upgrading Purchase of machinery and Industries equipment Statute for Upgrading Research and development Industries expenditures Statute for Upgrading Personnel training Industries Statute for Upgrading Industries Investments in important technology-based enterprises Total Creditable Amounts 4,448,442 3,819,937 4,886,439 4,140,462 6,309,182 23,604,462 2,270,013 3,147,071 3,342,952 1,976,913 1,843,800 12,580,749 48,659 29,448 27,312 26,780 132,199 38,036 $ $ $ $ $ $ $ Remaining Creditable Amounts - 116,189 4,886,439 4,140,462 6,309,182 15,452,272 - 3,147,071 3,342,952 1,976,913 1,843,800 10,310,736 - 29,448 27,312 26,780 83,540 38,036 $ $ $ $ $ $ $ Expiry Year 2004 2005 2006 2007 2008 2004 2005 2006 2007 2008 2004 2005 2006 2007 2005 g. As of December 31, 2004, the net operating loss carryforwards were generated from WaferTech, TSMC Development and TSMC Technology and will expire at various dates through 2024. h. The sales generated from the following expansion and construction of TSMC's manufacturing plants are exempt from income tax: Construction of Fab 6 Construction of Fab 8 - module B Expansion of Fab 2 - modules A and B, Fab 3, Fab 4, Fab 5 and Fab 6 Construction of Fab 12 Tax-Exemption Period 2001 to 2004 2002 to 2005 2003 to 2006 2004 to 2007 163 i. The tax authorities have examined income tax returns of TSMC through 2000. However, TSMC is contesting the assessment of the tax authority for 1992 and 1998. TSMC believes that any additional assessment will not have a material adverse effect on TSMC. 15. Labor Cost, Depreciation and Amortization Expenses Year Ended December 31, 2004 Year Ended December 31, 2003 Classified as Cost of Sales Classified as Operating Expenses Total Classified as Cost of Sales Classified as Operating Expenses Total Labor cost Salary Labor and health insurance Pension Other Depreciation Amortization $ 10,719,632 572,210 472,329 430,777 $ 12,194,948 $ 61,703,792 $ 2,496,827 $ $ $ $ 5,886,769 320,785 271,186 531,876 $ 16,606,401 892,995 743,515 962,653 $ 9,014,068 476,687 379,845 339,500 7,010,616 $ 19,205,564 $ 10,210,100 2,563,408 3,052,160 $ 64,267,200 5,548,987 $ $ 61,988,138 1,385,594 $ $ $ $ $ 4,647,912 245,357 193,718 304,398 $ 13,661,980 722,044 573,563 643,898 5,391,385 $ 15,601,485 2,398,768 3,367,462 $ 64,386,906 $ 4,753,056 16. Shareholders' Equity Common Stock, Capital Surplus and Earnings TSMC has issued a total of 668,351 thousand ADSs which are traded on the NYSE as of December 31, 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 Company Law of the R.O.C. However, the capital surplus generated from donations and the excess of the issue price over the par value of capital stock (including the stock issued for new capital, mergers, con- vertible bonds and the surplus arising from treasury stock transactions) may be appropriated as stock dividends restricted to a certain per- centage based on shareholders' ownership. As of December 31, 2004 and 2003, the capital surplus consisted of the following: From merger Additional paid-in capital From long-term investments From convertible bonds Donations Treasury stock Total 2004 24,003,546 23,051,675 121,354 9,360,424 55 205 56,537,259 $ $ 2003 24,132,297 23,172,550 87,295 9,410,632 55 53,056 56,855,885 $ $ 164 TSMC's Articles of Incorporation, as revised on December 21, 2004, provide that the following shall be appropriated from annual earn- ings to the extent that the annual earnings exceed any cumulative deficit: a. 10% legal reserve; until the amount of total legal reserve equals the TSMC's paid-in capital; b. Special reserve in accordance with relevant laws or regulations; c. Remuneration to directors and supervisors and bonuses to employees at 0.3% and at least 1% of the remainder, respectively. Individuals eligible for the employee bonuses may include employees of affiliated companies as approved by the board of directors or a representative of the board of directors; d. The appropriation of any remaining balance shall be approved by the shareholders. Dividends may be distributed by way of cash dividend or stock dividend at the discretion of TSMC. As the operation of TSMC is at a steady growth stage, distribution of profits shall be made preferably by way of cash dividend. Distribution of profits may also be made by way of stock dividend; provided however, the ratio for stock dividend shall not exceed 50% of total distribution. Any appropriations of net income are recorded in the financial statements in the year of shareholder approval. An appropriation for legal reserve is required until the reserve equals the aggregate par value of TSMC's issued capital stock. The reserve can only be used to offset a 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 TSMC. A special reserve equivalent to the net debit balance of the other components of shareholder's equity (for example, unrealized loss on long-term investments and cumulative translation adjustments, but excluding treasury stock), shall be made from unappropriated earn- ings pursuant to existing regulations promulgated by the R.O.C. Securities and Futures Bureau (SFB). Any special reserve appropriated may be reversed to the extent that the net debit balance of the related account reverses. The appropriations of the earnings of 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: Legal reserve Special reserve Bonus paid to employees - in cash Bonus paid to employees - in stock Preferred stock dividend - in cash Common stock dividend - in cash Common stock dividend - in stock Remuneration to directors and supervisors - in cash Appropriation of Earnings Dividend Per Share (NT$) $ For Fiscal Year 2003 4,725,870 (68,945) 681,628 2,726,514 184,493 12,159,971 28,373,267 127,805 For Fiscal Year 2002 For Fiscal Year 2003 For Fiscal Year 2002 $ 2,161,029 68,945 - 1,539,013 455,000 - 14,898,309 58,485 $ $ 0.35 0.60 1.41 0.35 - 0.80 $ 48,910,603 $ 19,180,781 165 The amount of the 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 the R.O.C. states TSMC, as a holder of treasury stock shall not participate in the appropriations 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 paid in stock had been paid in cash and all of the bonus to employees and remuneration to directors and supervisors had been charged against income for 2003 and 2002, the after income tax basic earnings per share for the years ended December 31, 2003 and 2002 would have decreased from NT$2.33 to NT$2.15 and NT$ 1.14 to NT$1.05, respectively. The shares distributed as a bonus to employees represented 1.35% and 0.83% of TSMC's total outstanding common shares as of December 31, 2003 and 2002, respectively. As of January 13, 2005, the board of directors of TSMC has not resolved the appropriation for earnings of 2004. The above information about 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, the R.O.C. resident shareholders are allowed a tax credit for their proportionate share of the income tax paid by TSMC on earnings generated since January 1, 1998. Preferred Stock TSMC issued 1,300,000 thousand shares of unlisted Series A - preferred stock to certain investors on November 29, 2000. All of the pre- ferred stock was redeemed at par value and retired on May 29, 2003. Under TSMC's Articles of Incorporation, TSMC is no longer author- ized to issue preferred stock. The preferred shareholders had the following rights and the related terms and conditions prior to redemption: Preferred shareholders a. Are entitled to receive cumulative cash dividends at an annual rate of 3.5%. b. Are not entitled to receive any common stock dividends (whether declared out of unappropriated earnings or capital surplus). c. Have priority over the holders of common shares to the assets of TSMC available for distribution to shareholders upon liquidation or dissolution; however, the pre-emptive rights to the assets shall not exceed the issue price 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 TSMC's related obligations remain the same until the pre- ferred shares are redeemed by TSMC. 17. Stock-Based Compensation Plans Stock Option Plans TSMC's Employee Stock Option Plans, the 2003 Plan and the 2002 Plan, were approved on October 29, 2003 and June 25, 2002, respec- tively. The maximum number of units authorized to be granted under 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 166 of TSMC or any of its domestic or foreign subsidiaries, in which TSMC's shareholding with voting rights, directly or indirectly, is more than fifty percent (50%). 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 the plans, stock option rights are granted at an exercise price equal to the closing price of TSMC's common shares listed on the TSE on the date of grant. Under the 2003 Plan and the 2002 Plan, units that were never granted, or had been granted and subsequently cancelled were expired as of December 31, 2004. On November 2, 2004, the board of directors of TSMC approved the 2004 Plan, in which the maximum number of units authorized to be granted is 11,000 thousand, with each unit representing one common share of stock. The option rights may be granted to qualified employees of TSMC or any of its domestic or foreign subsidiaries, in which TSMC's shareholding with voting rights, directly or indirectly, is more than fifty percent (50%). The option rights of the plans are valid for ten years and exercisable at certain percentages subsequent to the second anniversary of the grant date. Under the terms of the plan, stock option rights are granted at an exercise price equal to the closing price of TSMC's common shares listed on the TSE on the date of grant. The 2004 plan was approved by Bureau of Monetary Affairs, Financial Supervisory Commission of the R.O.C. on January 6, 2005. Information on outstanding stock options for the years ended December 31, 2004 and 2003 is as follows: Year ended December 31, 2004 Beginning outstanding balance Options granted Options exercised Options cancelled Ending outstanding balance Year ended December 31, 2003 Beginning outstanding balance Options granted Options cancelled Ending outstanding balance 2003 Plan 2002 Plan Number of Outstanding Stock Option Rights (in thousand) Weighted- Average Exercise Price (NT$) Number of Outstanding Stock Option Rights (in thousand) Weighted- Average Exercise Prices (NT$) 842 13,199 - (1,404) 12,637 - 843 (1) 842 57.8 49.9 - 50.9 - 66.5 66.5 48,515 7,201 (87) (3,899) 51,730 19,369 32,031 (2,885) 48,515 42.7 42.6 41.8 44.2 48.6 50.3 48.7 The number of outstanding option rights and exercise prices have been adjusted to reflect the appropriations of dividends in accordance with the plans. As of December 31, 2004, information on outstanding and exercisable option rights is as follows: Range of Exercise Price (NT$) $43.8-$57.8 $32.8-$46.2 Options Outstanding Options Exercisable Number of Outstanding Options (in thousand) Weighted- Average Remaining Contractual Life (Years) Weighted- Average Exercise Price (NT$) Number of Exercisable Options (in thousand) Weighted- Average Exercise Price (NT$) 12,637 51,730 64,367 $ 9.34 8.09 8.33 50.3 42.6 44.1 - 10,307 $ 10,307 - 41.7 41.7 2003 plan 2002 plan 167 The compensation cost recognized for the year ended December 31, 2004 was zero. Had the Company used the fair value based method to evaluate the options granted, the method, assumptions and pro forma results of the Company for the year ended December 31, 2004 would have been as follows: Method: Assumptions: Expected dividend yield Expected volatility Risk free interest rate Expected life Net income: Net income as reported Pro forma net income Earnings per share (EPS) - after income tax: Basic EPS as reported Pro forma basic EPS Diluted EPS as reported Pro forma diluted EPS Black-Scholes Model 1.00% 43.77%-46.15% 3.07%-3.85% 5 years $ 92,316,115 92,257,355 NT$ 3.97 3.97 3.97 3.97 The estimated weighted average fair value for the options granted during the year ended December 31, 2004 was NT$19.73 per option. In 1996, WaferTech adopted an Executive Incentive Plan, which was amended in 1997. According to the 1997 amendment, the Board of Directors of WaferTech approved the Senior Executive Incentive Plan and the Employee Incentive Plan (the WaferTech Plans) under which officers, key employees and non-employee directors may be granted stock option rights. The WaferTech Plans provide for 15,150 thou- sand option rights available for grant. For option rights granted to date, the option purchase price was equal to or exceeded the fair mar- ket value at the date of grant. The options will expire if not exercised at specified dates ranging from May 2006 and June 2011. In December 2000, WaferTech implemented a Stock Option Buyback Program (Buyback). The Buyback program provides employees with the right to sell back to WaferTech all vested stock options and outstanding ownership interests granted under the WaferTech Plans. As of December 31, 2004, the outstanding and exercisable stock options were 134 thousand and 133 thousand, respectively, and US$616 thousand was accrued in connection with the Buyback program. Stock Appreciation Rights In December 2000, WaferTech and TSMC - North America implemented a stock appreciation rights program (Appreciation). The Appreciation plan is designed to provide employees with a long-term incentive plan that tracks the appreciation of TSMC common stock through Stock Appreciation Rights (SARs). SARs provide each participant the right to receive, upon exercise, an amount in cash from WaferTech and TSMC - North America that is the excess of the market price of TSMC common stock on TSE on the date of exercise over the exercise price. As of December 31, 2004, WaferTech and TSMC - North America accrued US$381 thousand and US$1,360 thousand, respectively, in connection with the Appreciation. During 2002, benefits under the Appreciation plan for TSMC - North America were replaced by the stock option plans aforementioned. 168 18. Treasury Stock (Common Stock) Year ended December 31, 2004 Reclassification of parent company stock held by subsidiaries from long-term investments Repurchase under share buyback plan Year ended December 31, 2003 Reclassification of parent company stock held by subsidiaries from long-term investments Beginning Shares Increase/ Dividend Decrease Ending Shares (Shares in thousand) 40,597 - 40,597 5,676 124,720 752 124,720 130,396 125,472 45,521 - 45,521 42,001 3,357 4,761 40,597 Proceeds from the sale of treasury stock for the years ended December 31, 2004 and 2003 were NT$39,906 thousand and NT$331,945 thousand, respectively. TSMC's capital stock held by a subsidiary as an investment is recorded as treasury stock, with the holder having the same rights as other common shareholders. As of December 31, 2004 and 2003, the book value of the treasury stock was NT$1,595,186 thousand and NT$1,633,228 thousand, respectively; the market value was NT$2,241,009 thousand and NT$2,548,788 thousand, respectively. TSMC held a special meeting of the board of directors and approved a share buyback plan to repurchase TSMC's common shares listed on the TSE during the period from March 24, 2004 to May 23, 2004. TSMC repurchased 124,720 thousand common shares for a total of NT$7,059,798 thousand. All the treasury stock repurchased under the buyback plan was retired on August 16, 2004. 19. Consolidated Earnings Per Share (EPS) EPS is computed as follows: Amounts (Numerator) EPS (NT$) Income Before Income Tax and Minority Interest Number of Shares (Denominator) (in thousand) Consolidated Net Income Income Before Income Tax and Minority Interest Consolidated Net Income Year ended December 31, 2004 Basic EPS Income available to common shareholders Effect of diluted securities - stock options $ 91,965,587 - $ 92,316,115 - 23,248,682 6,404 $ 3.96 $ 3.97 Diluted EPS Income available to common shareholders (including effect of diluted potential common stock) $ 91,965,587 $ 92,316,115 23,255,086 $ 3.95 $ 3.97 (Continued) 169 Amounts (Numerator) EPS (NT$) Number of Shares (Denominator) (in thousand) Consolidated Net Income Income Before Income Tax and Minority Interest Income Before Income Tax and Minority Interest Consolidated Net Income $ 51,178,645 (184,493) $ 47,258,700 (184,493) 50,994,152 47,074,207 23,327,354 $ 2.19 $ 2.02 - - 9,599 $ 50,994,152 $ 47,074,207 23,336,953 $ 2.19 $ 2.02 (Concluded) Year ended December 31, 2003 Net income Less - preferred stock dividends Basic EPS Income available to common shareholders Effect of diluted potential common stock - stock options Diluted EPS Income available to common shareholders (including effect of diluted potential common stock) 20. Related Party Transactions The significant transactions with related parties in addition to those disclosed in other notes are summarized as follows: a. Industrial Technology Research Institute (ITRI), the Chairman of TSMC is one it its directors b. Philips, a major shareholder of TSMC c. Investees of the TSMC VIS SSMC GUC VisEra For the years Sales Philips and its affiliates Others Purchase VIS SSMC 170 2004 2003 Amount % Amount % $ $ $ $ 5,463,565 458,999 5,922,564 9,169,602 5,869,123 15,038,725 2 - 2 21 13 34 $ $ $ $ 3,577,054 610,534 4,187,588 4,910,810 5,519,805 10,430,615 2 - 2 15 17 32 (Continued) Manufacturing expenses - technical assistance fee (Note 22a) Philips General and administrative expenses - rental expenses GUC Research and development expenses GUC Proceeds from disposal of property, plant and equipment VIS Non-operating income and gains SSMC (primarily technical service income, see Note 22e) VIS (primarily technical service income, see Note 22j) VisEra At December 31 Receivables Philips and its affiliates Others Other receivables SSMC VIS VisEra Payables VIS Philips and its affiliates SSMC GUC Other long-term payables Philips and its affiliates Refundable deposits VIS $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2004 2003 Amount % Amount % 907,047 1 $ 3,023,741 $ $ $ $ $ $ $ $ $ $ 13,186 11,688 33,974 364,505 117,760 28,917 511,182 2 - 2 6 2 - 8 581,487 72,890 89 11 654,377 100 63,701 47,599 30,278 45 34 21 141,578 100 1,533,938 469,494 207,794 6,589 69 21 10 - 3 - - 9 4 - - 4 - - 15,125 201,869 251 - 202,120 895,063 25,381 97 3 920,444 100 13,228 118,503 - 10 90 - 131,731 100 1,034,074 1,579,568 634,647 - 32 49 19 - 2,217,815 100 $ 3,248,289 100 2,317,972 100 - - $ $ - 150,840 - 76 (Concluded) The terms of sales to related parties are not significantly different from those to third parties. For other related parties transactions, since there are no other similar transactions to follow, the prices are determined in accordance with the related contractual agreements. 171 21. Significant Long-Term Operating Leases TSMC 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. TSMC - North America leases its office premises and certain equipment under non-cancelable operating agreements. TSMC - Europe and TSMC - Japan entered into lease agreements for their office premises. The leases will expire between 2005 and 2010. The agreements can be renewed upon their expiration. As of December 31, 2004, future remaining lease payments are as follows: Year 2005 2006 2007 2008 2009 2010 and thereafter Amount 354,259 352,988 340,748 325,563 322,534 1,513,025 3,209,117 $ $ 22. Significant Commitments and Contingencies The significant commitments and contingencies of the Company as of December 31, 2004 are as follows: a. On June 20, 2004, TSMC and Philips revised the Technical Cooperation Agreement, which was originally signed on May 12, 1997, with an effective date from January 1, 2004 for five years. Upon expiration, this amended Technical Cooperation Agreement will be termi- nated at the expiration date and will not be automatically renewed. Under this amended Technical Cooperation Agreement, TSMC will pay Philips royalties based on fixed amounts mutually agreed-on, rather than under certain percentage of TSMC's annual net sales. TSMC and Philips also agree to cross license the patents owned by each party. TSMC also obtained through Philips a number of patent cross licenses. b. Under a technical cooperation agreement with ITRI, TSMC 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, TSMC shall reserve a portion of its production capacity for certain major customers that have guar- antee deposits with TSMC. As of December 31, 2004, TSMC had a total of US$12,802 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 December 31, 2004, TSMC's equity interest in SSMC was 32%. TSMC 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. 172 e. TSMC provides technical services to SSMC under a Technical Cooperation Agreement (the Agreement) entered into on May 12, 1999. TSMC receives compensation for such services computed at a specific percentage of net selling price of certain products sold by SSMC. The Agreement shall remain in force for ten years and may be automatically renewed for successive periods of five years each unless pre-terminated by either party under certain conditions. f. Under a Technology Transfer Agreement (TTA) with National Semiconductor Corporation (National) entered into on June 27, 2000, TSMC 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, TSMC and National entered into a Termination Agreement whereby the TTA was terminated for convenience. Under the Termination Agreement, TSMC will be relieved of any further obligation to transfer any additional technolo- gy. In addition, TSMC granted National an option to request the transfer of certain technologies under the same terms and conditions as the terminated TTA. The option will expire in January 2008. g. Beginning in 2001, TSMC 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. TSMC has record- ed 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. h. In November 2002, TSMC 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. TSMC also agreed to align 0.12 micron CMOS Logic technology to enhance its foundry business opportunities. TSMC will contribute process technologies and share a portion of the costs associated with this joint development project. i. In December 2003, TSMC entered into a Technology Development and License Agreement with Motorola, Inc. to jointly develop 65-nm SOI (silicon on insulator) technology. TSMC will also license related 90-nm SOI technology from Motorola, Inc. Any intellectual proper- ties arising out of the co-development project shall be jointly owned by the parties. In accordance with the agreement, TSMC will pay royalties to Motorola, Inc. and will share a portion of the costs associated with the joint development project. j. TSMC provides a technology transfer to VIS under a Manufacturing License and Technology Transfer Agreement entered into in August 2004. TSMC receives compensation for such technology transfer in the form of royalty payments from VIS computed at specific per- centages of net selling price of certain products sold by VIS. VIS agreed to reserve its certain capacity to manufacture for TSMC certain products at prior as agreed by the parties. k. Under an agreement signed with a certain company, TSMC - Shanghai has the obligation to purchase certain assets within a specified period at the price agreed upon by both parties. TSMC - Shanghai will compensate the other party in case of a breach of the agreement. 173 l. Amounts available under unused letters of credit as of December 31, 2004 were NT$6,480 thousand, US$1,282 thousand and SG$85 thousand. Among the unused letters of credit, TSMC - North America has an outstanding irrevocable standby letter of credit for US$1,078 thousand. The standby letter of credit was entered into as security to the landlord of TSMC - North America's office spaces in San Jose, California. The standby letter of credit will expire in October, 2005. m. The Company filed a series of lawsuits in late 2003 and 2004 in both state and federal courts in California and with the U.S. International Trade Commission against Semiconductor Manufacturing International Corporation ("SMIC"), SMIC (Shanghai), and SMIC Americas. The lawsuits alleged that SMIC companies infringed multiple patents of the Company and misappropriated the Company's trade secrets. These suits have been settled out of court on January 30, 2005. As part of the agreement, SMIC will pay TSMC US$175 million over six years to resolve the Company's patent infringement and trade secret claims. 23. 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 and 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 amounting to at least NT$100 million or 20% of the capital: Please see Table 6 attached; h. Receivable from related parties amounting to at least NT$100 million or 20% of the paid-in capital: Please see Table 7 attached; i. Names, locations, and related information of investees of which the Company exercises significant influence: Please see Table 8 attached; 174 j. Financial instrument transactions: 1) Derivative financial instruments The Company entered into derivative financial instrument transactions for the years ended December 31, 2004 and 2003 to manage exposures related to foreign exchange rate and interest rate fluctuations. Certain information on these contracts is as follows: a) Outstanding forward exchange contracts as of December 31, 2004 and 2003 are as follows: Financial Instruments Currency Maturity Date 2004 Sell Sell 2003 Sell Buy Buy US$/NT$ US$/EUR January 2005 to March 2005 January 2005 US$/NT$ EUR/US$ JPY/US$ January 2004 to July 2004 January 2004 January 2004 Contract Amount (in thousand) US$ US$ US$ EUR JPY 733,000 159,081 1,805,000 7,500 748,405 As of December 31, 2004 and 2003, receivables from forward exchange contracts (included in the "other financial assets" account) aggregate to approximately NT$392,534 thousand, and NT$76,385 thousand, respectively; payables from forward exchange contracts (included in the "other current liabilities" account) aggregate to approximately NT$559 thousand and NT$174,018 thousand, respectively. b) Cross currency swaps Outstanding cross currency swap contracts as of December 31, 2004 are as follows: Maturity Date Contract Amount (in thousand) Range of Interest Rate Paid Range of Interest Rate Received January 2005 to June 2005 US$ 1,420,000 1.28%-2.72% 0.49%-1.17% As of December 31, 2004, receivables from the cross currency swap contracts (included in the "other financial assets" account) were approximately NT$761,030 thousand. Net exchange gain or loss arising from forward exchange contracts and cross currency swap contracts was recognized in the "for- eign exchange loss, net" account and the difference in interest was recorded in interest income or expense. 175 c) Interest rate swaps Outstanding contracts as of December 31, 2004 and 2003 were as follows: Contract Date Period 2004 September 2003 October 2003 October 2003 October 2003 October 2003 November 2003 2003 September 2003 October 2003 October 2003 October 2003 October 2003 November 2003 July 1999 d) Option contracts September 2003 to December 2005 October 2003 to December 2005 October 2003 to December 2005 October 2003 to December 2005 October 2003 to December 2005 November 2003 to December 2005 September 2003 to December 2005 October 2003 to December 2005 October 2003 to December 2005 October 2003 to December 2005 October 2003 to December 2005 November 2003 to December 2005 July 1999 to June 2004 Contract Amount (in thousand) $ US$ 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000 2,857 During 2004, the Company did not enter into any foreign currency option contracts. There were no outstanding option contracts as of December 31, 2003. The Company entered into foreign currency option con- tracts for hedging purposes; therefore, the related premiums and the foreign exchange gain or loss are recognized in the "foreign exchange loss, net" account. e) Transaction risk i) Credit risk. Credit risk represents the positive net settlement amount of those contracts with positive fair values at the balance sheet date. The positive net settlement amount represents the loss incurred by the Company if the counter-parties breached the contracts. The banks, which are the counter-parties to the foregoing derivative financial instruments, are reputable financial institutions. Management believes its exposure related to the potential default by those counter-parties is low. ii) Market price risk. All derivative financial instruments are intended as hedges for fluctuations in foreign exchange rates and inter- est rates. Gains or losses from these hedging instruments are likely to be offset by gains or losses from the hedged items. Interest rate risks are also controlled as the expected cost of capital is fixed. Thus, market price risks are believed to be low. 176 iii) Cash flow risk and the amount and period of future cash needs. As of December 31, 2004, the Company's future cash needs for outstanding forward exchange contracts and cross currency swap contracts are as follows: Term Within one year Inflow (in thousand) $ EUR 69,761,484 118,500 Outflow (in thousand) US$ 2,312,081 The Company has sufficient operating capital to meet the above cash needs. In addition, there will be corresponding cash inflow for the cash outflow. Therefore, the cash flow risk is low. 2) Fair values of financial instruments were as follows: 2004 2003 Carrying Amount Fair Value Carrying Amount Fair Value Non-derivative financial instruments Assets Short-term investments, net Long-term investments (securities with market price) $ 54,107,951 31,165,721 $ 54,990,545 34,265,072 $ 13,611,536 4,103,926 $ 14,054,511 10,976,671 Liabilities Bonds payable (including current portion) 30,000,000 30,607,341 35,000,000 35,850,377 Derivative financial instruments Forward exchange contracts (buy) Forward exchange contracts (sell) Cross currency swap contracts Interest rate swap contracts - 391,975 761,030 4,361 - 317,090 760,012 (22,714) 2,351 (99,984) - - 3,037 40,638 - 2,093 The above financial instruments do not include cash and cash equivalents, receivables, other financial assets, payables, and payable to contractors and equipment suppliers. The carrying amounts of the aforementioned instruments reported in the balance sheet approximate their fair values. The above financial instruments also exclude refundable deposits, guarantee deposits, long-term investments that do not have quot- ed market prices as well as other long-term payables. The future cash inflow and outflow of the deposits approximate their fair val- ues. Some of long-term investments do not have quoted market prices; therefore, fair values for those long-term investments are not shown above. The fair value of other long-term payables is determined using the discounted value of expected cash flows, which approximates the carrying value. 177 Fair values of financial instruments were determined as follows: a) Fair value of short-term and publicly traded long-term investments is based on quoted market prices. b) The fair value of bonds payable is the quoted market value. c) Fair value of derivative financial instruments is the amount receivable from or payable to the counter-party if the contracts were terminated on the balance sheet date. 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 20. 24. Segment Financial Information a. Geographic information: 2004 Sales to unaffiliated customers Transfers between geographic areas Overseas Taiwan Adjustments and Elimination Consolidated $ 143,801,130 15,657,797 $ 113,411,488 142,580,939 $ - (158,238,736) $ 257,212,618 - Total sales $ 159,458,927 $ 255,992,427 $(158,238,736) $ 257,212,618 Gross profit Operating expenses Non-operating income and gains Non-operating expenses and losses Income before income tax and minority interest Minority interest in income of subsidiaries Identifiable assets Long-term investments Total assets $ 6,173,780 $ 110,160,584 $ (515,181) $ 89,000,906 $ 416,076,665 $ (43,725,329) $ 115,819,183 (27,337,509) 6,090,224 (2,606,311) $ 91,965,587 $ 12,898 $ 461,352,242 38,101,849 $ 499,454,091 (Continued) 178 2003 Sales to unaffiliated customers Transfers between geographic areas Overseas Taiwan Adjustments and Elimination Consolidated $ 118,851,382 11,494,868 $ 84,145,430 117,758,911 $ - (129,253,779) $ 202,996,812 - Total sales $ 130,346,250 $ 201,904,341 $(129,253,779) $ 202,996,812 Gross profit Operating expenses Non-operating income and gains Non-operating expenses and losses Income before income tax and minority interest Minority interest in loss of subsidiaries Identifiable assets Long-term investments Total assets b. Gross export sales $ 2,392,944 $ 72,891,637 $ (401,103) $ 52,276,269 $ 358,451,509 $ (14,075,261) $ 74,883,478 (23,582,897) 5,669,312 (5,791,248) $ 51,178,645 $ 3,012 $ 396,652,517 10,748,014 $ 407,400,531 (Concluded) The export sales information is determined based on billed regions. Gross export sales for the years ended December 31, 2004 and 2003 were NT$92,455,415 thousand and NT$59,868,104 thousand, respectively. There were no export sales to a region that account- ed for more than 10% of the Company's total sales. c. Major customer In 2004, there is no customer accounted for at least 10% of the Company's total sales. The Company only has one customer that accounts for at least 10% of its total sales in 2003. The sales to such customer amounted to $21,893,320 thousand and $31,220,104 thousand in 2004 and 2003, representing 8% and 15% of its total sales, respectively. 179 TABLE 1 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD. AND SUBSIDIARIES FINANCING PROVIDED FOR THE YEAR ENDED DECEMBER 31, 2004 (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified) No. Financing Name Counter-party Financial Statement Account 1 TSMC International TSMC Development Other receivables TSMC Technology Other receivables 2 TSMC Partners TSMC Development Other receivables Maximum Balance for the Period (US$ in thousand) Ending Balance (US$ in thousand) $ (US$ (US$ (US$ 1,915,020 60,000) $ (US$ 319,170 10,000) 1,915,020 60,000) - 2,553,360 80,000) (US$ 2,553,360 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. TABLE 2 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD. AND SUBSIDIARIES ENDORSEMENT/GUARANTEE PROVIDED FOR THE YEAR ENDED DECEMBER 31, 2004 (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified) No. Endorsement/ Guarantee Provider Name Nature of Relationship (Note 2) Limits on Each Counter-party's Endorsement/ Guarantee Amounts Counter-party 0 The Company TSMC Development TSMC - North America WaferTech Not exceed 10% of the net worth of the Company, and also limiting to the total capital issued of the endorsement / guarantee company, unless otherwise approved by Board of Directors. 3 2 3 Note 1: 25% of the net worth of the Company as of December 31, 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. 180 Interest Rate Type of Financing (Note 1) Transaction Amounts Reasons for Short-term Financing Allowance for Bad Debt 1.50% - 1.50% $ 2 - 2 - - - Operating capital $ - Operating capital - - - Collateral Item Value Financing Limit for Each Borrowing Company Financing Company's Financing Amount Limits (US$ in thousand) $ - - - - - - N/A $ 31,532,982 (US$ 987,968) (Note 2) N/A (Note 3) Maximum Balance for the Year (US$ in thousand) Ending Balance (US$ in thousand) Value of Collateral Property, Plant and Equipment Ratio of Accumulated Amount of Collateral to Net Equity of the Latest Financial Statement Maximum Collateral/Guarantee Amounts Allowable (Note 1) $ (US$ (US$ (US$ 1,915,020 60,000) 1,276,680 40,000) 14,043,480 440,000) $ $ (US$ (US$ 1,915,020 60,000) 1,276,680 40,000) - - - - $ 99,741,325 0.48% 0.32% - 181 TABLE 3 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD. AND SUBSIDIARIES MARKETABLE SECURITIES HELD DECEMBER 31, 2004 (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified) Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account The Company Government bonds 2003 Government Bond Series A United States Treas NTS 2003 Government Bond Series I 2004 Government Bond Series A 2004 Government Bond Series E 2004 Kaohsiung Municipal Bond Series A Bonds under repurchase agreement Bond funds JF Taiwan Bond Fund ABN AMRO Bond Fund JF Taiwan First Bond Fund INVESCO R.O.C. Bond A Fund Dresdner Bond DAM Fund Barits Bond Fund Shinkong Chi Shin Bond Fund ABN AMRO Select Bond Fund NITC Bond Fund HSBC NTD Money Management Fund Stock Taiwan Mask Corp. TSMC International VIS TSMC Partners SSMC TSMC - North America GUC TSMC - Japan VisEra TSMC - Europe United Industrial Gases Co., Ltd. Shin-Etsu Handotai Taiwan Co., Ltd. W.K. Technology Fund IV Hontung Venture Capital Co., Ltd. Globaltop Partner I Venture Capital Corp. Corporate bonds Taiwan Power Company Abbott Labs Abbott Labs Ace Ltd AIG Sunamerica Global Fing IX Allstate Finl Global Fdg LLC American Express Co. American Gen Fin Corp. American Gen Fin Corp. Mtn American Gen Fin Corp. Mtn American Honda Fin Corp. Mtn - - - - - - - - - - - - - - - - - - Subsidiary Investee Subsidiary Investee Subsidiary Investee Subsidiary Investee Subsidiary - - - - - - - - - - - - - - - - Short-term investment Short-term investment Long-term investment Long-term investment Long-term investment Long-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment 182 December 31, 2004 Shares/Units (in thousand) Carrying Value (US$ in thousand) Percentage of Ownership Market Value or Net Asset Value (US$ in thousand) Note - - - - - - - 78,698 134,906 84,886 76,705 80,833 76,640 151,594 18,235 3,764 41,568 1,787 987,968 409,532 300 382 11,000 39,040 6 5,100 - 16,783 10,500 5,000 8,392 5,000 - - - - - - - - - - - $ US$ 1,207,409 192,357 3,397,081 2,349,573 3,893,827 620,000 249,449 1,153,209 1,956,175 1,151,463 1,101,911 900,000 900,000 2,100,000 200,000 600,000 600,000 6,528 23,778,997 5,401,982 3,908,356 3,290,888 502,242 391,626 102,572 59,116 25,439 193,584 105,000 50,000 83,916 50,000 2,777,798 2,732 1,581 1,046 1,032 3,171 3,550 1,768 3,130 1,058 3,800 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A - 100 28 100 32 100 47 100 25 100 10 7 2 10 1 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A $ US$ 1,202,028 191,824 3,393,982 2,352,973 3,892,025 620,000 251,593 1,169,406 1,978,785 1,162,632 1,111,932 910,904 907,765 2,115,554 201,183 602,703 601,958 27,552 23,778,997 8,493,692 3,908,356 3,290,888 1,179,352 418,272 102,572 59,116 25,439 284,036 170,940 55,146 53,571 49,909 2,749,413 2,709 1,587 1,042 1,028 3,096 3,503 1,765 3,087 1,042 3,803 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ Treasury stock of NT$677,110 thousand is deducted from the car- rying value. (Continued) 183 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account American Intl Group Inc. Mtnf Amgen Inc. Amsouth Bk Birmingham Ala ANZ Cap Tr I Bank New York Inc. Bank New York Inc. Bank Scotland Treas Svcs PLC Bank Utd Houston TX Mtbn Bear Stearns Cos Inc. Bear Stearns Cos Inc. Medium Te Berkshire Hathaway Fin Corp. Bristol Myers Squibb Co. British Telecommunications PLC Cargill Inc. Chase Manhattan Corp. New Cit Group Hldgs Inc. Citigroup Inc. Citigroup Inc. Citigroup Inc. Colonial Pipeline Co. Compaq Computer Corp. Consolidated Edison Co. NY Inc. Corestates Cap Corp. Countrywide Fdg Corp. Mtn Countrywide Home Lns Inc. Credit Suisse Fb USA Inc. Credit Suisse First Boston Credit Suisse First Boston USA Daimlerchrysler North Amer Daimlerchrysler North Amer Hld Dell Computer Corp. Den Danske BK Aktieselskab Deutsche Telkom Intl Fin BV Diageo PLC Dow Chem Co. European Invt Bk Fifth Third Bk Cincinnati OH First Data Corp. First Un Corp. Fleet Finl Group Inc. New Fleet Finl Corp Inc. New Ford Mtr Cr Co. FPL Group Cap Inc. FPL Group Cap Inc. General Elec Cap Corp. Mtn General Elec Cap Corp. Mtn General Elec Cap Corp. Mtn Genworth Finl Inc. Goldman Sachs Group Inc. Mtn Goldman Sachs Group LP Goldman Sachs Group LP Greenpoint Finl Corp. GTE Corp. Hancock John Global Fdg Mtn Hartford Finl Svcs Group Inc. Hartford Finl Svcs Group Inc. Heller Finl Inc. Hershey Foods Corp. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment 184 December 31, 2004 Shares/Units (in thousand) Carrying Value (US$ in thousand) Percentage of Ownership Market Value or Net Asset Value (US$ in thousand) Note - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,795 3,005 1,972 1,012 1,525 3,945 2,715 580 3,518 3,105 1,498 3,819 2,104 2,120 1,628 3,203 2,000 1,033 3,583 1,625 3,719 3,687 1,062 2,158 5,210 2,645 786 2,249 997 749 3,054 2,192 1,852 3,459 921 8,315 2,419 3,013 970 494 975 1,542 1,001 860 3,467 1,040 3,886 3,412 3,505 1,637 1,100 974 2,134 1,003 765 296 1,171 1,627 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,795 2,991 1,978 1,001 1,509 3,943 2,717 574 3,493 3,105 1,494 3,788 2,091 2,079 1,613 3,195 2,002 1,033 3,523 1,612 3,593 3,618 1,060 2,151 5,157 2,599 779 2,240 999 755 3,025 2,166 1,838 3,477 911 8,236 2,466 2,986 965 493 962 1,535 990 846 3,455 1,040 3,878 3,408 3,494 1,599 1,075 972 2,109 986 758 296 1,163 1,606 (Continued) 185 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account Hewlett Packard Co. Honeywell Inc. Household Fin Corp. Household Fin Corp. Household Fin Corp. Mtn Bk Ent HSBC USA Inc. New Huntington Natl Bk Huntington Natl Bk Columbus OH ING Bank ING Sec Life Ins Ingslf Intl Bk For Recon + Dev JP Morgan Chase + Co. Jackson Natl Life Global Fdg Jackson Natl Life Global Fdg S JP Morgan Chase + Co. Keycorp Mtn Book Entry KFW Intl Fin Inc. Kraft Foods Inc. Kraft Foods Inc. Lehman Brothers Hldgs Inc. Lehman Brothers Hldgs Inc. Lehman Brothers Hldgs Inc. Lilly Eli + Co. Lincoln Natl Corp. In Merita Bk Ltd NY Brh Merrill Lynch + Co. Inc. Metropolitan Life Global Mtn Monumental Global Fdg II Monumental Global Fdg II Monumental Global Fdg II 2002A Morgan Stanley Morgan Stanley Group Inc. Morgan Stanley Group Inc. National Westminster Bk PLC Nationsbank Corp. Nationwide Bldg Soc Nationwide Life Global Mtn Pepsico Inc. Mtn Book Entry PNC Fdg Corp. Popular North Amer Inc. Mtn Premark Intl Inc. Pricoa Global Fdg I Mtn Pricoa Global Fdg I Mtn Principal Life Global Fdg I Gl Protective Life Secd Trs Prudential Ins Co. Amer Reinsurance Group Amer Inc. Royal Bk Scotland Group PLC Royal Bk Scotland Group PLC Royal Bk Scotland Group PLC Safeco Corp. Salomon Smith Barney Hldgs Inc. Sara Lee Corp. SBC Communications Inc. SBC Communications Inc. Scotland Intl Fin B V 144A Shell Finance (UK) PLC SLM Corp. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment 186 December 31, 2004 Shares/Units (in thousand) Carrying Value (US$ in thousand) Percentage of Ownership Market Value or Net Asset Value (US$ in thousand) Note - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,373 3,284 529 2,993 3,542 1,154 3,003 2,954 2,114 3,012 5,232 1,043 1,036 2,998 3,663 3,500 5,104 773 1,037 1,163 3,705 2,171 3,750 519 538 3,486 1,907 2,500 1,534 1,045 2,136 3,638 1,050 1,433 3,644 3,457 1,463 3,818 1,080 3,042 2,954 3,507 3,050 3,168 2,920 2,648 2,091 1,563 564 369 765 3,160 1,596 3,681 2,251 1,533 3,604 500 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,305 3,218 522 2,985 3,510 1,134 3,000 2,961 2,113 3,007 5,102 1,039 1,032 2,988 3,629 3,502 5,027 765 1,036 1,162 3,634 2,154 3,749 518 533 3,481 1,910 2,501 1,516 1,034 2,128 3,628 1,048 1,422 3,549 3,477 1,469 3,817 1,075 3,022 2,914 3,503 3,047 3,102 2,969 2,610 2,089 1,547 558 364 763 3,100 1,601 3,617 2,245 1,532 3,553 501 (Continued) 187 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account SLM Corp. Medium Term Nts SP Powerassets Ltd Global Suntrust Bks Inc. Swedbank Sparbanken Svenge AB TIAA Global Mkts Inc. Tribune Co. Med Trm Nts Union Planters Unitedhealth Group Inc. US Bk Natl Assn Cincinnati OH Virginia Elec + Pwr Co. Vodafone Group PLC New Wachovia Corp. Wal Mart Cda Venture Corp. Washington Mut Fin Corp. Washington Mut Inc. Washington Post Co. Wells Fargo + Co. New Westfield Cap Corp. Ltd China Steel Corporation Taiwan Power Company Nan Ya Plastics Corporation Formosa Plastics Corporation Formosa Petrochemical Corporation Agency bonds Fed Hm Ln Pc Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Mtg Corp Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Mtn Federal Home Loan Mtg Assn Federal Home Loan Mtg Corp. Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Mtn Federal Natl Mtg Assn Mtn - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment 188 December 31, 2004 Shares/Units (in thousand) Carrying Value (US$ in thousand) Percentage of Ownership Market Value or Net Asset Value (US$ in thousand) Note - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 2,950 991 1,062 1,084 519 2,943 2,755 3,119 2,669 2,884 2,559 3,720 3,670 4,768 4,735 3,182 3,697 1,999 2,978,804 915,276 407,526 405,485 202,595 3,466 2,532 1,042 4,927 7,962 7,014 4,936 4,948 2,454 7,018 4,996 7,042 6,098 2,909 13,953 13,983 13,981 6,978 3,388 4,953 9,997 998 4,933 4,930 4,847 4,903 5,270 6,940 6,903 4,981 6,997 15,787 7,000 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 2,985 992 1,060 1,067 514 2,965 2,704 3,097 2,687 2,838 2,561 3,600 3,602 4,689 4,682 3,180 3,631 1,999 2,977,695 914,582 407,484 405,322 200,000 3,462 2,520 1,024 4,947 7,939 6,924 4,949 4,944 2,468 7,004 4,973 6,985 6,084 2,907 13,898 13,946 13,946 6,928 3,419 4,941 9,943 993 4,936 4,938 4,891 4,943 5,237 6,937 6,917 4,953 6,983 15,798 6,976 (Continued) 189 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account Freddie Mac Fed Hm Ln Pc Pool E89857 Fed Hm Ln Pc Pool G11295 Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Gtd FNMA Pool 685116 FNMA Pool 725095 FNMA Pool 790828 FNMA Pool 793932 FNMA Pool 794040 FNMA Pool 795548 FNMA Pool 806642 GNMA II Pool 081150 GNMA II Pool 081153 Government Natl Mtg Assn Corporate issued asset-backed securities Aegis Asset Backed Secs Tr Aesop Fed II LLC Aesop Fed II LLC American Express Cr Account Ma American Home Mtg Invt Tr Americredit Automobile Receiv Americredit Automobile Rec Tr Americredit Automobile Rec Tr Americredit Automobile Receivb Atlantic City Elc Trns Fdg LLC Banc Amer Coml Mtg Inc. Banc Amer Mtg Secs Inc. Bank of Amer Lease Equip Tr Bear Stearns Alt A Tr Bear Stearns Asset Backed Secs BMW Veh Owner Tr California Infr + Economic Dev California Infras + Economic California Infrastructure Dev Capital Auto Receivables Asset Capital One Auto Fin Tr Capital One Auto Fin Tr Capital One Auto Fin Tr Capital One Multi Asset Execut Caterpillar Finl Asset Tr Centex Home Equity Ln Tr Cit Equip Coll Tr Citibank Cr Card Issuance Tr Citicorp Mtg Secs CNH Equip Tr Comm 2004 Htl 1 Credit Suisse First Boston Mtg CWABS Inc. CWABS Inc. CWABS Inc. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment 190 December 31, 2004 Shares/Units (in thousand) Carrying Value (US$ in thousand) Percentage of Ownership Market Value or Net Asset Value (US$ in thousand) Note - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 4,929 2,535 2,277 6,096 4,435 3,558 3,645 4,242 2,141 4,765 3,486 1,003 2,008 4,807 994 1,021 977 2,006 999 3,789 1,734 2,000 4,955 1,912 3,445 949 2,002 1,055 2,000 4,949 926 5,364 4,030 4,023 1,478 2,000 4,978 4,298 6,126 5,089 4,018 319 1,147 3,000 4,957 10,008 3,500 4,999 4,959 2,364 5,000 4,600 4,209 1,647 1,903 1,907 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 4,934 2,531 2,273 6,075 4,440 3,539 3,615 4,188 2,126 4,719 3,446 1,002 2,003 4,773 994 1,020 975 2,004 997 3,766 1,700 2,004 4,963 1,888 3,427 949 1,998 1,048 1,990 4,912 923 5,315 4,006 3,995 1,489 2,000 4,941 4,230 6,064 5,035 3,992 318 1,145 2,989 4,977 9,923 3,493 4,991 4,965 2,363 4,952 4,607 4,178 1,662 1,907 1,912 (Continued) 191 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account CWABS Inc. CWABS Inc. CWABS Inc. CWALT Inc. CWABS Inc. CWABS Inc. Daimlerchrysler Auto Tr Daimlerchrysler Auto Tr Daimlerchrysler Auto Tr Detroit Edison Securitization Fifth Third Auto Tr Finance Amer Mtg Ln Tr First Franklin Mtg Ln Tr First Horizon Abs Tr First Union Lehman Bros Mtg Tr First USA Credit Cr Master Tr Ford Cr Auto Owner Tr Granite Mtgs PLC GS Auto Ln Tr GS Mtg Secs Corp. Harley Davidson Motorcycle Tr Harley Davidson Motorcycle Tr Holmes Fing No 8 PLC Honda Auto Receivables Household Automotive Tr Hyundai Auto Receivables Tr IMPAC Cmb Tr IMPAC Cmb Tr IMPAC Secd Assets Corp. Long Beach Accep Auto Receivab Merrill Lynch Mtg Invs Inc. Merrill Lynch Mtg Invs Inc. Monumentl Global Fdg II National City Auto Receivables Navistar finl 2003 A Owner Tr Nissan Auto Receivables Nissan Auto Receivables Own Tr Nissan Auto Receivables Owner ONYX Accep Owner Tr ONYX Accep Owner Tr Providian Gateway Owner Tr Providian Gateway Owner Tr Reliant Energy Transition Bd Residential Asset Mtg Prods Residential Asset Mtg Prods Residential Fdg Mtg Secs I Inc. Sequoia Mtg Tr Sequoia Mtg Tr Sequoia Mtg Tr Sequoia Mtg Tr Sequoia Mtg Tr Structured Adj Rate Mtg Ln Tr Structured Asset Secs Corp. Thoornburg Mtg Secs Tr Toyota Auto Receivables 2003B Triad Auto Receivables Tr TXU Elec Delivery Transition USAA Auto Owner Tr - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment 192 December 31, 2004 Shares/Units (in thousand) Carrying Value (US$ in thousand) Percentage of Ownership Market Value or Net Asset Value (US$ in thousand) Note - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 2,000 5,000 3,500 4,292 2,317 4,040 4,991 4,982 4,897 674 3,000 985 2,002 2,000 3,567 5,011 10,999 5,000 2,948 2,944 3,417 5,999 5,001 5,000 513 3,500 1,414 988 3,570 2,526 1,460 1,500 1,000 1,206 4,928 7,000 4,999 4,853 963 4,913 4,204 3,992 5,185 3,731 3,000 3,659 2,504 1,960 1,488 2,000 3,500 3,037 1,403 1,921 4,970 5,042 7,736 4,000 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 1,997 5,055 3,541 4,277 2,298 4,040 4,970 4,970 4,893 671 2,999 986 2,006 2,000 3,534 5,008 10,936 5,000 2,970 2,944 3,400 5,938 5,052 4,991 511 3,468 1,413 988 3,566 2,502 1,460 1,502 1,001 1,207 4,889 6,958 4,993 4,872 961 4,933 4,201 3,982 5,117 3,672 2,980 3,631 2,513 1,955 1,486 2,000 3,500 3,031 1,394 1,923 4,930 4,997 7,715 3,991 (Continued) 193 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account Wachovia Auto Owner Tr Wachovia Auto Owner Tr WFS Financial Owner Trust WFS Finl 2004 2 Owner Tr WFS Finl 2004 4 Owner Tr Whole Auto Ln Tr Whole Auto Ln Tr Whole Auto Ln Tr World Omni Auto Receivables Tr Commercial papers Corporate issued notes Money market funds Equity Horizon Venture Fund I, L.P. Crimson Asia Capital Ltd., L.P. - - - - - - - - - - - Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Long-term investment Long-term investment TSMC - North America TSMC stock Parent company Short-term investment Chi Cherng Hsin Ruey TSMC International TSMC stock TSMC stock Money market fund BOA Fund Stock InveStar InveStar II TSMC Development TSMC Technology 3DFX Interactive Inc. TSMC Development WaferTech stock Parent company Short-term investment Parent company Short-term investment - Short-term investment Subsidiary Subsidiary Subsidiary Subsidiary - Subsidiary Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment InveStar Common stock RichTek Technology Corp. Advanced Power Electronics Corp. Broadtek Electronics Corp. Monolithic Power Systems, Inc. SiRF Technology Holdings, Inc. Broadtek Electronics Corp. Programmable Microelectronics (Taiwan), Corp. Global Testing Corp. RichTek Technology Corp. Signia Technologies, Inc. Incentia Design Systems, Inc. Advanced Power Electronics Corp. Capella Microsystems (Taiwan), Inc. Preferred stock Integrated Memory Logic, Inc. Sensory, Inc. Sonics, Inc. NanoAmp Solutions, Inc. - - - - - - - - - - - - - - - - - 194 December 31, 2004 Shares/Units (in thousand) Carrying Value (US$ in thousand) Percentage of Ownership Market Value or Net Asset Value (US$ in thousand) Note - - - - - - - - - - - - - - 14,151 15,670 15,700 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 6,000 4,999 5,008 4,994 5,399 5,967 4,000 3,000 5,963 2,997 1,999 US$ 21,114 246,485 43,649 677,110 458,564 459,512 30,300 US$ 30,300 24,320 51,300 1 1 68 US$ US$ US$ US$ 34,514 34,534 603,993 5,544 - - US$ 484,060 682 1,108 869 1,975 90 145 575 13,268 842 701 365 1,123 530 1,831 1,404 2,686 541 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 67 502 275 1,567 393 46 208 5,670 83 202 92 508 154 1,221 125 3,530 853 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A - - - N/A 97 97 100 100 - 99 - - - - - - 1 9 1 3 1 2 4 12 6 4 2 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 5,991 4,995 4,989 4,992 5,342 5,966 3,969 2,964 5,906 2,997 1,999 US$ 21,114 246,485 43,649 696,661 771,451 772,897 US$ 30,300 US$ US$ US$ US$ 34,514 34,534 603,993 5,544 - US$ 484,060 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 1,370 697 225 19,910 1,157 38 208 5,670 1,692 202 92 706 154 1,221 125 3,530 853 (Continued) 195 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account InveStar II Emerging Alliance Memsic, Inc. Reflectivity, Inc. IP Unity Tropian, Inc. Common stock RichTek Technology Corp. Monolithic Power Systems, Inc. eChannel Option Holding, Inc. eLCOS Microdisplay Technology, Ltd. Signia Technologies, Inc. Procoat Technology, Inc. RichTek Technology Corp. Programmable Microelectronics (Taiwan), Inc. Auden Technology MFG. Co., Ltd. GeoVision, Inc. EoNex Technologies, Inc. Conwise Technology Corporation, Ltd. EON Technology, Corp. Goyatek Technology, Corp. Trendchip Technologies Corp. Ralink Technology (Taiwan), Inc. Silicon Data International Co., Inc. Capella Microsystems (Taiwan), Inc. Preferred stock Memsic, Inc. eLCOS Microdisplay Technology, Ltd. NanoAmp Solutions, Inc. Advanced Analogic Technology, Inc. Sonics, Inc. Reflectivity, Inc. Tropian, Inc. Kilopass Technologies, Inc. FangTek, Inc. Alchip Technologies Limited Common stock Global Investment Holding, Inc. RichWave Technology Corp. NetLogic Microsystems, Inc. Preferred stock Quake Technologies, Inc. Pixim, Inc. Newport Opticom, Inc. Ikanos Communication, Inc. Quicksilver Technology, Inc. Mosaic Systems, Inc. Zenesis Technologies, Inc. Reflectivity, Inc. Teknovus, Inc. Miradia, Inc. (Formerly XHP Microsystems, Inc.) Axiom Microdevices, Inc. Optichron, Inc. Audience, Inc. Next IO, Inc. NuCORE Technology Inc. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Long-term investment Long-term investment Long-term investment Long-term investment Short-term investment Short-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment 196 December 31, 2004 Shares/Units (in thousand) Carrying Value (US$ in thousand) Percentage of Ownership Market Value or Net Asset Value (US$ in thousand) Note 2,727 1,064 1,008 1,758 321 864 358 270 351 5,123 395 177 953 471 55 2,800 3,276 2,088 2,000 1,833 2,000 419 2,289 2,667 375 948 1,582 4,255 1,464 3,887 6,806 2,579 10,000 2,600 113 601 1,721 962 7,446 1,049 2,481 1,204 4,848 5,556 3,040 1,000 714 1,654 800 2,254 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 1,500 741 494 471 184 2,081 251 27 101 1,940 226 50 738 127 3,048 490 1,175 545 861 791 204 122 1,560 3,500 1,500 1,261 3,082 2,205 393 2,000 3,250 2,950 100,000 867 1,388 450 2,382 250 3,125 - 12 699 2,479 1,000 1,000 1,000 1,000 250 500 1,455 10 2 2 3 - - 4 1 1 10 1 - 4 1 5 14 8 7 5 3 3 3 8 15 1 2 5 5 2 19 34 18 6 13 1 1 3 6 3 4 6 4 4 3 4 5 6 2 2 2 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 1,500 741 494 471 645 8,716 251 27 101 1,940 794 50 738 127 3,048 490 1,175 545 861 791 204 122 1,560 3,500 1,500 1,261 3,082 2,205 393 2,000 3,250 2,950 100,000 867 1,388 450 2,382 250 3,125 - 12 699 2,479 1,000 1,000 1,000 1,000 250 500 1,455 (Continued) 197 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account VTAF II GUC Centrality Communications, Inc. Layer N Networks, Inc. Common stock Yobon Technologies, Inc. Sentelic, Corp. Ivyon Technology, Inc. Preferred stock Powerprecise Solutions, Inc. Tzero Technologies, Inc. Miradia, Inc. Agelia Technologies, Inc. Audience, Inc. Axiom Microdevices, Inc. Next IO, Inc. Bond funds Grand Cathay TIIM Polaris De Li EnTrust Kirin E. Sun New Era Jih Sun EnTrust Phoenix Transcend Fortune Stock funds TIIM DaLi UPAMC Global Select Fund of Funds Sheng Hua 9966 Balance Stock Global Unichip Corporation - NA - - - - - - - - - - - - - - - - - - - - - - - Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Subsidiary Long-term investment 198 December 31, 2004 Shares/Units (in thousand) Carrying Value (US$ in thousand) Percentage of Ownership Market Value or Net Asset Value (US$ in thousand) Note 809 1,905 1,675 600 200 258 244 1,809 1,149 531 686 216 3,608 703 1,550 2,106 1,920 772 2,081 1,936 296 336 300 100 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 1,000 1,000 787 1,022 775 250 500 1,600 1,000 102 700 182 45,543 9,698 22,800 22,697 20,313 10,262 30,563 22,947 5,000 3,364 3,000 3,375 2 2 17 15 10 3 2 2 2 1 5 - N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 100 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 1,000 1,000 787 1,022 775 250 500 1,600 1,000 102 700 182 45,544 9,698 22,800 22,698 20,314 10,262 30,564 22,948 4,474 3,378 3,011 3,375 (Concluded) 199 TABLE 4 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD. AND SUBSIDIARIES 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 YEAR ENDED DECEMBER 31, 2004 (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified) Company Name Marketable Securities Type and Name Financial Statement Account Counter-party Nature of Relationship The Company Money market funds BOA Fund Short-term investment BOA GS Fund Short-term investment Goldman Sachs Bond funds JF Taiwan Bond Fund ABN AMRO Bond Fund ABN AMRO Select Bond Fund JF Taiwan First Bond Fund INVESCO R.O.C Bond A Fund Dresdner Bond DAM Fund Barits Bond Fund Shin Kong Chi Shin Bond Fund NITC Bond Fund HSBC NTD Money Management Fund Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment JF Asset Management (Taiwan) Ltd. ABN AMRO ABN AMRO JF Asset Management (Taiwan) Ltd. INVESCO Asset Management Taiwan Allianz Dresdner Securities Investment Consulting Co., Ltd. Barits Securities Investment Trust Co., Ltd. Shinkong Investment Trust Co., Ltd. National Investment Trust Co., Ltd. HSBC Asset Management (Taiwan) Ltd. Bonds under repurchase agreement Short-term investment Chung Shing Bills Finance Corp. and several financial institutions Government bonds 1994 Government Bond Series C 2002 Government Bond Series A 2002 Government Bond Series E 2002 Government Bond Series J 2003 Government Bond Series A United States Treas NTS 2003 Government Bond Series I 2004 Government Bond Series A Short-term investment Chung Shing Bills Finance Corp. and several financial Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Long-term investment Long-term investment institutions BNP and several financial institutions BNP and several financial institutions BNP and several financial institutions BNP and several financial institutions - FCB and several financial institutions China Bills Finance Corp. and several financial institu- tions 2004 Government Bond Series E 2004 Kaohsiung Municipal Bond Series A Long-term investment Long-term investment BNP and several financial institutions KGI Securities Co., Ltd. and several financial institu- Corporate bonds Taiwan Power Company Allstate Finl Global Fdg LLC American Express Co. American Express Cr Corp. Mtn American Gen Fin Corp. Mtn American Gen Fin Corp. Mtn American Honda Fin Corp. Mtn American Honda Fin Corp. Mtn American Honda Fin Corp. Mtn American Intl Group Inc. Mtnf Amgen Inc. Bank New York Inc. Bank One Corp. Bear Stearns Cos Inc. Bear Stearns Cos Inc. Bear Stearns Cos Inc. Medium Te Bristol Myers Squibb Co. Brown Forman Corp. Cardinal Health Inc. Cit Group Hldgs Inc. Citigroup Inc. Compaq Computer Corp. Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment tions KGI Securities Co., Ltd. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 200 Beginning Balance Acquisition Disposal Ending Balance Shares/Units (in thousand) Amount (US$ in thousand) Shares/Units (in thousand) Amount (US$ in thousand) Shares/Units (thousand) Amount (US$ in thousand) Carrying Value (US$ in thousand) Gain (Loss) on Disposal (US$ in thousand) Shares/Units (in thousand) Amount (US$ in thousand) (Note 1) 40,000 20,000 34,343 34,794 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - $ (US$ (US$ 1,359,120 40,000) 679,560 20,000) $ - - - - 500,000 500,000 - - - - - - - - 1,800,000 1,422,197 3,157,331 3,113,066 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 68,021 165,257 18,235 110,580 93,975 80,833 76,640 151,594 3,764 41,568 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 1,000,000 2,400,000 200,000 1,500,000 1,350,000 900,000 900,000 2,100,000 600,000 600,000 2,577,163 - - - 2,023,206 1,207,409 699,398 3,402,213 2,349,573 3,890,925 620,000 2,777,798 3,171 3,550 3,503 3,130 3,702 3,509 3,750 3,800 3,795 3,005 3,945 3,693 3,805 3,518 3,105 3,819 3,277 3,837 3,203 3,583 3,719 40,000 20,000 23,666 65,145 - 25,694 17,270 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - $ (US$ (US$ 1,359,120 40,000) 679,560 20,000) $ (US$ US$ 1,359,120 40,000) 679,560 20,000) $ 350,000 950,000 - 350,000 250,000 - - - - - 346,791 943,825 - 348,537 248,089 - - - - - 4,127,714 4,127,714 1,427,762 1,422,197 3,169,750 3,133,875 2,031,500 - 506,162 - - 3,157,331 3,113,066 2,023,206 - 507,041 - - US$ - - - - - 3,504 - - 3,509 3,755 - - - - 3,695 3,816 - - - 3,280 3,795 - - - US$ US$ US$ US$ US$ US$ US$ - - - - - 3,503 - - 3,509 3,750 - - - - 3,693 3,805 - - - 3,277 3,837 - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ - - 3,209 6,175 - 1,463 1,911 - - - - - - 5,565 12,419 20,809 8,294 - (879) - - - - - - - 1 - - - 5 - - - - 2 11 - - - 3 (42) - - - $ - - - - 78,698 134,906 18,235 84,886 76,705 80,833 76,640 151,594 3,764 41,568 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1,153,209 1,956,175 200,000 1,151,463 1,101,911 900,000 900,000 2,100,000 600,000 600,000 249,449 - - - - 1,207,409 192,357 3,397,081 2,349,573 3,893,827 620,000 2,777,798 3,171 3,550 - 3,130 3,702 - - 3,800 3,795 3,005 3,945 - - 3,518 3,105 3,819 - - 3,203 3,583 3,719 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ (Continued) 201 Company Name Marketable Securities Type and Name Financial Statement Account Counter-party Nature of Relationship Consolidated Edison Co. NY Inc. Countrywide Fdg Corp. Mtn Countrywide Home Lns Inc. Credit Suisse First Boston USA Dell Computer Corp. Diageo PLC European Invt Bk Federal Home Ln Mtg Corp Federal Home Loan Mtg Assn First Data Corp. General Elec Cap Corp. Mtn General Elec Cap Corp. Mtn General Elec Cap Corp. Mtn Genworth Finl Inc. Goldman Sachs Group Inc Mtn Goldman Sachs Group LP Hewlett Packard Co. Honeywell Inc. Household Fin Corp. Household Fin Corp. Mtn Bk Ent Huntington Natl Bk ING Sec Life Ins Ingslf Intl Bk For Recon + Dev JP Morgan Chase + Co. JP Morgan Chase + Co. JP Morgan Chase + Co. Keycorp Mtn Book Entry KFW Intl Fin Inc. Lehman Brothers Hldgs Inc. Lehman Brothers Hldgs Inc. Lilly Eli + Co. Merrill Lynch + Co Inc. Merrill Lynch + Co Inc. Monumental Global Fdg II 2002A Morgan Stanley Group Inc. Morgan Stanley Group Inc. Nationsbank Corp. Nationwide Bldg Soc Nationwide Life Global Mtn Pepsico Inc. Mtn Book Entry Popular North Amer Inc Mtn Pricoa Global Fdg I Mtn Pricoa Global Fdg I Mtn Principal Life Global Fdg I Gl Salomon Smith Barney Hldgs Inc. SBC Communications Inc. Shell Finance (UK) PLC TIAA Global Mkts Inc. Unitedhealth Group Inc. Viacom Inc. Viacom Inc. Wachovia Corp. Walmart Cda Venture Corp. Washington Mut Fin Corp. Washington Mut Inc. Washington Post Co. Wells Fargo + Co. New China Steel Corporation Taiwan Power Company Nan Ya Plastics Corporation Formosa Plastics Corporation Formosa Petrochemical Corporation Agency bonds Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Chung Shing Bills Finance Corp. BNP and several financial institutions Chung Shing Bills Finance Corp. Chung Shing Bills Finance Corp. Chung Shing Bills Finance Corp. Short-term investment Short-term investment - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 202 Beginning Balance Acquisition Disposal Ending Balance Shares/Units (in thousand) Amount (US$ in thousand) Shares/Units (in thousand) Amount (US$ in thousand) Shares/Units (in thousand) Amount (US$ in thousand) Carrying Value (US$ in thousand) Gain (Loss) on Disposal (US$ in thousand) Shares/Units (in thousand) Amount (US$ in thousand) (Note 1) $ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,687 3,534 5,210 3,177 3,054 3,459 8,315 4,237 4,847 3,013 3,507 3,467 3,886 3,412 3,505 3,820 3,373 3,284 3,712 3,542 3,003 3,012 5,232 3,638 3,128 3,663 3,500 5,104 3,417 3,705 3,750 3,497 3,486 3,129 5,741 4,763 3,644 3,457 3,413 3,818 3,042 3,507 3,050 3,168 3,160 3,681 3,604 3,631 3,119 3,177 3,172 3,720 3,670 4,768 4,735 3,182 3,697 2,997,430 950,646 408,538 406,245 202,980 US$ US$ 6,096 4,725 $ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - $ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ - 3,540 - 3,188 - - - - - - 3,498 - - - - - - - 3,633 - - - - 3,601 - - - - 3,381 - - 3,498 - - - 3,713 - - - - - - - - - - - 3,131 - 3,135 3,175 - - - - - - - - - - - - - $ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ - 3,534 - 3,177 - - - - - - 3,507 - - - - - - - 3,712 - - - - 3,638 - - - - 3,417 - - 3,497 - - - 3,713 - - - - - - - - - - - 3,112 - 3,177 3,172 - - - - - - - - - - - - - - 6 - 11 - - - - - - (9) - - - - - - - (79) - - - - (37) - - - - (36) - - 1 - - - - - - - - - - - - - - - 19 - (42) 3 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,687 - 5,210 - 3,054 3,459 8,315 4,237 4,847 3,013 - 3,467 3,886 3,412 3,505 3,820 3,373 3,284 - 3,542 3,003 3,012 5,232 - 3,128 3,663 3,500 5,104 - 3,705 3,750 - 3,486 3,129 5,741 1,050 3,644 3,457 3,413 3,818 3,042 3,507 3,050 3,168 3,160 3,681 3,604 519 3,119 - - 3,720 3,670 4,768 4,735 3,182 3,697 2,978,804 915,276 407,526 405,485 202,595 US$ US$ 6,096 4,725 (Continued) 203 Company Name Marketable Securities Type and Name Financial Statement Account Counter-party Nature of Relationship Feferal Home Ln Mtg Corp. Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Gtd Federal Natl Mtg Assn Mtn Fnma Pool 790828 Gnma II Pool 081153 Gnma II Pool Tba Nov 30 Arms Government Natl Mtg Assn Federal Hm Ln PC Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Mtn Federal Home Loan Mtg Corp. Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Disc Nts Federal Natl Mtg Assn Mtn Freddie Mac Student Ln Marketing Assn Corporate issued asset-backed securities Aesop Fdg II LLC American Express Cr Account MA Americredit Automobile Receivb Banc Amer Coml Mtg Inc. Banc Amer Mtg Secs Inc. Bank Of Amer Lease Equip Tr BMW Veh Owner Tr California Infr + Economic Dev California Infras + Economic California Infrastructure Dev Capital Auto Receivables Asset Capital One Master Tr Capital One Multi Asset Execut Capital One Secd Nt Tr Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 204 Beginning Balance Acquisition Disposal Ending Balance Shares/Units (in thousand) Amount (US$ in thousand) Shares/Units (in thousand) Amount (US$ in thousand) Shares/Units (in thousand) Amount (US$ in thousand) Carrying Value (US$ in thousand) Gain (Loss) on Disposal (US$ in thousand) Shares/Units (in thousand) Amount (US$ in thousand) (Note 1) $ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,558 5,861 3,393 6,130 6,371 7,000 5,014 3,817 4,829 4,473 3,466 5,210 4,927 14,938 7,014 4,936 9,956 5,264 4,948 7,018 9,993 7,042 6,098 13,953 13,983 13,981 6,978 3,388 4,907 4,953 9,997 9,971 11,984 4,933 4,930 4,903 11,036 10,496 5,270 4,982 6,940 4,867 6,903 4,981 6,997 4,993 5,000 15,787 4,929 16,000 4,955 3,445 4,949 5,503 4,030 4,023 4,978 4,298 8,383 7,419 4,627 3,093 4,957 5,032 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - $ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ - - - - - - - - 4,829 - - 4,153 - 6,980 - - 9,967 5,286 - - 5,000 - - - - - - - 4,981 - - 9,942 10,965 - - - 10,997 10,430 - 4,983 - 4,938 - - - 4,993 - - - 16,000 - - - - - - - - - - - 3,072 - 5,000 $ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ - - - - - - - - 4,829 - - 4,168 - 6,976 - - 9,956 5,264 - - 4,997 - - - - - - - 4,907 - - 9,971 10,986 - - - 11,036 10,496 - 4,982 4,867 - - - 4,993 - - - 16,000 - - - - - - - - - - - 3,093 - 5,032 $ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ - - - - - - - - - - - (15) - 4 - - 11 22 - - 3 - - - - - - - 74 - - (29) (21) - - - (39) (66) 1 71 - - - - - - - - - - - - - - - - - - - (21) - (32) US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 3,558 5,861 3,393 6,130 6,371 7,000 5,014 3,817 - 4,473 3,466 1,042 4,927 7,962 7,014 4,936 - - 4,948 7,018 4,996 7,042 6,098 13,953 13,983 13,981 6,978 3,388 - 4,953 9,997 - 998 4,933 4,930 4,903 - - 5,270 - 6,940 - 6,903 4,981 6,997 - 5,000 15,787 4,929 - 4,955 3,445 4,949 5,503 4,030 4,023 4,978 4,298 8,383 7,419 4,627 - 4,957 - (Continued) 205 Company Name Marketable Securities Type and Name Financial Statement Account Counter-party Nature of Relationship Caterpillar Finl Asset Tr Centex Home Equity Ln Tr Cit Equip Coll Tr Citibank Cr Card Issuance Tr CHN Equip Tr Comm 2004 Htl 1 Credit Suisse First Boston Mtg CWABS Inc. CWABS Inc. CWALT Inc. CWABS Inc. CWABS Inc. Daimlerchrysler Auto Tr Daimlerchrysler Auto Tr Daimlerchrysler Auto Tr First Union Lehman Bros Mtg Tr First USA Credit Cr Master Tr Ford Cr Auto Owner Tr GE Cap Cr Card Master Nt Tr Granite Mtgs PLC GS Mtg Secs Corp. Harley Davidson Motorcycle Tr Harley Davidson Motorcycle Tr Holmes Fing No 8 PLC Honda Auto Receivables Hyundai Auto Receivables Tr Impac Secd Assets Corp. Monumentl Global Fdg II Navistar Finl 2003 A Owner Tr Nissan Auto Receivables Nissan Auto Receivables Owner Tr Nissan Auto Receivables Owner ONYX Accep Owner Tr Permanent Fing No 1 PLC Providian Gateway Owner Tr Providian Gateway Owner Tr Reliant Energy Transition Bd Residential Asset Mtg Prods Residential Fdg Mtg Secs I Inc Sequoia Mtg Tr Structured Adj Rate Mtg Ln Tr Toyota Auto Receivables 2003 B Triad Auto Receivables Tr TXU Elec Delivery Transition USAA Auto Owner Tr Wachovia Auto Owner Tr Wachovia Auto Owner Tr WFS Financial Owner Trust WFS Finl 2002 4 Owner Tr WFS Finl 2004 2 Owner Tr WFS Finl 2004 4 Owner Tr Whole Auto Ln Tr Whole Auto Ln Tr World Omni Auto Receivables Tr World Omni Auto Receivables Tr Money market funds Common stock RichTek Technology Corp. Atheros Communication, Inc. Monolithic Power Systems, Inc. InveStar InveStar II Common stock RichTek Technology Corp. Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Note: The ending balance included the recognition of the investment income (loss) by the equity method, the cumulative translation adjustments and the bond premi- um or discount amortization amount. 206 Beginning Balance Acquisition Disposal Ending Balance Shares/Units (in thousand) Amount (US$ in thousand) Shares/Units (in thousand) Amount (US$ in thousand) Shares/Units (in thousand) Amount (US$ in thousand) Carrying Value (US$ in thousand) Gain (Loss) on Disposal (US$ in thousand) Shares/Units (in thousand) Amount (US$ in thousand) (Note 1) $ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 947 1,205 2,521 US$ US$ US$ 121 3,593 2,000 465 US$ 346 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 10,008 3,500 4,999 4,959 5,000 4,600 5,000 5,000 3,500 4,718 3,129 4,040 4,991 4,982 4,897 4,177 5,011 10,999 4,000 5,000 4,000 4,000 5,999 5,001 5,000 3,500 4,000 3,500 4,928 7,000 4,999 4,853 4,913 5,102 4,204 3,992 5,185 3,766 3,947 3,500 3,058 4,970 5,042 8,009 4,000 6,000 4,999 5,008 3,904 4,994 5,399 5,967 4,000 5,963 5,000 21,114 - - - - $ US$ US$ US$ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1,595 1,205 546 US$ US$ US$ - - - - - - - - - - - - - - - - - - 4,003 - - - - - - - - - - - - - - 5,036 - - - - - - - - - - - - - - - - - - - - 4,986 - 6,783 8,972 4,318 $ US$ US$ US$ US$ US$ US$ - - - - - - - - - - - - - - - - - - 4,000 - - - - - - - - - - - - - - 5,102 - - - - - - - - - - - - - - - - - - - - 5,000 - 184 3,593 433 $ US$ US$ US$ US$ US$ US$ - - - - - - - - - - - - - - - - - - 3 - - - - - - - - - - - - - - (66) - - - - - - - - - - - - - - - - - - - - (14) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 10,008 3,500 4,999 4,959 5,000 4,600 5,000 5,000 3,500 4,718 3,129 4,040 4,991 4,982 4,897 4,177 5,011 10,999 - 5,000 4,000 4,000 5,999 5,001 5,000 3,500 4,000 3,500 4,928 7,000 4,999 4,853 4,913 - 4,204 3,992 5,185 3,766 3,947 3,500 3,058 4,970 5,042 8,009 4,000 6,000 4,999 5,008 3,904 4,994 5,399 5,967 4,000 5,963 - US$ 21,114 6,598 5,379 3,885 682 - 1,975 US$ US$ 67 - 1,567 768 US$ 3,394 US$ 519 US$ 2,875 321 US$ 184 (Concluded) 207 TABLE 5 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD. AND SUBSIDIARIES ACQUISITION OF INDIVIDUAL REAL ESTATE AT COSTS OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2004 (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified) Company Name Types of Property Transaction Date Transaction Amount Payment Term Counter-party The Company Fab. 12 April 21, 2004 $ 1,484,370 By the construction progress IDC Taiwan, Inc., Taiwan Branch Fab. 12 Fab. 12 Fab. 12 Fab. 12 Fab. 12 Fab. 12 Fab. 12 Fab. 12 Fab. 12 Fab. 14 Fab. 12 Fab. 12 Fab. 12 Fab. 12 April 21, 2004 April 22, 2004 May 12, 2004 May 12, 2004 May 12, 2004 June 17, 2004 July 2, 2004 July 8, 2004 July 8, 2004 420,168 224,800 340,307 116,181 133,092 165,208 225,744 100,767 466,833 By the construction progress By the construction progress By the construction progress By the construction progress By the construction progress By the construction progress By the construction progress By the construction progress By the construction progress (U.S.A.) CHRIST AG Allis Electric Co., Ltd. United Industry gas Corp., Ltd. United Industry gas Corp., Ltd. BOC EDWARDS, CMS Organo Corporation Marketech International Corp. Kanto Chemical Co., Inc. United Integrated Services Co., Ltd. August 3, 2004 300,000 By the construction progress United Integrated Services Co., August 5, 2004 August 5, 2004 August 5, 2004 October 15, 2004 122,969 185,984 182,060 105,299 By the construction progress By the construction progress By the construction progress By the construction progress Ltd. Marketech International Corp. Marketech International Corp. Marketech International Corp. IDC Taiwan, Inc., Taiwan Branch (U.S.A.) TABLE 6 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD. AND SUBSIDIARIES TOTAL PURCHASES FROM OR SALES TO RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2004 (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified) Company Name The Company Related Party Nature of Relationship TSMC - North America Philips and its affiliates GUC WaferTech VIS SSMC Subsidiary Major shareholder Investee Subsidiary Investee Investee Transaction Details Purchase/Sale Amount Sales Sales Sales Purchases Purchases Purchases $ 142,271,732 5,463,565 371,546 15,203,047 9,169,602 5,869,123 208 Nature of Relationship Prior Transaction of Related Counter-party Owner Relationship Transfer Date Amount Price Reference Purpose of Acquisition Other Terms - - - - - - - - - - - - - - - N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Public bidding Manufacturing purpose N/A N/A N/A N/A N/A N/A N/A N/A N/A Public bidding Public bidding Public bidding Public bidding Public bidding Public bidding Public bidding Public bidding Public bidding Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose N/A Public bidding Manufacturing purpose N/A N/A N/A N/A Public bidding Public bidding Public bidding Public bidding Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose None None None None None None None None None None None None None None None Transaction Details Abnormal Transaction Notes/Accounts Payable or Receivable % to Total Payment Terms Unit Price Payment Terms Ending Balance Note % to Total 55 2 - 34 13 21 Net 30 days after invoice date Net 30 days after monthly closing Net 30 days after monthly closing Net 30 days after monthly closing Net 30 days after monthly closing Net 30 days after monthly closing None None None None None None None None None None None None $ 15,526,964 581,487 56,436 (913,107) (1,533,938) (207,794) 47 2 - 9 16 2 209 TABLE 7 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD. AND SUBSIDIARIES RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL DECEMBER 31, 2004 (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified) Company Name Related Party Nature of Relationship Ending Balance Turnover Rate The Company TSMC - North America TSMC - Shanghai Philips and its affiliates Subsidiary Subsidiary Major shareholder $ 15,526,964 1,473,365 581,487 38 days (Note) 49 days Note: The ending balance is generated mainly from the sales of machinery, so it is not applicable for the calculation of the turnover rate. TABLE 8 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD. AND SUBSIDIARIES NAMES, LOCATIONS, AND RELATED INFORMATION OF INVESTEES ON WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCE DECEMBER 31, 2004 (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified) Investor Company Investee Company Location Main Businesses and Products The Company TSMC - North America San Jose, California, U.S.A. Sales and marketing of integrated circuits and TSMC - Europe TSMC - Japan TSMC - Shanghai Amsterdam, the Netherlands Yokohama, Japan Shanghai, China Marketing activities Marketing activities Manufacturing and marketing of integrated semiconductor devices VIS Hsin-Chu, Taiwan circuits and semiconductor devices Research, design, development, manufacture, packaging, testing and sale of memory integrated circuits, LSI, VLSI and related parts TSMC International Tortola, British Virgin Islands Providing investment in companies involved in the Chi Cherng Hsin Ruey TSMC Partners SSMC Emerging Alliance GUC VisEra VTAF II design, manufacture, and other related business in the semiconductor industry Taipei, Taiwan Taipei, Taiwan Tortola, British Virgin Islands Singapore Cayman Islands Hsin-Chu, Taiwan Investment activities Investment activities Investment activities Fabrication and supply of integrated circuits Investing in new start-up technology companies Researching, developing, manufacturing, testing and marketing of integrated circuits Hsin-Chu, Taiwan Manufacturing, material wholesaling and retailing of electronic spare parts Cayman Islands Investing in new start-up technology companies Note 1: The treasury stock is deducted from the carrying value. Note 2: The gains or losses on disposal of the stocks held by subsidiaries (treated as treasury stocks) and the paid-in capital from cash dividend distributed by parent company are excluded. 210 Overdue Amount Action Taken Amounts Received in Subsequent Period Allowance for Bad Debts $ 5,044,202 145,146 7,136 - Accelerate demand on account receivables - $ 6,013,414 - 13,726 $ - - - Original Investment Amount Balance as of December 31, 2004 December 31, 2004 December 31, 2003 Shares (in thousand) Percentage of Ownership Carrying Value (Note 1) Net Income (Loss) of the Investee Investment Gain (Loss)(Note 2) Note $ 333,178 $ 333,178 11,000 100 $ 502,242 $ 120,587 $ 112,543 Subsidiary 15,749 83,760 9,187,962 15,749 83,760 1,890,952 - 6 - 8,119,816 8,119,816 409,532 31,445,780 31,445,780 987,968 300,000 300,000 10,350 6,408,190 1,447,957 409,920 51,000 332,412 300,000 300,000 10,350 6,408,190 1,179,690 409,920 51,000 - - - 300 382 - 39,040 5,100 - 100 100 100 28 100 36 36 100 32 99 47 25 98 25,439 102,572 8,113,511 262 2,919 (727,036) 262 2,919 (727,036) Subsidiary Subsidiary Subsidiary 5,401,982 4,706,668 1,329,555 Investee 23,778,997 2,598,162 2,598,162 Subsidiary 50,570 49,823 3,908,356 3,290,888 823,232 391,626 59,116 329,968 21,359 21,887 43,117 2,288,786 (97,767) 30,424 35,540 18,373 (664) (491) 43,117 732,418 (97,278) 23,279 Investee Investee Subsidiary Investee Subsidiary Investee 8,885 Investee 14,648 Subsidiary 211 TABLE 9 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD. AND SUBSIDIARIES INFORMATION OF INVESTMENT IN MAINLAND CHINA DECEMBER 31, 2004 (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified) Investee Company Main Businesses and Products Total Amount of Paid-in Capital (RMB in Thousand) Investment Type Investment Flows Accumulated Outflow of Investment from Taiwan as of January 1, 2004(US$ in Thousand) Outflow (US$ in Thousand) Inflow Accumulated Outflow of Investment from Taiwan as of December 31, 2004 (US$ in Thousand) TSMC (Shanghai) Company Limited Manufacturing and marketing of integrat- ed circuits and semi- conductor devices $ 9,187,962 (RMB 2,284,355) (Note 1) $ (US$ 1,890,952 56,000) $ (US$ 7,297,010 220,000) $ - $ (US$ 9,187,962 276,000) Percentage of Ownership in Investment Investment Gain (Loss) (Note 2) Carrying Value as of December 31, 2004 Accumulated Inward Remittance of Earnings as of December 31, 2004 Accumulated Investment in Mainland China as of December 31, 2004 (US$ in Thousand) Investment Amounts Authorized by Investment Commission, MOEA (US$ in Thousand) Upper Limit on Investment (US$ in Thousand) 100% $ (727,036) $ 8,113,511 $ - $ (US$ 9,187,962 276,000) $ 11,841,207 (US$ 371,000) $ (US$ 11,841,207 371,000) Note 1: Direct investment in TSMC (Shanghai) US$276,000 thousand. Note 2: Amount was recognized based on the audited financial statements. 212 11. U.S. GAAP Financial Information Please be advised that our 2004 full annual report that includes complete U.S. GAAP reconciled financial statements and footnotes will be avaliable when we file From 20-F with the U.S. SEC. Our From 20-F, or our 2004 full annual report, can be found at the U.S. SEC and on TSMC's website no later than June 30, 2005. TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD. AND SUBSIDIARIES U.S. GAAP RECONCILIATIONS OF SHAREHOLDERS' EQUITY December 31, 2003 and 2004 (In Thousand New Taiwan Dollars) TOTAL SHAREHOLDERS' EQUITY UNDER R.O.C. GAAP $ 329,214,309 $ 398,965,299 2003 2004 U.S. GAAP Adjustments - Unrealized gain on trading marketable securities - US GAAP adjustments on equity-method investees - Unrealized gain on available-for-sale marketable securities - TSMC - Equity-method investees - Reversal of R.O.C. GAAP unrealized loss on marketable securities - Loss on impairment of assets - Reversal of depreciation on assets impaired under U.S. GAAP - Effect of US GAAP adjustments on deferred income tax - Goodwill - Carrying value difference for 68% purchase of TASMC - Reversal of amortization - Derivative financial instruments - Bonuses to employees, directors and supervisors - Accrued pension expense - 10% tax on undistributed earnings - Minority interest effect of U.S. GAAP adjustments 448,730 (1,403,846) 379,664 130,706 - (11,108,126) 4,453,059 37,802 52,212,732 (13,647,022) 39,048 (3,530,225) (40,263) - (13,447) 27,958,812 813,841 (463,097) 33,586 242,688 75,212 (10,335,675) 5,529,660 41,901 52,212,732 (12,544,979) (102,977) (6,403,897) (37,706) (878,074) (23,704) 28,159,511 TOTAL SHAREHOLDERS' EQUITY UNDER U.S. GAAP $ 357,173,121 $ 427,124,810 213 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD. U.S. GAAP RECONCILIATIONS OF NET INCOME For the Year Ended December 31, 2003 and 2004 (In Thousand New Taiwan Dollars) NET INCOME UNDER R.O.C. GAAP U.S. GAAP Adjustments - Unrealized gain on trading marketable securities - Reversal of R.O.C. GAAP unrealized loss on marketable securities - U.S. GAAP adjustments on equity-method investees - Reversal of depreciation on assets impaired under U.S. GAAP - Reversal of additional write-off under R.O.C. GAAP - Income tax effect of U.S. GAAP adjustments - Reversal of amortization of goodwill - Amortization of capital stock payment for technology transfer - Adjustment to market value for derivative financial instruments - Bonuses to employees, directors and supervisors - Current year accrual - Fair market value adjustment of prior year accrual - Pension expense - Stock-based compensation - 10% tax on undistributed earnings - Minority interest effect of U.S. GAAP adjustments NET INCOME UNDER U.S GAAP. Cumulative preferred dividends 2003 2004 $ 47,258,700 $ 92,316,115 (1,667,701) - (70,567) 1,483,526 104,614 42,409 1,281,730 59,609 555,326 (3,530,225) (6,441,054) (490) (463,743) - 49,241 (8,597,325) 38,661,375 (184,493) 365,111 75,212 952,185 1,514,707 - 6,986 1,255,321 - (142,025) (6,403,897) (12,956,662) 2,557 156,167 (878,074) (10,257) (16,062,669) 76,253,446 - INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS UNDER U.S. GAAP $ 38,476,882 $ 76,253,446 214 SPECIAL NOTES 1. Affiliates Information (1) TSMC Affiliated Companies Chart Taiwan Semiconductor Manufacturing Company, Ltd. TSMC North America Shareholding: 100% TSMC Europe B.V. Shareholding: 100% TSMC Japan K.K. Shareholding: 100% TSMC International Investment Ltd. Shareholding: 100% TSMC Partners, Ltd. Shareholding: 100% Emerging Alliance Fund, L.P. Shareholding: 99.5% Chi Cherng Investment Co., Ltd. Shareholding: TSMC: 35.71% Hsin Ruey: 64.29% TSMC (Shanghai) Co., Limited Shareholding: 100% Global Unichip Corp. Shareholding: 47.32% VisEra Technologies Co., Ltd. Shareholding: 25% Venture Tech Alliance Fund II, L.P. 98% TSMC Development, Inc. Shareholding: 100% TSMC Technology, Inc. Shareholding: 100% InveStar Semiconductor Development Fund, Inc. Shareholding: 97.09% InveStar Semiconductor Development Fund, Inc. (II) LDC. Shareholding: 97.09% Hsin Ruey Investment Co., Ltd. Shareholding: TSMC: 35.71% Chi Cherng: 64.29% Global Unichip Corp.-NA Shareholding: 100% WaferTech, LLC Shareholding: 99.996% 215 (2) TSMC Affiliated Companies December 31, 2004 Unit : NT(US, EUR, JPY) $ thousands Company Date of Incorporation Place of Registration Capital Stock Business Activities TSMC North America Jan. 18, 1988 San Jose, California, USA US$ 11,000 Sales and marketing of integrated circuits and semiconductor devices Taiwan Semiconductor Manufacturing Mar. 04, 1994 Amsterdam, The Netherlands EUR 90.76 Marketing activities Company Europe B.V. TSMC Japan K.K. TSMC (Shanghai) Company Limited Sep. 10, 1997 Aug. 04, 2003 Yokohama, Japan Shanghai, China JPY 300,000 US$ 276,000 Marketing activities Manufacturing and marketing of integrated circuits and TSMC International Investment Ltd. Apr. 09, 1996 Tortola, British Virgin Islands US$ 987,968 Providing investment in companies involved in the semiconductor devices TSMC Technology, Inc. InveStar Semiconductor Development Feb. 20, 1996 Sep. 10, 1996 Delaware, USA Cayman Islands US$ 0.001 25,050 US$ Fund, Inc. design, manufacture, and other related business in the semiconductor industry Engineering support activities Investing in new start-up technology companies InveStar Semiconductor Development Aug. 25, 2000 Cayman Islands US$ 52,839 Investing in new start-up technology companies Fund, Inc.(II) LDC. TSMC Development, Inc. WaferTech, LLC Feb. 16, 1996 Jun. 03, 1996 Delaware, USA Washington, USA US$ 0.001 US$ 892,795 Investment activities Manufacturing, selling, testing and computer-aided designing of TSMC Partners, Ltd. Emerging Alliance Fund, L.P. Hsin Ruey Investment Co., Ltd. Chi Cherng Investment Co., Ltd. Global Unichip Corporation Mar. 26, 1998 Jan. 10, 2001 Jul. 13, 1998 Jul. 15, 1998 Jan. 22, 1998 Tortola, British Virgin Islands Cayman Islands Taipei, Taiwan Taipei, Taiwan Hsin-Chu, Taiwan US$ 300 US$ 43,101 NT$ 840,000 NT$ 840,000 NT$ 825,000 integrated circuits and other semiconductor devices Investment activities Investing in new start-up technology companies Investment activities Investment activities Researching, developing, manufacturing, testing and marketing of integrated circuits VisEra Technologies Company, Ltd. Dec. 05, 2003 Hsin-Chu, Taiwan NT$ 204,000 Manufacturing, material wholesaling and retailing of electronic VentureTech Alliance Fund II, L.P. Global Unichip Corporation-NA Feb. 27, 2004 Feb. 02,2004 Cayman Islands San Jose, California, USA US$ 10,000 100 US$ Investing in new start-up technology companies Providing consulting services for products in the North America region spare parts (3) Business Scope of TSMC and its Affiliated Companies TSMC and its affiliates work together to provide dedicated foundry services to our customers around the world. In addition, several of TSMC's affiliate companies are focused on investing in companies involved in design, manufacture, and other related business in semi- conductor industries. In general, TSMC and its affiliates provide cross support in technology, capacity, marketing and services with an aim to maximize the synergy within the group, enabling TSMC to provide its customers with the best dedicated foundry services worldwide. The ultimate goal of this strategy is to ensure TSMC's leading position in the global foundry market. (4) TSMC Shareholders Representing Both Holding Comapnies and Subordinates December 31, 2004 Reasoning Name (Note 1) Shareholding (Note 2 ) Shares Holding % Date of Incorporation Place of Registration Capital Business Activities None The presumed interested parties representing both holding companies and subordinates include the company's Director, the shareholders conducting business on behavior of the company, and the shareholders holding more than 50% shares of the company. Note 1: The same legal and natural persons apply a company name and a personal name, respectively. Note 2: It shows the shareholdings to the holding company (excluding the holdings to the subordinates). Unit: NT$ thousands, except shareholding 216 (5) Rosters of Directors, Supervisors, and Presidents of TSMC's Affiliated Companies December 31, 2004 Company Title Name Unit: NT$, except shareholding Shareholding TSMC North America Taiwan Semiconductor Manufacturing Company Europe B.V. TSMC Japan K.K. TSMC (Shanghai) Company Limited Director Director President Director Director Director Director Director President Chairman Director Director Director Director Director Director Supervisor President Chairman Director Director Director Supervisor President F.C.Tseng Rick Tsai Rick Cassidy Morris Chang Rick Tsai Quincy Lin Kenneth Kin Kees den Otter Kees den Otter Sachiaki Nagae Morris Chang F.C.Tseng Rick Tsai Sachiaki Nagae Makoto Onodera Hisao Baba Lora Ho Hisao Baba F.C.Tseng F.C.Tseng C.C.Wei Y.C. Chao Lora Ho Y.C. Chao TSMC International Investment Ltd. Director President Morris Chang F.C.Tseng TSMC Technology, Inc. Chairman Director President Morris Chang Morris Chang Morris Chang InveStar Semiconductor Development Fund, Inc. Director Wendell Huang InveStar Semiconductor Development Fund, Inc.(II) LDC. Director Wendell Huang TSMC Development, Inc. Chairman Director President Morris Chang Morris Chang Morris Chang Amount - - - (TSMC holds 11,000,000 shares) - - - - - - (TSMC holds 200 shares) - - - - - - - - - (TSMC holds 6,000 shares) - - - - - - (TSMC's investment US$276,000,000) - - (TSMC holds 987,968,244 shares ) - - - (TSMC International Investment Ltd. holds 1,000 shares) - (TSMC International Investment Ltd. holds 24,320,388 shares) - (TSMC International Investment Ltd. holds 51,300,000 shares) - - - (TSMC International Investment Ltd. holds 1,000 shares) % - - - (100) - - - - - - (100) - - - - - - - - - (100) - - - - - - (100) - - (100) - - - (100) - ( 97.09) - ( 97.09) - - - (100) 217 Company Title Name WaferTech, LLC TSMC Partners, Ltd. Chairman Director Director Director President Director Director Director Director Director Director Morris Chang Morris Chang Rick Tsai Steve Tso Kuo-Chin Hsu F. C.Tseng Rick Tsai Quincy Lin Steve Tso Richard L. Thurston Lora Ho Emerging Alliance Fund, L.P. NIL NIL Hsin Ruey Investment Co., Ltd. Director Rick Tsai (Representative of Chi Cherng Investment Co., Ltd.) Chi Cherng Investment Co., Ltd. Director F. C.Tseng (Representative of Hsin Ruey Investment Co., Ltd.) Global Unichip Corporation VisEra Technologies Company, Ltd. Chairman Director Director Director Supervisor President Director Supervisor President F. C.Tseng F. C.Tseng Ping Yang Jim Lai Lora Ho Jim Lai C. C.Wei Lora Ho N. S. Tsai Shareholding Amount - - - - - (TSMC Development, Inc. holds 293,636,833 Preferred Shares) - - - - - - (TSMC holds 300,000 shares) (TSMC's investment US$ 42,885,000) (Chi Cherng's investment NT$ 540,000,080) (TSMC's investment NT$299,999,880) (Hsin Ruey's investment NT$ 540,000,080) (TSMC's investment NT$299,999,880) - - - - - - (TSMC holds 39,040,000 shares) - - - (TSMC holds 5,100,000 shares ) VentureTech Alliance Fund II, L.P. NIL NIL (TSMC's investment US$ 9,850,000) Global Unichip Corporation-NA Director Director President K. C. Shih Jim Lai Jim Lai - - - (GUC holds 100,000 shares) % - - - - - ( 99.996) - - - - - - (100) ( 99.50) ( 64.29) ( 35.71) ( 64.29) ( 35.71 ) - - - - - - (47.32) - - - (25) ( 98) - - - (100) 218 (6) Operational Highlights for TSMC Affiliated Companies December 31, 2004 Company Capital Stock Assets Liabilities Net Worth Net Sales Unit: NT$ thousands, except EPS($) Income from Operation Net Income (net of tax) Basic EPS (net of tax) Note TSMC North America 351,087 17,504,163 16,241,043 1,263,120 1,673,507 Taiwan Semiconductor Manufacturing Company Europe B.V. 3,954 51,007 25,568 25,439 203,491 168,655 23,408 106,725 9.70 262 1,311.07 TSMC Japan K.K. 93,390 124,160 21,588 102,572 255,715 12,177 2,919 486.49 TSMC (Shanghai) Company Limited 8,809,092 18,623,017 10,509,507 8,113,511 12,930 (826,109) (727,036) TSMC International Investment Ltd. 31,532,982 34,204,536 10,425,539 23,778,997 2,604,849 2,601,170 2,598,162 N/A 2.63 TSMC Technology, Inc. InveStar Semiconductor Development Fund, Inc. InveStar Semiconductor Development Fund, Inc.(II) LDC. 0.032 856,090 679,149 176,941 799,521 1,199,957 65,311 1,134,646 70,474 848,906 (2,687) 546,322 (27,419) (27,419.21) 511,501 20.42 1,686,462 1,135,465 166 1,135,299 161,980 85,929 (67,387) (1.28) TSMC Development, Inc. 0.032 16,038,767 6,454,562 9,584,205 0 (19,945) 4,630,853 4,630,853.23 WaferTech, LLC TSMC Partners, Ltd. 28,495,335 15,955,936 817,841 15,138,095 15,152,475 4,854,005 4,752,619 9,575 12,539,566 8,631,210 3,908,356 6,005 1,781 1,717 302,268 494,812 827,369 1,426,136 1,425,574 0 61,258 21,862 22,740 883,900 1,006,211 236,464 1,967,687 3,536 336,702 96 3,397 34,776 8,705 (71) 9,730 21,690 22,568 6,906 53,920 18,372 415 43,117 (97,767) 21,887 21,359 30,424 35,540 18,373 215 N/A 143.72 N/A N/A N/A 0.37 1.74 N/A 2.15 Emerging Alliance Fund, L.P. 1,375,639 833,374 Hsin Ruey Investment Co., Ltd. Chi Cherng Investment Co., Ltd. Global Unichip Corporation VisEra Technologies Company, Ltd. VentureTech Alliance Fund II, L.P. Global Unichip Corporation-NA * Base on US GAAP. 840,000 840,000 825,000 204,000 319,170 3,192 1,427,917 1,427,291 1,186,168 731,276 340,238 3,493 NOTE: Foreign exchange rate for balance sheet amounts are as follows: $1 USD =$31.917 NT $1 EUR =$43.57 NT $1 JPY =$0.3113 NT $1 RMB =$3.856 NT Foreign exchange rate for income statement amounts are as follows: $1 USD =$33.4483 NT $1 EUR =$41.62 NT $1 JPY =$0.31 NT $1 RMB =$4.041 NT * * * * * 219 2. Combined Financial Statements and Independent Accountants' Review Report REPRESENTATION LETTER The combined balance sheet as of December 31, 2004 and the combined statement of income for the year ended December 31, 2004 of Taiwan Semiconductor Manufacturing Company, Ltd. and affiliates were prepared in conformity with the Criteria Governing Preparation of Affiliation Reports, Consolidated Business Reports and Consolidated Financial Statements of Affiliated Enterprises, relevant regulations and accounting principles generally accepted in the Republic of China. No misrepresentations were made and no important matters were concealed in the preparation of the combined financial statements of Taiwan Semiconductor Manufacturing Company, Ltd. Very truly yours, TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD. By MORRIS CHANG Chairman January 13, 2005 (January 30, 2005 as to Note 23o) 220 INDEPENDENT ACCOUNTANTS' REVIEW REPORT The Board of Directors and Shareholders Taiwan Semiconductor Manufacturing Company, Ltd. We have reviewed the combined balance sheet as of December 31, 2004 and the related combined statement of income for the year then ended of Taiwan Semiconductor Manufacturing Company, Ltd. and affiliates. Our review was made in accordance with the Guidelines for the Review of Combined Financial Statements of Affiliates. It is substantially less in scope than an examination in accor- dance with auditing standards generally accepted in the Republic of China (R.O.C.), the objective of which is the expression of an opinion regarding the combined balance sheet and the combined statement of income taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the combined balance sheet and the com- bined statement of income referred to above in order for them to be in conformity with the "Criteria Governing Preparation of Affiliation Reports, Consolidated Business Reports and Consolidated Financial Statements of Affiliated Enterprises" in the R.O.C., and the R.O.C. reg- ulations governing the preparation of financial statements of public company and generally accepted accounting principles in the R.O.C. January 13, 2005 (January 30, 2005 as to Note 23o) Notice to Readers The accompanying combined financial statements are intended only to present the combined 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 jurisdiction. The standards, procedures and practices to audit such combined financial statements are those generally accepted and applied in the Republic of China. For the convenience of readers, the accountants' review report and the accompanying combined financial statements have been translat- ed into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language accountants' review report and combined financial statements shall prevail. 221 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD. AND AFFILIATES COMBINED BALANCE SHEET DECEMBER 31, 2004 (In Thousands of New Taiwan Dollars, Except Par Value) (Reviewed, Not Audited) ASSETS CURRENT ASSETS Cash and cash equivalents (Notes 2, 4 and 5) Short-term investments, net (Notes 2 and 5) Receivables from related parties (Note 21) Notes receivable Accounts receivable Allowance for doubtful receivables (Note 2) Allowance for sales returns and others (Note 2) Other receivables from related parties (Note 21) Other financial assets (Notes 2 and 24) Inventories, net (Notes 2 and 6) Deferred income tax assets, net (Notes 2 and 15) Prepaid expenses and other current assets (Note 2) Total current assets LONG-TERM INVESTMENTS (Notes 2, 7, 19 and 24) Equity method Cost method Long-term bonds Other investments Total long-term investments PROPERTY, PLANT AND EQUIPMENT (Notes 2, 8, 11 and 21) Cost Land and land improvements Buildings Machinery and equipment Office equipment Leased assets Other equipment Total cost Accumulated depreciation Advance payments and construction in progress Net property, plant and equipment GOODWILL (Note 2) OTHER ASSETS Deferred charges, net (Notes 2, 9 and 23) Deferred income tax assets, net (Notes 2 and 15) Refundable deposits Others (Note 8) Total other assets TOTAL The accompanying notes are an integral part of the combined financial statements. 222 $ Amount 74,531,410 54,303,642 1,077,818 14,746 31,274,596 (986,360) (3,342,450) 111,300 2,229,551 15,649,596 8,917,986 1,751,699 185,533,534 8,692,870 3,266,330 15,170,167 10,521,740 37,651,107 803,508 98,086,317 433,168,964 8,551,372 566,243 152,133 541,328,537 (331,323,140) 49,247,068 259,252,465 7,088,864 9,218,900 1,649,979 106,952 175,830 11,151,661 % 15 11 - - 6 - (1) - 1 3 2 - 37 2 1 3 2 8 - 20 86 2 - - 108 (66) 10 52 1 2 - - - 2 $ 500,677,631 100 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Short-term bank loans (Note 10) Payables to related parties (Note 21) Accounts payable Payables to contractors and equipment suppliers Accrued expenses and other current liabilities (Notes 2, 13 and 23) Current portion of long-term liabilities (Notes 11 and 12) Total current liabilities LONG-TERM LIABILITIES Long-term bank loans (Note 11) Bonds payables (Note 12) Other long-term payables (Note 13) Other payables to related parties (Notes 21 and 23) Liability under capital lease (Notes 2 and 8) Total long-term liabilities OTHER LIABILITIES Accrued pension cost (Notes 2 and 14) Guarantee deposits (Note 23) Others Total other liabilities MINORITY INTEREST IN AFFILIATES (Note 2) Total liabilities SHAREHOLDERS' EQUITY (Notes 2 and 17) Capital stock - $10 par value Authorized: 24,600,000 thousand shares Issued: 23,251,964 thousand shares Capital surplus Retained earnings: Appropriated as legal reserve Unappropriated earnings Cumulative translation adjustments (Note 2) Treasury stock (at cost) - 45,521 thousand shares (Notes 2 and 19) Total shareholders' equity $ Amount % 383,004 2,241,748 7,583,723 33,437,308 10,325,040 10,505,489 - - 2 7 2 2 64,476,312 13 1,926,735 19,500,000 7,964,975 2,317,972 566,243 32,275,925 3,113,552 412,881 714,949 4,241,382 718,713 - 4 2 - - 6 1 - - 1 - 101,712,332 20 232,519,637 56,537,259 25,528,007 88,202,009 (2,226,427) (1,595,186) 398,965,299 46 11 5 18 - - 80 TOTAL $ 500,677,631 100 223 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD. AND AFFILIATES COMBINED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 2004 (In Thousands of New Taiwan Dollars, Except Combined Earnings Per Share) (Reviewed, Not Audited) GROSS SALES (Notes 2 and 21) SALES RETURNS AND ALLOWANCES (Note 2) NET SALES (Note 25) COST OF SALES (Notes 16 and 21) GROSS PROFIT OPERATING EXPENSES (Notes 16, 21 and 25) Research and development General and administrative Marketing Total operating expenses INCOME FROM OPERATIONS NON-OPERATING INCOME AND GAINS (Note 25) Investment income recognized by equity method, net (Notes 2 and 7) Interest (Notes 2 and 24) Gain on sales of investments, net (Note 2) Technical service income (Notes 21 and 23) Gain on disposal of property, plant and equipment (Note 2) Other (Note 21) Total non-operating income and gains NON-OPERATING EXPENSES AND LOSSES (Note 25) Interest (Notes 2, 8 and 24) Foreign exchange loss, net (Notes 2 and 24) Loss on impairment of long-term investments (Note 2) Loss on disposal of property, plant and equipment (Note 2) Unrealized valuation loss of short-term investments (Note 2) Other Total non-operating expenses and losses Amount % $ 264,348,362 (4,737,127) 259,611,235 100 143,375,116 116,236,119 12,703,145 11,542,135 3,403,503 27,648,783 88,587,336 2,061,973 1,860,614 922,650 423,804 247,021 527,952 6,044,014 1,528,908 390,858 350,608 131,779 75,708 134,247 2,612,108 55 45 5 5 1 11 34 1 1 - - - - 2 1 - - - - - 1 (Continued) 224 INCOME BEFORE INCOME TAX AND MINORITY INTEREST (Note 25) $ 92,019,242 Amount INCOME TAX BENEFIT (Notes 2 and 15) INCOME BEFORE MINORITY INTEREST MINORITY INTEREST IN INCOME OF AFFILIATES (Notes 2 and 25) 352,453 92,371,695 (55,580) COMBINED NET INCOME $ 92,316,115 % 35 - 35 - 35 COMBINED EARNINGS PER SHARE (NT$, Note 20) Basic earnings per share Diluted earnings per share Income Before Income Tax and Minority Interest Combined Net Income $ $ 3.96 3.96 $ $ 3.97 3.97 The accompanying notes are an integral part of the combined financial statements. (Concluded) 225 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS (Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise) (Reviewed, Not Audited) 1. General Taiwan Semiconductor Manufacturing Company, Ltd. (TSMC), a Republic of China (R.O.C.) corporation, was incorporated as a venture among the Government of the R.O.C., acting through the Development Fund of the Executive Yuan; Philips Electronics N.V. and certain of its affiliates (Philips); and certain other private investors. On September 5, 1994, its shares were listed on the Taiwan Stock Exchange (TSE). On October 8, 1997, TSMC listed some of its shares of stock on the New York Stock Exchange (NYSE) in the form of American Depositary Shares (ADSs). TSMC is engaged mainly in the manufacturing, selling, packaging, testing and computer-aided designing of integrated circuits and other semiconductor devices, and the manufacturing of masks. TSMC has six direct wholly-owned subsidiaries: TSMC International Investment Ltd. (TSMC International), TSMC North America (TSMC - North America), Taiwan Semiconductor Manufacturing Company Europe B.V. (TSMC - Europe), TSMC Japan K.K. (TSMC - Japan), TSMC (Shanghai) Company Limited (TSMC - Shanghai) and TSMC Partners, Ltd. (TSMC Partners). In addition, TSMC has the following consoli- dating subsidiaries: a 99.5% owned subsidiary, Emerging Alliance Fund, L.P. (Emerging Alliance), a 98% owned subsidiary, VentureTech Alliance Fund II, L.P. (VTAF II) and two 36% owned affiliates - Chi Cherng Investment Co., Ltd. (Chi Cherng, which is 36% owned by TSMC and 64% owned by Hsin Ruey Investment Co., Ltd.) and Hsin Ruey Investment Co., Ltd. (Hsin Ruey, which is 36% owned by TSMC and 64% owned by Chi Cherng). TSMC International has two wholly-owned subsidiaries - TSMC Development, Inc. (TSMC Development) and TSMC Technology, Inc. (TSMC Technology), and two 97% owned subsidiaries - InveStar Semiconductor Development Fund, Inc. (InveStar) and InveStar Semiconductor Development Fund, Inc. (II) LDC (InveStar II). TSMC Development has a 99.996% owned subsidiary, WaferTech, LLC (WaferTech). TSMC has two affiliates over which TSMC exercises significant influence: a 47% owned affiliate, Global UniChip Corporation (GUC), and a 25% owned affiliate, VisEra Technologies Co., Ltd. (VisEra). GUC has a wholly-owned subsidiary, Global Unichip Corp. - NA (GUC - NA). The following diagram presents information regarding the relationship and ownership percentages among TSMC and its affiliates as of December 31, 2004: TSMC 100% 100% 100% 100% 100% 100% 36% 36% 99.5% 47% 25% 98% TSMC- North America TSMC- Japan TSMC International TSMC-Europe TSMC Partners TSMC Shanghai Chi Cherng 64% 64% Hsin Ruey Emerging Alliance GUC VisEra VTAF II 100% 100% 97% 97% TSMC Technology TSMC Development InveStar InveStar II 99.996% WaferTech 100% GUC-NA 226 TSMC - North America is engaged in the sales and marketing of integrated circuits and semiconductor devices. TSMC - Europe and TSMC - Japan are engaged mainly in marketing activities. TSMC Technology is engaged mainly in engineering support activities. TSMC - Shanghai is engaged in the manufacturing and marketing of integrated circuits and other semiconductor devices. TSMC Partners, TSMC Development, Chi Cherng and Hsin Ruey are engaged in investing activities. TSMC International is engaged in providing investment in companies involved in the design, manufacture, and other related business in the semiconductor industry. Emerging Alliance, VTAF II, InveStar and InveStar II are engaged in investing in new start-up technology companies. WaferTech is engaged in the manufacturing, sell- ing, testing and computer-aided designing of integrated circuits and other semiconductor devices. GUC is engaged in the researching, developing, manufacturing, testing and marketing of integrated circuits. VisEra is engaged in the manufacturing, material wholesaling and retailing of electronic spare parts. GUC - NA is engaged in providing consulting services for products in the North America region. 2. Significant Accounting Policies The combined financial statements are presented in conformity with Criteria Governing Preparation of Affiliation Reports, Consolidated Business Reports and Consolidated Financial Statements of Affiliated Enterprises in the R.O.C. and regulations governing the preparation of financial statements of public companies and generally accepted accounting principles in the R.O.C. For the convenience of readers, the accompanying combined financial statements have been translated into English from the original Chinese version prepared and used in the R.O.C. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language financial statements shall prevail. Significant accounting policies are summarized as follows: Combination All significant intercompany balances and transactions have been eliminated in the combined financial statements. The combined finan- cial statements include, as of and for the year ended December 31, 2004, the accounts of all directly and indirectly majority owned sub- sidiaries of TSMC, and the accounts of GUC, GUC - NA and VisEra that TSMC exercises significant influence on. TSMC and the foregoing affiliates are hereinafter referred to collectively as the "Company". Minority interests in the aforementioned affiliates are presented separately in the combined financial statements. Use of Estimates The preparation of financial statements in conformity with the aforementioned regulations and principles requires management to make reasonable assumptions and estimates of matters that are inherently uncertain. The actual results may differ from management's estimates. Classification of Current and Noncurrent Assets and Liabilities Current assets are those expected to be converted to cash, sold or consumed within one year from the balance sheet date. Current liabili- ties are obligations due on demand within one year from the balance sheet date. Assets and liabilities that are not classified as current are noncurrent assets and liabilities, respectively. 227 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 primarily consist of corporate bonds, asset-backed securities, bond and stock funds, agency bonds, government bonds and others. Short-term investments are recorded at historical cost and are carried at the lower of cost or market value as of the balance sheet date. An allowance for decline in value is provided and is charged to current earnings when the aggregate carrying value of the investments exceeds the aggregate market value. A reversal of the allowance is recorded for a subsequent recovery of the market value. The cost of funds and listed stocks sold are accounted for using the weighted-average method; whereas the other securities are account- ed for using the specific identification method. The market value of funds is determined using the net asset value of the funds at the end of the year, and the market value of listed stocks is determined using the average-closing price of the listed stocks for the last month of the year. The others are determined using the average of bid and ask prices as of the balance sheet date. Cash dividends are recorded as investment income in the current year. Allowance for Doubtful Receivables Allowances 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 have occurred or services provided, if applicable, a fixed or determinable price and the collectibility is reasonably assured. 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 a majority of the customers and 30 to 45 days after the end of the month in which the sales occur for some customers. Since the receivables from sales are collectible within one year and such transactions are frequent, the fair value of receivables is equivalent to the nominal amount of cash received. Inventories Inventories are stated at the lower of cost or market value. Inventories are recorded using the weighted-average cost method, or record- ed at standard cost and adjusted to the approximate weighted-average cost at the end of the year. Market value represents net replace- ment cost for raw materials, supplies and spare parts. Market value represents net realizable value for finished goods and work in process. The Company assesses the impact of changing technology on its inventory on hand and writes off inventories that are consid- ered obsolete. Ending inventories are evaluated for estimated excess quantities and obsolescence based on demand forecast within a spe- cific time horizon, generally 180 days or less, and the estimated losses on scrap and slow-moving items are recognized in the allowance for losses. 228 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 com- panies is recognized in the "investment income/loss recognized by equity method, net" account. When equity investments are made, the difference, if any, between the cost of investment and the Company's proportionate share of investee's net equity is amortized using the straight-line method over five years and is recorded in 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 carry- ing amount of the investment in the 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 or credited to cap- ital surplus. Investments in companies wherein the Company does not exercise significant influence are recorded at historical cost. Cash dividends are recognized as investment income in the year received but are accounted for as reductions in the carrying amount of the long-term invest- ments if the dividends are received in the same year that the related investments are acquired. Stock dividends are recorded as an increase in the number of shares held and do not affect investment income or the carrying amount of the investment. An allowance is recognized for any decline in the market value of investments with readily ascertainable fair market value with the corresponding amount recorded as an unrealized loss, a component of shareholders' equity. A reversal of the allowance will result from a subsequent recovery of the market value of such investments. The carrying amounts of investments whose fair market values are not readily ascertainable are reduced to reflect an other-than-temporary decline in their values, with the related impairment loss charged to income. Investments in foreign mutual funds are stated at the lower of aggregate cost or net asset value. An allowance is recognized when the net assets value of the funds is lower than their cost, with the corresponding amount recorded as a reduction to shareholders' equity. A reversal of the allowance will result from a subsequent recovery of the net asset value. The costs of stocks and mutual funds sold are determined using the weighted-average method. Investments in long-term bonds are stated at amortized cost. The discount or premium is amortized over the duration period using the interest method, and recorded as an adjustment to interest income. 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 amount, and the market value becomes the new basis. If an investee company recognizes an unrealized loss on its long-term investments using the lower-of-cost-or-market method, the Company also recognizes a corresponding unrealized loss in proportion to its ownership percentage in the investee company and records the amount as a component of its shareholders' equity. Gains or losses on sales from the Company to investee companies accounted for using the equity method are deferred in proportion to the Company's ownership percentage in the investee companies until realized through transactions with third parties. The entire amount of the gains or losses on sales to majority-owned subsidiaries is deferred until such gains or losses are realized through the subsequent sales of the related products to third parties. Gains or losses on sales from investee companies to the Company are deferred in proportion to the Company's ownership percentages in the investee companies until realized through transactions with third parties. If an investee's functional currency is a foreign currency, translation adjustments will result from the process of translating the investee's financial statements into the reporting currency of the Company. Such adjustments are accumulated and reported as a separate compo- nent of shareholders' equity. 229 Property, Plant and Equipment, Assets Leased to Others, Leased Assets and Idle Assets Property, plant and equipment and assets leased to others are stated at cost less accumulated depreciation. When impairment is deter- mined, the related assets are stated at the lower of fair value or book value. Idle assets are stated at the lower of net realizable value or book value. Significant additions, renewals and betterments incurred during the construction period are capitalized. Maintenance and repairs are expensed in the year incurred. Interest expense incurred for the project during the purchase and construction period is also capitalized. Properties covered by agreements qualifying as capital leases are carried at the lower of the leased equipment's market value or the present value of the minimum lease payments at the inception date of the lease. Depreciation is computed using the straight-line method over the following estimated service lives: land improvements - 20 years; build- ings - 10 to 50 years; machinery and equipment - 3 to 10 years; office equipment - 3 to 15 years; leased assets - 20 years and other equipment - 3 to 10 years. Upon sale or disposal of property, plant and equipment, the related cost and accumulated depreciation are removed from the correspon- ding accounts, with any gain or loss credited or charged to non-operating income or expenses in the year of sale or disposal. Goodwill Goodwill represents the excess of the consideration paid for acquisition over the fair market value of identifiable net assets acquired and acquisition costs. Goodwill is amortized using the straight-line method over the estimated life of 10 years. Deferred Charges Deferred charges consist of technology license fees, software and system design costs and other charges. The amounts are amortized as follows: technology license fees - the shorter of the estimated life of the technology or the term of the technology transfer contract, soft- ware and system design costs and other charges -2 or 5 years. Pension Costs Net periodic pension costs are recorded based on actuarial calculations. The unrecognized net gains or losses and unrecognized net tran- sition obligation are amortized over 25 years or over the remaining service period of the employees. 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 carryforwards. 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 noncurrent based on the expect- ed length of time before it is realized or settled. Any tax credits arising from the purchases of machinery, equipment and technology, research and development expenditures, personnel training, and investments in important technology-based enterprises are recognized using the flow-through method. Adjustments to prior years' tax liabilities are added to or deducted from the current year's tax provision. Income taxes on unappropriated earnings (excluding earnings from foreign combined affiliates) of 10% are expensed in the year of share- holder approval which is the year subsequent to the year the earnings are generated. Stock-based Compensation Employee stock option plans that are amended or have options granted on or after January 1, 2004 must be accounted for by the inter- pretations issued by the Accounting Research and Development Foundation. The Company adopted the intrinsic value method and any compensation cost determined using this method is charged to expense over the employee vesting period. 230 Treasury Stock When the Company repurchases its outstanding common stock, the cost of the reacquired stock is recorded as treasury stock as a reduc- tion to shareholders' equity. When the Company retires treasury stock, the treasury stock account is reduced and the common stock as well as the capital surplus-additional paid-in capital are reversed in proportionate to the equity percentage of the retirement. When the book value of the treasury stock exceeds the sum of the par value and additional paid-in capital, the difference is charged to capital sur- plus - treasury stock and to retained earnings for any remaining amount. The Company's stock held by its subsidiaries is also treated as treasury stock and reclassified from long-term investments to treasury stock. The cash dividends received by the subsidiaries from the Company are recorded under capital surplus - treasury stock. Foreign-currency Transactions Foreign currency transactions are recorded in New Taiwan dollars at the rates of exchange in effect when the transactions occur. Exchange gains or losses derived from foreign currency transactions or monetary assets and liabilities denominated in foreign currencies are recognized in current income. At the end of each year, assets and liabilities denominated in foreign currencies are revalued at the pre- vailing exchange rates with the resulting gains or losses recognized in current income. Derivative Financial Instruments The Company enters into foreign currency forward contracts to manage currency exposures in cash flow and in foreign-currency-denomi- nated assets and liabilities. The contracts are recorded in New Taiwan dollars at the current rate of exchange of the contract date. The dif- ferences in the New Taiwan dollar amounts translated using the spot rates and the amounts translated using the contracted forward rates on the contract date are amortized over the terms of the forward contracts using the straight-line method. At the end of each year, the receivables or payables arising from forward contracts are restated using the prevailing spot rates at the balance sheet date with the resulting differences charged to income. In addition, the receivables and payables related to the forward contracts of the same counter party are netted with the resulting amount presented as either an asset or a liability. Any resulting gain or loss upon settlement is credited or charged to income in the year of settlement. The Company enters into cross-currency swap contracts to manage currencies exposures on foreign currency denominated assets and lia- bilities. The principal amount is recorded using the spot rates at the contract date. The differences in the New Taiwan dollar amounts translated using the spot rates and the amounts translated using the contracted rates on the contract date are amortized over the terms of the contracts using the straight-line method. At the end of each year, the receivables or payables arising from cross-currency swap contracts are restated using the prevailing spot rate with the resulting differences charged to income. In addition, the receivables and payables related to the contracts are netted with the resulting amount presented as either an asset or a liability. The difference in interest computed pursuant to the contracts on each settlement date or the balance sheet date is recorded as an adjustment to the interest income or expense associated with the hedged items. Any resulting gain or loss upon settlement is credited or charged to income in the year of settlement. The Company enters into interest rate swap contracts to manage exposures to changes in interest rates on existing assets or liabilities. These transactions are accounted for on an accrual basis, in which the cash settlement receivable or payable is recorded as an adjustment to interest income or expense associated with the hedged items. Translation of Foreign-currency Financial Statements R.O.C. SFAS No. 14, "Accounting for Foreign-currency Transactions," applies to foreign subsidiaries that use the local foreign currency as their functional currency. The financial statements of foreign subsidiaries are translated into New Taiwan dollars at the following exchange rates: Assets and liabilities - current rate on balance sheet date; shareholders' equity - historical rate; income and expenses - average rate during the year. The resulting translation adjustment is recorded as a separate component of shareholders' equity. 231 3. Significant Elimination Entries Significant transactions and balances with affiliates that have been eliminated upon combination are as follows: Company Account Amount Transaction Entity TSMC Payables to related parties Deferred credits - gain on intercompany Receivables from related parties Other receivables from related parties Sales Purchases Research and development expenses General and administrative expenses - rent Marketing expenses - commissions Other non-operating income and gains TSMC International TSMC Partners TSMC Technology GUC TSMC - North America Other receivables Interest receivable Deferred revenue Interest income Interest income Other receivables Other receivables Interest receivable Deferred revenue Interest income Accounts receivable Management service income Accrued expenses Operating expenses Accounts receivable Accounts receivable $ 913,107 23,091 21,978 12,591 8,027 6,589 1,881 682,530 15,526,964 56,436 4,285 458 1,472,880 30,278 2,881 142,271,732 371,546 6,535 811 15,203,047 12,752 11,688 13,186 253,341 202,678 28,917 3,267 1,915,020 30,931 630,271 8,919 30,656 9,795,268 2,553,360 41,242 8,631,210 40,875 2,129 14,832 1,103 8,680 18,510 99,262 WaferTech TSMC - Europe TSMC - Japan TSMC - Shanghai TSMC Technology GUC TSMC - North America TSMC - Shanghai TSMC - North America GUC WaferTech TSMC - Shanghai TSMC - Shanghai VisEra TSMC Technology TSMC - North America GUC WaferTech TSMC - Shanghai WaferTech TSMC - Shanghai GUC GUC TSMC - Japan TSMC - Europe VisEra WaferTech TSMC Development TSMC Development TSMC Technology TSMC Technology TSMC Development TSMC International TSMC Development TSMC Development TSMC International TSMC Development WaferTech WaferTech GUC - NA GUC - NA GUC VisEra 232 4. Cash And Cash Equivalents Cash and bank deposits Government bonds acquired under repurchase agreements Corporate issued notes 5. Short-Term Investments Corporate bonds Corporate issued asset-backed securities Bond and stock funds Agency bonds Government bonds Money market funds Government bonds acquired under repurchase agreements Listed stocks Commercial papers Corporate issued notes Allowance for valuation losses Market value 2004 54,838,044 19,215,153 478,213 74,531,410 2004 13,554,598 11,766,877 10,858,945 8,633,889 7,346,858 1,640,973 249,449 168,299 95,666 63,796 54,379,350 (75,708) 54,303,642 55,186,236 $ $ $ $ $ The Company entered into investment management agreements with three well-known financial institutions (fund managers) to manage investment portfolios for the Company. In accordance with the investment guidelines and terms in these agreements, the securities invested by the fund managers cannot be below a pre-defined credit rating. As of December 31, 2004, the Company had investment portfolios with these fund managers that aggregated to an original amount of US$1,200,000 thousand. The investment portfolios included securities such as corporate bonds, asset-backed securities, agency bonds, government bonds and others. Securities acquired with maturities less than three months from the date of purchase were reclassified as cash equivalents. 6. Inventories, Net Finished goods Work in process Raw materials Supplies and spare parts Allowance for losses 2004 3,547,705 11,509,775 993,151 1,176,735 17,227,366 (1,577,770) 15,649,596 $ $ 233 7. Long-Term Investments Equity method Vanguard International Semiconductor Corporation (VIS) Systems on Silicon Manufacturing Company Pte Ltd. (SSMC) Cost method Common stocks Publicly traded stocks Non-publicly traded stocks Preferred stocks Funds Long-term bonds Government bonds Corporate bonds China Steel Corporation Taiwan Power Company Nan Ya Plastics Corporation Formosa Plastics Corporation Formosa Petrochemical Corporation Other investments 2004 Carrying Amount % of Owner-Ship $ 5,401,982 3,290,888 8,692,870 71,832 1,226,499 1,677,865 290,134 3,266,330 10,260,481 2,978,804 915,276 407,526 405,485 202,595 15,170,167 10,521,740 $ 37,651,107 28 32 - - - - - - - - - - - VIS reduced its capital on August 11, 2004 in order to decrease its accumulated deficit. The number of shares of VIS held by TSMC after the capital reduction declined from 787,016 thousand shares to 409,532 thousand shares. TSMC's ownership percentage remained the same. For the year ended December 31, 2004, net investment income recognized from the equity method investees was NT$2,061,973 thou- sand. The carrying amounts of investments accounted for under the equity method and the related investment income or losses were determined based on the audited financial statements of the investees as of and for the same periods as the Company. As of December 31, 2004, other investments consist of the following: Nominal Amount Carrying Amount Range of Interest Rates Maturity Date Step-up callable deposits Domestic bank Foreign bank Callable range accrual deposits $ 2,000,000 2,138,340 $ 2,007,681 2,152,394 2.05%-2.20% 1.44%-4.75% July 2007 to August 2007 June 2007 to August 2007 Foreign bank 6,383,400 6,414,151 (See below) September 2009 to December 2009 $ 10,521,740 $ 10,574,226 234 During the year ended December 31, 2004, the Company deposited funds into structured-time deposits with the following terms: The interest rate of the step-up callable deposits is determined by the Company and the related banks. The amount of interest earned by the Company for the callable range accrual deposits is based on a pre-defined range as determined by the 3-month or 6-month LIBOR rate plus an agreed upon rate ranging between 2.1% and 3.45%. Based on the terms of the deposits, if the 3-month or 6-month LIBOR rate moves outside of the pre-defined range, the interest paid to the Company is at a minimum rate of 1.5%. Under the term of the contracts, the bank has the right to cancel the contracts prior to the maturity date. Deposits that reside in banks located in Hong Kong and Singapore amounted to NT$2,553,360 thousand and NT$638,340 thousand, respectively. 8. Property, Plant And Equipment Accumulated depreciation consisted of the following: Land improvements Buildings Machinery and equipment Office equipment Leased assets Other equipment $ 2004 172,484 38,161,926 287,229,318 5,685,185 33,115 41,112 $ 331,323,140 Information on the status of the expansion or construction plans of TSMC's manufacturing facilities as of December 31, 2004 is as follows: Construction / Expansion Plan Estimated Total Cost Accumulated Expenditures Expected Date of Commencement Fab 12 expansion $ 58,744,200 $ 41,870,300 January 2005 Interest expense for the year ended December 31, 2004 was NT$1,807,242 thousand (before deducting capitalized amounts of NT$278,334 thousand in 2004). The interest rates used for purposes of calculating the capitalized amounts were 1.89% to 2.89% in 2004. The Company entered into agreements to lease certain buildings that qualify as capital leases. The term of the lease is from December 2003 to December 2013. Certain buildings that are leased to others are accounted for as operating leases. The related carrying amount is recorded as in the "Other assets" account. 235 9. Deferred Charges, Net Technology license fees Software and system design costs Others 10. Short-Term Bank Loans $ $ 2004 6,642,884 2,251,709 324,307 9,218,900 2004 Unsecured loan in U.S. dollars: US$12,000 thousand, repayable by June 2006, annual interest at 2.80% $ 383,004 11. Long-Term Bank Loans Unsecured loan: US$60,000 thousand, repayable by December 2006, annual interest at 2.475% Science Park Administration (SPA) SOC loan, repayable by October 2008 in 20 equal payments, interest-free SPA DSP loan, repayable by July 2007 in 20 equal payments, interest-free Less - current portion 2004 1,915,020 10,443 6,761 1,932,224 5,489 1,926,735 $ $ As of December 31, 2004, all the assets of WaferTech with a carrying amount of approximately NT$15,955,936 thousand (US$499,920 thousand) were pledged for the credit line of the secured loan (no secured loan was outstanding as of December 31, 2004). WaferTech is required to maintain compliance with certain financial covenants defined in the agreement. As of December 31, 2004, WaferTech was in compliance with all such financial covenants. Under the unsecured loan agreement, the Company is required maintain compliance with certain financial covenants which, if violated, could result in payment of the obligation prior to the originally scheduled payment date. The Company was in compliance with the financial covenants as of December 31, 2004. As of December 31, 2004, principal repayments under the Company's long-term bank loans are as follows: Year of Repayment 2005 2006 2007 2008 Amount 5,489 1,920,509 4,137 2,089 1,932,224 $ $ 236 12. Bonds Payable Domestic unsecured bonds: Issued in December 2000 and repayable in December 2005 and 2007 in two equal payments, 5.25% and 5.36% interest payable annually, respectively Issued in January 2002 and repayable in January 2007, 2009 and 2012 in three equal payments, 2.6%, 2.75% and 3.00% interest, payable annually, respectively As of December 31, 2004, future principal repayments for the Company's bonds are as follows: Year of Repayment 2005 2007 2009 2010 and thereafter 13. Other Long-Term Payables Payables for acquisition of property, plant and equipment (Note 23k) Payables for royalties Less - current portion 2004 15,000,000 15,000,000 30,000,000 Amount 10,500,000 7,000,000 8,000,000 4,500,000 30,000,000 2004 6,030,007 3,440,313 9,470,320 1,505,345 7,964,975 $ $ $ $ $ $ TSMC entered into several license arrangements for certain semiconductor-related patents. Future minimum payments under the agree- ments as of December 31, 2004 are as follows: Year 2005 2006 2007 2008 2009 and thereafter Amount 1,505,345 466,786 446,838 255,336 766,008 3,440,313 $ $ The current portion of other long-term payables is recorded in the "accrued expenses and other current liabilities" account. 237 14. Pension Plan TSMC and GUC have defined benefit plans for all regular employees that provide benefits based on the employee's length of service and average monthly salary and wages for the six-month period prior to retirement and one-month period prior to retirement, respectively. TSMC and GUC contribute at an amount equal to 2% of salaries and wages paid each month to their respective pension funds (the Funds). The Funds are administered by their respective pension fund monitoring committees (the Committees) and deposited in the Committees' name in the Central Trust of China. Information on the pension plans is summarized as follows: a. Components of net periodic pension cost Service cost Interest cost Projected return on plan assets Amortization Net periodic pension cost b. Reconciliation of the funded status of the plans and accrued pension cost Benefit obligation Vested benefit obligation Nonvested benefit obligation Accumulated benefit obligation Additional benefits based on future salaries Projected benefit obligation Fair value of plan assets Funded status Unrecognized net transitional obligation Unrecognized net loss Accrued pension cost Vested benefit c. Actuarial assumptions Discount rated used in determining present values Future salary increase rate Expected rate of return on plan assets $ $ $ $ $ 2004 638,652 129,039 (42,071) 8,829 734,449 2004 69,424 2,711,898 2,781,322 2,138,852 4,920,174 (1,455,148) 3,465,026 (135,516) (216,469) 3,113,041 78,579 2004 3.25% -3.50% 3.00% 2.50% -3.25% 238 d. Contributions to the Funds e. Payments from the Funds 15. Income Tax 2004 228,523 2004 1,446 $ $ a. A reconciliation of income tax on income before income tax and minority interest at the statutory rate and income tax expense is as follows: Income tax based on income before income tax and minority interest at the statutory rate Tax-exempt income Temporary and permanent differences Current income tax on income before income tax credits b. Income tax benefit consists of: Current income tax on income before income tax credits Additional 10% income tax on unappropriated earnings Net operating loss carryforwards Income tax credits Other income tax Net change in deferred income tax assets and liabilities Net operating loss carryforwards Investment tax credits Temporary differences Net change in valuation allowance of deferred income tax assets Adjustment of prior years' taxes 2004 $ (24,704,552) 14,712,500 187,005 $ (9,805,047) $ 2004 (9,805,047) (823,932) 769 10,478,158 (555,794) (1,656,944) 249,932 1,132,188 1,333,217 (94) Income tax benefit $ 352,453 239 c. Deferred income tax assets (liabilities) consist of the following: Current Investment tax credits Net operating loss carryforwards Temporary differences Valuation allowance Noncurrent Net operating loss carryforwards Investment tax credits Temporary differences Valuation allowance 2004 8,867,307 12,134 321,478 (282,933) 8,917,986 6,773,516 17,136,517 (7,757,244) (14,502,810) 1,649,979 $ $ $ $ d. Integrated income tax information: The balance of the imputation credit account (ICA) of the TSMC as of December 31, 2004 was zero. The expected creditable ratio of TSMC for distribution of earnings of 2004 was zero. The imputation credits allocated to the shareholders are based on the balance as of the date of dividend distribution. The expected creditable ratio for distribution of earnings of 2004 may be adjusted when the allocation of the imputation credits is made. e. TSMC's earnings generated prior to December 31, 1997 have been appropriated. f. As of December 31, 2004, the Company's investment tax credits consisted of the following: Regulation Items Statute for Upgrading Purchase of machinery and Industries equipment Statute for Upgrading Research and development Industries expenditures Total Creditable Amounts 4,448,442 3,819,937 4,886,611 4,140,462 6,309,182 23,604,634 2,270,013 3,165,378 3,363,356 2,015,531 1,885,311 $ $ $ Remaining Creditable Amounts - 116,189 4,886,611 4,140,462 6,309,182 15,452,444 - 3,165,378 3,363,356 2,015,531 1,885,311 12,699,589 $ 10,429,576 $ $ $ $ Expiry Year 2004 2005 2006 2007 2008 2004 2005 2006 2007 2008 (Continued) 240 Regulation Items Statute for Upgrading Personnel training Industries Statute for Upgrading Industries Investments in important technology-based enterprises Total Creditable Amounts Remaining Creditable Amounts $ $ $ 48,659 29,448 27,358 26,962 132,427 38,036 $ $ $ - 29,448 27,358 26,962 83,768 38,036 Expiry Year 2004 2005 2006 2007 2005 As of December 31, 2004, the net operating loss carryforwards were generated from WaferTech, TSMC Development, TSMC Technology and GUC and will expire at various dates through 2024. g. The sales generated from the following expansion and construction of TSMC's manufacturing plants are exempt from income tax: Construction of Fab 6 Construction of Fab 8 - module B Expansion of Fab 2 - modules A and B, Fab 3 and Fab 4, Fab 5 and Fab 6 Construction of Fab 12 Tax-Exemption Periods 2001 to 2004 2002 to 2005 2003 to 2006 2004 to 2007 The tax authorities have examined income tax returns of TSMC through 2000. However, TSMC is contesting the assessment of the tax authority for 1992 and 1998. TSMC believes that any additional assessment will not have a material adverse effect on TSMC. 16. Labor Cost, Depreciation And Amortization Expense Labor cost Salary Labor and health insurance Pension Other Depreciation Amortization For the Year Ended December 31, 2004 Classified as Cost of Sales Classified as Operating Expenses Total $ 10,730,104 572,829 472,918 431,082 $ 6,018,288 328,637 277,870 537,129 $ 16,748,392 901,466 750,788 968,211 $ 12,206,933 $ 7,161,924 $ 19,368,857 $ 61,705,023 2,496,897 $ $ 2,598,009 $ 3,111,875 $ 64,303,032 5,608,772 $ 241 17. Shareholders' Equity TSMC has issued a total of 668,351 thousand ADSs which are traded on the NYSE as of December 31, 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 Company Law of the R.O.C. However, the capital surplus generated from donations and the excess of the issue price over the par value of capital stock (including the stock issued for new capital, mergers, con- vertible bonds and the surplus arising from treasury stock transactions) may be appropriated as stock dividends restricted to a certain per- centage based on shareholders' ownership. As of December 31, 2004, the capital surplus consisted of the following: From merger Additional paid-in capital From long-term investments From convertible bonds Donations Treasury stock Total 2004 24,003,546 23,051,675 121,354 9,360,424 55 205 56,537,259 $ $ TSMC's Articles of Incorporation, as revised on December 21, 2004, provide that the following shall be appropriated from annual earn- ings to the extent that the annual earnings exceed any cumulative deficit: a. 10% legal reserve; until the amount of total legal reserve equals the TSMC's paid-in capital; b. Special reserve in accordance with relevant laws or regulations; c. Remuneration to directors and supervisors and bonuses to employees at 0.3% and at least 1% of the remainder, respectively. Individuals eligible for the employee bonuses may include employees of affiliated companies as approved by the board of directors or a representative of the board of directors; d. The appropriation of any remaining balance shall be approved by the shareholders. Dividends may be distributed by way of cash dividend or stock dividend at the discretion of TSMC. As the operation of TSMC is at a steady growth stage, distribution of profits shall be made preferably by way of cash dividend. Distribution of profits may also be made by way of stock dividend; provided however, the ratio for stock dividend shall not exceed 50% of total distribution. Any appropriations of net income are recorded in the financial statements in the year of shareholder approval. An appropriation for legal reserve is required until the reserve equals the aggregate par value of TSMC's issued capital stock. The reserve can only be used to offset a 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 TSMC. 242 A special reserve equivalent to the net debit balance of the other components of shareholder's equity (for example, unrealized loss on long-term investments and cumulative translation adjustments, but excluding treasury stock), shall be made from unappropriated earn- ings pursuant to existing regulations promulgated by the R.O.C. Securities and Futures Bureau (SFB). Any special reserve appropriated may be reversed to the extent that the net debit balance of the related account reverses. The appropriation of the earnings of 2003 was approved in the shareholders' meeting on May 11, 2004. The appropriations and divi- dend per share are as follows: Legal reserve Special reserve Bonus paid to employees - in cash Bonus paid to employees - in stock Preferred stock dividend - in cash Common stock dividend - in cash Common stock dividend - in stock Remuneration to directors and supervisors - in cash Appropriation of Earnings Dividend Per Share (NT$) $ 4,725,870 (68,945) 681,628 2,726,514 184,493 12,159,971 28,373,267 127,805 $ 48,910,603 $ 0.35 0.60 1.41 The amount of the above appropriation of earnings for 2003 is consistent with the resolution of the meeting of board of directors on February 17, 2004. However, the Company Law of the R.O.C. states TSMC, as a holder of treasury stock shall not participate in the appro- priations 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 paid in stock had been paid in cash and all of the bonus to employees and remuneration to directors and supervisors had been charged against income for 2003, the after income tax basic earnings per share for the year ended December 31, 2003 would have decreased from NT$2.33 to NT$2.15. The shares distributed as a bonus to employees represented 1.35% of TSMC's total outstanding common shares as of December 31, 2003. As of January 13, 2005, the board of directors of TSMC has not resolved the appropriation for earnings of 2004. The above information about 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, the R.O.C. resident shareholders are allowed a tax credit for their proportionate share of the income tax paid by TSMC on earnings generated since January 1, 1998. 18. Stock-Based Compensation Plans Stock Option Plans TSMC's Employee Stock Option Plans, the TSMC 2003 Plan and the TSMC 2002 Plan, were approved on October 29, 2003 and June 25, 2002, respectively. The maximum number of units authorized to be granted under the TSMC 2003 Plan and the TSMC 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 TSMC or any of its domestic or foreign subsidiaries, in which TSMC's shareholding with voting rights, directly or indirectly, is more than fifty percent (50%). The option rights of both plans are valid for ten years and exercisable at cer- tain percentages subsequent to the second anniversary of the grant date. Under the terms of the plans, stock option rights are granted at an exercise price equal to the closing price of TSMC's common shares listed on the TSE on the date of grant. Under the TSMC 2003 Plan and the TSMC 2002 Plan, units that were never granted, or had been granted and subsequently cancelled were expired as of December 31, 2004. 243 GUC's Employee Stock Option Plans, the GUC 2003 Plan and the GUC 2002 Plan, were approved on January 23, 2003 and July 1, 2002, respectively. The maximum number of units authorized to be granted under the GUC 2003 Plan and the GUC 2002 Plan is 7,535 units and 5,000 units, respectively, with each unit representing one thousand common shares of stock. The option rights may be granted to qualified employees of GUC. The option rights of both plans are valid for six years and exercisable at certain percentages subsequent to the second anniversary of the grant date. Under the GUC 2002 Plan and the GUC 2003 Plan, units that were never granted, or had been granted and subsequently cancelled were expired as of December 31, 2004. On August 16, 2004, GUC's 2004 stock option plan (the GUC 2004 Plan) was approved by the Bureau of Monetary Affairs, Financial Supervisory Commission of the R.O.C. The maximum number of units authorized to be granted is 2,500 units, with each unit represent- ing one thousand common shares of stock. The option rights may be granted to qualified employees of GUC and its subsidiary. The option rights of GUC 2004 plan are valid for six years and exercisable at certain percentages subsequent to the second anniversary of the grant date. As of December 31, 2004, no option rights under the GUC 2004 Plan have been granted. On November 2, 2004, the board of directors of TSMC approved the 2004 stock option plan ( the TSMC 2004 Plan), in which the maxi- mum number of units authorized to be granted is 11,000 thousand, with each unit representing one common share of stock. The option rights may be granted to qualified employees of TSMC or any of its domestic or foreign subsidiaries, in which TSMC's shareholding with voting rights, directly or indirectly, is more than fifty percent (50%). The option rights of the plans are valid for ten years and exercisable at certain percentages subsequent to the second anniversary of the grant date. Under the terms of the plan, stock option rights are granted at an exercise price equal to the closing price of TSMC's common shares listed on the TSE on the date of grant. The TSMC 2004 plan was approved by the Bureau of Monetary Affairs, Financial Supervisory Commission of the R.O.C. on January 6, 2005. Information on TSMC's outstanding stock options for the year ended December 31, 2004 is as follows: TSMC 2003 Plan TSMC 2002 Plan Number of Outstanding Stock Option Rights (in Thousands) Weighted- Average Exercise Price (NT$) Number of Outstanding Stock Option Rights (in Thousands) Weighted- Average Exercise Prices (NT$) 842 13,199 - (1,404) 12,637 57.8 49.9 - 50.9 48,515 7,201 (87) (3,899) 51,730 42.7 42.6 41.8 44.2 Beginning outstanding balance Options granted Options exercised Options cancelled Ending outstanding balance The number of outstanding option rights and exercise prices have been adjusted to reflect the appropriations of dividends in accordance with the above plans. 244 Information on GUC's outstanding stock options for the year ended December 31, 2004 is as follows: Beginning outstanding balance Options granted Ending outstanding balance GUC 2003 Plan GUC 2002 Plan Number of Outstanding Stock Option Rights 2,058 831 2,889 Weighted- Average Exercise Price (NT$) 10.5 10.5 Number of Outstanding Stock Option Rights 5,000 - 5,000 Weighted- Average Exercise Prices (NT$) 10.5 - As of December 31, 2004, information on outstanding and exercisable option rights is as follows: Range of Exercise Price (NT$) $43.8-$57.8 $32.8-$46.2 Options Outstanding Options Exercisable Number of Outstanding Options (in Thousands) Weighted- Average Remaining Contractual Life (Years) Weighted- Average Exercise Price (NT$) Number of Exercisable Options (in Thousands) Weighted- Average Exercise Price (NT$) 12,637 51,730 64,367 $ 9.34 8.09 8.33 50.3 42.6 44.1 - 10,307 $ 10,307 - 41.7 41.7 TSMC 2003 Plan TSMC 2002 Plan Options Outstanding Options Exercisable Range of Exercise Price (NT$) Number of Outstanding Options Remaining Contractual Life (Years) Weighted- Average Exercise Price (NT$) Number of Exercisable Options Weighted- Average Exercise Price (NT$) GUC 2003 Plan GUC 2002 Plan 10.5 10.5 2,889 5,000 7,889 4.17-5.42 3.58-4.17 3.58-5.42 10.5 10.5 10.5 - 4,238 4,238 - 10.5 10.5 The compensation cost recognized by the Company for the year ended December 31, 2004 was zero. Had the Company used the fair value based method to evaluate the options granted, the method, assumptions and pro forma results of the Company for the year ended December 31, 2004 would have been as follows: Method: Assumptions: Expected dividend yield Expected volatility Risk free interest rate Expected life Net income: Net income as reported Pro forma net income Black-Scholes Model 0%-1.00% 38.74%-46.15% 2.56%-3.85% 5-6 years $ 92,316,115 92,256,103 (Continued) 245 Earnings per share (EPS) - after income tax: Basic EPS as reported Pro forma basic EPS Diluted EPS as reported Pro forma diluted EPS NT$ 3.97 3.97 3.97 3.97 The estimated weighted average fair value for the options granted of TSMC and GUC during the year ended December 31, 2004 was NT$19.73 and NT$4.42 per option, respectively. In 1996, WaferTech adopted an Executive Incentive Plan, which was amended in 1997. According to the 1997 amendment, the Board of Directors of WaferTech approved the Senior Executive Incentive Plan and the Employee Incentive Plan (the WaferTech Plans) under which officers, key employees and non-employee directors may be granted stock option rights. The WaferTech Plans provide for 15,150 thou- sand option rights available for grant. For option rights granted to date, the option purchase price was equal to or exceeded the fair mar- ket value at the date of grant. The options will expire if not exercised at specified dates ranging from May 2006 and June 2011. In December 2000, WaferTech implemented a Stock Option Buyback Program (Buyback). The Buyback program provides employees with the right to sell back to WaferTech all vested stock options and outstanding ownership interests granted under the WaferTech Plans. As of December 31, 2004, the outstanding and exercisable stock options were 134 thousand and 133 thousand, respectively, and US$616 thousand was accrued in connection with the Buyback program. Stock Appreciation Rights In December 2000, WaferTech and TSMC - North America implemented a stock appreciation rights program (Appreciation). The Appreciation plan is designed to provide employees with a long-term incentive plan that tracks the appreciation of TSMC common stock through Stock Appreciation Rights (SARs). SARs provide each participant the right to receive, upon exercise, an amount in cash from WaferTech and TSMC - North America that is the excess of the market price of TSMC common stock on TSE on the date of exercise over the exercise price. As of December 31, 2004, WaferTech and TSMC - North America accrued US$381 thousand and US$1,360 thousand, respectively, in connection with the Appreciation. During 2002, benefits under the Appreciation plan for TSMC - North America were replaced by the TSMC stock option plans aforementioned. 19. Treasury Stock (Common Stock) Year ended December 31, 2004 Reclassification of parent company stock held by subsidiaries from long-term investments Repurchase under share buyback plan Beginning Shares Increase / Dividend Decrease Ending Shares (Shares in Thousand) 40,597 - 40,597 5,676 124,720 752 124,720 130,396 125,472 45,521 - 45,521 246 Proceeds from the sale of treasury stock for the year ended December 31, 2004 were NT$39,906 thousand. TSMC's capital stock held by a subsidiary as an investment is recorded as treasury stock, with the holder having the same rights as other common shareholders. As of December 31, 2004, the book value of the treasury stock was NT$1,595,186 thousand; the market value was NT$2,241,009 thousand. TSMC held a special meeting of the board of directors and approved a share buyback plan to repurchase TSMC's common shares listed on the TSE during the period from March 24, 2004 to May 23, 2004. TSMC repurchased 124,720 thousand common shares for a total of NT$7,059,798 thousand. All the treasury stock repurchased under the buyback plan was retired on August 16, 2004. 20. Earnings Per Share EPS for the year ended December 31, 2004 is computed as follows: Amounts (Numerator) EPS (NT$) Income Before Income Tax and Minority Interest Number of Shares (Denominator) (Thousand) Combined Net Income Income Before Income Tax and Minority Interest Combined Net Income Basic EPS Income available to common shareholders Effect of diluted securities - stock options $ 92,019,242 - $ 92,316,115 - 23,248,682 6,404 $ 3.96 $ 3.97 Diluted earnings per share Income available to common shareholders $ 92,019,242 $ 92,316,115 23,255,086 $ 3.96 $ 3.97 21. Related Party Transactions Except as disclosed elsewhere in the combined financial statements, the following is a summary of significant related party transactions: a. Industrial Technology Research Institute (ITRI), the Chairman of TSMC is one of its directors b. Philips, a major shareholder of TSMC c. Investees of TSMC VIS SSMC d. Omnivision International Holding, Ltd. (Omnivision), a shareholder holding a 25% ownership in VisEra e. Huawei Semiconductor (Shanghai) Co., Ltd. (Huawei), the president of which is the president of VisEra 247 For the year ended Sales Philips and its affiliates Omnivision Other Purchase VIS SSMC Huawei Manufacturing expenses - technical assistance fees Philips (see Note 23a) Proceeds from disposal of property, plant and equipment VIS Non-operating income and gains SSMC (primarily technical service income; see Note 23e) VIS (primarily technical service income; see Note 23j) At end of the year Receivables Philips and its affiliates Omnivision ITRI Other Receivables SSMC VIS Payables VIS Philips and its affiliates SSMC Huawei Other long-term payables Philips and its affiliates 2004 Amount % 5,463,565 1,969,396 87,453 7,520,414 9,169,602 5,869,123 195,965 15,234,690 907,047 33,974 364,505 117,760 482,265 581,487 479,877 16,454 2 1 - 3 21 13 - 34 1 2 6 2 8 54 44 2 1,077,818 100 63,701 47,599 57 43 111,300 100 1,533,938 469,494 207,794 30,522 69 21 9 1 2,241,748 100 2,317,972 100 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ The terms of sales to related parties are not significantly different from those to third parties. For other related parties transactions, since there are no other similar transactions to follow, the prices are determined in accordance with the related contractual agreements. 248 22. Significant Long-Term Operating Leases TSMC leases land from the SPA. These agreements expire on various dates from March 2008 to December 2020. The agreements can be renewed upon their expiration. TSMC -North America leases its office premises and certain equipment under non-cancelable operating agreements. TSMC-Europe and TSMC - Japan entered into lease agreements for their office premises. The leases will expire between 2005 and 2010. The agreements can be renewed upon their expiration. GUC leases land from the SPA. The agreement will expire in December 2021. The agreement can be renewed upon their expiration. As of December 31, 2004 future remaining lease payments are as follows: Year 2005 2006 2007 2008 2009 2010 and thereafter Amount 356,284 355,013 342,773 327,588 324,559 1,537,325 3,243,542 $ $ 23. Significant Commitments and Contingencies The significant commitments and contingencies of the Company as of December 31, 2004 are as follows: a. On June 20, 2004, TSMC and Philips revised the Technical Cooperation Agreement, which was originally signed on May 12, 1997, with an effective date from January 1, 2004 for five years. Upon expiration, this amended Technical Cooperation Agreement will be termi- nated at the expiration date and will not be automatically renewed. Under this amended Technical Cooperation Agreement, TSMC will pay Philips royalties based on fixed amounts mutually agreed-on, rather than under certain percentage of TSMC's annual net sales. TSMC and Philips also agree to cross license the patents owned by each party. TSMC also obtained through Philips a number of patent cross licenses. b. Under a technical cooperation agreement with ITRI, TSMC 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, TSMC shall reserve a portion of its production capacity for certain major customers that have guar- antee deposits with TSMC. As of December 31, 2004, TSMC had a total of US$12,802 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 December 31, 2004, TSMC's equity interest in SSMC was 32%. TSMC 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. 249 e. TSMC provides technical services to SSMC under a Technical Cooperation Agreement (the Agreement) entered into on May 12, 1999. TSMC receives compensation for such services computed at a specific percentage of net selling price of certain products sold by SSMC. The Agreement shall remain in force for ten years and may be automatically renewed for successive periods of five years each unless pre-terminated by either party under certain conditions. f. Under a Technology Transfer Agreement (TTA) with National Semiconductor Corporation (National) entered into on June 27, 2000, TSMC 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, TSMC and National entered into a Termination Agreement whereby the TTA was terminated for convenience. Under the Termination Agreement, TSMC will be relieved of any further obligation to transfer any additional technolo- gy. In addition, TSMC granted National an option to request the transfer of certain technologies under the same terms and conditions as the terminated TTA. The option will expire in January 2008. g. Beginning in 2001, TSMC 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. TSMC 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. h. In November 2002, TSMC 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. TSMC also agreed to align 0.12 micron CMOS Logic technology to enhance its foundry business opportunities. TSMC will contribute process technologies and share a portion of the costs associated with this joint development project. i. In December 2003, TSMC entered into a Technology Development and License Agreement with Motorola, Inc. to jointly develop 65- nm SOI (silicon on insulator) technology. TSMC 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, TSMC will pay royalties to Motorola, Inc. and will share a portion of the costs associated with the joint development project. j. TSMC provides a technology transfer to VIS under a Manufacturing License and Technology Transfer Agreement entered into in August 2004. TSMC receives compensation for such technology transfer in the form of royalty payments from VIS computed at specific per- centages of net selling price of certain products sold by VIS. VIS agreed to reserve its certain capacity to manufacture for TSMC certain products at prior as agreed by the parties. k. Under an agreement signed with a certain company, TSMC - Shanghai has the obligation to purchase certain assets within a specified period at the price agreed upon by both parties. TSMC - Shanghai will compensate the other party in case of a breach of the agree- ment. l. GUC entered into a research and development project (DSP core) with the SPA. In accordance with the contract, the SPA provided a NT$13,522 thousand grant (DSP grants) to GUC during the period of January 2000 to June 2001 for the development of new prod- ucts. GUC should repay the loan after the accomplishment of the project. In addition, GUC should also pay the SPA a 2% royalty fee based on the sales of the developed products every three months for the subsequent three years, starting from the first date of the product sale. The total royalty should not exceed 60% of the DSP grants. 250 m. GUC entered into a research and development project (Platform Development for System-On-a-Chip Integration, Verification and Testing) with the SPA. In accordance with the contract, the SPA provided a NT$13,923 thousand grant (SOC grants) to GUC during the period of April 2001 to September 2002 for the development of new products. GUC should repay the loan after the accomplishment of the project. In addition, GUC should also pay the SPA a 2% royalty fee based on the sales of the developed products every three months for the subsequent three years, starting from the first date of the product sale. The total royalty should not exceed the 60% of the SOC grants. n. Amounts available under unused letters of credit as of December 31, 2004 were NT$6,480 thousand, US$1,282 thousand and SG$85 thousand. Among the unused letters of credit, TSMC - North America has an outstanding irrevocable standby letter of credit for US$1,078 thousand. The standby letter of credit was entered into as security to the landlord of TSMC - North America's office spaces in San Jose, California. The standby letter of credit will expire in October, 2005. o. The Company filed a series of lawsuits in late 2003 and 2004 in both state and federal courts in California and with the U.S. International Trade Commission against Semiconductor Manufacturing International Corporation ("SMIC"), SMIC (Shanghai), and SMIC Americas. The lawsuits alleged that SMIC companies infringed multiple patents of the Company and misappropriated the Company's trade secrets. These suits have been settled out of court on January 30, 2005. As part of the agreement, SMIC will pay TSMC US$175 million over six years to resolve the Company's patent infringement and trade secret claims. 24. 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 and 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 amounting to at least NT$100 million or 20% of the capital: Please see Table 6 attached; h. Receivable from related parties amounting to at least NT$100 million or 20% of the paid-in capital: Please see Table 7 attached; i. Names, locations, and related information of investees of which the Company exercises significant influence: Please see Table 8 attached; 251 j. Financial instrument transactions: 1) Derivative financial instruments The Company entered into derivative financial instrument transactions for the year ended December 31, 2004 to manage exposures related to foreign exchange rate and interest rate fluctuations. Certain information on these contracts is as follows: a) Outstanding forward exchange contracts as of December 31, 2004 are as follows: Financial Instruments Currency Maturity Date Sell Sell US$/NT$ US$/EUR January 2005 to March 2005 January 2005 Contract Amount (in Thousands) US$ US$ 733,000 159,081 As of December 31, 2004, receivables from forward exchange contracts (included in the "other financial assets" account) aggre- gate to approximately NT$392,534 thousand; payables from forward exchange contracts (included in the "other current liabilities" account) aggregate to approximately NT$559 thousand. b) Cross currency swaps Outstanding cross currency swap contracts as of December 31, 2004 are as follows: Maturity Date Contract Amount (in Thousands) Range of Interest Rate Paid Range of Interest Rate Received January 2005 to June 2005 US$ 1,420,000 1.28%-2.72% 0.49%-1.17% As of December 31, 2004, receivables from the cross currency swap contracts (included in the "other financial assets" account) were approximately NT$761,030 thousand. Net exchange gain or loss arising from forward exchange contracts and cross currency swap contracts was recognized in the "for- eign exchange loss, net" account and the difference in interest was recorded in interest income or expense. c) Interest rate swaps Outstanding contracts as of December 31, 2004 were as follows: Contract Date Period Contract Amount September 2003 October 2003 October 2003 October 2003 October 2003 November 2003 September 2003 to December 2005 October 2003 to December 2005 October 2003 to December 2005 October 2003 to December 2005 October 2003 to December 2005 November 2003 to December 2005 $ 500,000 500,000 500,000 500,000 500,000 500,000 252 d) Transaction risk i) Credit risk. Credit risk represents the positive net settlement amount of those contracts with positive fair values at the balance sheet date. The positive net settlement amount represents the loss incurred by the Company if the counter-parties breached the contracts. The banks, which are the counter-parties to the foregoing derivative financial instruments, are reputable financial institutions. Management believes its exposure related to the potential default by those counter-parties is low. ii) Market price risk. All derivative financial instruments are intended as hedges for fluctuations in foreign exchange rates and inter- est rates. Gains or losses from these hedging instruments are likely to be offset by gains or losses from the hedged items. Interest rate risks are also controlled as the expected cost of capital is fixed. Thus, market price risks are believed to be low. iii) Cash flow risk and the amount and period of future cash needs. As of December 31, 2004, the Company's future cash needs for outstanding forward exchange contracts and cross currency swap contracts are as follows: Term Within one year Inflow (In Thousands) $ EUR 69,761,484 118,500 Outflow (In Thousands) US$ 2,312,081 The Company has sufficient operating capital to meet the above cash needs. In addition, there will be corresponding cash inflow for the cash outflow. Therefore, the cash flow risk is low. 2) Fair values of financial instruments were as follows: Non-derivative financial instruments Assets Short-term investments, net Long-term investments (securities with market price) Liabilities Bonds payable (including current portion) Derivative financial instruments Forward exchange contracts (sell) Cross currency swap contracts Interest rate swap contracts 2004 Carrying Amount Fair Value $ 54,303,642 31,165,721 $ 55,186,236 34,265,072 30,000,000 30,607,341 391,975 761,030 4,361 317,090 760,012 (22,714) 253 The above financial instruments do not include cash and cash equivalents, receivables, other financial assets, payables, and payable to contractors and equipment suppliers. The carrying amounts of the aforementioned instruments reported in the balance sheet approximate their fair values. The above financial instruments also exclude refundable deposits, guarantee deposits, long-term investments that do not have quot- ed market prices as well as other long-term payables. The future cash inflow and outflow of the deposits approximate their fair val- ues. Some of long-term investments do not have quoted market prices; therefore, fair values for those long-term investments are not shown above. The fair value of other long-term payables is determined using the discounted value of expected cash flows, which approximates the carrying value. Fair values of financial instruments were determined as follows: a) Fair value of short-term and publicly traded long-term investments is based on quoted market prices. b) The fair value of bonds payable is the quoted market value. c) Fair value of derivative financial instruments is the amount receivable from or payable to the counter-party if the contracts were terminated on the balance sheet date. 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 21. 254 25. Segment Financial Information a. Geographic information for the year ended December 31, 2004: Overseas Taiwan Adjustments and Elimination Combined Sales to unaffiliated customers Transfers between geographic areas $ 142,650,532 16,808,395 $ 116,960,703 142,005,640 $ - (158,814,035) $ 259,611,235 - Total sales $ 159,458,927 $ 258,966,343 $(158,814,035) $ 259,611,235 Gross profit Operating expenses Non-operating income and gains Non-operating expenses and losses Income before income tax and minority interest Minority interest in income of affiliates Identifiable assets Long-term investments Total assets b. Gross export sales $ 6,173,780 $ 110,588,670 $ (526,331) $ 89,451,648 $ 417,993,101 $ (44,418,225) $ 116,236,119 (27,648,783) 6,044,014 (2,612,108) $ 92,019,242 $ 55,580 $ 463,026,524 37,651,107 $ 500,677,631 The export sales information is determined based on billed regions. Gross export sales for the year ended December 31, 2004 were NT$95,066,154 thousand. There were no export sales to a region that accounted for more than 10% of the Company's total sales. c. Major customer The Company has no customer that accounts for more than 10% of its total sales in 2004. 255 TABLE 1 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD. AND AFFILIATES FINANCING PROVIDED FOR THE YEAR ENDED DECEMBER 31, 2004 (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified) No. Financing Name Counter-party Financial Statement Account 1 TSMC International TSMC Development Other receivables TSMC Technology Other receivables 2 TSMC Partners TSMC Development Other receivables Maximum Balance for the Period (US$ in Thousand) Ending Balance (US$ in Thousand) $ (US$ (US$ (US$ 1,915,020 60,000) $ (US$ 319,170 10,000) 1,915,020 60,000) - 2,553,360 80,000) (US$ 2,553,360 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. TABLE 2 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD. AND AFFILIATES ENDORSEMENT/GUARANTEE PROVIDED FOR THE YEAR ENDED DECEMBER 31, 2004 (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified) No. Endorsement/ Guarantee Provider Name Nature of Relationship (Note 2) Limits on Each Counter-party's Endorsement/ Guarantee Amounts Counter-party 0 The Company TSMC Development TSMC - North America WaferTech Not exceed 10% of the net worth of the Company, and also limiting to the total capital issued of the endorse- ment/guarantee company, unless otherwise approved by Board of Directors. 3 2 3 Note 1: 25% of the net worth of the Company as of December 31, 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. 256 Interest Rate Type of Financing (Note 1) Transaction Amounts Reasons for Short-term Financing Allowance for Bad Debt 1.50% - 1.50% $ 2 - 2 - - - Operating capital $ - Operating capital - - - Collateral Item Value Financing Limit for Each Borrowing Company Financing Company's Financing Amount Limits (US$ in Thousand) $ - - - - - - N/A $ (US$ 31,532,982 987,968) (Note 2) N/A (Note 3) Maximum Balance for the Year (US$ in Thousand) Ending Balance (US$ in Thousand) Value of Collateral Property, Plant and Equipment Ratio of Accumulated Amount of Collateral to Net Equity of the Latest Financial Statement Maximum Collateral/Guarantee Amounts Allowable (Note 1) $ (US$ (US$ (US$ 1,915,020 60,000) 1,276,680 40,000) 14,043,480 440,000) $ $ (US$ (US$ 1,915,020 60,000) 1,276,680 40,000) - - - - $ 99,741,325 0.48% 0.32% - 257 TABLE 3 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD. AND AFFILIATES MARKETABLE SECURITIES HELD DECEMBER 31, 2004 (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified) Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account The Company Government bonds 2003 Government Bond Series A United States Treas NTS 2003 Government Bond Series I 2004 Government Bond Series A 2004 Government Bond Series E 2004 Kaohsiung Municipal Bond Series A Bonds under repurchase agreement Bond funds JF Taiwan Bond Fund ABN AMRO Bond Fund JF Taiwan First Bond Fund INVESCO R.O.C. Bond A Fund Dresdner Bond DAM Fund Barits Bond Fund Shinkong Chi Shin Bond Fund ABN AMRO Select Bond Fund NITC Bond Fund HSBC NTD Money Management Fund Stock Taiwan Mask Corp. TSMC International VIS TSMC Partners SSMC TSMC - North America GUC TSMC - Japan VisEra TSMC - Europe United Industrial Gases Co., Ltd. Shin-Etsu Handotai Taiwan Co., Ltd. W.K. Technology Fund IV Hontung Venture Capital Co., Ltd. Globaltop Partner I Venture Capital Corp. Corporate bonds Taiwan Power Company Abbott Labs Abbott Labs Ace Ltd AIG Sunamerica Global Fing IX Allstate Finl Global Fdg LLC American Express Co. American Gen Fin Corp. - - - - - - - - - - - - - - - - - - Subsidiary Investee Subsidiary Investee Subsidiary Investee Subsidiary Investee Subsidiary - - - - - - - - - - - - - Short-term investment Short-term investment Long-term investment Long-term investment Long-term investment Long-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment 258 December 31, 2004 Shares / Units (In Thousands of) Carrying Value (US$ in Thousand) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousand) Note - - - - - - - 78,698 134,906 84,886 76,705 80,833 76,640 151,594 18,235 3,764 41,568 1,787 987,968 409,532 300 382 11,000 39,040 6 5,100 - 16,783 10,500 5,000 8,392 5,000 - - - - - - - - $ 1,207,409 US$ 192,357 3,397,081 2,349,573 3,893,827 620,000 249,449 1,153,209 1,956,175 1,151,463 1,101,911 900,000 900,000 2,100,000 200,000 600,000 600,000 6,528 23,778,997 5,401,982 3,908,356 3,290,888 502,242 391,626 102,572 59,116 25,439 193,584 105,000 50,000 83,916 50,000 2,777,798 US$ 2,732 1,581 US$ US$ 1,046 US$ 1,032 US$ 3,171 US$ 3,550 US$ 1,768 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A - 100 28 100 32 100 47 100 25 100 10 7 2 10 1 N/A N/A N/A N/A N/A N/A N/A N/A $ 1,202,028 US$ 191,824 3,393,982 2,352,973 3,892,025 620,000 251,593 1,169,406 1,978,785 1,162,632 1,111,932 910,904 907,765 2,115,554 201,183 602,703 601,958 27,552 23,778,997 8,493,692 3,908,356 3,290,888 1,179,352 418,272 102,572 59,116 25,439 284,036 170,940 55,146 53,571 49,909 2,749,413 US$ 2,709 US$ 1,587 US$ 1,042 US$ 1,028 US$ 3,096 US$ 3,503 US$ 1,765 Treasury stock of NT$677,110 thou- sand is deducted from the carrying value. (Continued) 259 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account American Gen Fin Corp. Mtn American Gen Fin Corp. Mtn American Honda Fin Corp. Mtn American Intl Group Inc. Mtnf Amgen Inc. Amsouth Bk Birmingham Ala ANZ Cap Tr I Bank New York Inc. Bank New York Inc. Bank Scotland Treas Svcs PLC Bank Utd Houston TX Mtbn Bear Stearns Cos Inc. Bear Stearns Cos Inc. Medium Te Berkshire Hathaway Fin Corp. Bristol Myers Squibb Co. British Telecommunications PLC Cargill Inc. Chase Manhattan Corp. New Cit Group Hldgs Inc. Citigroup Inc. Citigroup Inc. Citigroup Inc. Colonial Pipeline Co. Compaq Computer Corp. Consolidated Edison Co. NY Inc. Corestates Cap Corp. Countrywide Fdg Corp. Mtn Countrywide Home Lns Inc. Credit Suisse Fb USA Inc. Credit Suisse First Boston Credit Suisse First Boston USA Daimlerchrysler North Amer Daimlerchrysler North Amer Hld Dell Computer Corp. Den Danske BK Aktieselskab Deutsche Telkom Intl Fin BV Diageo PLC Dow Chem Co. European Invt Bk Fifth Third Bk Cincinnati OH First Data Corp. First Un Corp. Fleet Finl Group Inc. New Fleet Finl Corp Inc. New Ford Mtr Cr Co. FPL Group Cap Inc. FPL Group Cap Inc. General Elec Cap Corp. Mtn General Elec Cap Corp. Mtn General Elec Cap Corp. Mtn Genworth Finl Inc. Goldman Sachs Group Inc. Mtn Goldman Sachs Group LP Goldman Sachs Group LP Greenpoint Finl Corp. GTE Corp. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment 260 December 31, 2004 Shares / Units (In Thousand) Carrying Value (US$ in Thousand) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousand) Note - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 3,130 US$ 1,058 US$ 3,800 US$ 3,795 US$ 3,005 US$ 1,972 US$ 1,012 US$ 1,525 US$ 3,945 US$ 2,715 US$ 580 US$ 3,518 US$ 3,105 US$ 1,498 US$ 3,819 US$ 2,104 US$ 2,120 US$ 1,628 US$ 3,203 US$ 2,000 US$ 1,033 US$ 3,583 US$ 1,625 US$ 3,719 US$ 3,687 US$ 1,062 US$ 2,158 US$ 5,210 US$ 2,645 US$ 786 US$ 2,249 US$ 997 US$ 749 US$ 3,054 US$ 2,192 US$ 1,852 US$ 3,459 US$ 921 US$ 8,315 US$ 2,419 US$ 3,013 US$ 970 US$ 494 US$ 975 US$ 1,542 US$ 1,001 US$ 860 US$ 3,467 US$ 1,040 US$ 3,886 US$ 3,412 US$ 3,505 US$ 1,637 US$ 1,100 US$ 974 US$ 2,134 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A US$ 3,087 US$ 1,042 US$ 3,803 US$ 3,795 US$ 2,991 US$ 1,978 US$ 1,001 US$ 1,509 US$ 3,943 US$ 2,717 US$ 574 US$ 3,493 US$ 3,105 US$ 1,494 US$ 3,788 US$ 2,091 US$ 2,079 US$ 1,613 US$ 3,195 US$ 2,002 US$ 1,033 US$ 3,523 US$ 1,612 US$ 3,593 US$ 3,618 US$ 1,060 US$ 2,151 US$ 5,157 US$ 2,599 US$ 779 US$ 2,240 US$ 999 US$ 755 US$ 3,025 US$ 2,166 US$ 1,838 US$ 3,477 US$ 911 US$ 8,236 US$ 2,466 US$ 2,986 US$ 965 US$ 493 US$ 962 US$ 1,535 US$ 990 US$ 846 US$ 3,455 US$ 1,040 US$ 3,878 US$ 3,408 US$ 3,494 US$ 1,599 US$ 1,075 US$ 972 US$ 2,109 (Continued) 261 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account Hancock John Global Fdg Mtn Hartford Finl Svcs Group Inc. Hartford Finl Svcs Group Inc. Heller Finl Inc. Hershey Foods Corp. Hewlett Packard Co. Honeywell Inc. Household Fin Corp. Household Fin Corp. Household Fin Corp. Mtn Bk Ent HSBC USA Inc. New Huntington Natl Bk Huntington Natl Bk Columbus OH ING Bank ING Sec Life Ins Ingslf Intl Bk For Recon + Dev JP Morgan Chase + Co. Jackson Natl Life Global Fdg Jackson Natl Life Global Fdg S JP Morgan Chase + Co. Keycorp Mtn Book Entry KFW Intl Fin Inc. Kraft Foods Inc. Kraft Foods Inc. Lehman Brothers Hldgs Inc. Lehman Brothers Hldgs Inc. Lehman Brothers Hldgs Inc. Lilly Eli + Co. Lincoln Natl Corp. In Merita Bk Ltd NY Brh Merrill Lynch + Co. Inc. Metropolitan Life Global Mtn Monumental Global Fdg II Monumental Global Fdg II Monumental Global Fdg II 2002A Morgan Stanley Morgan Stanley Group Inc. Morgan Stanley Group Inc. National Westminster Bk PLC Nationsbank Corp. Nationwide Bldg Soc Nationwide Life Global Mtn Pepsico Inc. Mtn Book Entry PNC Fdg Corp. Popular North Amer Inc. Mtn Premark Intl Inc. Pricoa Global Fdg I Mtn Pricoa Global Fdg I Mtn Principal Life Global Fdg I Gl Protective Life Secd Trs Prudential Ins Co. Amer Reinsurance Group Amer Inc. Royal Bk Scotland Group PLC Royal Bk Scotland Group PLC Royal Bk Scotland Group PLC Safeco Corp. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment 262 December 31, 2004 Shares / Units (In Thousand) Carrying Value (US$ in Thousand) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousand) Note - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 1,003 US$ 765 US$ 296 US$ 1,171 US$ 1,627 US$ 3,373 US$ 3,284 US$ 529 US$ 2,993 US$ 3,542 US$ 1,154 US$ 3,003 US$ 2,954 US$ 2,114 US$ 3,012 US$ 5,232 US$ 1,043 US$ 1,036 US$ 2,998 US$ 3,663 US$ 3,500 US$ 5,104 US$ 773 US$ 1,037 US$ 1,163 US$ 3,705 US$ 2,171 US$ 3,750 US$ 519 US$ 538 US$ 3,486 US$ 1,907 US$ 2,500 US$ 1,534 US$ 1,045 US$ 2,136 US$ 3,638 US$ 1,050 US$ 1,433 US$ 3,644 US$ 3,457 US$ 1,463 US$ 3,818 US$ 1,080 US$ 3,042 US$ 2,954 US$ 3,507 US$ 3,050 US$ 3,168 US$ 2,920 US$ 2,648 US$ 2,091 US$ 1,563 US$ 564 US$ 369 US$ 765 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A US$ 986 US$ 758 US$ 296 US$ 1,163 US$ 1,606 US$ 3,305 US$ 3,218 US$ 522 US$ 2,985 US$ 3,510 US$ 1,134 US$ 3,000 US$ 2,961 US$ 2,113 US$ 3,007 US$ 5,102 US$ 1,039 US$ 1,032 US$ 2,988 US$ 3,629 US$ 3,502 US$ 5,027 US$ 765 US$ 1,036 US$ 1,162 US$ 3,634 US$ 2,154 US$ 3,749 US$ 518 US$ 533 US$ 3,481 US$ 1,910 US$ 2,501 US$ 1,516 US$ 1,034 US$ 2,128 US$ 3,628 US$ 1,048 US$ 1,422 US$ 3,549 US$ 3,477 US$ 1,469 US$ 3,817 US$ 1,075 US$ 3,022 US$ 2,914 US$ 3,503 US$ 3,047 US$ 3,102 US$ 2,969 US$ 2,610 US$ 2,089 US$ 1,547 US$ 558 US$ 364 US$ 763 (Continued) 263 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account Salomon Smith Barney Hldgs Inc. Sara Lee Corp. SBC Communications Inc. SBC Communications Inc. Scotland Intl Fin B V 144A Shell Finance (UK) PLC SLM Corp. SLM Corp. Medium Term Nts SP Powerassets Ltd Global Suntrust Bks Inc. Swedbank Sparbanken Svenge AB TIAA Global Mkts Inc. Tribune Co. Med Trm Nts Union Planters Unitedhealth Group Inc. US Bk Natl Assn Cincinnati OH Virginia Elec + Pwr Co. Vodafone Group PLC New Wachovia Corp. Wal Mart Cda Venture Corp. Washington Mut Fin Corp. Washington Mut Inc. Washington Post Co. Wells Fargo + Co. New Westfield Cap Corp. Ltd China Steel Corporation Taiwan Power Company Nan Ya Plastics Corporation Formosa Plastics Corporation Formosa Petrochemical Corporation Agency bonds Fed Hm Ln Pc Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Mtg Corp Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Mtn - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment 264 December 31, 2004 Shares/Units (In Thousand) Carrying Value (US$ in Thousand) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousand) Note - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 3,160 US$ 1,596 US$ 3,681 US$ 2,251 US$ 1,533 US$ 3,604 US$ 500 US$ 2,950 US$ 991 US$ 1,062 US$ 1,084 US$ 519 US$ 2,943 US$ 2,755 US$ 3,119 US$ 2,669 US$ 2,884 US$ 2,559 US$ 3,720 US$ 3,670 US$ 4,768 US$ 4,735 US$ 3,182 US$ 3,697 US$ 1,999 2,978,804 915,276 407,526 405,485 202,595 US$ 3,466 US$ 2,532 US$ 1,042 US$ 4,927 US$ 7,962 US$ 7,014 US$ 4,936 US$ 4,948 US$ 2,454 US$ 7,018 US$ 4,996 US$ 7,042 US$ 6,098 US$ 2,909 US$ 13,953 US$ 13,983 US$ 13,981 US$ 6,978 US$ 3,388 US$ 4,953 US$ 9,997 US$ 998 US$ 4,933 US$ 4,930 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A US$ 3,100 US$ 1,601 US$ 3,617 US$ 2,245 US$ 1,532 US$ 3,553 US$ 501 US$ 2,985 US$ 992 US$ 1,060 US$ 1,067 US$ 514 US$ 2,965 US$ 2,704 US$ 3,097 US$ 2,687 US$ 2,838 US$ 2,561 US$ 3,600 US$ 3,602 US$ 4,689 US$ 4,682 US$ 3,180 US$ 3,631 US$ 1,999 2,977,695 914,582 407,484 405,322 200,000 US$ 3,462 US$ 2,520 US$ 1,024 US$ 4,947 US$ 7,939 US$ 6,924 US$ 4,949 US$ 4,944 US$ 2,468 US$ 7,004 US$ 4,973 US$ 6,985 US$ 6,084 US$ 2,907 US$ 13,898 US$ 13,946 US$ 13,946 US$ 6,928 US$ 3,419 US$ 4,941 US$ 9,943 US$ 993 US$ 4,936 US$ 4,938 (Continued) 265 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account Federal Home Loan Mtg Assn Federal Home Loan Mtg Corp. Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Mtn Federal Natl Mtg Assn Mtn Freddie Mac Fed Hm Ln Pc Pool E89857 Fed Hm Ln Pc Pool G11295 Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Gtd FNMA Pool 685116 FNMA Pool 725095 FNMA Pool 790828 FNMA Pool 793932 FNMA Pool 794040 FNMA Pool 795548 FNMA Pool 806642 GNMA II Pool 081150 GNMA II Pool 081153 Government Natl Mtg Assn Corporate issued asset-backed securities Aegis Asset Backed Secs Tr Aesop Fed II LLC Aesop Fed II LLC American Express Cr Account Ma American Home Mtg Invt Tr Americredit Automobile Receiv Americredit Automobile Rec Tr Americredit Automobile Rec Tr Americredit Automobile Receivb Atlantic City Elc Trns Fdg LLC Banc Amer Coml Mtg Inc. Banc Amer Mtg Secs Inc. Bank of Amer Lease Equip Tr Bear Stearns Alt A Tr Bear Stearns Asset Backed Secs BMW Veh Owner Tr California Infr + Economic Dev California Infras + Economic California Infrastructure Dev Capital Auto Receivables Asset Capital One Auto Fin Tr Capital One Auto Fin Tr Capital One Auto Fin Tr Capital One Multi Asset Execut - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment 266 December 31, 2004 Shares/Units (In Thousand) Carrying Value (US$ in Thousand) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousand) Note - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 4,847 US$ 4,903 US$ 5,270 US$ 6,940 US$ 6,903 US$ 4,981 US$ 6,997 US$ 15,787 US$ 7,000 US$ 4,929 US$ 2,535 US$ 2,277 US$ 6,096 US$ 4,435 US$ 3,558 US$ 3,645 US$ 4,242 US$ 2,141 US$ 4,765 US$ 3,486 US$ 1,003 US$ 2,008 US$ 4,807 US$ 994 US$ 1,021 US$ 977 US$ 2,006 US$ 999 US$ 3,789 US$ 1,734 US$ 2,000 US$ 4,955 US$ 1,912 US$ 3,445 US$ 949 US$ 2,002 US$ 1,055 US$ 2,000 US$ 4,949 US$ 926 US$ 5,364 US$ 4,030 US$ 4,023 US$ 1,478 US$ 2,000 US$ 4,978 US$ 4,298 US$ 6,126 US$ 5,089 US$ 4,018 US$ 319 US$ 1,147 US$ 3,000 US$ 4,957 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A US$ 4,891 US$ 4,943 US$ 5,237 US$ 6,937 US$ 6,917 US$ 4,953 US$ 6,983 US$ 15,798 US$ 6,976 US$ 4,934 US$ 2,531 US$ 2,273 US$ 6,075 US$ 4,440 US$ 3,539 US$ 3,615 US$ 4,188 US$ 2,126 US$ 4,719 US$ 3,446 US$ 1,002 US$ 2,003 US$ 4,773 US$ 994 US$ 1,020 US$ 975 US$ 2,004 US$ 997 US$ 3,766 US$ 1,700 US$ 2,004 US$ 4,963 US$ 1,888 US$ 3,427 US$ 949 US$ 1,998 US$ 1,048 US$ 1,990 US$ 4,912 US$ 923 US$ 5,315 US$ 4,006 US$ 3,995 US$ 1,489 US$ 2,000 US$ 4,941 US$ 4,230 US$ 6,064 US$ 5,035 US$ 3,992 US$ 318 US$ 1,145 US$ 2,989 US$ 4,977 (Continued) 267 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account Caterpillar Finl Asset Tr Centex Home Equity Ln Tr Cit Equip Coll Tr Citibank Cr Card Issuance Tr Citicorp Mtg Secs CNH Equip Tr Comm 2004 Htl 1 Credit Suisse First Boston Mtg CWABS Inc. CWABS Inc. CWABS Inc. CWABS Inc. CWABS Inc. CWABS Inc. CWALT Inc. CWABS Inc. CWABS Inc. Daimlerchrysler Auto Tr Daimlerchrysler Auto Tr Daimlerchrysler Auto Tr Detroit Edison Securitization Fifth Third Auto Tr Finance Amer Mtg Ln Tr First Franklin Mtg Ln Tr First Horizon Abs Tr First Union Lehman Bros Mtg Tr First USA Credit Cr Master Tr Ford Cr Auto Owner Tr Granite Mtgs PLC GS Auto Ln Tr GS Mtg Secs Corp. Harley Davidson Motorcycle Tr Harley Davidson Motorcycle Tr Holmes Fing No 8 PLC Honda Auto Receivables Household Automotive Tr Hyundai Auto Receivables Tr IMPAC Cmb Tr IMPAC Cmb Tr IMPAC Secd Assets Corp. Long Beach Accep Auto Receivab Merrill Lynch Mtg Invs Inc. Merrill Lynch Mtg Invs Inc. Monumentl Global Fdg II National City Auto Receivables Navistar finl 2003 A Owner Tr Nissan Auto Receivables Nissan Auto Receivables Own Tr Nissan Auto Receivables Owner ONYX Accep Owner Tr ONYX Accep Owner Tr Providian Gateway Owner Tr Providian Gateway Owner Tr Reliant Energy Transition Bd Residential Asset Mtg Prods Residential Asset Mtg Prods - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment 268 December 31, 2004 Shares/Units (In Thousand) Carrying Value (US$ in Thousand) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousand) Note - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 10,008 US$ 3,500 US$ 4,999 US$ 4,959 US$ 2,364 US$ 5,000 US$ 4,600 US$ 4,209 US$ 1,647 US$ 1,903 US$ 1,907 US$ 2,000 US$ 5,000 US$ 3,500 US$ 4,292 US$ 2,317 US$ 4,040 US$ 4,991 US$ 4,982 US$ 4,897 US$ 674 US$ 3,000 US$ 985 US$ 2,002 US$ 2,000 US$ 3,567 US$ 5,011 US$ 10,999 US$ 5,000 US$ 2,948 US$ 2,944 US$ 3,417 US$ 5,999 US$ 5,001 US$ 5,000 US$ 513 US$ 3,500 US$ 1,414 US$ 988 US$ 3,570 US$ 2,526 US$ 1,460 US$ 1,500 US$ 1,000 US$ 1,206 US$ 4,928 US$ 7,000 US$ 4,999 US$ 4,853 US$ 963 US$ 4,913 US$ 4,204 US$ 3,992 US$ 5,185 US$ 3,731 US$ 3,000 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A US$ 9,923 US$ 3,493 US$ 4,991 US$ 4,965 US$ 2,363 US$ 4,952 US$ 4,607 US$ 4,178 US$ 1,662 US$ 1,907 US$ 1,912 US$ 1,997 US$ 5,055 US$ 3,541 US$ 4,277 US$ 2,298 US$ 4,040 US$ 4,970 US$ 4,970 US$ 4,893 US$ 671 US$ 2,999 US$ 986 US$ 2,006 US$ 2,000 US$ 3,534 US$ 5,008 US$ 10,936 US$ 5,000 US$ 2,970 US$ 2,944 US$ 3,400 US$ 5,938 US$ 5,052 US$ 4,991 US$ 511 US$ 3,468 US$ 1,413 US$ 988 US$ 3,566 US$ 2,502 US$ 1,460 US$ 1,502 US$ 1,001 US$ 1,207 US$ 4,889 US$ 6,958 US$ 4,993 US$ 4,872 US$ 961 US$ 4,933 US$ 4,201 US$ 3,982 US$ 5,117 US$ 3,672 US$ 2,980 (Continued) 269 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account Residential Fdg Mtg Secs I Inc. Sequoia Mtg Tr Sequoia Mtg Tr Sequoia Mtg Tr Sequoia Mtg Tr Sequoia Mtg Tr Structured Adj Rate Mtg Ln Tr Structured Asset Secs Corp. Thoornburg Mtg Secs Tr Toyota Auto Receivables 2003B Triad Auto Receivables Tr TXU Elec Delivery Transition USAA Auto Owner Tr Wachovia Auto Owner Tr Wachovia Auto Owner Tr WFS Financial Owner Trust WFS Finl 2004 2 Owner Tr WFS Finl 2004 4 Owner Tr Whole Auto Ln Tr Whole Auto Ln Tr Whole Auto Ln Tr World Omni Auto Receivables Tr Commercial papers Corporate issued notes Money market funds Equity Horizon Venture Fund I, L.P. Crimson Asia Capital Ltd., L.P. - - - - - - - - - - - - - - - - - - - - - - - - Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Long-term investment Long-term investment TSMC - North America TSMC stock Parent company Short-term investment Chi Cherng Hsin Ruey TSMC International TSMC stock TSMC stock Money market fund BOA Fund Stock InveStar InveStar II TSMC Development TSMC Technology 3DFX Interactive Inc. TSMC Development WaferTech stock InveStar Common stock RichTek Technology Corp. Advanced Power Electronics Corp. Broadtek Electronics Corp. Monolithic Power Systems, Inc. Parent company Short-term investment Parent company Short-term investment - Short-term investment Subsidiary Subsidiary Subsidiary Subsidiary - Subsidiary - - - - Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Short-term investment Short-term investment Short-term investment Short-term investment 270 December 31, 2004 Shares/Units (In Thousand) Carrying Value (US$ in Thousand) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousand) Note - - - - - - - - - - - - - - - - - - - - - - - - - - - 14,151 15,670 15,700 US$ 3,659 US$ 2,504 US$ 1,960 US$ 1,488 US$ 2,000 US$ 3,500 US$ 3,037 US$ 1,403 US$ 1,921 US$ 4,970 US$ 5,042 US$ 7,736 US$ 4,000 US$ 6,000 US$ 4,999 US$ 5,008 US$ 4,994 US$ 5,399 US$ 5,967 US$ 4,000 US$ 3,000 US$ 5,963 US$ 2,997 US$ 1,999 US$ 21,114 246,485 43,649 677,110 458,564 459,512 30,300 US$ 30,300 24,320 51,300 1 1 68 US$ 34,514 US$ 34,534 US$ 603,993 US$ 5,544 - - US$ 484,060 682 1,108 869 1,975 US$ 67 US$ 502 US$ 275 US$ 1,567 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A - - - N/A 97 97 100 100 - 99 - - - - US$ 3,631 US$ 2,513 US$ 1,955 US$ 1,486 US$ 2,000 US$ 3,500 US$ 3,031 US$ 1,394 US$ 1,923 US$ 4,930 US$ 4,997 US$ 7,715 US$ 3,991 US$ 5,991 US$ 4,995 US$ 4,989 US$ 4,992 US$ 5,342 US$ 5,966 US$ 3,969 US$ 2,964 US$ 5,906 US$ 2,997 US$ 1,999 US$ 21,114 246,485 43,649 696,661 771,451 772,897 US$ 30,300 US$ 34,514 US$ 34,534 US$ 603,993 US$ 5,544 - US$ 484,060 US$ 1,370 US$ 697 US$ 225 US$ 19,910 (Continued) 271 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account SiRF Technology Holdings, Inc. Broadtek Electronics Corp. Programmable Microelectronics (Taiwan), Corp. Global Testing Corp. RichTek Technology Corp. Signia Technologies, Inc. Incentia Design Systems, Inc. Advanced Power Electronics Corp. Capella Microsystems (Taiwan), Inc. Preferred stock Integrated Memory Logic, Inc. Sensory, Inc. Sonics, Inc. NanoAmp Solutions, Inc. Memsic, Inc. Reflectivity, Inc. IP Unity Tropian, Inc. Common stock RichTek Technology Corp. Monolithic Power Systems, Inc. eChannel Option Holding, Inc. eLCOS Microdisplay Technology, Ltd. Signia Technologies, Inc. Procoat Technology, Inc. RichTek Technology Corp. Programmable Microelectronics (Taiwan), Inc. Auden Technology MFG. Co., Ltd. GeoVision, Inc. EoNex Technologies, Inc. Conwise Technology Corporation, Ltd. EON Technology, Corp. Goyatek Technology, Corp. Trendchip Technologies Corp. Ralink Technology (Taiwan), Inc. Silicon Data International Co., Inc. Capella Microsystems (Taiwan), Inc. Preferred stock Memsic, Inc. eLCOS Microdisplay Technology, Ltd. NanoAmp Solutions, Inc. Advanced Analogic Technology, Inc. Sonics, Inc. Reflectivity, Inc. Tropian, Inc. Kilopass Technologies, Inc. FangTek, Inc. Alchip Technologies Limited Common stock Global Investment Holding, Inc. RichWave Technology Corp. NetLogic Microsystems, Inc. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - InveStar II Emerging Alliance Short-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Short-term investment Short-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment 272 December 31, 2004 Shares/Units (In Thousand) Carrying Value (US$ in Thousand) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousand) Note 90 145 575 13,268 842 701 365 1,123 530 1,831 1,404 2,686 541 2,727 1,064 1,008 1,758 321 864 358 270 351 5,123 395 177 953 471 55 2,800 3,276 2,088 2,000 1,833 2,000 419 2,289 2,667 375 948 1,582 4,255 1,464 3,887 6,806 2,579 10,000 2,600 113 US$ 393 US$ 46 US$ 208 US$ 5,670 US$ 83 US$ 202 US$ 92 US$ 508 US$ 154 US$ 1,221 US$ 125 US$ 3,530 US$ 853 US$ 1,500 US$ 741 US$ 494 US$ 471 US$ 184 US$ 2,081 US$ 251 US$ 27 US$ 101 US$ 1,940 US$ 226 US$ 50 US$ 738 US$ 127 US$ 3,048 US$ 490 US$ 1,175 US$ 545 US$ 861 US$ 791 US$ 204 US$ 122 US$ 1,560 US$ 3,500 US$ 1,500 US$ 1,261 US$ 3,082 US$ 2,205 US$ 393 US$ 2,000 US$ 3,250 US$ 2,950 100,000 US$ 867 US$ 1,388 - - 1 9 1 3 1 2 4 12 6 4 2 10 2 2 3 - - 4 1 1 10 1 - 4 1 5 14 8 7 5 3 3 3 8 15 1 2 5 5 2 19 34 18 6 13 1 US$ 1,157 US$ 38 US$ 208 US$ 5,670 US$ 1,692 US$ 202 US$ 92 US$ 706 US$ 154 US$ 1,221 US$ 125 US$ 3,530 US$ 853 US$ 1,500 US$ 741 US$ 494 US$ 471 US$ 645 US$ 8,716 US$ 251 US$ 27 US$ 101 US$ 1,940 US$ 794 US$ 50 US$ 738 US$ 127 US$ 3,048 US$ 490 US$ 1,175 US$ 545 US$ 861 US$ 791 US$ 204 US$ 122 US$ 1,560 US$ 3,500 US$ 1,500 US$ 1,261 US$ 3,082 US$ 2,205 US$ 393 US$ 2,000 US$ 3,250 US$ 2,950 100,000 US$ 867 US$ 1,388 (Continued) 273 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account VTAF II GUC Preferred stock Quake Technologies, Inc. Pixim, Inc. Newport Opticom, Inc. Ikanos Communication, Inc. Quicksilver Technology, Inc. Mosaic Systems, Inc. Zenesis Technologies, Inc. Reflectivity, Inc. Teknovus, Inc. Miradia, Inc. (Formerly XHP Microsystems, Inc.) Axiom Microdevices, Inc. Optichron, Inc. Audience, Inc. Next IO, Inc. NuCORE Technology Inc. Centrality Communications, Inc. Layer N Networks, Inc. Common stock Yobon Technologies, Inc. Sentelic, Corp. Ivyon Technology, Inc. Preferred stock Powerprecise Solutions, Inc. Tzero Technologies, Inc. Miradia, Inc. Agelia Technologies, Inc. Audience, Inc. Axiom Microdevices, Inc. Next IO, Inc. Bond funds Grand Cathay TIIM Polaris De Li EnTrust Kirin E. Sun New Era Jih Sun EnTrust Phoenix Transcend Fortune Stock funds TIIM DaLi UPAMC Global Select Fund of Funds Sheng Hua 9966 Balance Stock Global Unichip Corporation - NA - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Subsidiary Long-term investment 274 December 31, 2004 Shares/Units (In Thousand) Carrying Value (US$ in Thousand) Percentage of Ownership Market Value or Net Asset Value (US$ in Thousand) Note 601 1,721 962 7,446 1,049 2,481 1,204 4,848 5,556 3,040 1,000 714 1,654 800 2,254 809 1,905 1,675 600 200 258 244 1,809 1,149 531 686 216 3,608 703 1,550 2,106 1,920 772 2,081 1,936 296 336 300 100 US$ 450 US$ 2,382 US$ 250 US$ 3,125 US$ - US$ 12 US$ 699 US$ 2,479 US$ 1,000 US$ 1,000 US$ 1,000 US$ 1,000 US$ 250 US$ 500 US$ 1,455 US$ 1,000 US$ 1,000 US$ 787 US$ 1,022 US$ 775 US$ 250 US$ 500 US$ 1,600 US$ 1,000 US$ 102 US$ 700 US$ 182 45,543 9,698 22,800 22,697 20,313 10,262 30,563 22,947 5,000 3,364 3,000 3,375 1 3 6 3 4 6 4 4 3 4 5 6 2 2 2 2 2 17 15 10 3 2 2 2 1 5 - N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 100 US$ 450 US$ 2,382 US$ 250 US$ 3,125 US$ - US$ 12 US$ 699 US$ 2,479 US$ 1,000 US$ 1,000 US$ 1,000 US$ 1,000 US$ 250 US$ 500 US$ 1,455 US$ 1,000 US$ 1,000 US$ 787 US$ 1,022 US$ 775 US$ 250 US$ 500 US$ 1,600 US$ 1,000 US$ 102 US$ 700 US$ 182 45,544 9,698 22,800 22,698 20,314 10,262 30,564 22,948 4,474 3,378 3,011 3,375 (Concluded) 275 TABLE 4 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD. AND AFFILIATES 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 YEAR ENDED DECEMBER 31, 2004 (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified) Company Name Marketable Securities Type and Name Financial Statement Account Counter-party Nature of Relationship The Company Money market funds BOA Fund Short-term investment BOA GS Fund Short-term investment Goldman Sachs Bond funds JF Taiwan Bond Fund ABN AMRO Bond Fund ABN AMRO Select Bond Fund JF Taiwan First Bond Fund INVESCO R.O.C Bond A Fund Dresdner Bond DAM Fund Barits Bond Fund Shin Kong Chi Shin Bond Fund NITC Bond Fund HSBC NTD Money Management Fund Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment JF Asset Management (Taiwan) Ltd. ABN AMRO ABN AMRO JF Asset Management (Taiwan) Ltd. INVESCO Asset Management Taiwan Allianz Dresdner Securities Investment Consulting Co., Ltd. Barits Securities Investment Trust Co., Ltd. Shinkong Investment Trust Co., Ltd. National Investment Trust Co., Ltd. HSBC Asset Management (Taiwan) Ltd. Bonds under repurchase agreement Short-term investment Chung Shing Bills Finance Corp. and several financial institutions Government bonds 1994 Government Bond Series C 2002 Government Bond Series A 2002 Government Bond Series E 2002 Government Bond Series J 2003 Government Bond Series A United States Treas NTS 2003 Government Bond Series I 2004 Government Bond Series A Short-term investment Chung Shing Bills Finance Corp. and several financial Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Long-term investment Long-term investment institutions BNP and several financial institutions BNP and several financial institutions BNP and several financial institutions BNP and several financial institutions - FCB and several financial institutions China Bills Finance Corp. and several financial institu- tions 2004 Government Bond Series E 2004 Kaohsiung Municipal Bond Series A Long-term investment Long-term investment BNP and several financial institutions KGI Securities Co., Ltd. and several financial institu- Corporate bonds Taiwan Power Company Allstate Finl Global Fdg LLC American Express Co. American Express Cr Corp. Mtn American Gen Fin Corp. Mtn American Gen Fin Corp. Mtn American Honda Fin Corp. Mtn American Honda Fin Corp. Mtn American Honda Fin Corp. Mtn American Intl Group Inc. Mtnf Amgen Inc. Bank New York Inc. Bank One Corp. Bear Stearns Cos Inc. Bear Stearns Cos Inc. Bear Stearns Cos Inc. Medium Te Bristol Myers Squibb Co. Brown Forman Corp. Cardinal Health Inc. Cit Group Hldgs Inc. Citigroup Inc. Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment tions KGI Securities Co., Ltd. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 276 Beginning Balance Acquisition Disposal Ending Balance Shares/Units (Thousand) Amount (US$ in Thousand) Shares/Units (Thousand) Amount (US$ in Thousand) Shares/Units (Thousand) Amount (US$ in Thousand) Carrying Value (US$ in Thousand) Gain (Loss) on Disposal (US$ in Thousand) Shares/Units (Thousand) Amount (US$ in Thousand) (Note 1) 40,000 20,000 34,343 34,794 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - $ 1,359,120 (US$ 40,000) 679,560 (US$ 20,000) $ - - - - 500,000 500,000 - - - - - - - - 1,800,000 1,422,197 3,157,331 3,113,066 - - - - - - - - - - - - - - - - - - - - - - - - - - - - 68,021 165,257 18,235 110,580 93,975 80,833 76,640 151,594 3,764 41,568 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1,000,000 2,400,000 200,000 1,500,000 1,350,000 900,000 900,000 2,100,000 600,000 600,000 2,577,163 - - - 2,023,206 1,207,409 US$ 699,398 3,402,213 2,349,573 3,890,925 620,000 2,777,798 US$ 3,171 US$ 3,550 US$ 3,503 US$ 3,130 US$ 3,702 US$ 3,509 US$ 3,750 US$ 3,800 US$ 3,795 US$ 3,005 US$ 3,945 US$ 3,693 US$ 3,805 US$ 3,518 US$ 3,105 US$ 3,819 US$ 3,277 US$ 3,837 US$ 3,203 US$ 3,583 40,000 20,000 23,666 65,145 - 25,694 17,270 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - $ 1,359,120 (US$ 40,000) 679,560 (US$ 20,000) $ 1,359,120 (US$ 40,000) 679,560 (US$ 20,000) $ 350,000 950,000 - 350,000 250,000 - - - - - 346,791 943,825 - 348,537 248,089 - - - - - 4,127,714 4,127,714 1,427,762 1,422,197 3,169,750 3,133,875 2,031,500 - US$ 506,162 - - 3,157,331 3,113,066 2,023,206 - US$ 507,041 - - - - - - US$ - - - US$ 3,504 - - US$ 3,509 US$ 3,755 - - - - US$ 3,695 US$ 3,816 - - - US$ 3,280 US$ 3,795 - - - - - US$ 3,503 - - US$ 3,509 US$ 3,750 - - - - US$ 3,693 US$ 3,805 - - - US$ 3,277 US$ 3,837 - - US$ US$ US$ US$ US$ US$ - - 3,209 6,175 - 1,463 1,911 - - - - - - 5,565 12,419 20,809 8,294 - (879) - - - - - - - 1 - - - 5 - - - - 2 11 - - - 3 (42) - - $ - - - - 78,698 134,906 18,235 84,886 76,705 80,833 76,640 151,594 3,764 41,568 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1,153,209 1,956,175 200,000 1,151,463 1,101,911 900,000 900,000 2,100,000 600,000 600,000 249,449 - - - - 1,207,409 US$ 192,357 3,397,081 2,349,573 3,893,827 620,000 2,777,798 US$ 3,171 US$ 3,550 - US$ 3,130 US$ 3,702 - - US$ 3,800 US$ 3,795 US$ 3,005 US$ 3,945 - - US$ 3,518 US$ 3,105 US$ 3,819 - - US$ 3,203 US$ 3,583 (Continued) 277 Company Name Marketable Securities Type and Name Financial Statement Account Counter-party Nature of Relationship Compaq Computer Corp. Consolidated Edison Co. NY Inc. Countrywide Fdg Corp. Mtn Countrywide Home Lns Inc. Credit Suisse First Boston USA Dell Computer Corp. Diageo PLC European Invt Bk Federal Home Ln Mtg Corp Federal Home Loan Mtg Assn First Data Corp. General Elec Cap Corp. Mtn General Elec Cap Corp. Mtn General Elec Cap Corp. Mtn Genworth Finl Inc. Goldman Sachs Group Inc Mtn Goldman Sachs Group LP Hewlett Packard Co. Honeywell Inc. Household Fin Corp. Household Fin Corp. Mtn Bk Ent Huntington Natl Bk ING Sec Life Ins Ingslf Intl Bk For Recon + Dev JP Morgan Chase + Co. JP Morgan Chase + Co. JP Morgan Chase + Co. Keycorp Mtn Book Entry KFW Intl Fin Inc. Lehman Brothers Hldgs Inc. Lehman Brothers Hldgs Inc. Lilly Eli + Co. Merrill Lynch + Co Inc. Merrill Lynch + Co Inc. Monumental Global Fdg II 2002A Morgan Stanley Group Inc. Morgan Stanley Group Inc. Nationsbank Corp. Nationwide Bldg Soc Nationwide Life Global Mtn Pepsico Inc. Mtn Book Entry Popular North Amer Inc Mtn Pricoa Global Fdg I Mtn Pricoa Global Fdg I Mtn Principal Life Global Fdg I Gl Salomon Smith Barney Hldgs Inc. SBC Communications Inc. Shell Finance (UK) PLC TIAA Global Mkts Inc. Unitedhealth Group Inc. Viacom Inc. Viacom Inc. Wachovia Corp. Walmart Cda Venture Corp. Washington Mut Fin Corp. Washington Mut Inc. Washington Post Co. Wells Fargo + Co. New China Steel Corporation Taiwan Power Company Nan Ya Plastics Corporation Formosa Plastics Corporation Formosa Petrochemical Corporation Agency bonds Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Long-term investment Long-term investment Long-term investment Long-term investment Long-term investment - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Chung Shing Bills Finance Corp. BNP and several financial institutions Chung Shing Bills Finance Corp. Chung Shing Bills Finance Corp. Chung Shing Bills Finance Corp. Short-term investment Short-term investment - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 278 Beginning Balance Acquisition Disposal Ending Balance Shares/Units (Thousand) Amount (US$ in Thousand) Shares/Units (Thousand) Amount (US$ in Thousand) Shares/Units (Thousand) Amount (US$ in Thousand) Carrying Value (US$ in Thousand) Gain (Loss) on Disposal (US$ in Thousand) Shares/Units (Thousand) Amount (US$ in Thousand) (Note 1) $ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 3,719 US$ 3,687 US$ 3,534 US$ 5,210 US$ 3,177 US$ 3,054 US$ 3,459 US$ 8,315 US$ 4,237 US$ 4,847 US$ 3,013 US$ 3,507 US$ 3,467 US$ 3,886 US$ 3,412 US$ 3,505 US$ 3,820 US$ 3,373 US$ 3,284 US$ 3,712 US$ 3,542 US$ 3,003 US$ 3,012 US$ 5,232 US$ 3,638 US$ 3,128 US$ 3,663 US$ 3,500 US$ 5,104 US$ 3,417 US$ 3,705 US$ 3,750 US$ 3,497 US$ 3,486 US$ 3,129 US$ 5,741 US$ 4,763 US$ 3,644 US$ 3,457 US$ 3,413 US$ 3,818 US$ 3,042 US$ 3,507 US$ 3,050 US$ 3,168 US$ 3,160 US$ 3,681 US$ 3,604 US$ 3,631 US$ 3,119 US$ 3,177 US$ 3,172 US$ 3,720 US$ 3,670 US$ 4,768 US$ 4,735 US$ 3,182 US$ 3,697 2,997,430 950,646 408,538 406,245 202,980 US$ 6,096 US$ 4,725 $ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - $ - - US$ 3,540 - US$ 3,188 - - - - - - US$ 3,498 - - - - - - - US$ 3,633 - - - - US$ 3,601 - - - - US$ 3,381 - - US$ 3,498 - - - US$ 3,713 - - - - - - - - - - - US$ 3,131 - US$ 3,135 US$ 3,175 - - - - - - - - - - - $ - - US$ 3,534 - US$ 3,177 - - - - - - US$ 3,507 - - - - - - - US$ 3,712 - - - - US$ 3,638 - - - - US$ 3,417 - - US$ 3,497 - - - US$ 3,713 - - - - - - - - - - - US$ 3,112 - US$ 3,177 US$ 3,172 - - - - - - - - - - - - - - - - - 6 - 11 - - - - - - (9) - - - - - - - (79) - - - - (37) - - - - (36) - - 1 - - - - - - - - - - - - - - - 19 - (42) 3 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 3,719 US$ 3,687 - US$ 5,210 - US$ 3,054 US$ 3,459 US$ 8,315 US$ 4,237 US$ 4,847 US$ 3,013 - US$ 3,467 US$ 3,886 US$ 3,412 US$ 3,505 US$ 3,820 US$ 3,373 US$ 3,284 - US$ 3,542 US$ 3,003 US$ 3,012 US$ 5,232 - US$ 3,128 US$ 3,663 US$ 3,500 US$ 5,104 - US$ 3,705 US$ 3,750 - US$ 3,486 US$ 3,129 US$ 5,741 US$ 1,050 US$ 3,644 US$ 3,457 US$ 3,413 US$ 3,818 US$ 3,042 US$ 3,507 US$ 3,050 US$ 3,168 US$ 3,160 US$ 3,681 US$ 3,604 US$ 519 US$ 3,119 - - US$ 3,720 US$ 3,670 US$ 4,768 US$ 4,735 US$ 3,182 US$ 3,697 2,978,804 915,276 407,526 405,485 202,595 US$ 6,096 US$ 4,725 (Continued) 279 Company Name Marketable Securities Type and Name Financial Statement Account Counter-party Nature of Relationship Feferal Home Ln Mtg Corp. Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Gtd Federal Natl Mtg Assn Mtn Fnma Pool 790828 Gnma II Pool 081153 Gnma II Pool Tba Nov 30 Arms Government Natl Mtg Assn Federal Hm Ln PC Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Mtn Federal Home Loan Mtg Corp. Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Disc Nts Federal Natl Mtg Assn Mtn Freddie Mac Student Ln Marketing Assn Corporate issued asset-backed securities Aesop Fdg II LLC American Express Cr Account MA Americredit Automobile Receivb Banc Amer Coml Mtg Inc. Banc Amer Mtg Secs Inc. Bank Of Amer Lease Equip Tr BMW Veh Owner Tr California Infr + Economic Dev California Infras + Economic California Infrastructure Dev Capital Auto Receivables Asset Capital One Master Tr Capital One Multi Asset Execut Capital One Secd Nt Tr Caterpillar Finl Asset Tr Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 280 Beginning Balance Acquisition Disposal Ending Balance Shares/Units (Thousand) Amount (US$ in Thousand) Shares/Units (Thousand) Amount (US$ in Thousand) Shares/Units (Thousand) Amount (US$ in Thousand) Carrying Value (US$ in Thousand) Gain (Loss) on Disposal (US$ in Thousand) Shares/Units (Thousand) Amount (US$ in Thousand) (Note 1) $ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 3,558 US$ 5,861 US$ 3,393 US$ 6,130 US$ 6,371 US$ 7,000 US$ 5,014 US$ 3,817 US$ 4,829 US$ 4,473 US$ 3,466 US$ 5,210 US$ 4,927 US$ 14,938 US$ 7,014 US$ 4,936 US$ 9,956 US$ 5,264 US$ 4,948 US$ 7,018 US$ 9,993 US$ 7,042 US$ 6,098 US$ 13,953 US$ 13,983 US$ 13,981 US$ 6,978 US$ 3,388 US$ 4,907 US$ 4,953 US$ 9,997 US$ 9,971 US$ 11,984 US$ 4,933 US$ 4,930 US$ 4,903 US$ 11,036 US$ 10,496 US$ 5,270 US$ 4,982 US$ 6,940 US$ 4,867 US$ 6,903 US$ 4,981 US$ 6,997 US$ 4,993 US$ 5,000 US$ 15,787 US$ 4,929 US$ 16,000 US$ 4,955 US$ 3,445 US$ 4,949 US$ 5,503 US$ 4,030 US$ 4,023 US$ 4,978 US$ 4,298 US$ 8,383 US$ 7,419 US$ 4,627 US$ 3,093 US$ 4,957 US$ 5,032 US$ 10,008 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - $ - - - - - - - - US$ 4,829 - - US$ 4,153 - US$ 6,980 - - US$ 9,967 US$ 5,286 - - US$ 5,000 - - - - - - - US$ 4,981 - - US$ 9,942 US$ 10,965 - - - US$ 10,997 US$ 10,430 - US$ 4,983 - US$ 4,938 - - - US$ 4,993 - - - US$ 16,000 - - - - - - - - - - - US$ 3,072 - US$ 5,000 - $ - - - - - - - - US$ 4,829 - - US$ 4,168 - US$ 6,976 - - US$ 9,956 US$ 5,264 - - US$ 4,997 - - - - - - - US$ 4,907 - - US$ 9,971 US$ 10,986 - - - US$ 11,036 US$ 10,496 - US$ 4,982 US$ 4,867 - - - US$ 4,993 - - - US$ 16,000 - - - - - - - - - - - US$ 3,093 - US$ 5,032 - $ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ - - - - - - - - - - - (15) - 4 - - 11 22 - - 3 - - - - - - - 74 - - (29) (21) - - - (39) (66) 1 71 - - - - - - - - - - - - - - - - - - - (21) - (32) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 3,558 US$ 5,861 US$ 3,393 US$ 6,130 US$ 6,371 US$ 7,000 US$ 5,014 US$ 3,817 - US$ 4,473 US$ 3,466 US$ 1,042 US$ 4,927 US$ 7,962 US$ 7,014 US$ 4,936 - - US$ 4,948 US$ 7,018 US$ 4,996 US$ 7,042 US$ 6,098 US$ 13,953 US$ 13,983 US$ 13,981 US$ 6,978 US$ 3,388 - US$ 4,953 US$ 9,997 - US$ 998 US$ 4,933 US$ 4,930 US$ 4,903 - - US$ 5,270 - US$ 6,940 - US$ 6,903 US$ 4,981 US$ 6,997 - US$ 5,000 US$ 15,787 US$ 4,929 - US$ 4,955 US$ 3,445 US$ 4,949 US$ 5,503 US$ 4,030 US$ 4,023 US$ 4,978 US$ 4,298 US$ 8,383 US$ 7,419 US$ 4,627 - US$ 4,957 - US$ 10,008 (Continued) 281 Company Name Marketable Securities Type and Name Financial Statement Account Counter-party Nature of Relationship Centex Home Equity Ln Tr Cit Equip Coll Tr Citibank Cr Card Issuance Tr CHN Equip Tr Comm 2004 Htl 1 Credit Suisse First Boston Mtg CWABS Inc. CWABS Inc. CWALT Inc. CWABS Inc. CWABS Inc. Daimlerchrysler Auto Tr Daimlerchrysler Auto Tr Daimlerchrysler Auto Tr First Union Lehman Bros Mtg Tr First USA Credit Cr Master Tr Ford Cr Auto Owner Tr GE Cap Cr Card Master Nt Tr Granite Mtgs PLC GS Mtg Secs Corp. Harley Davidson Motorcycle Tr Harley Davidson Motorcycle Tr Holmes Fing No 8 PLC Honda Auto Receivables Hyundai Auto Receivables Tr Impac Secd Assets Corp. Monumentl Global Fdg II Navistar Finl 2003 A Owner Tr Nissan Auto Receivables Nissan Auto Receivables Owner Tr Nissan Auto Receivables Owner ONYX Accep Owner Tr Permanent Fing No 1 PLC Providian Gateway Owner Tr Providian Gateway Owner Tr Reliant Energy Transition Bd Residential Asset Mtg Prods Residential Fdg Mtg Secs I Inc Sequoia Mtg Tr Structured Adj Rate Mtg Ln Tr Toyota Auto Receivables 2003 B Triad Auto Receivables Tr TXU Elec Delivery Transition USAA Auto Owner Tr Wachovia Auto Owner Tr Wachovia Auto Owner Tr WFS Financial Owner Trust WFS Finl 2002 4 Owner Tr WFS Finl 2004 2 Owner Tr WFS Finl 2004 4 Owner Tr Whole Auto Ln Tr Whole Auto Ln Tr World Omni Auto Receivables Tr World Omni Auto Receivables Tr Money market funds Common stock RichTek Technology Corp. Atheros Communication, Inc. Monolithic Power Systems, Inc. InveStar InveStar II Common stock RichTek Technology Corp. Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment Short-term investment - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Note: The ending balance included the recognition of the investment income (loss) by the equity method, the cumulative translation adjustments and the bond premi- um or discount amortization amount. 282 Beginning Balance Acquisition Disposal Ending Balance Shares/Units (Thousand) Amount (US$ in Thousand) Shares/Units (Thousand) Amount (US$ in Thousand) Shares/Units (Thousand) Amount (US$ in Thousand) Carrying Value (US$ in Thousand) Gain (Loss) on Disposal (US$ in Thousand) Shares/Units (Thousand) Amount (US$ in Thousand) (Note 1) $ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 947 1,205 2,521 US$ 121 US$ 3,593 US$ 2,000 465 US$ 346 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 3,500 US$ 4,999 US$ 4,959 US$ 5,000 US$ 4,600 US$ 5,000 US$ 5,000 US$ 3,500 US$ 4,718 US$ 3,129 US$ 4,040 US$ 4,991 US$ 4,982 US$ 4,897 US$ 4,177 US$ 5,011 US$ 10,999 US$ 4,000 US$ 5,000 US$ 4,000 US$ 4,000 US$ 5,999 US$ 5,001 US$ 5,000 US$ 3,500 US$ 4,000 US$ 3,500 US$ 4,928 US$ 7,000 US$ 4,999 US$ 4,853 US$ 4,913 US$ 5,102 US$ 4,204 US$ 3,992 US$ 5,185 US$ 3,766 US$ 3,947 US$ 3,500 US$ 3,058 US$ 4,970 US$ 5,042 US$ 8,009 US$ 4,000 US$ 6,000 US$ 4,999 US$ 5,008 US$ 3,904 US$ 4,994 US$ 5,399 US$ 5,967 US$ 4,000 US$ 5,963 US$ 5,000 US$ 21,114 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - $ - - - - - - - - - - - - - - - - - US$ 4,003 - - - - - - - - - - - - - - US$ 5,036 - - - - - - - - - - - - - - - - - - - - US$ 4,986 $ - - - - - - - - - - - - - - - - - US$ 4,000 - - - - - - - - - - - - - - US$ 5,102 - - - - - - - - - - - - - - - - - - - - US$ 5,000 $ US$ US$ US$ - - - - - - - - - - - - - - - - - - - 3 - - - - - - - - - - - - - - (66) - - - - - - - - - - - - - - - - - - - - (14) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 3,500 US$ 4,999 US$ 4,959 US$ 5,000 US$ 4,600 US$ 5,000 US$ 5,000 US$ 3,500 US$ 4,718 US$ 3,129 US$ 4,040 US$ 4,991 US$ 4,982 US$ 4,897 US$ 4,177 US$ 5,011 US$ 10,999 - US$ 5,000 US$ 4,000 US$ 4,000 US$ 5,999 US$ 5,001 US$ 5,000 US$ 3,500 US$ 4,000 US$ 3,500 US$ 4,928 US$ 7,000 US$ 4,999 US$ 4,853 US$ 4,913 - US$ 4,204 US$ 3,992 US$ 5,185 US$ 3,766 US$ 3,947 US$ 3,500 US$ 3,058 US$ 4,970 US$ 5,042 US$ 8,009 US$ 4,000 US$ 6,000 US$ 4,999 US$ 5,008 US$ 3,904 US$ 4,994 US$ 5,399 US$ 5,967 US$ 4,000 US$ 5,963 - US$ 21,114 1,595 1,205 546 US$ 6,783 US$ 8,972 US$ 4,318 US$ 184 US$ 3,593 US$ 433 US$ 6,598 US$ 5,379 US$ 3,885 682 - 1,975 US$ 67 - US$ 1,567 768 US$ 3,394 US$ 519 US$ 2,875 321 US$ 184 (Concluded) 283 TABLE 5 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD. AND AFFILIATES ACQUISITION OF INDIVIDUAL REAL ESTATE AT COSTS OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2004 (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified) Company Name Types of Property Transaction Date Transaction Amount Payment Term Counter-party The Company Fab. 12 April 21, 2004 $ 1,484,370 By the construction progress IDC Taiwan, Inc., Taiwan Branch Fab. 12 Fab. 12 Fab. 12 Fab. 12 Fab. 12 Fab. 12 Fab. 12 Fab. 12 Fab. 12 Fab. 14 Fab. 12 Fab. 12 Fab. 12 Fab. 12 April 21, 2004 April 22, 2004 May 12, 2004 May 12, 2004 May 12, 2004 June 17, 2004 July 2, 2004 July 8, 2004 July 8, 2004 420,168 224,800 340,307 116,181 133,092 165,208 225,744 100,767 466,833 By the construction progress By the construction progress By the construction progress By the construction progress By the construction progress By the construction progress By the construction progress By the construction progress By the construction progress (U.S.A.) CHRIST AG Allis Electric Co., Ltd. United Industry gas Corp., Ltd. United Industry gas Corp., Ltd. BOC EDWARDS, CMS Organo Corporation Marketech International Corp. Kanto Chemical Co., Inc. United Integrated Services Co., Ltd. August 3, 2004 300,000 By the construction progress United Integrated Services Co., August 5, 2004 August 5, 2004 August 5, 2004 October 15, 2004 122,969 185,984 182,060 105,299 By the construction progress By the construction progress By the construction progress By the construction progress Ltd. Marketech International Corp. Marketech International Corp. Marketech International Corp. IDC Taiwan, Inc., Taiwan Branch (U.S.A.) TABLE 6 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD. AND AFFILIATES TOTAL PURCHASES FROM OR SALES TO RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2004 (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified) Company Name Related Party Nature of Relationship The Company TSMC - North America Philips and its affiliates GUC WaferTech VIS SSMC Subsidiary Major shareholder Investee Subsidiary Investee Investee Transaction Details Purchase/Sale Amount Sales Sales Sales Purchases Purchases Purchases $ 142,271,732 5,463,565 371,546 15,203,047 9,169,602 5,869,123 284 Nature of Relationship Prior Transaction of Related Counter-party Owner Relationship Transfer Date Amount Price Reference Purpose of Acquisition Other Terms - - - - - - - - - - - - - - - N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Public bidding Manufacturing purpose N/A N/A N/A N/A N/A N/A N/A N/A N/A Public bidding Public bidding Public bidding Public bidding Public bidding Public bidding Public bidding Public bidding Public bidding Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose N/A Public bidding Manufacturing purpose N/A N/A N/A N/A Public bidding Public bidding Public bidding Public bidding Manufacturing purpose Manufacturing purpose Manufacturing purpose Manufacturing purpose None None None None None None None None None None None None None None None Transaction Details Abnormal Transaction Notes/Accounts Payable or Receivable % to Total Payment Terms Unit Price Payment Terms Ending Balance Note % to Total 55 2 - 34 13 21 Net 30 days after invoice date Net 30 days after monthly closing Net 30 days after monthly closing Net 30 days after monthly closing Net 30 days after monthly closing Net 30 days after monthly closing None None None None None None None None None None None None $ 15,526,964 581,487 56,436 (913,107) (1,533,938) (207,794) 47 2 - 9 16 2 285 TABLE 7 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD. AND AFFILIATES RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL DECEMBER 31, 2004 (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified) Company Name Related Party Nature of Relationship Ending Balance Turnover Rate The Company TSMC - North America TSMC - Shanghai Philips and its affiliates Subsidiary Subsidiary Major shareholder $ 15,526,964 1,473,365 581,487 38 days (Note) 49 days Note: The ending balance is generated mainly from the sales of machinery, so it is not applicable for the calculation of the turnover rate. TABLE 8 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD. AND AFFILIATES NAMES, LOCATIONS, AND RELATED INFORMATION OF INVESTEES ON WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCE DECEMBER 31, 2004 (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified) Investor Company Investee Company Location Main Businesses and Products The Company TSMC - North America San Jose, California, U.S.A. Sales and marketing of integrated circuits and semicon- TSMC - Europe TSMC - Japan TSMC - Shanghai Amsterdam, the Netherlands Yokohama, Japan Shanghai, China VIS Hsin-Chu, Taiwan ductor devices Marketing activities Marketing activities Manufacturing and marketing of integrated circuits and semiconductor devices Research, design, development, manufacture, packaging, testing and sale of memory integrated circuits, LSI, VLSI and related parts TSMC International Tortola, British Virgin Islands Providing investment in companies involved in the Chi Cherng Hsin Ruey TSMC Partners SSMC Emerging Alliance GUC VisEra VTAF II design, manufacture, and other related business in the semiconductor industry Taipei, Taiwan Taipei, Taiwan Tortola, British Virgin Islands Singapore Cayman Islands Hsin-Chu, Taiwan Investment activities Investment activities Investment activities Fabrication and supply of integrated circuits Investing in new start-up technology companies Researching, developing, manufacturing, testing and Hsin-Chu, Taiwan Manufacturing, material wholesaling and retailing of marketing of integrated circuits Cayman Islands Investing in new start-up technology companies electronic spare parts Note 1: The treasury stock is deducted from the carrying value. Note 2: The gains or losses on disposal of the stocks held by subsidiaries (treated as treasury stocks) and the paid-in capital from cash dividend distributed by parent company are excluded. 286 Overdue Amount Action Taken Amounts Received in Subsequent Period Allowance for Bad Debts $ 5,044,202 145,146 7,136 - Accelerate demand on account receivables - $ 6,013,414 - 13,726 $ - - - Original Investment Amount Balance as of December 31, 2004 December 31, 2004 December 31, 2003 Shares (Thousand) Percentage of Ownership Carrying Value (Note 1) Net Income (Loss) of the Investee Investment Gain (Loss)(Note 2) Note $ 333,178 $ 333,178 11,000 100 $ 502,242 $ 120,587 $ 112,543 Subsidiary 15,749 83,760 9,187,962 15,749 83,760 1,890,952 - 6 - 8,119,816 8,119,816 409,532 31,445,780 31,445,780 987,968 300,000 300,000 10,350 6,408,190 1,447,957 409,920 51,000 332,412 300,000 300,000 10,350 6,408,190 1,179,690 409,920 51,000 - - - 300 382 - 39,040 5,100 - 100 100 100 28 100 36 36 100 32 99 47 25 98 25,439 102,572 8,113,511 262 2,919 (727,036) 262 2,919 (727,036) Subsidiary Subsidiary Subsidiary 5,401,982 4,706,668 1,329,555 Investee 23,778,997 2,598,162 2,598,162 Subsidiary 50,570 49,823 3,908,356 3,290,888 823,232 391,626 59,116 329,968 21,359 21,887 43,117 2,288,786 (97,767) 30,424 35,540 18,373 (664) (491) 43,117 732,418 (97,278) 23,279 Investee Investee Subsidiary Investee Subsidiary Investee 8,885 Investee 14,648 Subsidiary 287 TABLE 9 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD. AND AFFILIATES INFORMATION OF INVESTMENT IN MAINLAND CHINA DECEMBER 31, 2004 (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified) Investee Company Main Businesses and Products Total Amount of Paid-in Capital (RMB in Thousand) Investment Type Investment Flows Accumulated Outflow of Investment from Taiwan as of January 1, 2004(US$ in Thousand) Outflow (US$ in Thousand) Inflow Accumulated Outflow of Investment from Taiwan as of December 31, 2004 (US$ in Thousand) TSMC (Shanghai) Company Limited Manufacturing and marketing of integrat- ed circuits and semi- conductor devices $ 9,187,962 (RMB 2,284,355) (Note 1) $ (US$ 1,890,952 56,000) $ (US$ 7,297,010 220,000) $ - $ (US$ 9,187,962 276,000) Percentage of Ownership in Investment Investment Gain (Loss) (Note 2) Carrying Value as of December 31, 2004 Accumulated Inward Remittance of Earnings as of December 31, 2004 Accumulated Investment in Mainland China as of December 31, 2004 (US$ in Thousand) Investment Amounts Authorized by Investment Commission, MOEA (US$ in Thousand) Upper Limit on Investment (US$ in Thousand) 100% $ (727,036) $ 8,113,511 $ - $ (US$ 9,187,962 276,000) $ 11,841,207 (US$ 371,000) $ (US$ 11,841,207 371,000) Note 1: Direct investment in TSMC (Shanghai) US$276,000 thousand. Note 2: Amount was recognized based on the audited financial statements. 288 3. Internal Control System Execution Status 3.1 Taiwan Semiconductor Manufacturing Company Limited Statement of Internal Control System (Translation) Date: February 22, 2005 Based on the findings of a self-assessment, Taiwan Semiconductor Manufacturing Company Limited (TSMC) states the following with regard to its internal control system during the period from January 1, 2004 to December 31, 2004: 1. TSMC is fully aware that establishing, operating, and maintaining an internal control system are the responsibility of its Board of Directors and management. TSMC has established such a system aimed at providing reasonable assurance regarding the achievement of objectives in the following categories: (1) effectiveness and efficiency of operations (including profitability, performance, and safe- guarding of assets), (2) reliability of financial reporting, and (3) compliance with applicable laws and regulations. 2. An internal control system has inherent limitations. No matter how perfectly designed, an effective internal control system can provide only reasonable assurance of accomplishing the three objectives mentioned above. Moreover, the effectiveness of an internal control system may be subject to changes of environment or circumstances. Nevertheless, the internal control system of TSMC contains self- monitoring mechanisms, and TSMC takes corrective actions whenever a deficiency is identified. 3. TSMC evaluates the design and operating effectiveness of its internal control system based on the criteria provided in the Regulations Governing the Establishment of Internal Control Systems by Public Companies promulgated by the Securities and Futures Bureau of the Financial Supervisory Commission (hereinbelow, the Regulations ). The criteria adopted by the Regulations identify five components of internal control based on the process of management control: (1) control environment, (2) risk assessment, (3) control activities, (4) information and communication, and (5) monitoring. Each component further contains several items. Please refer to the Regulations for details. 4. TSMC has evaluated the design and operating effectiveness of its internal control system according to the aforesaid criteria. 5. Based on the findings of the evaluation mentioned in the preceding paragraph, TSMC believes that, during the year 2004, its internal control system (including its supervision of subsidiaries), as well as its internal controls to monitor the achievement of its objectives concerning operational effectiveness and efficiency, reliability of financial reporting, and compliance with applicable laws and regula- tions, were effective in design and operation, and reasonably assured the achievement of the above-stated objectives. 6. This Statement will be an integral part of TSMC's Annual Report for the year 2004 and Prospectus, and will be made public. Any false- hood, concealment, or other illegality in the content made public will entail legal liability under Articles 20, 32, 171, and 174 of the Securities and Exchange Law. 7. This Statement has been passed by the Board of Directors in their meeting held on Feburary 22, 2005, with none of the eight attend- ing directors expressing dissenting opinions, and the remainder all affirming the content of this Statement. Taiwan Semiconductor Manufacturing Company Limited Morris Chang, Chairman of the Board of Directors Rick Tsai, President 289 3.2 The Securities and Futures Bureau may request companies to commission CPAs to audit the said internal control system. Disclosure of the audit report(s) is mandatory: Not Applicable 4. Major issues of record or written statements made by any director or supervisor which specified his/her dissent to important resolutions passed by the Board of Directors dur- ing 2004 or the period from January 1, 2005 to March 10, 2005: None 5. Private Placement Securities: None 6. Balance of TSMC Common Shares/ADR Acquired, Disposed of and Held by Subsidiaries Unit: NT$ thousands / US$ thousands Name of Subsidiary (Note 1) Chi Cherng Investment Co., Ltd. Hsin Ruey Investment Co., Ltd. TSMC North America Paid-in Capital Fund Source Percentage of Ownership Transaction Date Acquisition (Note 2) Disposal Shares Amount Shares Amount Investment Income (Loss) Balance as of Period End Shares Amount Balance of Pledged Shares Balance of Guarantee Provided by TSMC Balance of Financing Provided by TSMC 840,000 Retained earnings 840,000 Retained earnings US$11,000 Retained earnings 36% 36% 100% Year 2004 Year 2005 (Note 1) Year 2004 Year 2005 (Note 1) Year 2004 Year 2005 (Note 1) 1,934,873 - 1,938,499 - 1,802,731 - - - - - - - - - - - - - - - - - - - 15,670,344 15,670,344 458,564 458,564 15,699,717 15,699,717 459,512 459,512 752,328 59,000 39,906 3,134 1,864 311 14,151,151 14,092,151 677,110 674,287 - - - - - - - - - - US$40,000 US$40,000 - - - - - - Note 1: As of 02/28/2005 Note 2: Stock dividend distributed in 2004 7. Major decisions of Shareholder Meetings and Board Meetings Review of Shareholder Meetings TSMC's 2004 Annual Shareholder Meeting was held at the Auditorium of the Activity Center of the Hsinchu Science Park on May 11, 2004. At the meeting, shareholders present in person or by proxy approved the following resolutions: (1) Acceptance of the 2003 busi- ness report and financial statements; (2) Distribution of 2003 profits; (3) Capitalization of 2003 profits. TSMC held a Special Shareholder Meeting at No.8 Li-Hsin Rd.6, Hsinchun Science Park on December 21, 2004. At the meeting, share- holders present in person or by proxy approved the revision to the dividend policy as specified in Article 35 of TSMC's Articles of Incorporation. Review of Board Meetings During the 2004 calendar year, and the period from January 1, 2005 to March 10, 2005, the Board held five regular meetings and one special meeting. Major resolutions passed at these meetings are summarized below: (1) The 2003 business report and financial statements; (2) Distribution of 2003 profits; (3) Convening the 2004 Annual Shareholder Meeting; (4) 2004 R&D project and sustaining capital appropriation; (5) The promotion of Mr. P. H. Chang as Vice President; (6) A share buyback plan to repurchase TSMC's common shares traded on the Taiwan Stock Exchange; (7) The 2004 semi-annual financial statement; (8) The cancellation of 124,720,000 shares of treasury stocks and the capital reduction of NT$1,247,200,000; (9) The appointment of Dr. Wei-Jen Lo as Vice President; (10) Revision to the dividend policy as specified in Article 35 of Articles of Incorporation; (11) Convening the Special Shareholder Meeting; and (12) TSMC's 2004 Employee Stock Options Plan; (13) The 2004 business report and financial state- ments; (14) Distribution of 2004 profits; (15) Convening the 2005 Annual Shareholder Meeting; (16) 2005 R&D project and sustaining capital appropriation; (17) The appointment of Mr. Jason Chen as Vice President. 290 8. Legal Penalties Regulatory authorities' legal penalties to the Company, and the Company's resulting punishment on its employees: None 9. Any events in 2004 that had significant impacts on shareholders' right or security prices as stated in Item 2 Paragraph 2 of Article 36 of Securities and Exchange Law of Taiwan: None 10. Other Necessary Supplement: None 291 

Continue reading text version or see original annual report in PDF format above